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Press release from Business Wire

Aruba Networks Reports Record Third Quarter 2011 Financial Results

<ul> <li class='bwlistitemmargb'> <i>Record Revenue of $105.8 Million in Q3 Increased 53 Percent Year-over-Year and 13 Percent Quarter-over-Quarter</i> </li> <li class='bwlistitemmargb'> <i>Added Over 1,200 New Customers in Q3 to Surpass 14,000 Cumulative Customers</i> </li> <li class='bwlistitemmargb'> <i>Cash and Short Term Investments Increased $23.0 Million to $210.8 Million With No Debt</i> </li> </ul>

Thursday, May 19, 2011

Aruba Networks Reports Record Third Quarter 2011 Financial Results16:05 EDT Thursday, May 19, 2011 SUNNYVALE, Calif. (Business Wire) -- Aruba Networks, Inc. (NASDAQ:ARUN), a global leader in distributed enterprise network solutions, today released financial results for its fiscal 2011 third quarter ended April 30, 2011. Revenue for Q3'11 was $105.8 million, an increase of 53 percent from the $69.0 million reported in Q3'10. GAAP net income for Q3'11 was $3.2 million, or $0.03 per share, compared with a net loss of $5.3 million, or $0.06 per share, in Q3'10. Non-GAAP net income for Q3'11 was $18.8 million, or $0.16 per share. This compares with $8.5 million or $0.08 per share in Q3'10. A reconciliation between GAAP and non-GAAP information is contained in the tables below. “Aruba Networks is helping companies and organizations transform the network edge and move to a mobility-centric architecture,” said Dominic Orr, President and Chief Executive Officer of Aruba. “In the third quarter, we benefited from strong demand across all of our major geographies and increasing acceptance of our solutions in both the general enterprise and across our other verticals. Our continued innovation is a key factor in our rapid customer acquisition, as we added over 1,200 new customers in the third quarter, a record for the Company.” “We are pleased with our financial performance this quarter,” said Michael Galvin, Aruba's Interim Chief Financial Officer. “With 53 percent year-over-year revenue growth we delivered a strong quarter and generated $9.3 million in cash from operations.” Recent HighlightsMobile Architecture – Aruba launched its Mobile Virtual Enterprise(MOVE) architecture designed to accelerate the enterprise network mobility revolution. Aruba MOVE provides context-aware networking for the post wired infrastructure era. Aruba MOVE delivers a comprehensive portfolio of thin network on-ramps. These on-ramps are enabled by Aruba Mobility Network Services, delivered centrally from the data center. New Outdoor WLAN Solutions – Arubalaunched theAruba AirMesh outdoor wireless solutions portfolio designed to be the most scalable and high-performance outdoor mesh portfolio available in the industry today. The Aruba AirMesh solution was deployed at the port of Yokohama in Japan to transfer its traffic from IP cameras, weather sensors, Z-Wave and other Wi-Fi enabled devices to the iPhones and iPads used by workers and security at the port. Mobile Device Access Control (MDAC) Solution – Aruba also announced the availability of its MDAC solution, providing easy, secure network access to facilitate the “Bring Your Own Device” (BYOD) phenomenon. This solution is designed for zero-touch, secure provisioning of Apple® iOS mobile devices. Due to strong market demand, Aruba also introduced its MDAC solution for customers with Cisco WLAN infrastructure. Industry Recognition – Gartner, Inc. positioned Aruba in the "Leaders" quadrant of its recently released "Magic Quadrant for Wireless LAN Infrastructure (Global)" report.*The Magic Quadrant evaluates vendors based on two criteria, "ability to execute" and "completeness of vision". Aruba was also named to CRN's 2011 Partner Programs Guide and was also awarded a 5-Star Partner rating. CRN's Partner Programs Guide and 5-Star Partner ratings serve as the definitive list of vendors who have robust partner programs or products that service solution providers offer directly to the IT channel. ArubaEdge Partner Program – Aruba announced the ArubaEdge Partner Program. This program certifies and promotes end-to-end mobility solutions from an ecosystem of technology partners leveraging the Aruba MOVE architecture. Ecosystem partners participating in the ArubaEdge include Avaya, Citrix, Dell, Microsoft, Polycom and many more. Conference Call Information Aruba will host a conference call for analysts and investors to discuss its fiscal third quarter results today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). A live webcast of the conference call will also be accessible from the “Investor Relations” section of the Company's website at www.arubanetworks.com. Following the webcast, an archived version will be available on the website for twelve months. To hear the replay, parties in the United States and Canada should call 1-800-406-7325 