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Press release from Business Wire

Aruba Networks Reports Fourth Quarter and Fiscal Year 2013 Financial Results

Thursday, August 22, 2013

Aruba Networks Reports Fourth Quarter and Fiscal Year 2013 Financial Results

16:03 EDT Thursday, August 22, 2013

SUNNYVALE, Calif. (Business Wire) -- Aruba Networks, Inc. (NASDAQ: ARUN) today released financial results for its fourth quarter and fiscal year ended July 31, 2013.

Revenue for Q4'13 was $153.1 million, compared with $139.2 million reported in Q4'12. GAAP net loss in Q4'13 was $16.3 million, or $0.14 per share, compared with a GAAP net loss of $3.0 million, or $0.03 per share, in Q4'12.

Non-GAAP net income for Q4'13 was $15.1 million, or $0.12 per diluted share, compared with Q4'12 non-GAAP net income of $22.1 million, or $0.18 per diluted share. A reconciliation between GAAP and non-GAAP information is contained in the tables below.

Fiscal year 2013 revenue was $600.0 million, an increase of 16 percent from $516.8 million reported in fiscal year 2012. GAAP net loss for fiscal year 2013 was $32.3 million, or $0.29 per share, compared with a net loss of $8.9 million, or $0.08 per share, in fiscal year 2012. Non-GAAP net income for fiscal year 2013 was $78.5 million, or $0.63 per diluted share, compared with non-GAAP net income of $77.5 million, or $0.64 per diluted share, in fiscal year 2012.

“We exceeded our fourth quarter revenue expectations and added a record number of new customers,” said Dominic Orr, Aruba's president and chief executive officer. “This performance was driven by strong execution, improvements across most of our geographical theatres and increased demand in our core verticals globally. Looking forward, we are confident in our strong growth drivers including our 802.11ac products, ClearPass, public facing enterprise solutions and Aruba Instant.”

Michael Galvin, Aruba's chief financial officer, added, “In fiscal 2013, we achieved a record $600 million in revenue while our gross margin remained strong. Throughout the fiscal year, we continued our strong working capital management, generated $153 million in cash flow from operations and ended the year with approximately $415 million in cash and short-term investments. We completed our initial stock repurchase program by purchasing $86 million of our common stock in fiscal 2013 and subsequently expanded our share repurchase program by another $100 million.”

Recent Highlights

  • In the fourth quarter, the company purchased $55.7 million of its common stock. Additionally, Aruba's Board of Directors authorized an increase of $100 million to its share repurchase program.
  • Launched Aruba's flagship 802.11ac solution, the first in the industry to deliver gigabit Wi-Fi combined with the device density and application intelligence required by today's Wi-Fi networks. The Aruba 220 Series APs are purpose-built for the 802.11ac standard, resulting in time and cost savings for enterprises. Aruba's patented ClientMatch technology resolves the issue of “sticky clients” and dynamically optimizes Wi-Fi client performance by putting the Wi-Fi infrastructure in control of client connection and roaming decisions.

Conference Call Information

Aruba will host a conference call for analysts and investors to discuss its fourth quarter and fiscal year 2013 results today at 4:30 p.m. Eastern time (1:30 p.m. Pacific time). Open to the public, interested parties may access the call by dialing +1-480-629-9664. 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 dial 1-800-406-7325 and enter passcode 4629617. International parties may access the replay by dialing +1-303-590-3030 and entering the passcode 4629617.

Forward-Looking Statements

This press release may be deemed to contain forward-looking statements regarding our product strategy, market opportunity, market share and investments.

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” in our Forms 10-K and 10-Q filed with the U.S. Securities and Exchange Commission, or SEC, on October 11, 2012 and June 6, 2013, 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 Annual Report on Form 10-K 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 Aruba's GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in its financial results for the foreseeable future.

