Attached files
file | filename |
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EX-31.1 - EXHIBIT 31.1 - ARUBA NETWORKS, INC. | c14771exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - ARUBA NETWORKS, INC. | c14771exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - ARUBA NETWORKS, INC. | c14771exv32w1.htm |
EXCEL - IDEA: XBRL DOCUMENT - ARUBA NETWORKS, INC. | Financial_Report.xls |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 30, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-33347
Aruba Networks, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 02-0579097 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification Number) |
1344 Crossman Ave.
Sunnyvale, California 94089-1113
(408) 227-4500
Sunnyvale, California 94089-1113
(408) 227-4500
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares of the registrants common stock, par value $0.0001, outstanding as of
May 31, 2011 was 104,079,974.
ARUBA NETWORKS, INC.
INDEX
INDEX
2
Table of Contents
Item 1. | Consolidated Financial Statements |
ARUBA NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
April 30, | July 31, | |||||||
2011 | 2010 | |||||||
(in thousands, except per share data) | ||||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 77,245 | $ | 31,254 | ||||
Short-term investments |
133,553 | 124,167 | ||||||
Accounts receivable, net |
67,464 | 41,269 | ||||||
Inventory |
20,685 | 15,159 | ||||||
Deferred costs |
6,703 | 5,451 | ||||||
Prepaids and other |
4,311 | 5,108 | ||||||
Total current assets |
309,961 | 222,408 | ||||||
Property and equipment, net |
12,530 | 9,919 | ||||||
Goodwill |
33,143 | 7,656 | ||||||
Intangible assets, net |
22,915 | 9,287 | ||||||
Other assets |
2,140 | 1,437 | ||||||
Total assets |
$ | 380,689 | $ | 250,707 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 10,486 | $ | 8,082 | ||||
Accrued liabilities |
48,840 | 36,458 | ||||||
Income taxes payable |
819 | 519 | ||||||
Deferred revenue, current |
49,848 | 43,422 | ||||||
Total current liabilities |
109,993 | 88,481 | ||||||
Deferred revenue, long-term |
12,340 | 10,976 | ||||||
Other long-term liabilities |
750 | 595 | ||||||
Total liabilities |
123,083 | 100,052 | ||||||
Commitments and contingencies (Note 13) |
||||||||
Stockholders equity |
||||||||
Common stock: $0.0001 par value; 350,000 shares authorized at
April 30, 2011 and July 31, 2010, respectively; 103,819 and
93,606 shares issued
and outstanding at April 30, 2011 and July 31, 2010, respectively |
10 | 9 | ||||||
Additional paid-in capital |
430,564 | 326,178 | ||||||
Accumulated other comprehensive income |
159 | 98 | ||||||
Accumulated deficit |
(173,127 | ) | (175,630 | ) | ||||
Total stockholders equity |
257,606 | 150,655 | ||||||
Total liabilities and stockholders equity |
$ | 380,689 | $ | 250,707 | ||||
See Notes to Consolidated Financial Statements.
3
Table of Contents
ARUBA NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended April 30, | Nine months ended April 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands, except per share data) | (in thousands, except per share data) | |||||||||||||||
Revenues |
||||||||||||||||
Product |
$ | 89,415 | $ | 56,634 | $ | 237,719 | $ | 155,909 | ||||||||
Professional services and support |
16,186 | 12,167 | 44,588 | 32,672 | ||||||||||||
Ratable product and related
professional services and support |
150 | 156 | 449 | 627 | ||||||||||||
Total revenues |
105,751 | 68,957 | 282,756 | 189,208 | ||||||||||||
Cost of revenues |
||||||||||||||||
Product |
29,964 | 19,911 | 76,199 | 54,446 | ||||||||||||
Professional services and support |
4,167 | 2,201 | 10,615 | 6,437 | ||||||||||||
Ratable product and related
professional services and support |
| 46 | 10 | 199 | ||||||||||||
Total cost of revenues |
34,131 | 22,158 | 86,824 | 61,082 | ||||||||||||
Gross profit |
71,620 | 46,799 | 195,932 | 128,126 | ||||||||||||
Operating expenses |
||||||||||||||||
Research and development |
22,799 | 13,874 | 61,521 | 37,713 | ||||||||||||
Sales and marketing |
40,916 | 27,697 | 111,266 | 79,013 | ||||||||||||
General and administrative |
10,319 | 8,840 | 27,690 | 23,600 | ||||||||||||
Litigation reserves |
| 1,650 | | 21,900 | ||||||||||||
Total operating expenses |
74,034 | 52,061 | 200,477 | 162,226 | ||||||||||||
Operating loss |
(2,414 | ) | (5,262 | ) | (4,545 | ) | (34,100 | ) | ||||||||
Other income (expense), net |
||||||||||||||||
Interest income |
284 | 218 | 758 | 616 | ||||||||||||
Other income (expense), net |
5,608 | (189 | ) | 7,191 | (432 | ) | ||||||||||
Total other income (expense), net |
5,892 | 29 | 7,949 | 184 | ||||||||||||
Income (loss) before provision for income taxes |
3,478 | (5,233 | ) | 3,404 | (33,916 | ) | ||||||||||
Provision for income taxes |
277 | 85 | 901 | 504 | ||||||||||||
Net income (loss) |
$ | 3,201 | $ | (5,318 | ) | $ | 2,503 | $ | (34,420 | ) | ||||||
Shares used in computing net income (loss) per
common share-basic |
102,055 | 90,874 | 98,962 | 88,978 | ||||||||||||
Net income (loss) per common share-basic |
$ | 0.03 | $ | (0.06 | ) | $ | 0.03 | $ | (0.39 | ) | ||||||
Shares used in computing net income (loss) per
common share-diluted |
119,367 | 90,874 | 116,289 | 88,978 | ||||||||||||
Net income (loss) per common share-diluted |
$ | 0.03 | $ | (0.06 | ) | $ | 0.02 | $ | (0.39 | ) | ||||||
Stock-based compensation expense included in above: |
||||||||||||||||
Cost of revenues |
$ | 988 | $ | 382 | $ | 2,401 | $ | 1,011 | ||||||||
Research and development |
6,731 | 3,139 | 16,585 | 7,864 | ||||||||||||
Sales and marketing |
6,614 | 2,710 | 17,868 | 7,774 | ||||||||||||
General and administrative |
$ | 3,262 | $ | 3,711 | $ | 8,974 | $ | 10,116 |
See Notes to Consolidated Financial Statements.
4
Table of Contents
ARUBA NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended April 30, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Cash flows from operating activities |
||||||||
Net income (loss) |
$ | 2,503 | $ | (34,420 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |
||||||||
Depreciation and amortization |
10,963 | 7,493 | ||||||
Provision for doubtful accounts |
4 | 259 | ||||||
Write downs for excess and obsolete inventory |
2,445 | 1,476 | ||||||
Stock-based compensation expense |
45,828 | 26,765 | ||||||
Accretion of purchase discounts on short-term investments |
997 | 482 | ||||||
Loss/ (gain) on disposal of fixed assets |
(6 | ) | 19 | |||||
Change in carrying value of contingent rights liability |
(7,991 | ) | | |||||
Excess tax benefit associated with stock-based compensation |
(15 | ) | | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(23,674 | ) | 1,523 | |||||
Inventory |
(7,211 | ) | (9,123 | ) | ||||
Prepaids and other |
(873 | ) | (1,147 | ) | ||||
Deferred costs |
(1,252 | ) | (960 | ) | ||||
Other assets |
(426 | ) | 107 | |||||
Accounts payable |
(1,099 | ) | 4,145 | |||||
Deferred revenue |
6,451 | 6,555 | ||||||
Other current and noncurrent liabilities |
8,009 | 12,493 | ||||||
Income taxes payable |
138 | (220 | ) | |||||
Net cash provided by operating activities |
34,791 | 15,447 | ||||||
Cash flows from investing activities |
||||||||
Purchases of short-term investments |
(81,511 | ) | (79,766 | ) | ||||
Proceeds from sales of short-term investments |
19,876 | 3,001 | ||||||
Proceeds from maturities of short-term investments |
51,030 | 42,965 | ||||||
Purchases of property and equipment |
(5,776 | ) | (3,378 | ) | ||||
Proceeds from sale of property and equipment |
14 | 23 | ||||||
Cash paid in purchase acquisitions, net of cash acquired |
(4,303 | ) | | |||||
Net cash used in investing activities |
(20,670 | ) | (37,155 | ) | ||||
Cash flows from financing activities |
||||||||
Proceeds from issuance of common stock |
31,856 | 9,957 | ||||||
Repurchases of unvested common stock |
| (36 | ) | |||||
Excess tax benefit associated with stock-based compensation |
15 | | ||||||
Net cash provided by financing activities |
31,871 | 9,921 | ||||||
Effect of exchange rate changes on cash and cash equivalents |
(1 | ) | (1 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
45,991 | (11,788 | ) | |||||
Cash and cash equivalents, beginning of period |
31,254 | 41,298 | ||||||
Cash and cash equivalents, end of period |
$ | 77,245 | $ | 29,510 | ||||
Supplemental disclosure of cash flow information |
||||||||
Income taxes paid |
$ | 781 | $ | 768 | ||||
Supplemental disclosure of non-cash investing and financing activities |
||||||||
Common stock issued for purchase acquisition |
$ | 30,691 | $ | | ||||
Contingent rights issued for purchase acquisition |
$ | 9,486 | $ | |
See Notes to Consolidated Financial Statements.
5
Table of Contents
ARUBA NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The Company and its Significant Accounting Policies
The Company
Aruba Networks, Inc. (the Company) was incorporated in the state of Delaware on February 11,
2002. The Company securely connects local and remote users to corporate IT resources via
distributed enterprise networks. The Companys portfolio of campus, branch office, teleworker, and
mobile solutions simplifies operations and provides secure access to all corporate applications and
services regardless of a users device, location, or network. The products the Company licenses
and sells include high-speed 802.11n wireless local area networks, Virtual Branching Networking
solutions for branch offices and teleworkers, and network operations tools, including spectrum
analyzers, wireless intrusion prevention systems, and the AirWave Wireless Management Suite for
managing wired, wireless, and mobile device networks. The Company has offices in North America,
Europe, the Middle East and the Asia Pacific region and employs staff around the world.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. The
accompanying statements are unaudited and should be read in conjunction with the audited
consolidated financial statements and related notes contained in the Companys Annual Report on
Form 10-K filed on September 24, 2010. The July 31, 2010 consolidated balance sheet data were
derived from audited financial statements, but do not include all disclosures required by
accounting principles generally accepted in the United States (U.S.) of America.
The accompanying unaudited consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles (GAAP), pursuant to the rules and regulations
of the Securities and Exchange Commission (SEC). They do not include all of the financial
information and footnotes required by GAAP for complete financial statements. The Company believes
the unaudited consolidated financial statements have been prepared on the same basis as its audited
financial statements as of and for the year ended July 31, 2010 and include all adjustments
necessary for the fair statement of the Companys financial position as of April 30, 2011, its
results of operations for the three and nine months ended April 30, 2011 and 2010, and its cash
flows for the nine months ended April 30, 2011 and 2010. The results for the three and nine months
ended April 30, 2011 are not necessarily indicative of the results to be expected for any
subsequent quarter or for the fiscal year ending July 31, 2011.
Other than the adoption of the provisions of Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) Accounting Standards Update (ASU) 2009-14, Software
(Topic 985): Certain Revenue Arrangements That Include Software Elements, and ASU 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements, there have been no significant
changes in the Companys accounting policies during the three and nine months ended April 30, 2011,
as compared to the significant accounting policies described in the Companys Annual Report on Form
10-K for the year ended July 31, 2010.
Revenue Recognition
In October 2009, the FASB amended the accounting standards for revenue recognition to remove
tangible products containing software components and non-software components that function together
to deliver the products essential functionality from the scope of industry-specific software
revenue recognition guidance. In October 2009, the FASB also amended the accounting standards for
multiple-element revenue arrangements to:
(i) | provide updated guidance on how the elements in a multiple-element arrangement should be separated, and how the consideration should be allocated; | ||
(ii) | require an entity to allocate revenue amongst the elements in an arrangement using estimated selling prices (ESP) if a vendor does not have vendor-specific objective evidence (VSOE) of the selling price or third-party evidence (TPE) of the selling price; and | ||
(iii) | eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. |
The Company adopted this accounting guidance at the beginning of its first quarter of fiscal
2011 on a prospective basis for applicable arrangements originating or materially modified after
July 31, 2010. The impact of this adoption was not material to the Companys financial position and
results of operations in the three and nine months ended April 30, 2011.
This guidance does not generally change the units of accounting for the Companys revenue
transactions. Most non-software products and services qualify as separate units of accounting
because they have value to the customer on a stand-alone basis and the Companys revenue
arrangements generally do not include a right of return relative to delivered products.
6
Table of Contents
The majority of the Companys products are hardware appliances containing software components
that function together to provide the essential functionality of the product. Therefore, the
Companys hardware appliances are considered non-software elements and are not subject to the
industry-specific software revenue recognition guidance.
The Companys product revenue also includes revenue from the sale of stand-alone software
products. Stand-alone software products may operate on the Companys hardware appliance but are not
considered essential to the functionality of the hardware. Sales of stand-alone software generally
include a perpetual license to the Companys software. Sales of stand-alone software continue to be
subject to the industry-specific software revenue recognition guidance.
For all arrangements originating or materially modified after July 31, 2010, the Company
recognizes revenue in accordance with the amended accounting guidance. Certain arrangements with
multiple-elements may continue to have stand-alone software elements that are subject to the
existing software revenue recognition guidance along with non-software elements that are subject to
the amended revenue accounting guidance. The revenue for these multiple element arrangements is
allocated to the stand-alone software elements as a group and the non-software elements based on
the relative selling prices of all of the elements in the arrangement using the fair value
hierarchy in the amended revenue accounting guidance.
For sales of stand-alone software after July 31, 2010 and for all transactions entered into
prior to the first quarter of 2011, the Company recognizes revenue based on software revenue
recognition guidance. Under the software revenue recognition guidance, the Company uses the
residual method to recognize revenue when a product agreement includes one or more elements to be
delivered at a future date and VSOE of the fair value of all undelivered elements exists. In the
majority of the Companys contracts, the only element that remains undelivered at the time of
delivery of the product is support services. Under the residual method, the fair value of the
undelivered elements is deferred and the remaining portion of the contract fee is recognized as
product revenue. If evidence of the fair value of one or more undelivered elements does not exist,
all revenue is generally deferred and recognized when delivery of those elements occurs or when
fair value can be established. When the undelivered element for which the Company does not have
VSOE of fair value is support, revenue for the entire arrangement is bundled and recognized ratably
over the support period.
VSOE for elements of an arrangement is based upon the normal pricing and discounting practices
for those services when sold separately, and VSOE for support services is measured by the
stand-alone renewal rate offered to the customer. In determining VSOE, the Company requires that a
substantial majority of the selling prices for an element falls within a reasonably narrow pricing
range, generally evidenced by a substantial majority of such historical stand-alone transactions
falling within a reasonably narrow range of the median rates. In addition, the Company considers
major service groups, geographies, customer classifications, and other variables in determining
VSOE.
The Company is typically not able to determine TPE for the Companys products or services. TPE
is determined based on competitor prices for similar elements when sold separately. Generally, the
Companys go-to-market strategy differs from that of the Companys peers and the Companys
offerings contain a significant level of differentiation such that the comparable pricing of
products with similar functionality cannot be obtained. Furthermore, the Company is unable to
reliably determine what similar competitor products selling prices are on a stand-alone basis.
When the Company is unable to establish selling price of its non-software elements using VSOE
or TPE, the Company uses ESP in its allocation of arrangement consideration. The objective of ESP
is to determine the price at which the Company would transact a sale if the product or service were
sold on a stand-alone basis. The Company determines ESP for a product or service by considering
multiple factors including, but not limited to, cost of products, gross margin objectives, pricing
practices, geographies, customer classes and distribution channels.
The Company regularly reviews VSOE and ESP and maintains internal controls over the
establishment and updates of these estimates. There was not a material impact during the third
quarter or first nine months of fiscal 2011, nor does the Company currently expect a material
impact in the near term from changes in VSOE or ESP.
