Aruba Networks Reports Record Fiscal Second Quarter 2013 Financial Results16:03 EST Thursday, February 21, 2013 SUNNYVALE, Calif. (Business Wire) -- Aruba Networks, Inc. (NASDAQ: ARUN) today released financial results for its second quarter of fiscal year 2013 ended January 31, 2013. Revenue for Q2'13 of $155.4 million grew 23 percent from the $126.3 million reported in Q2'12. GAAP net income for Q2'13 was $5.0 million, or $0.04 per share, compared with GAAP net loss of $11.4 million, or $0.11 per share, in Q2'12. Non-GAAP net income for Q2'13 was $27.3 million, or $0.22 per share, compared with Q2'12 non-GAAP net income of $19.4 million, or $0.16 per share. GAAP and Non-GAAP earnings per share included a $0.02 per share benefit related to the reinstatement of the U.S. federal research and development (R&D) tax credit on January 2, 2013. A reconciliation between GAAP and non-GAAP information is contained in the tables below. “We delivered another strong topline quarter and achieved our fifteenth consecutive quarter of record revenue,” said Dominic Orr, Aruba's president and chief executive officer. “Our differentiated approach and value proposition continue to resonate with customers. A number of our new products contributed to our growth as our industry leading product portfolio is helping organizations around the globe securely manage the proliferation of mobile devices and applications accessing their networks. Aruba's application-aware MOVE architecture delivers the security, reliability and scalability that our customers need at the mobile edge as well as the needed visibility into all aspects of the access network.” Commenting on the company's financial results, Michael Galvin, Aruba's chief financial officer, added, “In the second quarter we delivered strong financial and operating results with record operating margin. Additionally, we generated a record $45.7 million in cash flow from operations, purchased 1.0 million shares of common stock under the repurchase program and ended the quarter with $402.3 million in cash, cash equivalents and short-term investments.” Recent HighlightsIntroduced New Aruba 7200 Series Mobility Controllers with Aruba AppRF Technology. The new Aruba 7200 Series with new Aruba AppRF technology is the only wireless LAN platform with the integrated application intelligence and controls to optimize application delivery. Rex Healthcare Deployed Aruba Networks Wireless Infrastructure to Enable Key Medical Applications, Address BYOD. After evaluating a number of wireless network vendors, Rex Healthcare found that Aruba offered the most cost-effective, easy-to-manage solution for their needs. Rex Healthcare deployed a wireless network based on the Aruba Mobile Virtual Enterprise (MOVE) architecture to deliver secure and reliable access to the organization's Electronic Medical Records (EMR) and wireless patient monitoring devices. The network also supports Bring Your Own Device (BYOD) by enabling employees to connect to the network on their personal smartphones, tablets and other mobile devices. HarborLink Selected Aruba for Managed Wi-Fi Service Upgrade at Fast-Growing Restaurant Chain. HarborLink chose Aruba Instant, Aruba's controller-less Wi-Fi solution, for the restaurant deployment because of its built-in reliability, zero-touch provisioning and ease of management. When complete, HarborLink will have installed Aruba's Instant access points (IAPs) in more than 800 of the restaurant chain's locations across the United States and Canada enabling free Wi-Fi access for restaurant patrons. Quinnipiac University Upgraded its Network with Aruba MOVE Architecture and Replaced 250 Cisco Access Switches with the Aruba S3500 Mobility Access Switch. Quinnipiac University selected the Aruba MOVE architecture to deliver robust, reliable and secure network access to all students, staff and faculty across its three campuses and the new infrastructure is designed to provide the IT department with comprehensive visibility and control of both wired and wireless network resources. Conference Call Information Aruba will host a conference call for analysts and investors to discuss its second quarter of fiscal year 2013 results today at 4:30 p.m. Eastern time (1:30 p.m. Pacific time). Open to the public, investors may access the call by dialing +1-480-629-9760. 