Non-GAAP net income and EPS. Aruba defines non-GAAP net income as net income plus stock-based compensation expenses and related payroll taxes, amortization expense of acquired intangible assets and other acquisition related expenses, non-recurring patent-infringement settlements, and the change in the valuation of the contingent rights liability, less the related tax effects. During the current period, Aruba has modified the non-GAAP reporting of tax effects related to the internal transfer of intellectual property (IP) in 2012 as part of its new corporate organization structure. Aruba management determined to exclude these tax effects in fiscal 2013 to align its non-GAAP reporting with the initial up-front buy-in for that IP. 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 compensation 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 compensation 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, non-recurring patent-infringement settlements 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 compensation expenses and related payroll taxes, that are recurring. Stock-based compensation 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 in the news releases section 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 is based in Sunnyvale, California, and has operations throughout the Americas, Europe, Middle East, Africa and Asia Pacific regions. To learn more, visit Aruba at http://www.arubanetworks.com. For real-time news updates follow Aruba on Twitter and Facebook, and for the latest technical discussions on mobility and Aruba products visit Airheads Social at http://community.arubanetworks.com.

© 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

(In thousands)

(Unaudited)
  July 31,   July 31,
2013 2012
Assets
 
Current assets
Cash and cash equivalents $ 144,919 $ 133,629
Short-term investments 269,882 212,601
Accounts receivable, net 93,191 80,190
Inventory, net 28,895 22,202
Deferred cost of revenue 12,657 11,241
Prepaids and other 20,090 18,996
Deferred income tax assets, current   28,801     34,584  

 

Total current assets 598,435 513,443
 
Property and equipment, net 27,536 19,901
Goodwill 67,242 56,947
Intangible assets, net 26,937 27,036
Deferred income tax assets, non-current 19,788 20,664
Other non-current assets   6,530     10,905  
 
Total non-current assets   148,033     135,453  
 
Total assets $ 746,468   $ 648,896  
 
Liabilities and Stockholders' Equity
 
Current liabilities
Accounts payable and accrued liabilities $ 119,523 $ 74,879
Income taxes payable, current 694 2,032
Deferred revenue, current   109,765     80,602  
 
Total current liabilities 229,982 157,513
 
Deferred revenue, non-current 31,578 22,375
Other non-current liabilities   8,990     2,118  
 
Total non-current liabilities   40,568     24,493  
 
Total liabilities   270,550     182,006  
 
Stockholders' equity
 
Common stock 11 11
Additional paid-in capital 623,554 582,077
Accumulated other comprehensive loss (1,540 ) (1,405 )
Accumulated deficit   (146,107 )   (113,793 )
 
Total stockholders' equity   475,918     466,890  
 
Total liabilities and stockholders' equity $ 746,468   $ 648,896  
 

Aruba Networks, Inc.
Condensed Consolidated Statements of Operations

(In thousands, except per share amount)

(Unaudited)
       
 
Three months ended Years ended
July 31 July 31
2013 2012 2013 2012
Revenue
Product $ 125,025 $ 117,101 $ 496,343 $ 434,733
Professional services and support   28,039     22,148     103,701     82,036  
 
Total revenue 153,064 139,249 600,044 516,769
 
Cost of revenue
Product 38,505 33,912 149,113 130,446
Professional services and support   7,228     5,919     27,366     20,992  
 
Total cost of revenue   45,733     39,831     176,479     151,438  
 
Gross profit   107,331     99,418     423,565     365,331  
 
Operating expenses
Research and development 38,112 29,671 139,746 109,448
Sales and marketing 62,289 53,064 230,805 198,373
General and administrative 13,275 11,254 51,030 46,775
Legal settlement   14,000     -     14,000     -  
 
Total operating expenses   127,676     93,989     435,581     354,596  
 
Operating income (loss) (20,345 ) 5,429 (12,016 ) 10,735
 
Other income (loss), net
Interest income 263 318 1,138 1,194
Other income (loss), net   (487 )   (1,252 )   653     1,631  
 