Product revenue consists of revenue from sales of the Companys hardware appliances and
perpetual software licenses. The Company recognizes product revenue when all of the following have
occurred: (1) the Company has entered into a legally binding arrangement with a customer; (2)
delivery has occurred; (3) customer payment is deemed fixed or determinable and free of
contingencies and significant uncertainties; and (4) collection is reasonably assured.
For sales to direct end-users and channel partners, including value-added resellers,
value-added distributors, and OEMs, the Company recognizes product revenue upon delivery, assuming
all other revenue recognition criteria are met. For the Companys hardware appliances, delivery
occurs upon transfer of title and risk of loss, which is generally upon shipment. It is the
Companys practice to identify an end-user prior to shipment to a channel partner. For end-users
and channel partners, the Company generally has no significant obligations for future performance
such as rights of return or pricing credits. A portion of the Companys sales are made through
distributors under agreements allowing for stocking of the Companys products in their inventory,
pricing credits and limited rights of return for stock rotation. Product
revenue on sales made through these distributors is initially deferred and revenue is
recognized upon sell-through as reported by the distributors to the Company. Shipping charges
billed to customers are included in product revenue and the related shipping costs are included in
cost of product revenue.
7
Table of Contents
Support and services offerings consist of support agreements, professional services, and
training. Support services include repair and replacement of defective hardware appliances,
software updates and access to technical support personnel. Software updates provide customers with
rights to unspecified software product upgrades and to maintenance releases and patches released
during the term of the support period. Revenue for support services is recognized on a
straight-line basis over the service contract term, which is typically one to five years.
Professional services are recognized upon delivery or completion of performance. Professional
service arrangements are typically short-term in nature and are largely completed within 90 days
from the start of service. Training services are recognized upon delivery of the training.
The Companys fees are typically considered to be fixed or determinable at the inception of an
arrangement, generally based on specific products and quantities to be delivered. Substantially all
of the Companys contracts do not include rights of return or acceptance provisions. To the extent
that the Companys agreements contain such terms, the Company recognizes revenue once the customer
has accepted, or once the acceptance provisions or right of return lapses. Payment terms to
customers generally range from net 30 to 60 days. In the event payment terms are provided that
differ from the Companys standard business practices, the fees are deemed to not be fixed or
determinable and revenue is recognized when the payments become due, provided the remaining
criteria for revenue recognition have been met.
The Company assesses the ability to collect from its customers based on a number of factors,
including credit worthiness of the customer and past transaction history of the customer. If the
customer is not deemed credit worthy, the Company defers revenue from the arrangement until payment
is received and all other revenue recognition criteria have been met.
2. Acquisitions
On September 2, 2010, the Company completed its acquisition of Azalea Networks (Azalea) for
a total purchase price of $42.0 million. Azalea is a leading supplier of outdoor mesh networks and
includes an operations center in Beijing, China which will complement the Companys existing
research and development centers. The results of Azaleas operations have been included in the
Consolidated Financial Statements since the acquisition date. The tangible and intangible assets
acquired and liabilities assumed were recorded at fair value on the acquisition date.
The purchase price consisted of the following (in thousands, except share and per share data):
Stock (1,524,517 shares at $18.82 per share) |
$ | 28,691 | ||
Cash |
1,808 | |||
Contingent rights |
9,486 | |||
Advance on purchase price |
2,000 | |||
Total consideration |
$ | 41,985 | ||
The purchase price was allocated to the assets acquired and liabilities assumed based on
managements estimates of their fair values on the acquisition date. The excess of the purchase
consideration over the fair value of the net assets acquired was allocated to goodwill. Goodwill is
not being amortized but reviewed annually for impairment, or more frequently if impairment
indicators arise. In part, goodwill reflected the competitive advantages the Company expected to
realize from Azaleas standing in the China service provider industry as well as Azaleas product
differentiation.
8
Table of Contents
The following table summarizes the estimated purchase price allocation (in thousands, except
estimated useful lives). Estimates of liabilities are subject to change, pending the Companys
final review of Azaleas obligations.
Cash and cash equivalents |
$ | 550 | ||||||
Accounts receivable |
2,525 | |||||||
Inventory |
1,794 | |||||||
Prepaids and other assets |
331 | |||||||
Property and equipment |
265 | |||||||
Total tangible assets acquired |
5,465 |
Estimated | ||||||||
Useful Lives | ||||||||
Amortizable intangible assets: |
||||||||
Existing technology |
11,800 | 5 years | ||||||
Patents/core technology |
2,300 | 6 years | ||||||
Customer contracts |
1,800 | 6 years | ||||||
Tradenames/trademarks |
100 | 1 year | ||||||
Non-compete agreements |
100 | 2 years | ||||||
In-process research and development |
900 | |||||||
Goodwill |
24,842 | |||||||
Total assets acquired |
47,307 | |||||||
Liabilities |
(5,322 | ) | ||||||
Total liabilities assumed |
(5,322 | ) | ||||||
Total |
$ | 41,985 | ||||||
The purchased intangible assets have a weighted average useful life of 5.2 years from the
date of the acquisition.
A portion of the purchase price was allocated to developed product technology and in-process
research and development (IPR&D). They were identified and valued through an analysis of data
provided by Azalea concerning developmental products, their stage of development, the time and
resources needed to complete them, target markets, their expected income generating ability and
associated risks. The Income Approach, which is based on the premise that the value of an asset is
the present value of its future earning capacity, was the primary valuation technique employed. A
discount rate of 16% was applied to developed product technology and IPR&D. The Company recognizes
IPR&D at fair value as of the acquisition date, and subsequently accounts for it as an
indefinite-lived intangible asset until completion or abandonment of the associated research and
development efforts. IPR&D is tested for impairment during the period it is considered an
indefinite lived asset.
Developed product technology, which includes products that are already technologically
feasible, is primarily comprised of a portfolio of outdoor mesh routers. Developmental projects
that had not reached technological feasibility are recognized as identifiable intangible assets.
The principal project at the acquisition date relates to developing multi-radio outdoor mesh
routers for the core network for even the largest enterprises. This technology would enable faster
internet access for higher throughput performance, covering greater distances for both mesh and
video networks. The Company expects to incur an immaterial amount of post-acquisition costs during
fiscal 2011. The Company expects to complete all work by the end of fiscal 2011.
The Company expensed $0.7 million of acquisition-related costs incurred as general and
administrative expenses in the Consolidated Statements of Operations in the period the expense was
incurred.
Based on its evaluation of the materiality of Azaleas stand-alone financial statements to the
Consolidated Financial Statements of Aruba Networks taken as a whole, the Company determined that
the acquisition does not meet the requirements needed to disclose pro forma financial statements
for the acquisition.
Contingent Rights Liability
Contingent rights were issued to each Azalea shareholder as part of the purchase
consideration. For each share received, the Azalea shareholder also received a right to receive an
amount of cash equal to the shortfall generated if a share is sold below the target value within
the payment period, as specified in the arrangement. For shares not held in escrow, the payment
period begins August 1, 2011 and ends on December 31, 2011. For shares held in escrow, the payment
period begins April 2, 2012 and ends on May 1, 2012. The rights are subject to forfeiture in
certain circumstances.
At the acquisition date, the Company recorded a liability for the estimated fair value of the
contingent rights of $9.5 million. This liability was estimated using a lattice model and was based
on significant inputs not observed in the market and thus represented a Level 3 instrument. Level 3
instruments are valued based on unobservable inputs that are supported by little or no market
activity and reflect the Companys own assumptions in measuring fair value. The inputs included:
| stock price as of the valuation date; | ||
| strike price of the contingent right; |
9
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| maximum payoff per share; | ||
| number of shares held in and outside of escrow; | ||
| exercise period; | ||
| historical volatility of the Companys stock price based on weekly stock price returns; and | ||
| risk-free rate interpolated from the Constant Maturity Treasury Rate. |
The change in fair value from the acquisition date to April 30, 2011 was primarily driven by
an increase in the Companys stock price and the approaching settlement date. Gains and losses on
the remeasurement of the contingent rights liability are included in other income (expense), net.
As the fair value of the contingent rights liability will largely be determined based on the
Companys closing stock price as of future fiscal period-ends, it is not possible to determine a
probable range of possible outcomes of the valuation of the contingent rights liability. However,
the maximum contingent rights liability will be no more than $13.5 million as defined in the
acquisition agreement.
The following table represents the change in the contingent rights liability:
Level 3 | ||||
Amount | ||||
(in thousands) | ||||
Balance as of July 31, 2010 |
$ | | ||
Acquisition date fair value measurement |
9,486 | |||
Adjustments to fair value |
(7,991 | ) | ||
Balance as of April 30, 2011 |
$ | 1,495 | ||
On November 19, 2010, the Company entered into an agreement with an Australian-based company,
pursuant to which Aruba acquired substantially all of the assets of the Australian-based company.
The acquisition was completed on December 3, 2010. The total consideration was $3.0 million and
resulted in additional goodwill of $0.6 million.
3. Goodwill and Intangible Assets
The following table presents details of the Companys goodwill:
Amount | ||||
(in thousands) | ||||
As of July 31, 2010 |
$ | 7,656 | ||
Goodwill acquired in acquisition |
25,487 | |||
As of April 30, 2011 |
$ | 33,143 | ||
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The following table presents details of the Companys total purchased intangible assets:
Estimated | Gross | Accumulated | Net | |||||||||||||
Useful Lives | Value | Amortization | Value | |||||||||||||
(in thousands, except estimated useful lives) | ||||||||||||||||
As of April 30, 2011 |
||||||||||||||||
Existing technology |
4 to 5 years | $ | 22,383 | $ | (9,363 | ) | $ | 13,020 | ||||||||
In-process research
and development |
NA | 1,200 | | 1,200 | ||||||||||||
Patents/core technology |
4 to 6 years | 5,846 | (2,801 | ) | 3,045 | |||||||||||
Customer contracts |
6 to 7 years | 6,933 | (2,850 | ) | 4,083 | |||||||||||
Support agreements |
5 to 6 years | 2,917 | (1,705 | ) | 1,212 | |||||||||||
Tradenames/trademarks |
1 to 5 years | 750 | (461 | ) | 289 | |||||||||||
Non-compete agreements |
2 years | 812 | (746 | ) | 66 | |||||||||||
Total |
$ | 40,841 | $ | (17,926 | ) | $ | 22,915 | |||||||||
Estimated | Gross | Accumulated | Net | |||||||||||||
Useful Lives | Value | Amortization | Value | |||||||||||||
(in thousands, except estimated useful lives) | ||||||||||||||||
As of July 31, 2010 |
||||||||||||||||
Existing technology |
4 years | $ | 9,283 | $ | (5,914 | ) | $ | 3,369 | ||||||||
Patents/core technology |
4 years | 3,046 | (1,940 | ) | 1,106 | |||||||||||
Customer contracts |
6 to 7 years | 5,083 | (2,020 | ) | 3,063 | |||||||||||
Support agreements |
5 to 6 years | 2,717 | (1,284 | ) | 1,433 | |||||||||||
Tradenames/trademarks |
5 years | 600 | (284 | ) | 316 | |||||||||||
Non-compete agreements |
2 years | 712 | (712 | ) | | |||||||||||
Total |
$ | 21,441 | $ | (12,154 | ) | $ | 9,287 | |||||||||
Amortization expense is recorded in the Consolidated Statements of Operations under the
following:
Three months ended April 30, | Nine months ended April 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Cost of product revenues |
$ | 1,558 | $ | 770 | $ | 4,310 | $ | 2,312 | ||||||||
Cost of professional
services and support
revenues |
135 | 135 | 405 | 405 | ||||||||||||
Sales and marketing |
375 | 288 | 1,057 | 942 | ||||||||||||
Total amortization expense |
$ | 2,068 | $ | 1,193 | $ | 5,772 | $ | 3,659 | ||||||||
The estimated future amortization expense of purchased intangible assets as of April 30,
2011 is as follows:
Amount | ||||
(in thousands) | ||||
Remaining three months of fiscal 2011 |
$ | 2,043 | ||
Years ending July 31, |
||||
2012 |
6,490 | |||
2013 |
4,753 | |||
2014 |
4,049 | |||
2015 |
3,276 | |||
Thereafter |
1,104 | |||
Total |
$ | 21,715 | ||
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4. Net Income (Loss) Per Common Share
Basic net income (loss) per common share is calculated by dividing net income (loss) by the
weighted average number of common shares outstanding during the period. Diluted net income (loss)
per common share is calculated by giving effect to all potentially dilutive common shares,
including stock options and awards, unless the result is anti-dilutive. The following tables set
forth the computation of net income (loss) per share:
Three months ended | Nine months ended | |||||||
April 30, 2011 | April 30, 2011 | |||||||
(in thousands, except per share data) | ||||||||
Net income |
$ | 3,201 | $ | 2,503 | ||||
Weighted-average common shares outstanding-basic |
102,055 | 98,962 | ||||||
Dilutive effect of employee stock plans |
17,312 | 17,327 | ||||||
Weighted-average common shares outstanding-diluted |
119,367 | 116,289 | ||||||
Net income per share-basic |
$ | 0.03 | $ | 0.03 | ||||
Net income per share-diluted |
$ | 0.03 | $ | 0.02 | ||||
Three months ended | Nine months ended | |||||||
April 30, 2010 | April 30, 2010 | |||||||
(in thousands, except per share data) | ||||||||
Net loss |
$ | (5,318 | ) | $ | (34,420 | ) | ||
Weighted-average common shares outstanding
net of weighted-average common shares subject to repurchase |
90,874 | 88,978 | ||||||
Net loss per share-basic and diluted |
$ | (0.06 | ) | $ | (0.39 | ) | ||
The following outstanding stock options and restricted stock awards were excluded from
the computation of diluted net income (loss) per common share for the periods presented because
including them would have had an anti-dilutive effect.
Three months ended April 30, | Nine months ended April 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Options to purchase
common stock |
1,672 | 4,010 | 1,250 | 5,302 | ||||||||||||
Restricted stock awards |
82 | 170 | 268 | 165 |
5. Short-term Investments
Short-term investments consist of the following:
Gross | Gross | |||||||||||||||
Cost | Unrealized | Unrealized | Fair | |||||||||||||
Basis | Gains | Losses | Value | |||||||||||||
(in thousands) | ||||||||||||||||
As of April 30, 2011 |
||||||||||||||||
Corporate bonds and notes |
$ | 35,839 | $ | 134 | $ | | $ | 35,973 | ||||||||
U.S. government agency securities |
55,032 | 46 | | 55,078 | ||||||||||||
U.S. treasury bills |
35,453 | 77 | | 35,530 | ||||||||||||
Commercial paper |
2,449 | 1 | | 2,450 | ||||||||||||
Certificates of deposit |
4,517 | 5 | | 4,522 | ||||||||||||
Total short-term
investments |
$ | 133,290 | $ | 263 | $ | | $ | 133,553 | ||||||||
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Gross | Gross | |||||||||||||||
Cost | Unrealized | Unrealized | Fair | |||||||||||||
Basis | Gains | Losses | Value | |||||||||||||
(in thousands) | ||||||||||||||||
As of July 31, 2010 |
||||||||||||||||
Corporate bonds and notes |
$ | 23,802 | $ | 69 | $ | (4 | ) | $ | 23,867 | |||||||
U.S. government agency securities |
80,683 | 78 | (9 | ) | 80,752 | |||||||||||
U.S. treasury bills |
12,816 | 57 | | 12,873 | ||||||||||||
Commercial paper |
4,495 | | | 4,495 | ||||||||||||
Certificates of deposit |
2,179 | 1 | | 2,180 | ||||||||||||
Total short-term
investments |
$ | 123,975 | $ | 205 | $ | (13 | ) | $ | 124,167 | |||||||
The cost basis and fair value of debt securities by contractual maturity, are presented
below:
Cost | Fair | |||||||
Basis | Value | |||||||
(in thousands) | ||||||||
As of April 30, 2011 |
||||||||
One year or less |
$ | 60,668 | $ | 60,777 | ||||
One to two years |
72,622 | 72,776 | ||||||
Total short-term investments |
$ | 133,290 | $ | 133,553 | ||||
The Company reviews the individual securities in its portfolio to determine whether a decline
in a securitys fair value below the amortized cost basis is other than temporary. The Company
determined that there were no investments in its portfolio, related to credit losses or otherwise,
that were other-than temporarily impaired during the third quarter or first nine months of fiscal
2011 or 2010.