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 4591677. International parties can access the replay at +1-303-590-3030 and should enter passcode 4591677. Forward-Looking Statements This press release may be deemed to contain forward-looking statements regarding our expected strategies, markets and product positions, performance and results. These forward-looking statements involve risks and uncertainties, as well as assumptions, which if they do not fully materialize or prove incorrect, could cause our 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, among others: business and economic conditions and growth trends in the networking industry, our vertical markets and various geographic regions; changes in overall information technology spending; and those risks and uncertainties included under the captions “Risk Factors" and “Management's Discussion and Analysis of Financial Condition and Results of Operations,” in our most recent reports on Forms 10-K and 10-Q filed with the U.S. Securities and Exchange Commission, or SEC, on October 11, 2012 and December 7, 2012, respectively, and available on the investor relations portion of our website at www.arubanetworks.com and on the SEC's website at www.sec.gov. All forward-looking statements in this press release are based on information available to us as of the date of this release, and we do not assume any obligation to update these forward-looking statements to reflect events that occur or circumstances that exist after the date on which they were made. The financial statements that follow should be read in conjunction with the notes set forth in our Quarterly Report on Form 10-Q when filed with the SEC. Non-GAAP Financial Measures In addition to disclosing financial measures prepared in accordance with U.S. 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. In addition, these measures may be different from non-GAAP measures used by other companies, limiting their usefulness for comparison purposes. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In particular, many of the adjustments to our GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in our financial results for the foreseeable future. Non-GAAP net income and EPS. Aruba defines non-GAAP net income as net income plus stock-based expenses and related payroll taxes, amortization of acquired intangible assets and other acquisition related expenses, and the change in the valuation of the contingent rights liability, less the related tax effects. 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. Further, Aruba's management excludes from non-GAAP net income the tax effects of these non-GAAP financial measures, as without excluding these tax effects, investors would only see the gross effect that excluding these expenses had on the company's operating results. 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, and the change in the valuation of the contingent rights liability, less the related tax effects, 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 impact 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 evaluates these non-GAAP financial measures together with their most directly comparable financial measures calculated in accordance with GAAP. The accompanying tables provide 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' website at www.arubanetworks.com. About Aruba Networks, Inc. Aruba Networks is a leading provider of next-generation network access solutions for the mobile enterprise. The company's Mobile Virtual Enterprise (MOVE) architecture unifies wired and wireless network infrastructures into one seamless access solution for corporate headquarters, mobile business professionals, remote workers and guests. This unified approach to access networks enables IT organizations and users to securely address the Bring Your Own Device (BYOD) phenomenon, dramatically improving productivity and lowering capital and operational costs. Listed on the NASDAQ and Russell 2000® Index, Aruba Networks is based in Sunnyvale, California, and has operations throughout the Americas, Europe, Middle East, Africa and Asia Pacific regions. For real-time news updates, follow Aruba Networks on Twitter and Facebook or read our corporate blog, Aruba Atmosphere. © 2013 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.Condensed Consolidated Balance Sheets(Unaudited)       January 31,July 