and enter passcode 4436777. International parties can access the replay at +1-303-590-3030 and should enter passcode 4436777. Forward-Looking Statements This press release contains forward-looking statements, including statements about (1) our belief that the enterprise network is transitioning from a wired-centric to a mobility-centric architecture which will impact Aruba's sales and (2) our expectations regarding customer adoption of our MOVE architecture and our AirMesh and MDAC solutions. These forward-looking statements involve risks and uncertainties, as well as assumptions which, if they do not fully materialize or prove incorrect, could cause Aruba's results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include: (1) our ability to react to trends and challenges in our business and the markets in which we operate; (2) business and economic conditions and growth trends in the networking industry, our vertical markets and various geographic regions; and (3) changes in overall information technology spending; as well as those risks and uncertainties included under the captions “Risk Factors" and “Management's Discussion and Analysis of Financial Condition and Results of Operations,” in Aruba's report on Form 10-Q for the fiscal second quarter ended January 31, 2011, which was filed with the SEC on March 11, 2011, and is available on Aruba's investor relations Web site at www.arubanetworks.com and on the SEC Web site at www.sec.gov. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements. Non-GAAP Financial Measures In addition to disclosing financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables contain the following non-GAAP financial measures: non-GAAP net income and non-GAAP earnings per share (EPS). The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Non-GAAP net income and EPS. Aruba defines non-GAAP net income as net income plus stock-based expenses and related payroll taxes, amortization expense of acquired intangible assets and other acquisition related expenses, the change in the valuation of the contingent rights liability and litigation reserves. Aruba defines non-GAAP EPS as non-GAAP net income divided by the weighted average diluted shares outstanding. Aruba's management regularly uses these non-GAAP financial measures to understand and manage its business and believes that these non-GAAP financial measures provide meaningful supplemental information regarding the company's performance by excluding certain expenses that may not be indicative of Aruba's “recurring operating results,” meaning its operating performance excluding not only stock-based expenses and related payroll taxes, but also discrete charges that are infrequent in nature, such as litigation reserves. Because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use, Aruba's management believes that providing non-GAAP financial measures that exclude stock-based expenses allows investors to compare these results with those of other companies, as well as providing management with an important tool for financial and operational decision making and for evaluating the company's operating results over different periods of time. Similarly, by excluding amortization expense of acquired intangible assets and other acquisition related expenses, the change in the valuation of the contingent rights liability and litigation reserves, Aruba's management believes that investors can better understand and measure the company's recurring operating results. There are a number of limitations related to the use of non-GAAP net income and EPS versus net income and EPS calculated in accordance with GAAP. First, these non-GAAP financial measures exclude some costs, namely stock-based expenses and related payroll taxes, that are recurring. Stock-based expenses and related payroll taxes have been and will continue to be for the foreseeable future a significant recurring expense in Aruba's business. Second, stock-based awards are an important part of Aruba's employees' compensation and impacts their performance. Third, the components of the costs that Aruba excludes in its calculation of non-GAAP net income may differ from the components that its peer companies exclude when they report their results of operations. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures and evaluating these non-GAAP financial measures together with their most directly comparable financial measures calculated in accordance with GAAP. The accompanying tables have more details on these non-GAAP financial measures, including reconciliations between these financial measures and their most directly comparable GAAP equivalents. A copy of this press release can be found on the investor relations page of Aruba Networks' Web site at www.arubanetworks.com. *Gartner “Magic Quadrant for Wireless LAN Infrastructure (Global)” by Michael J. King and Tim Zimmerman, March 3, 2011. About Aruba Networks Aruba is a global leader in distributed enterprise networks. Its award-winning portfolio of campus, branch/teleworker, and mobile solutions simplify operations and secure access to all corporate applications and services - regardless of the user's device, location, or network. This dramatically improves productivity and lowers capital and operational costs. Listed on the NASDAQ and Russell 2000(R) Index, Aruba is based in Sunnyvale, California, and has operations throughout the Americas, Europe, Middle East, and Asia Pacific regions. To learn more, visit Aruba at http://www.arubanetworks.com. For real-time news updates follow Aruba on Twitter or Facebook. © 2011 Aruba Networks, Inc. Aruba Networks' trademarks include the design mark for AirWave, Aruba Networks®, Aruba Wireless Networks®, the registered Aruba the Mobile Edge Company logo, the registered AirWave logo, Aruba Mobility Management System®, Mobile Edge Architecture®, People Move. Networks Must Follow®, RFProtect®, Green Island®. All rights reserved. All other trademarks are the property of their respective owners. Aruba Networks, Inc.Consolidated Balance Sheets(In thousands, except per share data)(Unaudited)   April 30,   July 31,   2011     2010   Assets   Current assets: Cash and cash equivalents $ 77,245 $ 31,254 Short-term investments 133,553 124,167 Accounts receivable, net 67,464 41,269 Inventory 20,685 15,159 Deferred costs 6,703 5,451 Prepaids and other   4,311     5,108     Total current assets 309,961 222,408   Property and equipment, net 12,530 9,919 Goodwill 33,143 7,656 Intangible assets, net 22,915 9,287 Other assets   2,140     1,437     Total other assets   70,728     28,299     Total assets $ 380,689   $ 250,707     Liabilities and Stockholders' Equity   Current liabilities: Accounts payable $ 10,486 $ 8,082 Accrued liabilities 48,840 36,458 Income taxes payable 819 519 Deferred revenue   49,848     43,422     Total current liabilities 109,993 88,481   Deferred revenue 12,340 10,976 Other long-term liabilities   750     595     Total other liabilities   13,090     11,571     Total liabilities   123,083     100,052     Stockholders' equity Common Stock: $0.0001 par value; 350,000 shares authorized at April 30, 2011, and July 31, 2010; 103,819 and 93,606 shares issued and outstanding at April 30, 2011, and July 31, 2010, respectively 10 9 Additional paid-in capital 430,564 326,178 Accumulated other comprehensive income 159 98 Accumulated deficit   (173,127 )   (175,630 )   Total stockholders' equity   257,606     150,655     Total liabilities and stockholders' equity $ 380,689   $ 250,707     Aruba Networks, Inc.Consolidated Statements of Operations(On a GAAP basis)(In thousands, except per share data)(Unaudited)           Three months endedNine months endedApril 30,April 30,   2011     2010     2011     2010   Revenues: Product $ 89,415 $ 56,634 $ 237,719 $ 155,909 Professional services and support 16,186 12,167 44,588 32,672 Ratable product and related professional services and support   150     156     449     627     Total revenues 105,751 68,957 282,756 189,208   Cost of revenues: Product 29,964 19,911 76,199 54,446 Professional services and support 4,167 2,201 10,615 6,437 Ratable product and related professional services and support   -     46     10     199     Total cost of revenues   34,131     22,158     86,824     61,082     Gross profit   71,620     46,799     195,932     128,126     Operating expenses: Research and development 22,799 13,874 61,521 37,713 Sales and marketing 40,916 27,697 111,266 79,013 General and administrative 10,319 8,840 27,690 23,600 Litigation reserves   -     1,650     -     21,900     Total operating expenses   74,034     52,061     200,477     162,226     Operating loss (2,414 ) (5,262 ) (4,545 ) (34,100 )   Other income (expense), net Interest income 284 218 758 616 Other income (expense), net   5,608     (189 )   7,191     (432 )   Total other income (expense), net   5,892     29     7,949     184     Income (loss) before income tax provision 3,478 (5,233 ) 3,404 (33,916 )   Income tax provision   277     85     901     504     Net income (loss) $ 3,201   $ (5,318 ) $ 2,503   $ (34,420 )   Shares used in computing net income (loss) per common share, basic 102,055 90,874 98,962 88,978   Net income (loss) per common share, basic $ 0.03 $ (0.06 ) $ 0.03 $ (0.39 )   Shares used in computing net income (loss) per common share, diluted 119,367 90,874 116,289 88,978   Net income (loss) per common share, diluted $ 0.03 $ (0.06 ) $ 0.02 $ (0.39 )   Aruba Networks, Inc.Consolidated Statements of Operations(GAAP to Non-GAAP Reconciliation)(In thousands, except per share data)(Unaudited)         Three months endedNine months endedApril 30,April 30,   2011     2010     2011     2010     GAAP net income (loss) $ 3,201 $ (5,318 ) $ 2,503 $ (34,420 )   Plus: a) Stock-based expenses 19,289 10,947 48,513 27,769 