There were no securities in an unrealized loss position as of April 30, 2011.
Fair Value of Financial Instruments
Cash and cash equivalents consist primarily of bank deposits with third-party financial
institutions and highly liquid money market securities with original maturities at date of purchase
of 90 days or less and are stated at cost which approximates fair value.
Short-term investments are recorded at fair value, defined as the exit price in the principal
market in which the Company would transact representing the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants.
Level 1 instruments are valued based on quoted market prices in active markets for identical
instruments and include the Companys investments in money market funds. Level 2 securities are
valued using quoted market prices for similar instruments, nonbinding market prices that are
corroborated by observable market data, or discounted cash flow techniques and include the
Companys investments in corporate bonds and notes, U.S. government agency securities, treasury
bills, and commercial paper. Level 3 instruments are valued based on unobservable inputs that are
supported by little or no market activity and reflect the Companys own assumptions in measuring
fair value. The Company has no short-term investments classified as Level 3 instruments.
As of April 30, 2011, the fair value measurements of the Companys cash, cash equivalents and
short-term investments consisted of the following:
Total | Level 1 | Level 2 | ||||||||||
(in thousands) | ||||||||||||
Corporate bonds and notes |
$ | 35,973 | $ | 35,973 | ||||||||
U.S. government agency securities |
55,078 | 55,078 | ||||||||||
U.S. treasury bills |
35,530 | 35,530 | ||||||||||
Commercial paper |
2,450 | 2,450 | ||||||||||
Money market funds |
16,193 | 16,193 | ||||||||||
Total cash equivalents and short-term investments |
145,224 | $ | 16,193 | $ | 129,031 | |||||||
Certificates of deposit |
4,522 | |||||||||||
Cash deposits with third-party financial institutions |
61,052 | |||||||||||
Total cash, cash equivalents and short-term
investments |
$ | 210,798 | ||||||||||
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6. Balance Sheet Components
The following tables provide details of selected balance sheet items:
April 30, | July 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Accounts Receivable, net |
||||||||
Trade accounts receivable |
$ | 67,758 | $ | 41,731 | ||||
Less: Allowance for doubtful accounts |
(294 | ) | (462 | ) | ||||
Total |
$ | 67,464 | $ | 41,269 | ||||
April 30, | July 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Inventory |
||||||||
Raw materials |
$ | 230 | $ | 294 | ||||
Finished goods |
20,455 | 14,865 | ||||||
Total |
$ | 20,685 | $ | 15,159 | ||||
April 30, | July 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Accrued Liabilities |
||||||||
Compensation and benefits |
$ | 15,985 | $ | 11,363 | ||||
Inventory |
13,564 | 9,381 | ||||||
Marketing |
10,590 | 7,176 | ||||||
Contingent rights |
1,495 | | ||||||
Other |
7,206 | 8,538 | ||||||
Total |
$ | 48,840 | $ | 36,458 | ||||
7. Property and Equipment, Net
Property and equipment, net consists of the following:
Estimated | April 30, | July 31, | ||||||||||
Useful Lives | 2011 | 2010 | ||||||||||
(in thousands, except estimated useful lives) | ||||||||||||
Computer equipment |
2 years | $ | 11,172 | $ | 7,993 | |||||||
Computer software |
2 to 5 years | 5,450 | 4,558 | |||||||||
Machinery and equipment |
2 years | 13,241 | 10,441 | |||||||||
Furniture and fixtures |
5 years | 2,926 | 2,397 | |||||||||
Leasehold improvements |
2 to 6 years | 2,417 | 2,174 | |||||||||
Total property and equipment, gross |
35,206 | 27,563 | ||||||||||
Less: Accumulated depreciation and
amortization |
(22,676 | ) | (17,644 | ) | ||||||||
Total property and equipment, net |
$ | 12,530 | $ | 9,919 | ||||||||
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8. Deferred Revenue
Deferred revenue consists of the following:
April 30, | July 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Product |
$ | 15,741 | $ | 16,087 | ||||
Professional services and support |
33,570 | 27,298 | ||||||
Ratable product and related services and support |
537 | 37 | ||||||
Total deferred revenue, current |
49,848 | 43,422 | ||||||
Professional services and support, long-term |
11,949 | 10,976 | ||||||
Ratable product and related services and
support, long-term |
391 | | ||||||
Total deferred revenue, long-term |
12,340 | 10,976 | ||||||
Total deferred revenue |
$ | 62,188 | $ | 54,398 | ||||
Deferred product revenue relates to arrangements where not all revenue recognition
criteria have been met. Deferred professional services and support revenue primarily represents
customer payments made in advance for support contracts. Support contracts are typically billed on
an annual basis in advance and revenue is recognized ratably over the support period, typically one
to five years.
Deferred ratable product and related services and support revenue consists of revenue on
transactions where VSOE of fair value of support has not been established and the entire
arrangement is being recognized ratably over the support period, which typically ranges from one
year to three years. The increase in ratable product and related services and support is due to the
acquisition of Azalea.
9. Income Taxes
For the three and nine months ended April 30, 2011, the Company generated operating losses.
The Company also generated book and taxable income in certain U.S. state and specific foreign
jurisdictions for the three and nine months ended April 30, 2011, without consideration of windfall
tax benefits. For the three and nine months ended April 30, 2010, the Company generated
consolidated book income and taxable income in certain U.S. state and foreign jurisdictions.
The Company has maintained a valuation allowance fully offsetting its gross deferred tax
assets in accordance with the provisions of ASC 740, Accounting for Income Taxes, which requires
an assessment of both positive and negative evidence regarding the realizability of these deferred
tax assets. The valuation allowance is reviewed quarterly and is maintained until management
determines there is sufficient positive evidence such that it is more likely than not that its
deferred tax assets will be realized to support a reversal. In determining net deferred tax assets
and valuation allowances, management is required to make judgments and estimates related to
projections of profitability, the timing and extent of the utilization of net operating loss
carryforwards, applicable tax rates, transfer pricing methodologies and tax planning strategies.
Any release of the valuation allowance will be recorded as a tax benefit increasing net income, an
adjustment to acquisition intangibles, or an adjustment to additional paid-in capital. The Company
believes it may release a portion of this valuation allowance during fiscal year
2012, although the exact timing is subject to change based on the level of profitability for the
remainder of fiscal year 2011, managements visibility into future period results, and the
implementation of certain tax strategies. Any valuation allowance release will not affect the
amount of cash paid for income taxes.
15
Table of Contents
10. Equity Incentive Plans
Stock Option Activity
The following table summarizes the information about shares available for grant and
outstanding stock option activity:
Options Outstanding | ||||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Weighted | Average | ||||||||||||||||||||||
Shares | Exercise | Average | Remaining | Aggregate | ||||||||||||||||||||
Available for | Number of | Price | Fair Value | Contractual | Intrinsic | |||||||||||||||||||
Grant | Shares | per Share | per Share | Term (Years) | Value | |||||||||||||||||||
As of July 31, 2010 |
635,877 | 23,640,524 | $ | 5.00 | 5.9 | $ | 283,285,534 | |||||||||||||||||
Shares reserved for issuance |
4,680,314 | | ||||||||||||||||||||||
Restricted stock awards granted |
(3,908,215 | ) | | |||||||||||||||||||||
Restricted
stock awards forfeited |
273,871 | | ||||||||||||||||||||||
Options granted |
(1,853,890 | ) | 1,853,890 | 21.88 | $ | 11.70 | ||||||||||||||||||
Options exercised |
| (5,523,623 | ) | 4.52 | 116,601,565 | |||||||||||||||||||
Options cancelled |
740,920 | (740,920 | ) | 9.26 | ||||||||||||||||||||
As of April 30, 2011 |
568,877 | 19,229,871 | $ | 6.60 | 5.2 | $ | 563,779,336 | |||||||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price
of the underlying stock option awards and the fair value of the Companys common stock on the date
of each option exercise. Stock-based compensation expense recognized for stock options for the
three and nine months ended April 30, 2011 was $4.7 million
and $14.4 million, respectively.
Stock-based compensation expense recognized for stock options for the three and nine months ended
April 30, 2010 was $4.6 million and $11.8 million, respectively.
Restricted Stock Award Activity
The following table summarizes the non-vested restricted stock awards activity:
Weighted Average | ||||||||
Grant Date | ||||||||
Fair Value | ||||||||
Shares | per Share | |||||||
As of July 31, 2010 |
2,215,932 | $ | 9.74 | |||||
Awards granted |
3,908,215 | 23.61 | ||||||
Awards vested |
(1,030,119 | ) | 14.30 | |||||
Awards forfeited |
(273,871 | ) | 15.37 | |||||
As of April 30, 2011 |
4,820,157 | $ | 19.69 | |||||
The estimated fair value of restricted stock awards is based on the market price of the
Companys stock on the grant date. Stock-based compensation expense recognized for restricted stock
awards for the three and nine months ended April 30, 2011 was $11.6 million and $27.1 million,
respectively. Stock-based compensation expense recognized for restricted stock awards for the three
and nine months ended April 30, 2010 was $4.2 million and $12.2 million, respectively.
Employee Stock Purchase Plan Activity
During the three months ended April 30, 2011, 1,056,930 shares of the Companys stock were
purchased under its Employees Stock Purchase Plan (ESPP) at an average price per share of $3.68.
The Company also modified the terms of certain existing awards under its ESPP as a result of
employees who previously participated in ESPP and subsequently elected to increase their
contribution. Consequently, the Company will recognize $0.4 million in incremental stock-based
compensation expense over the vesting period. The Company recognized $0.1 million in incremental
stock-based compensation expense arising from the award modification for the three months ended
April 30, 2011.
Stock-based compensation expense recognized in connection with the ESPP for the three and nine
months ended April 30, 2011 was $1.3 million and $4.3 million, respectively. Compensation expense
recognized in connection with the ESPP for the three and nine months ended April 30, 2010 was $1.1
million and $2.8 million, respectively.
16
Table of Contents
Fair Value Disclosures
The fair value of each option grant is estimated on the date of grant using the Black-Scholes
model with the following weighted average assumptions:
Employee Stock Options
Three months ended April 30, | Nine months ended April 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Risk-free interest rate |
| 1.9 | % | 1.6 | % | 1.8 | % | |||||||||
Expected term (in
years) |
| 4.3 | 4.0 | 4.3 | ||||||||||||
Dividend yield |
| 0 | 0 | 0 | ||||||||||||
Volatility |
| 71 | % | 71 | % | 71 | % |
There were no stock options granted during the three months ended April 30, 2011.
Employee Stock Purchase Plan
Three and nine months ended | Three and nine months ended | ||||
April 30, 2011 | April 30, 2010 | ||||
Risk-free interest rate |
0.2% to 0.7% | 0.2% to 0.8% | |||
Expected term (in years) |
0.5 2.0 | 0.5 2.0 | |||
Dividend yield |
0 | 0 | |||
Volatility |
50% to 56% | 43% to 81% |
The expected term of the stock-based awards represents the period of time that the Company
expects such stock-based awards to be outstanding, giving consideration to the contractual term of
the awards, vesting schedules and expectations of future employee behavior. The Company gave
consideration to its historical exercises, the vesting term of its stock options, the post vesting
cancellation history of its stock options and the stock options contractual terms. The contractual
term of stock options granted is generally seven years. Prior to the third quarter of fiscal 2011,
the Company computed expected volatility based on its historical volatility and the historical
volatility of comparable companies. Beginning in March 2011, the Company computes expected
volatility solely based on its own historical volatility. The Company made an estimate of expected
forfeitures, and is recognizing stock-based compensation only for those equity awards that it
expects to vest. The risk-free interest rate for the expected term of the option is based on the
U.S. Treasury Constant Maturity rate as of the date of grant.
Stock-based Compensation Expenses
Total stock-based compensation expense for the three and nine months ended April 30, 2011 was
$17.6 million and $45.8 million, respectively. Total stock-based compensation expense for the three
and nine months ended April 30, 2010 was $9.9 million and $26.8 million, respectively. The Company
did not capitalize stock-based compensation during the three and nine months ended April 30, 2011
and 2010, due to the amount qualifying for capitalization being immaterial.
11. Comprehensive Income (Loss)
Comprehensive income (loss) includes the following:
Three months ended April 30, | Nine months ended April 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Net income (loss) |
$ | 3,201 | $ | (5,318 | ) | $ | 2,503 | $ | (34,420 | ) | ||||||
Change in unrealized gains on
short term investments, net
of taxes |
39 | (111 | ) | 60 | (101 | ) | ||||||||||
Total |
$ | 3,240 | $ | (5,429 | ) | $ | 2,563 | $ | (34,521 | ) | ||||||
12. Segment Information and Significant Customers
The Company operates in one industry segment selling fixed and modular mobility controllers,
wired and wireless access points, and related software and services.
Operating segments are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating decision maker, or
decision making group, in deciding how to allocate resources and in assessing performance. The
Companys chief operating decision maker is its Chief Executive Officer. The Companys Chief
Executive Officer reviews financial information presented on a consolidated basis for purposes of
allocating resources and evaluating financial performance. The Company has one business activity,
and there are no segment managers who are held accountable for operations, operating results and
plans for products or components below the consolidated unit level. Accordingly, the Company
reports as a single operating segment. The Company and its Chief Executive Officer evaluate
performance based primarily on revenue in the geographic locations in which the Company operates.
Revenue is attributed by geographic location based on the ship-to location of the Companys
customers. The Companys assets are primarily located in the U.S. and not allocated to any specific
region. Therefore, geographic information is presented only for total revenue.
17
Table of Contents
The following presents total revenue by geographic region:
Three months ended April 30, | Nine months ended April 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
United States |
$ | 62,238 | $ | 40,275 | $ | 174,377 | $ | 112,552 | ||||||||
Europe, Middle East
and Africa |
18,527 | 10,307 | 47,384 | 27,974 | ||||||||||||
Asia Pacific |
21,592 | 15,940 | 51,267 | 39,772 | ||||||||||||
Rest of World |
3,394 | 2,435 | 9,728 | 8,910 | ||||||||||||
Total |
$ | 105,751 | $ | 68,957 | $ | 282,756 | $ | 189,208 | ||||||||
The following table presents significant channel partners as a percentage of total
revenues:
Three months ended April 30, | Nine months ended April 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
ScanSource, Inc.
(Catalyst) |
17.7 | % | 16.8 | % | 18.3 | % | 14.8 | % | ||||||||
Avnet Logistics U.S. LP |
15.2 | % | 16.1 | % | 15.1 | % | 14.8 | % | ||||||||
Alcatel-Lucent |
15.1 | % | 10.3 | % | 14.2 | % | 11.4 | % |
13. Commitments and Contingencies
Legal Matters
The Company could become involved in litigation from time to time relating to claims arising
out of its ordinary course of business. There were no claims as of April 30, 2011 that, in the
opinion of management, might have a material adverse effect on the Companys financial position,
results of operations or cash flows.
During the first quarter of fiscal 2010, the Company entered into a Patent Cross License and
Settlement Agreement with Motorola. As part of the Settlement Agreement, the Company agreed to pay
Motorola $19.8 million.
During the second and third quarters of fiscal 2010, the Company recorded additional reserves of $0.5
million and $1.7 million, respectively, related to a legal matters.
Lease Obligation
The Company leases office space under non-cancelable operating leases with various expiration
dates through July 2016. The terms of certain operating leases provide for rental payments on a
graduated scale. The Company recognizes rent expense on a straight-line basis over the respective
lease periods and has accrued for rent expense incurred but not paid.