31,   2013     2012   Assets   Current assets Cash and cash equivalents $ 177,645 $ 133,629 Short-term investments 224,671 212,601 Accounts receivable, net 70,129 80,190 Inventory, net 29,440 22,202 Deferred cost of revenue 10,162 11,241 Prepaids and other 19,997 18,996 Deferred income tax assets, current   36,216     34,584     Total current assets 568,260 513,443   Property and equipment, net 24,917 19,901 Goodwill 56,947 56,947 Intangible assets, net 23,199 27,036 Deferred income tax assets, non-current 20,000 20,664 Other non-current assets   10,022     10,905     Total non-current assets   135,085     135,453     Total assets $ 703,345   $ 648,896     Liabilities and Stockholders' Equity   Current liabilities Accounts payable and accrued liabilities $ 75,991 $ 74,879 Income taxes payable 1,071 2,032 Deferred revenue, current   89,910     80,602     Total current liabilities 166,972 157,513   Deferred revenue, non-current 28,200 22,375 Other non-current liabilities   7,089     2,118     Total non-current liabilities   35,289     24,493     Total liabilities   202,261     182,006     Stockholders' equity   Common stock 11 11 Additional paid-in capital 612,158 582,077 Accumulated other comprehensive loss (1,456 ) (1,405 ) Accumulated deficit   (109,629 )   (113,793 )   Total stockholders' equity   501,084     466,890     Total liabilities and stockholders' equity $ 703,345   $ 648,896     Note: Certain prior year amounts have been reclassified to conform to the current year presentation.Aruba Networks, Inc.Condensed Consolidated Statements of Operations(In thousands, except per share data)(Unaudited)       Three months endedSix months endedJanuary 31,January 31,   2013   2012     2013   2012   Revenue Product $ 130,901 $ 105,970 $ 250,123 $ 207,101 Professional services and support   24,461   20,305     49,721   38,526     Total revenue 155,362 126,275 299,844 245,627   Cost of revenue Product 37,665 30,452 73,826 62,521 Professional services and support   6,991   5,030     12,948   9,576     Total cost of revenue   44,656   35,482     86,774   72,097     Gross profit   110,706   90,793     213,070   173,530     Operating expenses Research and development 34,688 27,926 66,651 52,393 Sales and marketing 57,398 49,720 111,317 95,335 General and administrative   12,399   12,698     24,350   23,798     Total operating expenses   104,485   90,344     202,318   171,526     Operating income 6,221 449 10,752 2,004   Other income, net Interest income 293 299 609 575 Other income, net   978   2,731     1,254   3,558     Total other income, net   1,271   3,030     1,863   4,133     Income before income taxes 7,492 3,479 12,615 6,137   Provision for income taxes   2,502   14,861     8,451   17,986     Net income (loss) $ 4,990 $ (11,382 ) $ 4,164 $ (11,849 )   Shares used in computing net income (loss) per common share, basic 112,584 108,084 112,280 107,010   Net income (loss) per common share, basic $ 0.04 $ (0.11 ) $ 0.04 $ (0.11 )   Shares used in computing net income (loss) per common share, diluted 123,270 108,084 122,953 107,010   Net income (loss) per common share, diluted $ 0.04 $ (0.11 ) $ 0.03 $ (0.11 )   Note: Certain prior year amounts have been reclassified to conform to the current year presentation.Aruba NetworksCondensed Consolidated Statements of Operations(GAAP to Non-GAAP Reconciliation)(In thousands, except per share data)(Unaudited)         Three months endedSix months endedJanuary 31,January 31,   2013     2012     2013     2012     GAAP net income (loss) $ 4,990 $ (11,382 ) $ 4,164 $ (11,849 )   Plus: a) Stock-based compensation expenses 25,033 22,924 47,595 42,189 b) Payroll taxes on stock-based compensation expenses 683 541 1,319 1,046 c) Amortization expense of acquired intangible assets and other acquisition-related expenses 2,635 2,634 5,299 4,622 d) Change in valuation of contingent rights liability (1,264 ) (2,321 ) (1,665 ) (3,238 ) e) Income tax effect of non-GAAP exclusions (4,734 ) 6,969 (7,281 ) 3,310           Non-GAAP net income $ 27,343   $ 19,365   $ 49,431   $ 36,080       GAAP net income (loss) per common share $ 0.04 $ (0.11 ) $ 0.03 $ (0.11 )   Plus: a) Stock-based compensation expenses 0.20 0.20 0.39 0.36 b) Payroll taxes on stock-based compensation expenses 0.01 0.01 0.01 0.01 c) Amortization expense of acquired intangible assets and other acquisition-related