Total other income (loss), net   (224 )   (934 )   1,791     2,825  
 
Income (loss) before income taxes (20,569 ) 4,495 (10,225 ) 13,560
 
Provision for (benefit from) income taxes   (4,282 )   7,525     22,089     22,411  
 
Net loss $ (16,287 ) $ (3,030 ) $ (32,314 ) $ (8,851 )
 
Shares used in computing net loss per common share, basic 114,202 111,419 113,284 108,774
 
Net loss per common share, basic $ (0.14 ) $ (0.03 ) $ (0.29 ) $ (0.08 )
 
Shares used in computing net loss per common share, diluted 114,202 111,419 113,284 108,774
 
Net loss per common share, diluted $ (0.14 ) $ (0.03 ) $ (0.29 ) $ (0.08 )
 
Note: Certain prior year amounts have been reclassified to conform to the current year presentation.
 

Aruba Networks, Inc.
Condensed Consolidated Statements of Operations
(GAAP to Non-GAAP Reconciliation)
(In thousands, except per share amounts)
(Unaudited)
       
Three months ended Years ended
July 31 July 31
2013 2012 2013 2012
 
GAAP net loss $ (16,287 ) $ (3,030 ) $ (32,314 ) $ (8,851 )
 
Plus:
a) Stock-based compensation expenses 25,231 21,939 96,226 83,912
b) Payroll taxes on stock-based compensation expenses 342 224 2,596 2,653
c) Amortization expense of acquired intangible assets and other acquisition-related expenses 3,230 2,609 10,843 9,955
d) Legal settlement 14,000 - 14,000 -
e) Change in valuation of contingent rights liability - 673 (1,665 ) (2,319 )
f) Non-GAAP income tax effects (*) (11,448 ) (333 ) (11,172 ) (7,816 )
       
 
Non-GAAP net income $ 15,068   $ 22,082   $ 78,514   $ 77,534  
 
 
GAAP net loss per common share $ (0.14 ) $ (0.03 ) $ (0.29 ) $ (0.08 )
 
Plus:
a) Stock-based compensation expenses 0.21 0.18 0.79 0.70
b) Payroll taxes on stock-based compensation expenses - - 0.02 0.02
c) Amortization expense of acquired intangible assets and other acquisition-related expenses 0.03 0.02 0.10 0.08
d) Legal settlement 0.11 - 0.11 -
e) Change in valuation of contingent rights liability - 0.01 (0.01 ) (0.02 )
f) Non-GAAP income tax effects (*) (0.09 ) - (0.09 ) (0.06 )
       
 
Non-GAAP net income per common share $ 0.12   $ 0.18   $ 0.63   $ 0.64  
 
Shares used in computing diluted GAAP net loss per common share   114,202     111,419     113,284     108,774  
 
Shares used in computing diluted non-GAAP net income per common share   122,880     120,370     124,102     120,762  
 

(*) For the three and twelve months ended July 31, 2013, we modified the non-GAAP reporting tax effects related to the internal transfer of certain intellectual property (IP) in 2012 as part of our new corporate organization structure in order to align our non-GAAP reporting with the initial up-front buy-in for that IP. As a result, non-GAAP net income and EPS increased by $4,256 and  $0.03 in each period, all of which occurred in the fourth quarter of fiscal 2013.  The benefit, had we modified our tax calculation in fiscal 2012, would have been an additional $1,019 and $3,667 to non-GAAP net income and $0.01 and $0.03 to EPS, respectively for the three and twelve months ended July 31, 2012.