Future minimum lease payments under non-cancelable operating leases are as follows:
Operating | ||||
Leases | ||||
(in thousands) | ||||
Three months remaining in fiscal 2011 |
$ | 979 | ||
Year ending July 31, |
||||
2012 |
4,452 | |||
2013 |
4,143 | |||
2014 |
3,862 | |||
2015 |
3,891 | |||
2016 |
3,336 | |||
Total minimum payments |
$ | 20,663 | ||
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Non-cancelable purchase commitments
The Company outsources the production of its hardware to third-party contract manufacturers.
In addition, the Company enters into various inventory related purchase commitments with its
contract manufacturers and other suppliers. The Company had $25.0 million and $20.3 million in
non-cancelable purchase commitments with these providers as of April 30, 2011 and July 31, 2010,
respectively. The Company expects to sell all products that it has committed to purchase from these
providers.
Warranties
The Company provides for future warranty costs upon product delivery. The specific terms and
conditions of those warranties vary depending upon the product sold and country in which the
Company does business. In the case of hardware, the warranties are generally for 12-15 months from
the date of purchase. The Company also has a lifetime warranty program on certain access points
purchased subsequent to the announcement of the program.
The Company warrants that any media on which its software products are recorded will be free
from defects in materials and workmanship under normal use for a period of 90 days from the date
the products are delivered to the end customer. In addition, the Company warrants that its hardware
products will substantially conform to the Companys published specifications. Historically, the
Company has experienced minimal warranty costs. Factors that affect the Companys warranty
liability include the number of installed units, historical experience and managements judgment
regarding anticipated rates of warranty claims and cost per claim. The Company assesses the
adequacy of its recorded warranty liabilities every reporting period and makes adjustments to the
liability as necessary.
The warranty liability is included as a component of accrued liabilities on the balance sheet.
Changes in the warranty liability are as follows:
Warranty | ||||
Amount | ||||
(in thousands) | ||||
As of July 31, 2010 |
$ | 210 | ||
Provision |
298 | |||
Obligations fulfilled during period |
(182 | ) | ||
As of April 30, 2011 |
$ | 326 | ||
Indemnifications
In its sales agreements, the Company may agree to indemnify its indirect sales channels and
end user customers for any expenses or liability resulting from claimed infringements of patents,
trademarks or copyrights of third parties. The terms of these indemnification agreements are
generally perpetual any time after execution of the agreement. The maximum amount of potential
future indemnification is unlimited. To date the Company has not paid any amounts to settle claims
or defend lawsuits pursuant to any indemnification obligation. The Company is unable to reasonably
estimate the maximum amount that could be payable under these arrangements since these obligations
are not capped but are conditional to the unique facts and circumstances involved. Accordingly, the
Company has no liabilities recorded for these agreements as of April 30, 2011 and July 31, 2010.
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
In addition to historical information, this report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These statements include, among other things, statements concerning our expectations:
| that revenues from our indirect channels will continue to constitute a significant majority of our future revenues; | |
| that our product offerings, in particular our products that incorporate 802.11n wireless LAN standard technologies, will enable broader networking initiatives by both our current and potential customers; | |
| that, within our indirect channel, sales through our VADs and OEMs will grow, which will negatively impact our gross margins as VADs and OEMs experience a larger net effective discount than our other channel partners; | |
| that international revenues will increase in absolute dollars and remain consistent as a percentage of total revenues in fiscal 2011 compared to fiscal 2010; | |
| that we will continue to hire employees throughout the company; | |
| that we will continue to invest significantly in our research and development efforts; | |
| that research and development expenses for fiscal 2011 will increase on an absolute dollar basis and as a percentage of revenue compared to fiscal 2010; | |
| regarding continued momentum in our right-sizing initiative; | |
| that sales and marketing expenses for fiscal 2011 will continue to be our most significant operating expense and will increase on an absolute dollar basis and decrease as a percentage of revenue compared to fiscal 2010; | |
| that general and administrative expenses for fiscal 2011 will increase on an absolute dollar basis and decrease as a percentage of revenue compared to fiscal 2010; | |
| that ratable product and related professional services and support revenues will decrease in absolute dollars and as a percentage of total revenues in future periods; | |
| that, as we expand internationally, we may incur additional costs to conform our products to comply with local laws and product specifications, and we plan to continue to hire additional personnel to support our growing international customer base; | |
| regarding the sufficiency of our existing cash, cash equivalents, short-term investments and cash generated from operations; and | |
| that we will increase our market penetration and extend our geographic reach through our network of channel partners, |
as well as other statements regarding our future operations, financial condition, prospects and
business strategies. These forward-looking statements are subject to certain risks and
uncertainties that could cause our actual results to differ materially from those reflected in the
forward-looking statements. Factors that could cause or contribute to such differences include, but
are not limited to, those discussed in this report, and in particular, the risks discussed under
the heading Risk Factors in Part II, Item 1A of this report and those discussed in other
documents we file with the Securities and Exchange Commission. We undertake no obligation to revise
or publicly release the results of any revision to these forward-looking statements. Given these
risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking
statements.
The following discussion and analysis of our financial condition and results of operations
should be read together with our consolidated financial statements and related notes included
elsewhere in this report.
Overview
We are a global leader in distributed enterprise networks that securely connect local and
remote users to corporate IT resources. Our award-winning portfolio of campus, branch office,
teleworker, and mobile solutions simplify operations and provide secure access to all corporate
applications and services regardless of a users device, location, or network. The result is
improved productivity and lower capital and operating costs.
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Our product portfolio encompasses: industry-leading high-speed 802.11a/b/g/n WLANs, Virtual
Branching Networking solutions for branch offices and teleworkers, network operations tools,
including spectrum analyzers, wireless intrusion prevention systems, and the AirWave Wireless
Management Suite for managing wired, wireless, and mobile device networks. During the third quarter
of fiscal 2011, we introduced our new Mobile Virtual Enterprise, or MOVE, architecture. Aruba MOVE
architecture integrates wireless, wired and remote silos into one cohesive access solution enabled
by cloud based mobility services. Access privileges are context aware, meaning they are based on
user, device, application and location, and this dictates the type of network resources each person
is entitled to access. These products are key to our rightsizing initiative which allows companies
to move toward a low-cost IT infrastructure solution by funding wireless projects rather than wired
LANs.
Our products have been sold to over 14,000 end customers worldwide (not including customers of
Alcatel-Lucent), including some of the largest and most complex global organizations. We have
implemented a two-tier distribution model in most areas of the world, including the United States,
with VADs selling our portfolio of products, including a variety of our support services, to a
diverse number of VARs. Our focus continues to be management of our channel including selection and
growth of high prospect partners, activation of our VARs and VADs through active training and field
collaboration, and evolution of our channel programs in consultation with our partners.
Our ability to increase our product revenues will depend significantly on continued growth in
the market for enterprise mobility and remote networking solutions, continued acceptance of our
products in the marketplace, our ability to continue to attract new customers, our ability to
compete, the willingness of customers to displace wired networks with wireless LANs, in particular,
wireless LANs that utilize our 802.11n solution, and our ability to continue to sell into our
installed base of existing customers. Our growth in support revenues is dependent upon increasing
the number of products under support contracts, which is dependent on both growing our installed
base of customers and renewing existing support contracts. Our future profitability and rate of
growth, if any, will be directly affected by the continued acceptance of our products in the
marketplace, as well as the timing and size of orders, product and channel mix, average selling
prices, costs of our products and general economic conditions. Our future profitability will also
be affected by our ability to effectively implement and generate incremental business from our
two-tier distribution model, the extent to which we invest in our sales and marketing, research and
development, and general and administrative resources to grow our business, and current economic
conditions.
While our revenues have increased over several quarters, economic conditions worldwide have
negatively impacted our business. We believe in the long-term growth prospects of the WLAN market,
but the deterioration in overall economic conditions and in particular, tightening in the credit
markets and reduced spending by both enterprises and consumers have significantly impacted various
industries on which we rely for purchasing our products. This has led to our customers deferring
purchases in response to tighter credit, negative financial news and delayed budget approvals.
These factors could create significant and increasing uncertainty for the future if they continue
to negatively impact technology spending for the products and services we offer, which would have a
material adverse effect on our business, operating results and financial condition.
The revenue growth that we have experienced has been driven primarily by an expansion of our
customer base coupled with increased purchases from existing customers. We believe the growth we
have experienced is the result of business enterprises needing to provide secure mobility to their
users in a manner that we believe is more cost effective than the traditional approach of using
port-centric networks. While we have experienced both longer sales cycles and seasonality, both of
which have slowed our revenue growth, we believe that our product offerings, in particular our
products that incorporate 802.11n wireless LAN standard technologies, will enable broader
networking initiatives by both our current and potential customers in the future. Each
quarter, our ability to meet our product revenue expectations is dependent upon (1) new orders
received, shipped, and recognized in a given quarter, (2) the amount of orders booked but not
shipped in the prior quarter that are shipped in the current quarter, and (3) the amount of
deferred revenue entering a given quarter. Our product deferred revenue is comprised of:
| product orders that have shipped but where the terms of the agreement, typically with our large customers, contain acceptance terms and conditions or other terms that require that the revenue be deferred until all revenue recognition criteria are met; and | |
| product orders shipped to our VADs and OEMs for which we have not yet received persuasive evidence from the VADs or OEMs of a sale to an end customer. |
We typically ship products within a reasonable time period after the receipt of an order.
On November 19, 2010, we entered into an agreement with an Australian-based company, pursuant
to which we acquired substantially all of its assets. The acquisition was completed on December 3,
2010. The total consideration was $3.0 million and resulted in additional goodwill of $0.6 million.
On September 2, 2010, we completed our acquisition of Azalea Networks (Azalea) for a total
purchase price of $42.0 million which included common stock, cash, and contingent rights. Azalea is
a leading supplier of outdoor mesh networks and includes an operations center in Beijing, China
that will complement our existing research and development centers. As part of the acquisition, we
recorded $5.5 million of tangible assets, $17.0 million of intangible assets and $24.8 million of
goodwill. We recorded a liability for the estimated fair value of the contingent rights which was
based on significant inputs not observed in the market and thus represents a Level 3 instrument.
Level 3
instruments are valued based on unobservable inputs that are supported by little or no market
activity and reflect our own assumptions in measuring fair value. Gains and losses on the
remeasurement of the liability are included in other income (expense), net.
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Revenues, Cost of Revenues and Operating Expenses
Revenues
We derive our revenues from sales of our ArubaOS operating system, controllers, wired and
wireless access points, application software modules, multi-vendor management solution software,
and professional services and support. Professional services revenues consist of consulting and
training services. Consulting services primarily consist of installation support services. Training
services are instructor led courses on the use of our products. Support services typically consist
of software updates, on a when-and-if available basis, telephone and internet access to technical
support personnel and hardware support. We provide customers with rights to unspecified software
product upgrades and to maintenance releases and patches released during the term of the support
period.
We sell our products directly through our sales force and indirectly through VADs, VARs, and
OEMs. We expect revenues from indirect channels to continue to constitute a significant majority of
our future revenues.
We sell our products to channel partners and end customers located in the Americas, Europe,
the Middle East, Africa and Asia Pacific. We continue to expand into international locations and
introduce our products in new markets, and we expect international revenues to increase in absolute
dollars and remain consistent as a percentage of total revenues in fiscal 2011 compared to fiscal
2010. For more information about our international revenues, see Note 12 of the Notes to
Consolidated Financial Statements.
Cost of Revenues
Cost of product revenues consists primarily of manufacturing costs for our products, shipping
and logistics costs, and expenses for inventory obsolescence and warranty obligations. We utilize
third parties to manufacture our products and perform shipping logistics. We have outsourced the
substantial majority of our manufacturing, repair and supply chain operations. Accordingly, the
substantial majority of our cost of revenues consists of payments to our contract manufacturers.
Our contractor manufacturers produce our products in China and Singapore using quality assurance
programs and standards that we jointly established. Manufacturing, engineering and documentation
controls are conducted at our facilities in Sunnyvale, California, Bangalore, India and Beijing,
China. Cost of product revenues also includes amortization expense from our purchased intangible
assets.
Cost of professional services and support revenues is primarily comprised of personnel costs,
including stock-based compensation, of providing technical support, including personnel costs
associated with our internal support organization. In addition, we employ a third-party support
vendor to complement our internal support resources, the costs of which are included within costs
of professional services and support revenues.
Gross Margin
Our gross margin has been, and will continue to be, affected by a variety of factors,
including:
| the proportion of our products that are sold through direct versus indirect channels; | |
| product mix and average selling prices; | |
| new product introductions, such as Aruba MOVE architecture and our outdoor mesh network products, and product enhancements made by us as well as those made by our competitors; | |
| pressure to discount our products in response to our competitors discounting practices; | |
| demand for our products and services; | |
| our ability to attain volume manufacturing pricing from our contract manufacturers and our component suppliers; | |
| losses associated with excess and obsolete inventory; | |
| growth in our headcount and other related costs incurred in our customer support organization; | |
| costs associated with manufacturing overhead; | |
| our ability to manage freight costs; and | |
| amortization expense from our purchased intangible assets. |
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Due to higher net effective discounts for products sold through our indirect channel, our
overall gross margins for indirect channel sales are typically lower than those associated with
direct sales. We expect product revenues from our indirect channel to continue to constitute a
significant majority of our total revenues, which, by itself, negatively impacts our gross margins.
Further, we expect that within our indirect channel, sales through our VADs and OEMs will grow,
which will negatively impact our gross margins as VADs and OEMs experience a larger net effective
discount than our other channel partners.
Operating Expenses
Operating expenses consist of research and development, sales and marketing, and general and
administrative expenses. The largest component of our operating expenses is personnel costs.
Personnel costs consist of salaries, benefits and incentive compensation for our employees,
including commissions for sales personnel and stock-based compensation for all employees.
Our total headcount increased to 1,009 at April 30, 2011, from 924 at January 31, 2011, 868 at
October 31, 2010 and 681 at July 31, 2010. Going forward, we expect to continue to hire employees
throughout the company.
Research and development expenses primarily consist of personnel costs and facilities costs.
We expense research and development expenses as incurred. We are devoting substantial resources to
the continued development of additional functionality for existing products and the development of
new products. We intend to continue to invest significantly in our research and development efforts
because we believe it is essential to maintaining our competitive position. For fiscal 2011, we
expect research and development expenses to increase on an absolute dollar basis and as a
percentage of revenue compared to fiscal 2010.
Sales and marketing expenses represent the largest component of our operating expenses and
primarily consist of personnel costs, sales commissions, marketing programs and facilities costs.
Marketing programs are intended to generate revenue from new and existing customers and are
expensed as incurred. We plan to continue to invest strategically in sales and marketing with the
intent to add new customers and increase penetration within our existing customer base, expand our
domestic and international sales and marketing activities, build brand awareness and sponsor
additional marketing events. We expect future sales and marketing expenses to continue to be our
most significant operating expense. Generally, sales personnel are not immediately productive, and
thus, the increase in sales and marketing expenses that we experience as we hire additional sales
personnel is not expected to immediately result in increased revenues. As a result, these expenses
will reduce our operating margins until such sales personnel become productive and generate
revenue. Accordingly, the timing of sales personnel hiring and the rate at which they become
productive will affect our future performance. For fiscal 2011, we expect sales and marketing
expenses to increase on an absolute dollar basis and decrease as a percentage of revenue compared
to fiscal 2010.
General and administrative expenses primarily consist of personnel and facilities costs
related to our executive, finance, human resource, information technology and legal organizations,
as well as insurance, investor relations, and IT infrastructure costs related to our ERP system.
Further, our general and administrative expenses include professional services consisting of
outside legal, audit, Sarbanes-Oxley and information technology consulting costs. We have incurred
in the past, and may continue to incur, significant legal costs defending ourselves against claims
made by third parties. These expenses are expected to continue as part of our ongoing operations
and depending on the timing and outcome of lawsuits and the legal process, could have a significant
impact on our financial statements. For fiscal 2011, we expect general and administrative expenses
to increase on an absolute dollar basis and decrease as a percentage of revenue compared to fiscal
2010.