expenses 0.02 0.02 0.04 0.04 d) Change in valuation of contingent rights liability (0.01 ) (0.02 ) (0.01 ) (0.03 ) e) Income tax effect of non-GAAP exclusions (0.04 ) 0.06 (0.06 ) 0.03           Non-GAAP net income per common share $ 0.22   $ 0.16   $ 0.40   $ 0.30     Shares used in computing diluted GAAP net income (loss) per common share   123,270     108,084     122,953     107,010     Shares used in computing diluted non-GAAP net income per common share   123,270     120,045     122,953     119,258   Aruba Networks, Inc.Condensed Consolidated Statements of OperationsAs a Percentage of Total Revenue(Unaudited)       Three months endedSix months endedJanuary 31,January 31,2013   2012   2013   2012   Revenue Product 84.3 % 83.9 % 83.4 % 84.3 % Professional services and support 15.7 % 16.1 % 16.6 % 15.7 %   Total revenue 100.0 % 100.0 % 100.0 % 100.0 %   Cost of revenue Product 24.2 % 24.1 % 24.6 % 25.5 % Professional services and support 4.5 % 4.0 % 4.3 % 3.9 %   Total cost of revenue 28.7 % 28.1 % 28.9 % 29.4 %   Gross profit 71.3 % 71.9 % 71.1 % 70.6 %   Operating expenses Research and development 22.3 % 22.1 % 22.3 % 21.3 % Sales and marketing 37.0 % 39.4 % 37.1 % 38.8 % General and administrative 8.0 % 10.0 % 8.1 % 9.7 %   Total operating expenses 67.3 % 71.5 % 67.5 % 69.8 %   Operating income 4.0 % 0.4 % 3.6 % 0.8 %   Other income, net Interest income 0.2 % 0.2 % 0.2 % 0.2 % Other income, net 0.6 % 2.2 % 0.4 % 1.5 %   Total other income, net 0.8 % 2.4 % 0.6 % 1.7 %   Income before income taxes 4.8 % 2.8 % 4.2 % 2.5 %   Provision for income taxes 1.6 % 11.8 % 2.8 % 7.3 %   Net income (loss) 3.2 % (9.0 %) 1.4 % (4.8 %)   Note: Certain prior year amounts have been reclassified to conform to the current year presentation.Aruba Networks, Inc.Condensed Consolidated Statements of Cash Flows(In thousands)(Unaudited)             Six Months EndedJanuary 31,   2013     2012   Cash flows from operating activities Net income (loss) $ 4,164 $ (11,849 )   Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 10,859 8,974 Provision for doubtful accounts 183 (19 ) Write downs for excess and obsolete inventory 3,214 2,696 Stock-based compensation expenses 47,595 42,189 Accretion of purchase discounts on short-term investments 535 603 Loss on disposal of fixed assets - 10 Change in carrying value of contingent rights liability (1,665 ) (3,238 ) Deferred income taxes (1,056 ) 19,250 Recovery of escrow funds - (702 ) Excess tax benefit associated with stock-based compensation (1,990 ) (12,066 ) Changes in operating assets and liabilities: Accounts receivable 9,877 (778 ) Inventory (12,021 ) 1,558 Prepaids and other (272 ) (3,003 ) Deferred cost of revenue 1,078 (2,336 ) Other assets 2,376 (15,614 ) Deferred revenue 15,134 22,322 Accounts payable and other liabilities (55 ) (18,133 ) Income taxes payable   4,633     12,520     Net cash provided by operating activities   82,589     42,384     Cash flows from investing activities Purchases of short-term investments (124,012 ) (109,952 ) Proceeds from sales of short-term investments 50,502 26,525 Proceeds from maturities of short-term investments 60,098 24,500 Purchases of property and equipment (10,807 ) (5,345 ) Cost method investment (1,500 ) - Cash paid in purchase acquisitions, net of cash acquired   -     (21,086 )   Net cash used in investing activities   (25,719 )   (85,358 )   Cash flows from financing activities Proceeds from issuance of common stock 15,648 15,200 Repurchases of common stock under stock repurchase program (30,511 ) - Excess tax benefit associated with stock-based compensation   1,990     12,066     Net cash (used in) provided by financing activities   (12,873 )   27,266     Effect of exchange rate changes on cash and cash equivalents   19     (640 )   Net increase in cash and cash equivalents 44,016 (16,348 )   Cash and cash equivalents, beginning of period   133,629     80,773     Cash and cash equivalents, end of period $ 177,645   $ 64,425     Supplemental disclosure of cash flow information Income taxes paid $ 2,134   $ 3,410     Supplemental disclosure of non-cash investing and financing activities Common stock issued in purchase acquisitions $ -   $ 12,000   Aruba Networks, Inc.Michael GalvinChief Financial Officerir@arubanetworks.comorThe Blueshirt Group, Investor RelationsChris Danne or Maria Riley, +1-415-217-7722ir@arubanetworks.com