 

Aruba Networks, Inc.
Condensed Consolidated Statements of Operations
As a Percentage of Total Revenue
(Unaudited)
       
Three months ended Years ended
July 31 July 31
2013 2012 2013 2012
Revenue
Product 81.7% 84.1% 82.7% 84.1%
Professional services and support 18.3% 15.9% 17.3% 15.9%
 
Total revenue 100.0% 100.0% 100.0% 100.0%
 
Cost of revenue
Product 25.2% 24.4% 24.9% 25.2%
Professional services and support 4.7% 4.2% 4.5% 4.1%
 
Total cost of revenue 29.9% 28.6% 29.4% 29.3%
 
Gross profit 70.1% 71.4% 70.6% 70.7%
 
Operating expenses
Research and development 24.9% 21.3% 23.3% 21.2%
Sales and marketing 40.7% 38.1% 38.5% 38.4%
General and administrative 8.7% 8.1% 8.5% 9.0%
Legal settlement 9.1% - 2.3% -
 
Total operating expenses 83.4% 67.5% 72.6% 68.6%
 
Operating income (loss) (13.3%) 3.9% (2.0%) 2.1%
 
Other income (loss), net
Interest income 0.2% 0.2% 0.2% 0.2%
Other income (loss), net (0.3%) (0.9%) 0.1% 0.3%
 
Total other income (loss), net (0.1%) (0.7%) 0.3% 0.5%
 
Income (loss) before income taxes (13.4%) 3.2% (1.7%) 2.6%
 
Provision for (benefit from) income taxes (2.8%) 5.4% 3.7% 4.3%
 
Net loss (10.6%) (2.2%) (5.4%) (1.7%)
 
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)
   
Years Ended
July 31,
2013 2012
Cash flows from operating activities
Net loss $ (32,314 ) $ (8,851 )
 

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization 23,701 19,123
Provision for doubtful accounts 797 125
Write downs for excess and obsolete inventory 5,597 4,113
Stock-based compensation expenses 96,226 83,912
Accretion of purchase discounts on short-term investments 1,413 1,142
Loss on disposal of fixed assets 269 544
Change in carrying value of contingent rights liability (1,665 ) (2,319 )
Deferred income taxes 38 15,369
Recovery of escrow funds - (702 )
Excess tax benefit associated with stock-based compensation (10,305 ) (21,572 )
Changes in operating assets and liabilities:
Accounts receivable (13,524 ) (11,374 )
Inventory (15,970 ) 1,615
Prepaids and other (356 ) (14,594 )
Deferred cost of revenue (1,417 ) (4,658 )
Other assets 6,119 (8,131 )
Deferred revenue 38,282 34,522
Accounts payable and other liabilities 43,856 4,456
Income taxes payable   12,067     20,141  
 
Net cash provided by operating activities   152,814     112,861  
 
Cash flows from investing activities
Purchases of short-term investments (287,183 ) (189,218 )
Proceeds from sales of short-term investments 75,806 55,790
Proceeds from maturities of short-term investments 151,718 72,650
Purchases of property and equipment (20,655 ) (13,044 )
Investments in privately-held companies (1,750 ) -
Cash paid in purchase acquisitions, net of cash acquired   (16,767 )   (22,505 )
 
Net cash used in investing activities   (98,831 )   (96,327 )
 
Cash flows from financing activities
Proceeds from issuance of common stock 33,194 34,779
Repurchases of common stock under stock repurchase program (86,211 ) (19,884 )
Excess tax benefit associated with stock-based compensation   10,305     21,572  
 
Net cash provided (used) by financing activities   (42,712 )   36,467  
 
Effect of exchange rate changes on cash and cash equivalents   19     (145 )
 
Net increase in cash and cash equivalents 11,290 52,856
 
Cash and cash equivalents, beginning of period   133,629     80,773  
 
Cash and cash equivalents, end of period $ 144,919   $ 133,629  
 
Supplemental disclosure of cash flow information
Income taxes paid $ 3,344   $ 5,587  
 
Supplemental disclosure of non-cash investing and financing activities
Common stock issued in purchase acquisitions $ -   $ 12,000  

Aruba Networks, Inc.
Tonya Chin, +1-408-598-4924
Sr. Director, IR
tchin@arubanetworks.com
or
The Blueshirt Group
Chris Danne or Maria Riley, +1-415-217-7722
Investor Relations
ir@arubanetworks.com

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