Other Income (Expense), net
Other income (expense), net includes interest income on cash balances, accretion of discount
or amortization of premium on short-term investments, losses or gains on remeasurement of non-U.S.
dollar transactions into U.S. dollars, and in connection with our acquisition of Azalea in
September 2010, changes in the fair value of our contingent rights liability. Cash has historically
been invested in money market funds and marketable securities.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These
accounting principles require us to make estimates and judgments that affect the reported amounts
of assets and liabilities as of the date of the consolidated financial statements, as well as the
reported amounts of revenues and expenses during the periods presented. We believe that the
estimates and judgments upon which we rely are reasonable based on information available to us at
the time that these estimates and judgments are made. To the extent there are material differences
between these estimates and actual results, our consolidated financial statements will be affected.
The accounting policies that reflect our more significant estimates and judgments and which we
believe are the most critical to aid in fully understanding and evaluating our reported financial
results include revenue recognition, stock-based compensation, inventory valuation, allowances for
doubtful accounts, income taxes, and goodwill and purchased intangible assets.
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Our critical accounting policies are disclosed in our Form 10-K for the year ended July 31,
2010. There were no material changes to our critical accounting policies during the first nine
months of fiscal 2011 except for the adoption of ASU 2009-13 and ASU 2009-14. In October 2009, the
FASB amended the accounting standards for revenue recognition to remove tangible products
containing software components and non-software components that function together to deliver the
products essential functionality from the scope of industry-specific software
revenue recognition guidance. In October 2009, the FASB also amended the accounting standards
for multiple-element revenue arrangements to:
(i) | provide updated guidance on how the elements in a multiple-element arrangement should be separated, and how the consideration should be allocated; | |
(ii) | require an entity to allocate revenue amongst the elements in an arrangement using estimated selling price if a vendor does not have VSOE of the selling price or third-party evidence of the selling price; and | |
(iii) | eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. |
We adopted this accounting guidance at the beginning of our first quarter of fiscal 2011 on a
prospective basis for applicable arrangements originating or materially modified after July 31,
2010. The impact of this adoption was not material to our financial position and results of
operations for the first nine months of fiscal 2011.
This guidance does not generally change the units of accounting for our revenue transactions.
Most non-software products and services qualify as separate units of accounting because they have
value to the customer on a stand-alone basis and our revenue arrangements generally do not include
a general right of return relative to delivered products.
The majority of our products are hardware appliances containing software components that
function together to provide the essential functionality of the product. Therefore, our hardware
appliances are considered non-software elements and are not subject to the industry-specific
software revenue recognition guidance.
Our product revenue also includes revenue from the sale of stand-alone software products.
Stand-alone software products may operate on our hardware appliance but are not considered
essential to the functionality of the hardware. Sales of stand-alone software generally include a
perpetual license to our software. Sales of stand-alone software continue to be subject to the
industry-specific software revenue recognition guidance.
For all arrangements originating or materially modified after July 31, 2010, we recognize
revenue in accordance with the amended accounting guidance. Certain arrangements with
multiple-elements may continue to have stand-alone software elements that are subject to the
existing software revenue recognition guidance along with non-software elements that are subject to
the amended revenue accounting guidance. The revenue for these multiple deliverable arrangements is
allocated to the stand-alone software elements as a group and the non-software elements based on
the relative selling prices of all of the elements in the arrangement using the fair value
hierarchy in the amended revenue accounting guidance.
For sales of stand-alone software after July 31, 2010 and for all transactions entered into
prior to the first quarter of 2011, we recognize revenue based on software revenue recognition
guidance. Under the software revenue recognition guidance, we use the residual method to recognize
revenue when a product agreement includes one or more elements to be delivered at a future date and
VSOE of the fair value of all undelivered elements exists. In the majority of our contracts, the
only element that remains undelivered at the time of delivery of the product is support services.
Under the residual method, the fair value of the undelivered elements is deferred and the remaining
portion of the contract fee is recognized as product revenue. If evidence of the fair value of one
or more undelivered elements does not exist, all revenue is generally deferred and recognized when
delivery of those elements occurs or when fair value can be established. When the undelivered
element for which we do not have VSOE of fair value is support, revenue for the entire arrangement
is bundled and recognized ratably over the support period.
VSOE for elements of an arrangement is based upon the normal pricing and discounting practices
for those services when sold separately, and VSOE for support services is measured by the
stand-alone renewal rate offered to the customer. In determining VSOE, we require that a
substantial majority of the selling prices for an element falls within a reasonably narrow pricing
range, generally evidenced by a substantial majority of such historical stand-alone transactions
falling within a reasonably narrow range of the median rates. In addition, we consider major
service groups, geographies, customer classifications, and other variables in determining VSOE.
We are typically not able to determine TPE for our products or services. TPE is determined
based on competitor prices for similar elements when sold separately. Generally, our go-to-market
strategy differs from that of our peers and our offerings contain a significant level of
differentiation such that the comparable pricing of products with similar functionality cannot be
obtained. Furthermore, we are unable to reliably determine what similar competitor products
selling prices are on a stand-alone basis.
When we are unable to establish selling price of our non-software elements using VSOE or TPE,
we use ESP in our allocation of arrangement consideration. The objective of ESP is to determine the
price at which we would transact a sale if the product or service were sold on a stand-alone basis.
We determine ESP for a product or service by considering multiple factors including, but not
limited to, cost of products, gross margin objectives, pricing practices, geographies, customer
classes and distribution channels.
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We regularly review VSOE and ESP and maintain internal controls over the establishment and
updates of these estimates. There was not a material impact during the third quarter or first nine
months of fiscal 2011, nor do we currently expect a material impact in the near term
from changes in VSOE or ESP.
Product revenue consists of revenue from sales of our hardware appliances and perpetual
software licenses. We recognize product revenue when all of the following have occurred: (1) we
have entered into a legally binding arrangement with a customer; (2) delivery has occurred; (3)
customer payment is deemed fixed or determinable and free of contingencies and significant
uncertainties; and (4) collection is reasonably assured.
For sales to direct end-users and channel partners, including value-added resellers,
value-added distributors, and OEMs, we recognize product revenue upon delivery, assuming all other
revenue recognition criteria are met. For our hardware appliances, delivery occurs upon transfer of
title and risk of loss, which is generally upon shipment. It is our practice to identify an
end-user prior to shipment to a channel partner. For end-users and channel partners, we generally
have no significant obligations for future performance such as rights of return or pricing credits.
A portion of our sales are made through distributors under agreements allowing for stocking of our
products in their inventory, pricing credits and limited rights of return for stock rotation.
Product revenue on sales made through these distributors is initially deferred and revenue is
recognized upon sell-through as reported by the distributors to us. Shipping charges billed to
customers are included in product revenue and the related shipping costs are included in cost of
product revenue.
Support and services offerings consist of support agreements, professional services, and
training. Support services include repair and replacement of defective hardware appliances,
software updates and access to technical support personnel. Software updates provide customers with
rights to unspecified software product upgrades and to maintenance releases and patches released
during the term of the support period. Revenue for support services is recognized on a
straight-line basis over the service contract term, which is typically one to five years.
Professional services are recognized upon delivery or completion of performance. Professional
service arrangements are typically short term in nature and are largely completed within 90 days
from the start of service. Training services are recognized upon delivery of the training.
Our fees are typically considered to be fixed or determinable at the inception of an
arrangement, generally based on specific products and quantities to be delivered. Substantially all
of our contracts do not include rights of return or acceptance provisions. To the extent that our
agreements contain such terms, we recognize revenue once the customer has accepted, or once the
acceptance provisions or right of return lapses. Payment terms to customers generally range from
net 30 to 60 days. In the event payment terms are provided that differ from our standard business
practices, the fees are deemed to not be fixed or determinable and revenue is recognized when the
payments become due, provided the remaining criteria for revenue recognition have been met.
We assess the ability to collect from our customers based on a number of factors, including
credit worthiness of the customer and past transaction history of the customer. If the customer is
not deemed credit worthy, we defer revenue from the arrangement until payment is received and all
other revenue recognition criteria have been met.
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Results of Operations
The following table presents our historical operating results as a percentage of revenues for
the periods indicated:
Three months ended April 30, | Nine months ended April 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues: |
||||||||||||||||
Product |
84.6 | % | 82.1 | % | 84.1 | % | 82.4 | % | ||||||||
Professional services and support |
15.3 | % | 17.7 | % | 15.8 | % | 17.3 | % | ||||||||
Ratable product and related
professional services and
support |
0.1 | % | 0.2 | % | 0.1 | % | 0.3 | % | ||||||||
Total revenues |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of revenues: |
||||||||||||||||
Product |
28.3 | % | 28.8 | % | 26.9 | % | 28.8 | % | ||||||||
Professional services and support |
4.0 | % | 3.2 | % | 3.8 | % | 3.4 | % | ||||||||
Ratable product and related
professional services and
support |
0.0 | % | 0.1 | % | 0.0 | % | 0.1 | % | ||||||||
Gross margin |
67.7 | % | 67.9 | % | 69.3 | % | 67.7 | % | ||||||||
Operating expenses: |
||||||||||||||||
Research and development |
21.5 | % | 20.1 | % | 21.8 | % | 19.9 | % | ||||||||
Sales and marketing |
38.7 | % | 40.2 | % | 39.3 | % | 41.8 | % | ||||||||
General and administrative |
9.8 | % | 12.8 | % | 9.8 | % | 12.4 | % | ||||||||
Litigation reserves |
0.0 | % | 2.4 | % | 0.0 | % | 11.6 | % | ||||||||
Total operating expenses |
70.0 | % | 75.5 | % | 70.9 | % | 85.7 | % | ||||||||
Operating margin |
(2.3 | %) | (7.6 | %) | (1.6 | %) | (18.0 | %) | ||||||||
Other income (expense), net |
||||||||||||||||
Interest income |
0.3 | % | 0.3 | % | 0.3 | % | 0.3 | % | ||||||||
Other income (expense), net |
5.3 | % | (0.3 | %) | 2.5 | % | (0.2 | %) | ||||||||
Income (loss) before income taxes |
3.3 | % | (7.6 | %) | 1.2 | % | (17.9 | %) | ||||||||
Provision for income taxes |
0.3 | % | 0.1 | % | 0.3 | % | 0.3 | % | ||||||||
Net income (loss) |
3.0 | % | (7.7 | %) | 0.9 | % | (18.2 | %) | ||||||||
Revenues
The following table presents our revenues, by revenue source, for the periods presented:
Three months ended April 30, | Nine months ended April 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Total revenues |
$ | 105,751 | $ | 68,957 | $ | 282,756 | $ | 189,208 | ||||||||
Type of revenues: |
||||||||||||||||
Product |
89,415 | 56,634 | 237,719 | 155,909 | ||||||||||||
Professional services and support |
16,186 | 12,167 | 44,588 | 32,672 | ||||||||||||
Ratable product and related
professional services and support |
150 | 156 | 449 | 627 | ||||||||||||
Total revenues |
$ | 105,751 | $ | 68,957 | $ | 282,756 | $ | 189,208 | ||||||||
Revenues by geography: |
||||||||||||||||
United States |
62,238 | 40,275 | 174,377 | 112,552 | ||||||||||||
Europe, the Middle East and Africa |
18,527 | 10,307 | 47,384 | 27,974 | ||||||||||||
Asia Pacific |
21,592 | 15,940 | 51,267 | 39,772 | ||||||||||||
Rest of World |
3,394 | 2,435 | 9,728 | 8,910 | ||||||||||||
Total revenues |
$ | 105,751 | $ | 68,957 | $ | 282,756 | $ | 189,208 | ||||||||
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During the third quarter of fiscal 2011, total revenues increased $36.8 million or 53.4%
over the third quarter of fiscal 2010. During the first nine months of fiscal 2011, total revenues
increased $93.5 million or 49.4% compared to the first nine months of fiscal 2010. The increase in
revenues in the third quarter and the first nine months of fiscal 2011 compared to the same periods
in fiscal 2010 was attributable to broad-based demand across all of our major geographies and
verticals, and the significant growth in our customer base. We added over 1,200 new customers
during the third quarter of fiscal 2011 and over 3,000 new customers in the first nine months of
fiscal 2011. Our right-sizing initiative continues to gain momentum as companies move toward a new
access network. The rapid proliferation of wi-fi enabled mobile devices, the increase in demand for
multimedia-rich mobility applications, and the rise of both server and desktop virtualization is
driving this trend.
Product revenues increased 57.9% during the third quarter of fiscal 2011 compared to the same
period in fiscal 2010, and 52.5% during the first nine months of fiscal 2011 compared to the same
period in fiscal 2010. Our product revenues were bolstered by an increase in revenue related to our
802.11n access points with new customers almost exclusively choosing to roll out 802.11n networks.
The increase in professional services and support revenues is a result of both increased product
and first year support sales, and the renewal of support contracts by existing customers as our
customer base continues to grow.
Ratable product and related professional services and support revenues decreased in the third
quarter and first nine months of fiscal 2011 compared to the same periods in fiscal 2010 due to the
run-off in the amortization of deferred revenue associated with those customer contracts that we
entered into prior to our establishment of VSOE of fair value. The current balance of ratable
deferred revenue, and subsequent ratable revenue, relates entirely to our acquisition of Azalea. We
expect ratable product and related professional services and support revenues to continue to
decrease in absolute dollars and as a percentage of total revenues in future periods.
We derived 94.5% of our total revenues from indirect channels, which consist of VADs, VARs and
OEMs, during the third quarter of fiscal 2011, and 92.7% of our total revenues from indirect
channels during the first nine months of fiscal 2011. For fiscal 2010, we generated 94.9% of our
total revenues from indirect channels during the third quarter, and 92.4% of our total revenues
from indirect channels during the first nine months. Going forward, we expect to continue to derive
a significant majority of our total revenues from indirect channels as we continue to focus on
improving the efficiency of marketing and selling our products through these channels.
Revenues from shipments to locations outside the United States increased $14.8 million during
the third quarter of fiscal 2011 compared to the third quarter of fiscal 2010 largely due to strong
demand across all of our international markets. During the first nine months of fiscal 2011,
international revenues increased $31.7 million compared to the first nine months of fiscal 2010. We
continue to expand into international locations and introduce our products in new markets, and we
expect international revenues to increase in absolute dollars and remain consistent as a
percentage of total revenues in fiscal 2011 compared to fiscal 2010.
Cost of Revenues and Gross Margin
Three months ended April 30, | Nine months ended April 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Total revenues |
$ | 105,751 | $ | 68,957 | $ | 282,756 | $ | 189,208 | ||||||||
Cost of product |
29,964 | 19,911 | 76,199 | 54,446 | ||||||||||||
Cost of professional services and support |
4,167 | 2,201 | 10,615 | 6,437 | ||||||||||||
Cost of ratable product and related
professional services and support |
| 46 | 10 | 199 | ||||||||||||
Total cost of revenues |
34,131 | 22,158 | 86,824 | 61,082 | ||||||||||||
Gross profit |
$ | 71,620 | $ | 46,799 | $ | 195,932 | $ | 128,126 | ||||||||
Gross margin |
67.7 | % | 67.9 | % | 69.3 | % | 67.7 | % |
During the third quarter of fiscal 2011 cost of revenues increased 54.0% compared to the
third quarter of fiscal 2010 primarily due to the corresponding increase in our product revenue. In
the first nine months of fiscal 2011, cost of revenues increased 42.1% compared to the first nine
months of fiscal 2010. The substantial majority of our cost of product revenues consists of
payments to Flextronics, our largest contract manufacturer. For the third quarter and first nine
months of fiscal 2011, payments to Flextronics and Flextronics-related costs constituted more than
70% of our cost of product revenues.
Cost of professional services and support revenues increased
89.3% during the third quarter of fiscal 2011 compared to the third quarter of fiscal 2010, and
64.9% during the first nine months of fiscal 2011 compared to the same period in fiscal 2010. These
increases were primarily due to an increase in headcount in our support and professional services
organization to meet the growing demand for these services. Further, these costs increased due to
the acquisition of Azalea in September 2010.
Cost of ratable product and related professional services and support revenues decreased
during these periods consistent with the decrease in ratable product and related professional
services and support revenues.
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As we expand internationally, we may incur additional costs to conform our products to comply
with local laws or local product specifications. In addition, we plan to continue to hire
additional personnel to support our growing international customer base which would increase our
cost of professional services and support.