b) Amortization expense of acquired intangible assets and other acquisition related expenses 2,211 1,193 6,010 3,659 c) Change in valuation of contingent rights liability (5,887 ) - (7,991 ) - d) Litigation reserves - 1,650 - 21,900           Non-GAAP net income $ 18,814   $ 8,472   $ 49,035   $ 18,908       GAAP net income (loss) per common share $ 0.03 $ (0.06 ) $ 0.02 $ (0.39 )   Plus: a) Stock-based expenses 0.16 0.12 0.42 0.30 b) Amortization expense of acquired intangible assets and other acquisition related expenses 0.02 0.01 0.05 0.04 c) Change in valuation of contingent rights liability (0.05 ) - (0.07 ) - d) Litigation reserves - 0.01 - 0.23           Non-GAAP net income per common share $ 0.16   $ 0.08   $ 0.42   $ 0.18     Shares used in computing diluted GAAP net income (loss) per common share 119,367 90,874 116,289 88,978   Shares used in computing diluted Non-GAAP net income per common share 119,367 106,548 116,289 102,946   Aruba Networks, Inc.Consolidated Statements of OperationsAs a Percentage of Total Revenues(On a GAAP Basis)(Unaudited)         Three months endedNine months endedApril 30,April 30,2011201020112010 Revenues: Product 84.6% 82.1% 84.1% 82.4% Professional services and support 15.3% 17.7% 15.8% 17.3% Ratable product and related professional services and support 0.1% 0.2% 0.1% 0.3%   Total revenues 100.0% 100.0% 100.0% 100.0%   Cost of revenues: Product 28.3% 28.8% 26.9% 28.8% Professional services and support 4.0% 3.2% 3.8% 3.4% Ratable product and related professional services and support 0.0% 0.1% 0.0% 0.1%   Total cost of revenues 32.3% 32.1% 30.7% 32.3%   Gross profit 67.7% 67.9% 69.3% 67.7%   Operating expenses: Research and development 21.5% 20.1% 21.8% 19.9% Sales and marketing 38.7% 40.2% 39.3% 41.8% General and administrative 9.8% 12.8% 9.8% 12.4% Litigation reserves 0.0% 2.4% 0.0% 11.6%   Total operating expenses 70.0% 75.5% 70.9% 85.7%   Operating loss (2.3%) (7.6%) (1.6%) (18.0%)   Other income (expense), net Interest income 0.3% 0.3% 0.3% 0.3% Other income (expense), net 5.3% (0.3)% 2.5% (0.2)%   Total other income (expense), net 5.6% 0.0% 2.8% 0.1%   Income (loss) before income tax provision 3.3% (7.6%) 1.2% (17.9%)   Income tax provision 0.3% 0.1% 0.3% 0.3%   Net income (loss) 3.0% (7.7%) 0.9% (18.2%)   Aruba Networks, Inc.Consolidated Statements of Cash Flows(In thousands)(Unaudited)           Nine months endedApril 30,   2011     2010   Cash flows from operating activities Net income (loss) 2,503 (34,420 )   Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 11,201 7,493 Provision for doubtful accounts 4 259 Write downs for excess and obsolete inventory 2,445 1,476 Compensation related to stock options and share awards 45,828 26,765 Accretion of purchase discounts on short-term investments 997 482 Loss (gain) on disposal of fixed assets (6 ) 19 Change in carrying value of contingent liability (7,991 ) - Excess tax benefit associated with stock-based compensation (15 ) - Changes in operating assets and liabilities: Accounts receivable (23,674 ) 1,523 Inventory (7,211 ) (9,123 ) Prepaids and other (1,111 ) (1,147 ) Deferred costs (1,252 ) (960 ) Other assets (426 ) 107 Accounts payable (1,099 ) 4,145 Deferred revenue 6,451 6,555 Other current and noncurrent liabilities 8,009 12,493 Income taxes payable   138     (220 )   Net cash provided by operating activities   34,791     15,447     Cash flows from investing activities Purchases of short-term investments (81,511 ) (79,766 ) Proceeds from sales of short-term investments 19,876 3,001 Proceeds from maturities of short-term investments 51,030 42,965 Purchases of property and equipment (5,776 ) (3,378 ) Proceeds from sales of property and equipment 14 23 Cash paid in purchase acquisitions, net of cash acquired   (4,303 )   -     Net cash used in investing activities   (20,670 )   (37,155 )   Cash flows from financing activities Proceeds from issuance of common stock 31,856 9,957 Repurchases of unvested common stock - (36 ) Excess tax benefit associated with stock-based compensation   15     -     Net cash provided by financing activities   31,871     9,921     Effect of exchange rate changes on cash and cash equivalents   (1 )   (1 )   Net increase (decrease) in cash and cash equivalents 45,991 (11,788 )   Cash and cash equivalents, beginning of period   31,254     41,298     Cash and cash equivalents, end of period $ 77,245   $ 29,510     Supplemental disclosure of cash flow information Income taxes paid $ 781 $ 768   Supplemental disclosure of non-cash investing and financing activities Common stock issued in purchase acquisitions $ 30,691 $ - Contingent rights issued in purchase acquisition $ 9,486 $ -   Aruba Networks, Inc.Michael Galvin, +1-408-227-4500Interim Principal Financial and Accounting Officerir@arubanetworks.comorThe Blueshirt Group, Investor RelationsChris Danne or Maria Riley, +1-415-217-7722ir@arubanetworks.com