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Aruba Networks (ARUN)

Q3 2011 Earnings Call

May 19, 2011 5:00 pm ET


Hitesh Sheth - Chief Operating Officer

Michael Galvin - Interim Principal Financial Officer, Interim Principal Accounting Officer and Vice President of Finance

Dominic Orr - Chairman, Chief Executive Officer and President

Maria Riley - Director of Communications


Sanjiv Wadhwani - Stifel, Nicolaus & Co., Inc.

Mark Sue - RBC Capital Markets, LLC

John Marchetti - Morgan Stanley

Joanna Makris - Mizuho Securities USA Inc.

Ryan Hutchinson - Lazard Capital Markets LLC

Jeffrey Kvaal - Barclays Capital

William Choi - Janney Montgomery Scott LLC

Jack Monti - UBS Investment Bank

Jason Ader - William Blair & Company L.L.C.

Kent Schofield - Goldman Sachs Group Inc.

Stephen Patel - Gleacher & Company, Inc.



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Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Aruba Fiscal Third Quarter 2011 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, May 19, 2011. I would now like to turn the conference over to Maria Riley of Investor Relations. Please go ahead.

Maria Riley

Good afternoon, and thank you for joining us on today's conference call to discuss Aruba's fiscal third quarter 2011 results. This call is also being broadcast live over the web and can be accessed in the Investor Relations section of the Aruba Networks' website at

With me on today's call are Dominic Orr, Aruba's President and Chief Executive Officer; Michael Galvin, Aruba's Interim Chief Financial Officer; Keerti Melkote, Aruba's Co-Founder and Chief Technology Officer; and Hitesh Sheth, Aruba's Chief Operating Officer. After the market closed today, Aruba Networks issued a press release announcing the results for fiscal third quarter ended April 30, 2011. If you would like a copy of the release, you can access it online on the company's website or you can call The Blueshirt Group at (415) 217-7722, and we will fax you or e-mail you a copy.

We would like to remind you that during the course of this conference call, Aruba Networks' management will make forward-looking statements, including statements regarding the company's expectations regarding industry growth drivers related to the consumerization of IT, customer adoption of our MOVE architecture, MDAC Solution and AirMesh products and the company's future economic performance, pipeline, financial condition and results of operations. These forward-looking statements involve a number of risks and uncertainties, some of which are beyond our control, which could cause actual results to differ materially from those anticipated by these statements. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future, and we undertake no obligation to update these statements after this call. For a more detailed description of these risks and uncertainties, please refer to our report on Form 10-Q filed with the SEC on March 11, 2011, as well as our earnings release posted a few minutes ago on our website. Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our website.

Also please note that certain financial measures we use on this call are expressed on a non-GAAP basis and have been adjusted to exclude certain changes. We have provided reconciliations of these non-GAAP financial measures to GAAP financial measures in the Investors Relations section of our website located at and in our earnings press release issued today.

Now I'd like to introduce to you Dominic Orr, President and Chief Executive Officer of Aruba Networks. Dominic?

Dominic Orr

Thank you. Good afternoon, and thank you for taking the time to attend our fiscal third quarter 2011 conference call. The rapid consumerization of IT has manifested in the proliferation of smartphones and tablets, a sharp increase in mobile collaboration and video applications and a steady march towards virtualization and utilization of cloud services. The impact on enterprise networks is dramatic as old paradigms for how the network edge is architected and how security is enabled are becoming obsolete. IT departments of all sizes must contend with the rising phenomenon of bring-your-own-device or BYOD demand for mobile applications and the imperative of security and control. And they must do this with relatively flat budget. With Aruba's mobility-centric architecture and industry-leading product innovations, we believe we are very well positioned to ensure our customers are in front of this mobility wave and the network investments are right-sized. Our results over the last couple of years have offered clear evidence of the differentiation of our technology and our unique position in our marketplace.

In the third quarter, we achieved a record performance across a number of major metrics. Revenue in Q3 grew to a record $105.8 million, a 53% year-over-year increase. We added over 1,200 customers, the highest in our history. We achieved non-GAAP operating margins of 18%, and we generated non-GAAP net income of $18.8 million or $0.16 per diluted share. Demand was broad-based across all of our major geographies, with no major concentration on a vertical basis. Over the last year, healthy demand from the general enterprise has been a significant growth driver, and that trend continued in Q3.

We believe the broader enterprise market now clearly grasp what many of our core vertical customers got years ago, that the legacy wire-centric approach to the network edge is outdated in an increasingly mobile world. At Aruba, our job is to solve this problem for IT organizations and deliver compelling business value by significantly improving the user experience. To achieve this growth, it is vital that we continue to innovate at a very rapid rate.

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