Gross margins decreased 0.2% during the third quarter of fiscal 2011 compared to the third
quarter of fiscal 2010. This decrease is primarily due to the increase in our international
revenues and the lower margin-profile associated with that revenue. During the first nine months of
fiscal 2011, gross margin increased 1.6% compared to the first nine months of 2010. The increase is
due in part to favorable product mix, timing of support renewals and contracts, and channel mix.
Research and Development Expenses
Three months ended April 30, | Nine months ended April 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Research and development
expenses |
$ | 22,799 | $ | 13,874 | $ | 61,521 | $ | 37,713 | ||||||||
Percent of total revenues |
21.5 | % | 20.1 | % | 21.8 | % | 19.9 | % |
During the third quarter of fiscal 2011, research and development expenses increased
64.3% compared to the third quarter of fiscal 2010, primarily due to
an increase of $7.7 million in
personnel and related costs, including an increase in stock-based compensation of $3.8 million. We
added 184 employees to our research and development team year over year, including 52 employees
from our acquisition of Azalea Networks in September 2010, as we continue to invest heavily in
product development. Facilities expenses increased $0.4 million and recruiting expenses increased
$0.3 million due to the increase in headcount. Depreciation expenses increased $0.2 million due to
an increase in tooling and equipment used in research and development activities.
During the first nine months of fiscal 2011, research and development expenses increased 63.1%
compared to the first nine months of fiscal 2010, primarily due to an
increase of $20.2 million in
personnel and related costs, including an increase in stock-based compensation of $9.4 million. The
increase is directly related to our increase in headcount. Facilities expenses increased $1.1
million also due to the increase in headcount and the acquisition of Azalea facilities. Expenses
for consulting and outside agencies increased by $1.3 million. Depreciation expenses increased $0.8 million and software and hardware maintenance
fees increased $0.2 million.
Sales and Marketing Expenses
Three months ended April 30, | Nine months ended April 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Sales and marketing
expenses |
$ | 40,916 | $ | 27,697 | $ | 111,266 | $ | 79,013 | ||||||||
Percent of total revenues |
38.7 | % | 40.2 | % | 39.3 | % | 41.8 | % |
Sales and marketing expenses increased 47.7% during the third quarter of fiscal 2011
compared to the third quarter of fiscal 2010. Personnel and related
costs increased $8.3 million
primarily due to a year-over-year increase in headcount of 104 new employees, including six
employees from our Azalea acquisition in September 2010. An increase in stock-based compensation of
$3.4 million contributed to the increase in personnel and related costs. Facilities expenses
increased $0.1 million and recruiting expenses increased $0.2 million due to the increase in headcount.
Commission expense increased $2.9 million
year over year corresponding to the increase in revenue. Marketing expenses increased $1.3 million
due to new product launches and user-group conventions we hosted. Finally, amortization expense increased $0.2 million
as a result of our acquisitions.
During the first nine months of fiscal 2011, sales and marketing expenses increased 40.8%
compared to the first nine months of fiscal 2010. Personnel and
related costs increased $21.4
million primarily due to the increase in headcount. An increase in stock-based compensation of $8.7
million contributed to the increase in personnel and related costs. The increase in headcount also
resulted in an increase in facilities expenses of $0.3 million. Commission expense increased $6.3
million corresponding to the increase in revenue. Marketing expenses increased $2.8 million due to
new product launches and user-group conventions we hosted. Recruiting expenses increased $0.7
million due to the increase in headcount. Costs for internal
demonstration equipment increased $0.2 million due to the
increase in new sales reps and the increase of new products in our
portfolio. Finally, amortization expense of our purchased intangible assets increased
$0.4 million as a result of our acquisitions.
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General and Administrative Expenses
Three months ended April 30, | Nine months ended April 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
General and
administrative expenses |
$ | 10,319 | $ | 8,840 | $ | 27,690 | $ | 23,600 | ||||||||
Percent of total revenues |
9.8 | % | 12.8 | % | 9.8 | % | 12.4 | % |
During the third quarter of fiscal 2011, general and administrative expenses increased
16.7% compared to the third quarter of fiscal 2010. Personnel
expenses increased $2.1 million due
to a year-over-year increase in headcount of 45 new employees, including seven employees from our
Azalea acquisition. An increase in stock-based compensation of $0.8 million contributed to the
increase in personnel and related costs. Facilities expenses increased $0.2 million and recruiting expenses increased $0.2 million as result of
the increase in headcount. Fees for accounting services increased $0.2 million primarily due to additional work
related to our acquisitions. Legal fees decreased $1.2 million compared to third quarter of fiscal
2010. The higher legal expenses in fiscal 2010 were due to litigation we were involved in at that
time and mergers and acquisitions activity.
General and administrative expenses in the first nine months of fiscal 2011 increased 17.3%
compared to the same period in fiscal 2010. Personnel expenses
increased $4.5 million due to the
increase in headcount and an increase in stock-based compensation of $1.5 million. Facilities
expenses increased $0.3 million and recruiting expenses increased $0.3 million, both due to the
increase in headcount. Fees for accounting services increased $0.5 million. These increases were offset by a decrease of $1.7 million in legal
fees due to the reasons described above.
Litigation Reserves
During the first quarter of fiscal 2010, we entered into a Patent Cross License and Settlement
Agreement with Motorola. As part of the Settlement Agreement, we agreed to pay Motorola $19.8
million. During the second and third quarters of fiscal 2010, we recorded additional reserves of $0.5
million and $1.7 million, respectively, related to legal matters. There were no similar transactions in fiscal 2011.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest income, foreign currency exchange
gains and losses and the revaluation of our contingent rights liability.
Three months ended April 30, | Nine months ended April 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Interest income |
$ | 284 | $ | 218 | $ | 758 | $ | 616 | ||||||||
Other income (expense), net |
5,608 | (189 | ) | 7,191 | (432 | ) | ||||||||||
Total other income
(expense), net |
$ | 5,892 | $ | 29 | $ | 7,949 | $ | 184 | ||||||||
Interest income increased slightly during the third quarter and first nine months of
fiscal 2011 compared to the same periods in fiscal 2010. The increases are primarily due to higher
cash and investment balances in interest-earning accounts. Our average interest-earning cash and
investment balance for the third quarter of fiscal 2011 was $149.6 million compared to $119.4
million for the third quarter of fiscal 2010. Our average interest-earning cash and investment
balance for the first nine months of fiscal 2011 was $141.9 million compared to $112.6 million for
the same period in fiscal 2010.
Other income (expense), net increased during the third quarter and first nine months of fiscal
2011 compared to the same periods in fiscal 2010 primarily as a result of the change in the
valuation of our contingent rights liability related to the acquisition of Azalea Networks. See
Note 2 of the Notes to Consolidated Financial Statements for a further discussion.
Provision for Income Taxes
For the third quarter and first nine months of fiscal 2011 we generated an operating loss. We
also generated book and taxable income in certain U.S. state and specific foreign jurisdictions for
the first and third quarters of fiscal 2011 without consideration of windfall tax benefits. For the
third quarter and first nine months of fiscal 2010, we generated consolidated book losses but
generated taxable income in certain U.S. state and foreign jurisdictions.
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Liquidity and Capital Resources
April 30, | July 31, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Working capital |
$ | 199,968 | $ | 133,927 | ||||
Cash and cash equivalents |
77,245 | 31,254 | ||||||
Short-term investments |
$ | 133,553 | $ | 124,167 |
Nine months ended April 30, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Cash provided by operating activities |
$ | 34,791 | $ | 15,447 | ||||
Cash used in investing activities |
(20,670 | ) | (37,155 | ) | ||||
Cash provided by financing activities |
$ | 31,871 | $ | 9,921 |
Cash and cash equivalents are comprised of cash, sweep funds and money market funds with
an original maturity of 90 days or less at the time of the purchase. Short-term investments include
corporate bonds and notes, U.S. government agency securities, U.S. treasury bills, commercial paper
and other money market securities. Cash, cash equivalents and short-term investments increased
$55.4 million during the first nine months of fiscal 2011 from $155.4 million as of July 31, 2010
to $210.8 million as of April 30, 2011.
Most of our sales contracts are denominated in United States dollars, and therefore, our
revenue is not subject to significant foreign currency risk. Our operating expenses and cash flows
are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes
in the British Pound, Euro, and Chinese Yuan. To date, we have not entered into any hedging
contracts because expenses in foreign currencies have been insignificant, and exchange rate
fluctuations have had little impact on our operating results and cash flows.
Cash Flows from Operating Activities
Our cash flows from operating activities will continue to be affected principally by our
working capital requirements and the extent to which we increase spending on personnel. The timing
of hiring sales personnel in particular affects cash flows as there is a lag between the hiring of
sales personnel and the generation of revenue and cash flows from sales personnel. Our largest
source of operating cash flows is cash collections from our customers. Our primary uses of cash
from operating activities are for personnel related expenditures, purchases of inventory, and rent
payments.
Cash provided by operating activities increased $19.3 million during the first nine months of
fiscal 2011 compared to the first nine months of fiscal 2010. Increases in deferred revenue and
other accrued liabilities, an increase in the amount of non-cash adjustments relating to
stock-based compensation and depreciation and amortization, and write-downs for excess and obsolete
inventory contributed to the cash provided by operating activities. Increases in accounts
receivable, inventory, and the non-cash adjustment for the change in the carrying value of our
contingent liability resulting from the Azalea Networks acquisition offset some of the cash
provided by operating activities.
Cash Flows from Investing Activities
Cash used in investing activities during the first nine months of fiscal 2011 decreased $16.5
million compared to the first nine months of fiscal 2010. We continue to invest our excess cash
balances in short-term investments. Some of the proceeds from the sale and maturity of these
investments were used to purchase property and equipment of $5.8 million during the first nine
months of fiscal 2011. Further, we completed two acquisitions during the first nine months of
fiscal 2011 for a total of $4.3 million in cash, net of cash received. See Note 2 of the Notes to
Consolidated Financial Statements.
Cash Flows from Financing Activities
Cash provided by financing activities increased $22.0 million in the first nine months of
fiscal 2011 compared to the first nine months of fiscal 2010. The cash proceeds from the issuance
of common stock in conjunction with our 2007 Equity Incentive Plan and Employee Stock Purchase Plan
increased substantially year over year primarily due to increased exercises of stock options by our
employees as a result of the increase in our exercise price, and an increase in the amount of
contributions to our Employee Stock Purchase Plan.
Based on our current cash, cash equivalents and short-term investments we expect that we will
have sufficient resources to fund our operations for the next 12 months. However, we may need to
raise additional capital or incur additional indebtedness to continue to fund our operations in the
future. Our future capital requirements will depend on many factors, including our rate of revenue
growth, the expansion of our sales and marketing activities, the timing and extent of expansion
into new territories, the timing of introductions of new products and enhancements to existing
products, and the continuing market acceptance of our products. Although we have no current
agreements, commitments, plans, proposals or arrangements, written or otherwise, with respect to
any material acquisitions, we may enter into these types of arrangements in the future, which could
also require us to seek additional equity or debt financing. Additional funds may not be available
on terms favorable to us or at all.
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Contractual Obligations
The following is a summary of our contractual obligations:
Less than | More than | |||||||||||||||||||
Total | 1 year | 1 - 3 years | 3 - 5 years | 5 years | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Operating leases |
$ | 20,663 | $ | 4,324 | $ | 8,137 | $ | 7,401 | $ | 801 | ||||||||||
Non-cancellable inventory
purchase commitments (1) |
25,019 | 25,019 | | | | |||||||||||||||
Total contractual obligations |
$ | 45,682 | $ | 29,343 | $ | 8,137 | $ | 7,401 | $ | 801 | ||||||||||
(1) | We outsource the production of our hardware to third-party manufacturing suppliers. We enter into various inventory related purchase agreements with these suppliers. Under the agreement with our main contract manufacturer, 40% of the order quantities can be rescheduled or are cancelable by giving notice 60 days prior to the expected shipment date, and 20% of the order quantities can be rescheduled or are cancelable by giving notice 30 days prior to the expected shipment date. Orders are not cancelable within 30 days prior to the expected shipment date. |
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Foreign Currency Risk
Most of our sales contracts are denominated in United States dollars, and therefore, our
revenue is not subject to significant foreign currency risk. Our operating expenses and cash flows
are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes
in the British Pound, Euro, and Chinese Yuan. To date, we have not entered into any hedging
contracts because expenses in foreign currencies have been insignificant, and exchange rate
fluctuations have had little impact on our operating results and cash flows.
Interest Rate Sensitivity
We had cash, cash equivalents and short-term investments totaling $210.8 million and $155.4
million at April 30, 2011 and July 31, 2010, respectively. The cash, cash equivalents and
short-term investments are held for working capital purposes. We do not use derivative financial
instruments in our investment portfolio. We have an investment portfolio of fixed income securities
that are classified as available-for-sale securities. These securities, like all fixed income
instruments, are subject to interest rate risk and will fall in value if market interest rates
increase. We attempt to limit this exposure by investing primarily in short-term securities. Due to
the short duration and conservative nature of our investment portfolio, a movement of 10% in market
interest rates would not have a material impact on our operating results and the total value of the
portfolio over the next fiscal year. If overall interest rates had fallen by 10% in the third quarter or first nine months of fiscal 2011,
our interest income on cash, cash equivalents and short-term investments would have declined less
than $0.1 million assuming consistent investment levels.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and interim principal
financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant
to Rule 13a-15 under the Securities Exchange Act of 1934 as amended (the Exchange Act). In
designing and evaluating the disclosure controls and procedures, management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. In addition, the design of disclosure
controls and procedures must reflect the fact that there are resource constraints and that
management is required to apply its judgment in evaluating the benefits of possible controls and
procedures relative to their costs.
Based on our evaluation, our chief executive officer and interim principal financial officer
concluded that, as of April 30, 2011, our disclosure controls and procedures are designed at a
reasonable assurance level and are effective to provide reasonable assurance that information we
are required to disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in Securities and Exchange
Commission rules and forms, and that such information is accumulated and communicated to our
management, including our chief executive officer and interim principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during
the third quarter of fiscal 2011 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting. Internal control over financial
reporting means a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
From time to time, we are involved in claims and legal proceedings that arise in the ordinary
course of business. We expect that the number and significance of these matters will increase as
our business expands. Any claims or proceedings against us, whether meritorious or not, could be
time consuming, result in costly litigation, require significant amounts of management time, result
in the diversion of significant operational resources, or require us to enter into royalty or
licensing agreements which, if required, may not be available on terms favorable to us or at all.
If management believes that a loss arising from these matters is probable and can be reasonably
estimated, we record the amount of the loss. As additional information becomes available, any
potential liability related to these matters is assessed and the estimates revised. Based on
currently available information, management does not believe that the ultimate outcomes of these
unresolved matters, individually and in the aggregate, are likely to have a material adverse effect
on our financial position, liquidity or results of operations. However, litigation is subject to
inherent uncertainties, and our view of these matters may change in the future. Were an unfavorable
outcome
to occur, there exists the possibility of a material adverse impact on our financial position
and results of operations or liquidity for the period in which the unfavorable outcome occurs or
becomes probable, and potentially in future periods.
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Item 1A. | Risk Factors |
Risks Related to Our Business and Industry
Our business, operating results and growth rates may be adversely affected by unfavorable economic
and market conditions.
While we have seen improvements in the overall macroeconomic environment and our revenues have
increased, economic conditions worldwide have negatively impacted our business in our recent
history. We believe in the long-term growth prospects of the WLAN market, but the deterioration in
overall economic conditions and, in particular, tightening in the credit markets and reduced
spending by both enterprises and consumers have significantly impacted various industries on which
we rely for purchasing our products. This has led to reductions in capital expenditures by end user
customers for our products, longer sales cycles, the deferral or delay of purchase commitments for
our products, increased competition, and the deferral or delay of reviews by end user customers of
their existing infrastructure that could have otherwise driven demand for our products. These
factors have impacted our operating results and could create uncertainty for the future. For
example, as the U.S. and global economies weakened, in the second and third quarters of fiscal
2009, our total revenues decreased sequentially over the same period. In addition, our business
depends on the overall demand for IT and on the economic health of our current and prospective
customers. We cannot be assured of the level of IT spending, the deterioration of which could have
a material adverse effect on our results of operations and growth rates. The purchase of our
products or willingness to replace existing infrastructure in some vertical markets may be
discretionary and may involve a significant commitment of capital and other resources. Therefore,
weak economic conditions, or a reduction in IT spending would likely adversely impact our business,
operating results and financial condition in a number of ways, including longer sales cycles, lower
prices for our products and services, and reduced unit sales. In addition, if interest rates rise
or foreign exchange rates weaken for our international customers, overall demand for our products
and services could be further dampened, and related IT spending may be reduced.
