Aruba Networks CEO Discusses F1Q2011 Results – Earnings Call Transcript

Aruba Networks, Inc. (ARUN)

F1Q2011 Earnings Call Transcript

November 17, 2010 5:00 pm ET

Executives

Nicole Gunderson – IR

Dominic Orr – President and CEO

Steffan Tomlinson – CFO

Analysts

Ryan Hutchinson – Lazard Capital Markets

Jeff Kvaal – Barclays Capital

Stephen Patel – Gleacher & Company

Simona Jankowski – Goldman Sachs

Mark Sue – RBC Capital Markets

Rohit Chopra – Wedbush Securities

Presentation

Operator

Good day ladies and gentleman, thank you for standing by. Welcome to Aruba Networks fiscal 2011 earnings conference call. During today’s presentation, all parties will be in a listen only mode. Following the presentation the conference will be opened for questions. (Operator instructions) This conference is being recorded today Wednesday, November 17, 2010. I would now like to turn the conference over to Nicole Gunderson with Investor Relations. Please go ahead ma’am.

Nicole Gunderson

Good afternoon, and thank you for joining us on today’s conference call to discuss Aruba Networks fiscal first 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 www.arubanetworks.com. With me on today’s call are Dominic Orr, Aruba’s President and Chief Executive Officer, Steffan Tomlinson, 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 its fiscal first quarter ended October 31st, 2010. If you would like a copy of the release you can access it online at the Company’s website or you can call the Blueshirt Group at 415-217-7722 and we will fax or email you a copy. We would like to remind you that during the course of this conference call, Aruba Network’s management will make forward-looking statements including statements regarding the Company’s expectation regarding industry growth drivers in acceptance of the company’s new product offering, the Company’s expectations regarding its partnerships with Honeywell and Dell and the company’s future economic performance, pipelines, financial conditions or 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 annual report on Form 10-K filed with SEC on September 24, 2010 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 charges. We have provided reconciliations of these non-GAAP financial measures to GAAP financial measures in the Investor Relations section of our website located at www.arubanetworks.com and in our earnings press release.

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

Dominic Orr

Good afternoon and thank you for taking the time to attend our fiscal first quarter 2011 conference call. I am pleased to announce another record quarter for Aruba Networks with revenues, gross margin, operating margins and net income all at the highest level in our company history on a non-GAAP basis. Q1 revenues increased 44% year-over-year to $83.1 million, as we saw strong demand from across all our key verticals and major geographies. Non-GAAP operating margin expanded even faster than revenues, increasing to 16.8% from 14.7% in Q4 and 7.6% in the same period last year. Over the last two years we have been gaining significant traction with our right sizing initiative which clearly delineates the cost and performance benefits of moving to a wireless where-you-can, wired where-you-must network infrastructure.

This initiative continues to gain momentum with the rapid proliferation of Wi-Fi enabled mobile devices. Employees and executives alike are bringing their iPads, smart pads and smart phones into the office and demanding secure scalable connectivity whenever and wherever they need it. With the executive sweep adopting devices like the iPad, wireless LAN is increasingly becoming top of mind for CIO’s. With no Internet port, this devices demand changes to the current network architecture. Even in offices already equipped with wireless networks, this device [ph] drive the need for increased density, network intelligence, enhanced management spectrum capabilities and a new mobility centric approach to network security.

In this environment, Aruba’s unique user centric security architecture, application fingerprinting and proven dependability and scalability resonate extremely well with IT decision makers. We can see this momentum in our sales to the general enterprise. Historically, we have driven a majority of our growth form the education, government, healthcare and hi-tech sectors. While we saw year-over-year growth in each of these areas in Q1, our largest gains were in the general enterprise. While we continue to believe that our core verticals will be a significant part of our growth moving forward, the performance of our broader enterprise business is encouraging and shows that we are gaining traction in fundamentally changing organized patience approach to network access.

The growing market acceptance of our secure mobility solution is no way more evident than in our customer acquisition as we added well over 800 new customers in Q1. This new customers included one of the busiest airports in the world located in the Middle East, a major owner operator of casinos in North America, the largest privately owned real estate company in the US, a Fortune 500 semiconductor equipment company, an up-scale retailer with 400 stores, large municipalities in Japan and in Spain and many healthcare and education institutions around the world. These new customers are rolling out 802.11n networks almost exclusively. And the 11n now accounts for over 74% of overall access point shipments with almost all new customers purchasing 11n.

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