Aruba Networks Reports Record Fiscal Second Quarter 2013 Financial Results

  Aruba Networks Reports Record Fiscal Second Quarter 2013 Financial Results

  *Second Quarter Revenue Increased by 23 Percent Year-Over-Year and 8
    Percent Quarter-Over-Quarter to a record $155.4 Million
  *Strong Gross Margin and Leverage Lead to Record Operating Margin
  *Generated $45.7 Million in Cash Flow from Operations and Increased Cash
    and Short Term Investments to $402.3 Million

Business Wire

SUNNYVALE, Calif. -- February 21, 2013

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 Highlights

  *Introduced 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 andDecember 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 onTwitterandFacebookor 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,              36,216               34,584     
current
                                                             
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,               20,000                 20,664
non-current
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          $   75,991             $   74,879
liabilities
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                         (1,456     )           (1,405     )
comprehensive loss
Accumulated deficit                      (109,629   )          (113,793   )
                                                             
Total stockholders' equity               501,084              466,890    
                                                             
Total liabilities and                 $   703,345           $   648,896    
stockholders' equity
                                                             
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 ended       Six months ended
                              January 31,              January 31,
                               2013       2012       2013       2012    
Revenue
Product                       $ 130,901   $ 105,970    $ 250,123   $ 207,101
Professional services and      24,461     20,305     49,721     38,526  
support
                                                                   
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      6,991      5,030      12,948     9,576   
support
                                                                   
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           112,584     108,084      112,280     107,010
common share, basic
                                                                   
Net income (loss) per         $ 0.04      $ (0.11   )  $ 0.04      $ (0.11   )
common share, basic
                                                                   
Shares used in computing
net income (loss) per           123,270     108,084      122,953     107,010
common share, diluted
                                                                   
Net income (loss) per         $ 0.04      $ (0.11   )  $ 0.03      $ (0.11   )
common share, diluted
                                                                   
Note: Certain prior year amounts have been reclassified to conform to the
current year presentation.

Aruba Networks
Condensed Consolidated Statements of Operations
(GAAP to Non-GAAP Reconciliation)
(In thousands, except per share data)
(Unaudited)
                                                              
                         Three months ended          Six months ended
                         January 31,                 January 31,
                          2013        2012        2013        2012    
                                                                   
GAAP net income (loss)   $ 4,990       $ (11,382 )   $ 4,164       $ (11,849 )
                                                                   
Plus:
a) Stock-based             25,033        22,924        47,595        42,189
compensation expenses
b) Payroll taxes on
stock-based                683           541           1,319         1,046
compensation expenses
c) Amortization
expense of acquired
intangible assets
and other
acquisition-related        2,635         2,634         5,299         4,622
expenses
d) Change in valuation
of contingent rights       (1,264  )     (2,321  )     (1,665  )     (3,238  )
liability
e) Income tax effect       (4,734  )     6,969         (7,281  )     3,310
of non-GAAP exclusions
                                                                
                                                                   
Non-GAAP net income      $ 27,343     $ 19,365     $ 49,431     $ 36,080  
                                                                   
                                                                   
GAAP net income (loss)   $ 0.04        $ (0.11   )   $ 0.03        $ (0.11   )
per common share
                                                                   
Plus:
a) Stock-based             0.20          0.20          0.39          0.36
compensation expenses
b) Payroll taxes on
stock-based                0.01          0.01          0.01          0.01
compensation expenses
c) Amortization
expense of acquired
intangible assets
and other
acquisition-related        0.02          0.02          0.04          0.04
expenses
d) Change in valuation
of contingent rights       (0.01   )     (0.02   )     (0.01   )     (0.03   )
liability
e) Income tax effect       (0.04   )     0.06          (0.06   )     0.03
of non-GAAP exclusions
                                                                
                                                                   
Non-GAAP net income      $ 0.22       $ 0.16       $ 0.40       $ 0.30    
per common share
                                                                   
Shares used in
computing diluted GAAP    123,270     108,084     122,953     107,010 
net income (loss) per
common share
                                                                   
Shares used in
computing diluted         123,270     120,045     122,953     119,258 
non-GAAP net income
per common share

Aruba Networks, Inc.
Condensed Consolidated Statements of Operations
As a Percentage of Total Revenue
(Unaudited)
                                                               
                          Three months ended           Six months ended
                          January 31,                  January 31,
                          2013          2012         2013        2012   
Revenue
Product                   84.3    %      83.9   %      83.4   %     84.3   %
Professional services and 15.7    %      16.1   %      16.6   %     15.7   %
support
                                                                    
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 4.5     %      4.0    %      4.3    %     3.9    %
support
                                                                    
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               8.0     %      10.0   %      8.1    %     9.7    %
administrative
                                                                    
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      4.8     %      2.8    %      4.2    %     2.5    %
taxes
                                                                    
Provision for income      1.6     %      11.8   %      2.8    %     7.3    %
taxes
                                                                    
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 Ended
                                                   January 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             3,214          2,696
     inventory
     Stock-based compensation expenses               47,595         42,189
     Accretion of purchase discounts on              535            603
     short-term investments
     Loss on disposal of fixed assets                -              10
     Change in carrying value of contingent          (1,665   )     (3,238   )
     rights liability
     Deferred income taxes                           (1,056   )     19,250
     Recovery of escrow funds                        -              (702     )
     Excess tax benefit associated with              (1,990   )     (12,066  )
     stock-based compensation
     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                (55      )     (18,133  )
           liabilities
           Income taxes payable                     4,633        12,520   
                                                                  
                Net cash provided by operating      82,589       42,384   
                activities
                                                                  
Cash flows from investing activities
     Purchases of short-term investments             (124,012 )     (109,952 )
     Proceeds from sales of short-term               50,502         26,525
     investments
     Proceeds from maturities of short-term          60,098         24,500
     investments
     Purchases of property and equipment             (10,807  )     (5,345   )
     Cost method investment                          (1,500   )     -
     Cash paid in purchase acquisitions, net        -            (21,086  )
     of cash acquired
                                                                  
                Net cash used in investing          (25,719  )    (85,358  )
                activities
                                                                  
Cash flows from financing activities
     Proceeds from issuance of common stock          15,648         15,200
     Repurchases of common stock under stock         (30,511  )     -
     repurchase program
     Excess tax benefit associated with             1,990        12,066   
     stock-based compensation
                                                                  
                Net cash (used in) provided by      (12,873  )    27,266   
                financing activities
                                                                  
Effect of exchange rate changes on cash and         19           (640     )
cash equivalents
                                                                  
                Net increase in cash and cash        44,016         (16,348  )
                equivalents
                                                                  
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   

Contact:

Aruba Networks, Inc.
Michael Galvin
Chief Financial Officer
ir@arubanetworks.com
or
The Blueshirt Group, Investor Relations
Chris Danne or Maria Riley, +1-415-217-7722
ir@arubanetworks.com
 
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