We compete in new and rapidly evolving markets and have a limited operating history, which makes it
difficult to predict our future operating results.
We were incorporated in February 2002 and began commercial shipments of our products in June
2003. As a result of our limited operating history, it is very difficult to forecast our future
operating results. In addition, we operate in an industry characterized by rapid technological
change. Our prospects should be considered and evaluated in light of the risks and uncertainties
frequently encountered by companies in rapidly evolving markets characterized by rapid
technological change, changing customer needs, evolving industry standards and frequent
introductions of new products and services. These risks and difficulties include challenges in
accurate financial planning as a result of limited historical data and the uncertainties resulting
from having had a relatively limited time period in which to implement and evaluate our business
strategies as compared to older companies with longer operating histories.
In addition, our products are designed to be compatible with industry standards for secure
communications over wireless and wireline networks. As we encounter changing standards, customer
requirements and competitive pressures, we likely will be required to reposition our product and
service offerings and introduce new products and services. We may not be successful in doing so in
a timely and appropriately responsive manner, or at all. Our failure to address these risks and
difficulties successfully could materially harm our business and operating results.
Our operating results may fluctuate significantly, which makes our future results difficult to
predict and could cause our operating results to fall below expectations.
Our annual and quarterly operating results have fluctuated in the past and may fluctuate
significantly in the future due to a variety of factors, many of which are outside of our control.
Furthermore, our product revenues generally reflect orders shipped in the same quarter they
are received, and a substantial portion of our orders are often received in the last month of each
fiscal quarter, a trend that may continue. As a result, if we are unable to ship orders received in
the last month of each fiscal quarter, even though we may have business indicators about customer
demand during a quarter, we may experience revenue shortfalls, and such shortfalls may materially
adversely affect our earnings because we may not be able to adequately and timely adjust our
expense levels.
In addition to other risk factors listed in this Risk Factors section, factors that may
cause our operating results to fluctuate include:
| the impact of unfavorable worldwide economic and market conditions, including the restricted credit environment impacting the credit of our channel partners and end user customers; | ||
| our ability to develop and maintain our relationship with our VARs, VADs, OEMs and other partners; | ||
| fluctuations in demand, sales cycles and prices for our products and services; | ||
| reductions in customers budgets for information technology purchases and delays in their purchasing cycles; |
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| the sale of our products in the timeframes we anticipate, including the number and size of orders in each quarter; | ||
| our ability to develop, introduce and ship in a timely manner, new products and product enhancements that meet customer requirements; | ||
| our dependence on several large vertical markets, including the government, healthcare, enterprise and education vertical markets; | ||
| the timing of product releases or upgrades by us or by our competitors; | ||
| any significant changes in the competitive dynamics of our markets, including new entrants, or further consolidation; | ||
| our ability to control costs, including our operating expenses, and the costs of the components we purchase; | ||
| product mix and average selling prices, as well as increased discounting of products by us and our competitors; | ||
| the proportion of our products that are sold through direct versus indirect channels; | ||
| our ability to maintain volume manufacturing pricing from our contract manufacturers, and our component suppliers; | ||
| our contract manufacturers and component suppliers ability to meet our product demand forecasts; | ||
| the potential need to record incremental inventory reserves for products that may become obsolete due to our new product introductions; | ||
| growth in our headcount and other related costs incurred in our customer support organization; | ||
| the timing of revenue recognition in any given quarter as a result of revenue recognition rules; | ||
| the regulatory environment for the certification and sale of our products; and | ||
| seasonal demand for our products, some of which may not be currently evident due to our revenue growth during fiscal 2010 and 2011. |
Our quarterly operating results are difficult to predict even in the near term. In one or more
future quarterly periods, our operating results may fall below the expectations of securities
analysts and investors. In this event, the trading price of our common stock could decline
significantly.
We have a history of losses and may not sustain profitability in the future.
We have a history of losses and only recently achieved profitability. We experienced net
income of $3.2 million and $2.5 million for the third quarter and first nine months of fiscal 2011,
respectively. We experienced net losses of $5.3 million and $34.4 million for the third quarter and
first nine months of fiscal 2010, respectively. As of April 30, 2011 and July 31, 2010, our
accumulated deficit was $173.1 million and $175.6 million, respectively. Expenses associated with
the continued development and expansion of our business, including expenditures to hire additional
personnel for sales and marketing and technology development, could limit our ability to sustain
operating profits. If we fail to increase revenues or manage our cost structure, we may not sustain
profitability in the future. As a result, our business could be harmed, and our stock price could
decline.
Our sales cycles can be long and unpredictable, and our sales efforts require considerable time and
expense. As a result, our sales are difficult to predict and may vary substantially from quarter to
quarter, which may cause our operating results to fluctuate significantly.
The timing of our revenues is difficult to predict. Our sales efforts involve educating our
customers about the use and benefits of our products, including the technical capabilities of our
products and the potential cost savings achieved by organizations that utilize our products.
Customers typically undertake a significant evaluation process, which frequently involves not only
our products but also those of our competitors and can result in a lengthy sales cycle, which
typically ranges four to nine months in length but can be as long as 18 months. We spend
substantial time, effort and money in our sales efforts without any assurance that our efforts will
produce any sales. Over the last year, we have experienced longer sales cycles in connection with
customers evaluating our 802.11n solution and in light of general economic
conditions in certain verticals. In addition, product purchases are frequently subject to
budget constraints, multiple approvals, and unplanned administrative, processing and other delays.
Specifically, we view the federal vertical as highly dependent on large transactions, and therefore
we could experience fluctuations from period to period in this vertical. If sales expected from a
specific customer for a particular quarter are not realized in that quarter or at all, our
business, operating results and financial condition could be materially adversely affected.
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The market in which we compete is highly competitive, and competitive pressures from existing and
new companies may have a material adverse effect on our business, revenues, growth rates and market
share.
The market in which we compete is highly competitive and is influenced by the following
competitive factors:
| comprehensiveness of the solution; | ||
| performance of software and hardware products; | ||
| ability to deploy easily into existing networks; | ||
| interoperability with other devices; | ||
| scalability of solution; | ||
| ability to provide secure mobile access to the network; | ||
| speed of mobile connectivity offering; | ||
| return on investment; | ||
| ability to allow centralized management of products; and | ||
| ability to obtain regulatory and other industry certifications. |
We expect competition to intensify in the future as other companies introduce new products in
the same markets we serve or intend to enter and as the market continues to consolidate. This
competition could result in increased pricing pressure, reduced profit margins, increased sales and
marketing expenses and failure to increase, or the loss of, market share, any of which would likely
seriously harm our business, operating results or financial condition. If we do not keep pace with
product and technology advances, there could be a material adverse effect on our competitive
position, revenues and prospects for growth.
A number of our current or potential competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial, technical, sales, marketing
and other resources than we do. Potential customers may prefer to purchase from their existing
suppliers rather than a new supplier, regardless of product performance or features. Currently, we
compete with a number of large and well established public companies, including Cisco Systems
(primarily through its Wireless Networking Business Unit), Hewlett-Packard and Motorola, as well as
smaller companies and new market entrants, any of which could reduce our market share, require us
to lower our prices, or both.
We expect increased competition from other established and emerging companies if our market
continues to develop and expand. Our channel partners could market products and services that
compete with our products and services. In addition, some of our competitors have made acquisitions
or entered into partnerships or other strategic relationships with one another to offer a more
comprehensive solution than they individually had offered. We expect this trend to continue as
companies attempt to strengthen or maintain their market positions in an evolving industry and as
companies enter into partnerships or are acquired. Many of the companies driving this consolidation
trend have significantly greater financial, technical and other resources than we do and are better
positioned to acquire and offer complementary products and technologies. The companies resulting
from these possible consolidations may create more compelling product offerings and be able to
offer greater pricing flexibility, making it more difficult for us to compete effectively,
including on the basis of price, sales and marketing programs, technology or product functionality.
Continued industry consolidation may adversely impact customers perceptions of the viability of
smaller and even medium-sized technology companies and, consequently, customers willingness to
purchase from such companies. These pressures could materially adversely affect our business,
operating results and financial condition.
We sell a majority of our products through VADs, VARs, and OEMs. If these channel partners on which
we rely do not perform their services adequately or efficiently, or if they exit the industry, are
acquired by a competitor, or have financial difficulties, there could be a material adverse effect
on our revenues and our cash flow.
Our future success is highly dependent upon establishing and maintaining successful
relationships with a variety of VADs, VARs, and OEMs, which we refer to as our indirect channel. We
have dedicated a significant amount of effort to increase the use of our VADs and VARs in each of
our theatres of operations. The percentage of our total revenues fulfilled from sales through our
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indirect
channel was 94.5% and 92.7% for the three and nine months ended April 30, 2011, respectively. The percentage of
our total revenues fulfilled from sales through our indirect channel was 94.9% and 92.4% for the
three and nine months ended April 30, 2010, respectively. We expect that over time, indirect
channel sales will continue to constitute a significant majority of our total revenues.
Accordingly, our revenues depend in large part on the effective performance of our channel
partners. Three of our channel partners accounted for more than 10% of total revenues for the third
quarter of fiscal 2011. The table below represents the percentage of total revenues from our top
channel partners:
Three months ended April 30, | Nine months ended April 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
ScanSource, Inc.
(Catalyst) |
17.7 | % | 16.8 | % | 18.3 | % | 14.8 | % | ||||||||
Avnet Logistics U.S. LP |
15.2 | % | 16.1 | % | 15.1 | % | 14.8 | % | ||||||||
Alcatel-Lucent |
15.1 | % | 10.3 | % | 14.2 | % | 11.4 | % |
Our agreements with our partners provide that they use reasonable commercial efforts to
sell our products on a perpetual basis unless the agreement is otherwise terminated by either
party. Our agreement with Alcatel-Lucent contains a most-favored nations clause, pursuant to
which we agreed to lower the price at which we sell products to Alcatel-Lucent in the event that we
agree to sell the same or similar products at a lower price to a similar customer on the same or
similar terms and conditions. However, the specific terms of this most-favored nations clause are
narrow and specific, and we have not to date incurred any obligations related to this term in the
agreement.
Some of our indirect channel partners may have insufficient financial resources and may not be
able to withstand changes in worldwide business conditions, including economic downturns, abide by
our inventory and credit requirements, or have the ability to meet their financial obligations to
us. As of April 30, 2011, three of our channel partners individually accounted for more than 10% of
accounts receivable. ScanSource, Inc. (Catalyst) accounted for 18.2%, Avnet Logistics U.S. LP
(Avnet) accounted for 10.7% and Alcatel-Lucent accounted for 16.9% of total accounts receivable.
As of July 31, 2010, Catalyst accounted for 31.6% and Avnet accounted for 18.2% of total accounts
receivable. If the indirect channel partners on which we rely do not perform their services
adequately or efficiently, fail to meet their obligations to us, or if they exit the industry and
we are not able to quickly find adequate replacements, there could be a material adverse effect on
our revenues, cash flow and market share. By relying on these indirect channels, we may have less
contact with the end users of our products, thereby making it more difficult for us to establish
brand awareness, ensure proper delivery and installation of our products, service ongoing customer
requirements and respond to evolving customer needs. In addition, our indirect channel partners may
receive pricing terms that allow for volume discounts off of list prices for the products they
purchase from us, which reduce our margins to the extent revenues from such channel partners
increase as a proportion of our overall revenues.
Recruiting and retaining qualified channel partners and training them in our technology and
product offerings requires significant time and resources. In order to develop and expand our
distribution channel, we must continue to scale and improve our processes and procedures that
support our channel partners, including investment in systems and training, and those processes and
procedures may become increasingly complex and difficult to manage. We have no minimum purchase
commitments with any of our VADs, VARs, or OEMs, and our contracts with these channel partners do
not prohibit them from offering products or services that compete with ours or from terminating our
contract on short notice. Our competitors may be effective in providing incentives to existing and
potential channel partners to favor their products or to prevent or reduce sales of our products.
Our channel partners may choose not to focus primarily on the sale of our products or offer our
products at all. Our failure to establish and maintain successful relationships with indirect
channel partners would likely materially adversely affect our business, operating results and
financial condition.
We depend upon the development of new products and enhancements to our existing products. If we
fail to predict and respond to emerging technological trends and our customers changing needs, we
may not be able to remain competitive.
We may not be able to anticipate future market needs or be able to develop new products or
product enhancements to meet such needs. For example, we anticipate a need to continue to increase
the mobility of our solution, and certain customers have delayed, and may in the future delay,
purchases of our products until either new versions of those products are available or the customer
evaluations are completed. If we fail to develop new products or product enhancements, our business
could be adversely affected, especially if our competitors are able to introduce solutions with
such increased functionality. In addition, as new mobile applications are introduced, our success
may depend on our ability to provide a solution that supports these applications.
We are active in the research and development of new products and technologies and enhancing
our current products. However, research and development in the enterprise mobility industry is
complex and filled with uncertainty. If we expend a significant amount of resources on research and
development and our efforts do not lead to the successful introduction of products that are
competitive in the marketplace, there could be a material adverse effect on our business, operating
results, financial condition and market share. In addition, it is common for research and
development projects to encounter delays due to unforeseen problems, resulting in low initial
volume production, fewer product features than originally considered desirable and higher
production costs than initially budgeted, which may result in lost market opportunities. In
addition, any new products or product enhancements that we introduce may not achieve any
significant degree of market acceptance or be accepted into our sales channel by our channel
partners. There could be a material adverse effect on our business, operating results, financial
condition and market share due to such delays or deficiencies in the development, manufacturing and
delivery of new products.
Once a product is in the marketplace, its selling price often decreases over the life of the
product, especially after a new competitive product is publicly announced. To lessen the effect of
price decreases, our product management team attempts to reduce development and manufacturing costs
in order to maintain or improve our margins. However, if cost reductions do not occur in a timely
manner, there could be a material adverse effect on our operating results and market share.
Further, the introduction of new products may decrease the demand for older products currently
included in our inventory balances. As a result, we may need to record incremental inventory
reserves for the older products that we do not expect to sell. This may have a material adverse
effect on our operating results and market share.
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We manufacture our products to comply with standards established by various standards bodies,
including the Institute of Electrical and Electronics Engineers, Inc. (IEEE). If we are not able
to adapt to new or changing standards that are ratified by these bodies, our ability to sell our
products may be adversely affected. For example, prior to the ratification of the 802.11n wireless
LAN standard (11n) by the IEEE in 2009, we had been developing and were offering for sale
products that complied with the draft standard that the IEEE had not yet ratified. Although the
IEEE ratified the 11n standard and did not modify the draft of the 11n standard, the IEEE could
modify the standard in the future. We remain subject to any changes adopted by various standards
bodies, which would require us to modify our products to comply with the new standards, require
additional time and expense and could cause a disruption in our ability to market and sell the
affected products.
We may engage in future acquisitions that could disrupt our business, cause dilution to our
stockholders and harm our business, operating results and financial condition.
In December 2010, we completed our acquisition of substantially all of the assets of an
Australian company and in September 2010, we completed our acquisition of Azalea Networks. We are
currently integrating the acquired products into our secure mobility solutions, as well as
providing products and continuing support to existing customers and partners of the acquired
businesses. The acquisition of Azalea was our first significant international acquisition, and, as
a result, our ability as an organization to complete and integrate international acquisitions is
unproven. In the future we may acquire other businesses, products or technologies. However, we may
not be able to find suitable acquisition candidates, and we may not be able to complete
acquisitions on favorable terms, if at all. If we do complete acquisitions, we may not ultimately
strengthen our competitive position or achieve our goals. These acquisitions and future
acquisitions may be viewed negatively by customers, financial markets or investors. In addition,
these acquisitions any future acquisitions that we make could lead to difficulties in integrating
personnel and operations from the acquired businesses and in retaining and motivating key personnel
from these businesses. Acquisitions may disrupt our ongoing operations, divert management from
day-to-day responsibilities, increase our expenses and adversely impact our business, operating
results and financial condition. Future acquisitions may reduce our cash available for operations
and other uses and could result in an increase in amortization expense related to identifiable
assets acquired, potentially dilutive issuances of equity securities or the incurrence of debt,
which could harm our business, operating results and financial condition.
As a result of the fact that we outsource the manufacturing of our products to contract
manufacturers, we do not have the ability to ensure quality control over the manufacturing process.
Furthermore, if there are significant changes in the financial or business condition of our
contract manufacturers, our ability to supply quality products to our customers may be disrupted.
As a result of the fact that we outsource the manufacturing of our products to contract
manufacturers, we are subject to the risk of supplier failure and customer dissatisfaction with the
quality or performance of our products. Quality or performance failures of our products or changes
in the financial or business condition of our contract manufacturers could disrupt our ability to
supply quality products to our customers and thereby have a material adverse effect on our
business, revenues and financial condition.
Our orders with our contract manufacturers represent a relatively small percentage of the
overall orders received by them from their customers. As a result, fulfilling our orders may not be
considered a priority in the event our contract manufacturers are constrained in their abilities to
fulfill all of their customer obligations in a timely manner. We provide demand forecasts to our
contract manufacturers. If we overestimate our requirements, our contract manufacturers may assess
charges, or we may have liabilities for excess inventory, each of which could negatively affect our
gross margins. Conversely, because lead times for required materials and components vary
significantly and depend on factors such as the specific supplier, contract terms and the demand
for each component at a given time, if we underestimate our requirements, our contract
manufacturers may have inadequate materials and components required to produce our products. This
could result in an interruption of the manufacturing of our products, delays in shipments and
deferral or loss of revenue. In addition, on occasion we have underestimated our requirements, and,
as a result, we have been required to pay additional fees to our contract manufacturers in order
for manufacturing to be completed and shipments to be made on a timely basis.
If any of our contract manufacturers suffer an interruption in their business, or experiences
delays, disruptions or quality control problems in their manufacturing operations, or we have to
change or add additional contract manufacturers, our ability to ship products to our customers
would be delayed, and our business, operating results and financial condition would be adversely
affected.
Our contract manufacturers purchase some components, subassemblies and products from a single
supplier or a limited number of suppliers, and with respect to some of these suppliers, we have
entered into license agreements that allow us to use their components in our products. The loss of
any of these suppliers or the termination of any of these license agreements may cause us to incur
additional set-up costs, result in delays in manufacturing and delivering our products, or cause us
to carry excess or obsolete inventory.
Shortages in components that we use in our products are possible, and our ability to predict
the availability of such components may be limited. While components and supplies are generally
available from a variety of sources, we currently depend on a limited number of suppliers for
several components for our equipment and certain subassemblies and products. We rely on our
contract manufacturers to obtain the components, subassemblies and products necessary for the
manufacture of our products, including those components, subassemblies and products that are only
available from a single supplier or a limited number of suppliers.
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For example, our solution incorporates both software products and hardware products, including
a series of high-performance programmable mobility controllers and a line of wired and wireless
access points. The chipsets that our contract manufacturers source and incorporate in our hardware
products are currently available only from a limited number of suppliers, with whom neither we nor
our contract manufacturers have entered into supply agreements. All of our access points
incorporate components from Atheros, and some of our mobility controllers incorporate components
from Broadcom and Netlogic. We have entered into license agreements with Atheros, Broadcom and
Netlogic, the termination of which could have a material adverse effect on our business. Our
license agreements with Atheros, Broadcom and Netlogic have perpetual terms in that they will
automatically be renewed for successive one-year periods unless the agreement is terminated prior
to the end of the then-current term. As there are no other sources for identical components, in the
event that our contract manufacturers are unable to obtain these components from Atheros, Broadcom
or Netlogic, we would be required to redesign our hardware and software in order to incorporate
components from alternative sources. All of our product revenues are dependent upon the sale of
products that incorporate components from Atheros, Broadcom or Netlogic.
In addition, for certain components, subassemblies and products for which there are multiple
sources, we are still subject to potential price increases and limited availability due to market
demand for such components, subassemblies and products. In the past, unexpected demand for
communication products caused worldwide shortages of certain electronic parts. If such shortages
occur in the future, our business would be adversely affected. We carry very little to no inventory
of our product components, and we and our contract manufacturers rely on our suppliers to deliver
necessary components in a timely manner. We and our contract manufacturers rely on purchase orders
rather than long-term contracts with these suppliers. As a result, even if available, we or our
contract manufacturers may not be able to secure sufficient components at reasonable prices or of
acceptable quality to build products in a timely manner and, therefore, may not be able to meet
customer demands for our products, which would have a material adverse effect on our business,
operating results and financial condition.
Our international sales and operations subject us to additional risks that may adversely affect our
operating results.
We derive a significant portion of our revenues from customers outside the United States. We
have sales and technical support personnel in numerous countries worldwide. In addition, a portion
of our engineering and order management efforts are currently handled by personnel located in India
and China, and we expect to expand our offshore development efforts within India and China and
possibly in other countries. We expect to continue to add personnel in additional countries. Our
international operations subject us to a variety of risks, including:
| the difficulty of managing and staffing international offices and the increased travel, infrastructure and legal compliance costs associated with multiple international locations; | ||
| difficulties in enforcing contracts and collecting accounts receivable, and longer payment cycles, especially in emerging markets; | ||
| the need to localize our products for international customers; | ||
| tariffs and trade barriers, export regulations and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets; | ||
| increased exposure to foreign currency exchange rate risk; | ||
| limited protection for intellectual property rights in some countries; and | ||
| increased cost of terminating international employees in some countries. |
As we continue to expand our business globally, our success will depend, in large part, on our
ability to anticipate and effectively manage these and other risks associated with our
international operations. Our failure to manage any of these risks successfully could harm our
international operations and reduce our international sales, adversely affecting our business,
operating results and financial condition.
If we are unable to protect our intellectual property rights, our competitive position could be
harmed or we could be required to incur significant expenses to enforce our rights.
We depend on our ability to protect our proprietary technology. We protect our proprietary
information and technology through licensing agreements, third-party nondisclosure agreements and
other contractual provisions, as well as through patent, trademark, copyright and trade secret laws
in the United States and similar laws in other countries. There can be no assurance that these
protections will be
available in all cases or will be adequate to prevent our competitors from copying, reverse
engineering or otherwise obtaining and using our technology, proprietary rights or products. For
example, the laws of certain countries in which our products are manufactured or licensed do not
protect our proprietary rights to the same extent as the laws of the United States. In addition,
third parties may seek to challenge, invalidate or circumvent our patents, trademarks, copyrights
and trade secrets, or applications for any of the foregoing. There can be no assurance that our
competitors will not independently develop technologies that are substantially equivalent or
superior to our technology or design around our proprietary rights. In each case, our ability to
compete could be significantly impaired. To prevent substantial unauthorized use of our
intellectual property rights, it may be necessary to prosecute actions for infringement and/or
misappropriation of our proprietary rights against third parties. Any such action could result in
significant costs and diversion of our resources and managements attention, and there can be no
assurance that we will be successful in such action. Furthermore, many of our current and potential
competitors have the ability to dedicate substantially greater resources to enforce their
intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to
prevent third parties from infringing upon or misappropriating our intellectual property.
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Claims by others that we infringe their intellectual property rights could harm our business.
Third parties have asserted and may in the future assert claims of infringement of
intellectual property rights against us or against our customers or channel partners for which we
may be liable. Due to the rapid pace of technological change in our industry, much of our business
and many of our products rely on proprietary technologies of third parties, and we may not be able
to obtain, or continue to obtain, licenses from such third parties on reasonable terms. Technology
companies frequently enter into litigation based on allegations of patent infringement or other
violations of intellectual property rights. In addition, patent holding companies seek to monetize
patents they have purchased or otherwise obtained. As our business expands and the
number of products and competitors in our market increases and overlaps occur, we expect that
infringement claims may increase in number and significance. Intellectual property lawsuits are
subject to inherent uncertainties due to the complexity of the technical issues involved, and we
cannot be certain that we will be successful in defending ourselves against intellectual property
claims. Furthermore, a successful claimant could secure a judgment that requires us to pay
substantial damages or prevents us from distributing certain products or performing certain
services. In addition, we might be required to seek a license for the use of such intellectual
property, which may not be available on commercially acceptable terms or at all. Alternatively, we
may be required to develop non-infringing technology, which could require significant effort and
expense and may ultimately not be successful. Any claims or proceedings against us, whether
meritorious or not, could be time consuming, result in costly litigation, require significant
amounts of management time, result in the diversion of significant operational resources, or
require us to enter into royalty or licensing agreements.
Impairment of our goodwill or other assets would negatively affect our results of operations.
Our acquisitions have resulted in total goodwill of $33.1 million and intangible assets of
$22.9 million as of April 30, 2011. Goodwill is reviewed for impairment at least annually or sooner
under certain circumstances. Other intangible assets that are deemed to have finite useful lives
are amortized over their useful lives but must be reviewed for impairment when events or changes in
circumstances indicate that the carrying amount of these assets may not be recoverable. Screening
for and assessing whether impairment indicators exist, or if events or changes in circumstances
have occurred, including market conditions, operating fundamentals, competition and general
economic conditions, requires significant judgment. Therefore, we cannot assure you that a charge
to operations will not occur as a result of future goodwill and intangible asset impairment tests.
If impairment is deemed to exist, we would write down the recorded value of these intangible assets
to their fair values. If and when these write-downs do occur, they could harm our business,
financial condition, and results of operations.
If we lose members of our senior management or are unable to recruit and retain key employees on a
cost-effective basis, we may not be able to successfully grow our business. If we fail to
effectively integrate new officers into our organization, our business could be harmed.
Our success is substantially dependent upon the performance of our senior management. All of
our executive officers are at-will employees, and we do not maintain any key-man life insurance
policies. The loss of the services of any members of our management team may significantly delay or
prevent the achievement of our product development and other business objectives and could harm our
business. Our success also is substantially dependent upon our ability to attract additional
personnel for all areas of our organization, particularly in our sales, research and development,
and customer service departments. For example, unless and until we hire a Vice President of
Worldwide Sales, our Chief Executive Officer will continue to fill this role in addition to his
other responsibilities. Experienced management and technical, sales, marketing and support
personnel in the IT industry are in high demand, and competition for their talents is intense. We
may not be successful in attracting and retaining such personnel on a timely basis, on competitive
terms, or at all. The loss of, or the inability to recruit, such employees could have a material
adverse effect on our business.
Our future performance will depend in part on our ability to successfully integrate any new
executive officers into our management team and develop an effective working relationship among
senior management. We have an ongoing search for a new Chief Financial Officer as a result of the
resignation of our former Chief Financial Officer, Steffan Tomlinson, effective March 31, 2011, to
take a position in venture capital. If we fail to identify, recruit and integrate a new Chief
Financial Officer, or any other executive officer whom we may hire in the future, and create
effective working relationships among them and other members of management, our business operating
results and financial condition could be adversely affected.
If we fail to manage future growth effectively, our business would be harmed.
We have expanded our operations significantly since inception and anticipate that further
significant expansion will be required. We intend to increase our market penetration and extend our
geographic reach through our network of channel partners. We also plan to increase offshore
operations by establishing additional offshore capabilities for certain engineering functions. This
future growth, if it occurs, will place significant demands on our management, infrastructure and
other resources. To manage any future growth, we will need to hire, integrate and retain highly
skilled and motivated employees. If we do not effectively manage our growth, our business,
operating results and financial condition could be adversely affected.
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Our ability to sell our products is highly dependent on the quality of our support and services
offerings, and our failure to offer high quality support and services would have a material adverse
effect on our sales and results of operations.
Once our products are deployed within our end customers networks, they depend on our support
organization to resolve any issues relating to our products. A high level of support is critical
for the successful marketing and sale of our products. If we or our channel partners do not
effectively assist our end customers in deploying our products, succeed in helping our end
customers quickly resolve post-deployment issues, or provide effective ongoing support, it would
adversely affect our ability to sell our products to existing customers and could harm our
reputation with potential customers. In addition, as we expand our operations internationally, our
support organization will face additional challenges including those associated with delivering
support, training and documentation in languages other than English. As a result, our failure, or
the failure of our channel partners, to maintain high quality support and services would have a
material adverse effect on our business, operating results and financial condition.
Enterprises are increasingly concerned with the security of their data, and to the extent they
elect to encrypt data between the end user and the server, our products will become less effective.
Our products depend on the ability to identify applications. Our products currently do not
identify applications if the data is encrypted as it passes through our mobility controllers. Since
most organizations currently encrypt most of their data transmissions only between sites and not on
the LAN, the data is not encrypted when it passes through our mobility controllers. If more
organizations elect to encrypt their data transmissions from the end user to the server, our
products will offer limited benefits unless we have been successful in incorporating additional
functionality into our products that address those encrypted transmissions. At the same time, if
our products do not provide the level of network security expected by our customers, our reputation
and brand would be damaged, and we would expect to experience decreased sales. Our failure to
provide such additional functionality and expected level of network security could adversely affect
our business, operating results and financial condition.
Our products are highly technical and may contain undetected hardware errors or software bugs,
which could cause harm to our reputation and adversely affect our business.
Our products are highly technical and complex and, when deployed, are critical to the
operation of many networks. Our products have contained and may contain undetected errors, bugs or
security vulnerabilities. Some errors in our products may only be discovered after a product has
been installed and used by customers. Any errors, bugs, defects or security vulnerabilities
discovered in our products after commercial release could result in loss of revenues or delay in
revenue recognition, loss of customers, damage to our brand and reputation, and increased service
and warranty cost, any of which could adversely affect our business, operating results and
financial condition. In addition, we could face claims for product liability, or breach of
warranty, including claims relating to changes to our products made by our channel partners. Our
contracts with customers contain provisions relating to warranty disclaimers and liability
limitations, which may not be upheld. Defending a lawsuit, regardless of its merit, is costly and
may divert managements attention and adversely affect the markets perception of us and our
products. In addition, if our business liability insurance coverage proves inadequate or future
coverage is unavailable on acceptable terms or at all, our business, operating results and
financial condition could be adversely impacted.
Our use of open source software could impose limitations on our ability to commercialize our
products.
We incorporate open source software into our products. Although we monitor our use of open
source closely, the terms of many open source licenses have not been interpreted by U.S. courts,
and there is a risk that such licenses could be construed in a manner that could impose
unanticipated conditions or restrictions on our ability to commercialize our products. In such
event, we could be required to seek licenses from third parties in order to continue offering our
products, to re-engineer our products or to discontinue the sale of our products in the event
re-engineering cannot be accomplished on a timely basis, any of which could adversely affect our
business, operating results and financial condition.
We rely on the availability of third-party licenses.
Many of our products are designed to include software or other intellectual property licensed
from third parties. It may be necessary in the future to seek or renew licenses relating to various
aspects of these products. There can be no assurance that the necessary licenses would be available
on acceptable terms, if at all. The inability to obtain certain licenses or other rights or to
obtain such licenses or rights on favorable terms, or the need to engage in litigation regarding
these matters, could have a material adverse effect on our business, operating results, and
financial condition. Moreover, the inclusion in our products of software or other intellectual
property licensed from third parties on a nonexclusive basis could limit our ability to protect our
proprietary rights in our products.
Enterprises may have slow WAN connections between some of their locations that may cause our
products to become less effective.
Our mobility controllers and network management software were initially designed to function
at LAN-like speeds in an office building or campus environment. In order to function appropriately,
our mobility controllers synchronize with each other over network links. The ability of our
products to synchronize may be limited by slow or congested data-links, including DSL and dial-up.
Our failure to provide such additional functionality could adversely affect our business, operating
results and financial condition.
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New safety regulations or changes in existing safety regulations related to our products may result
in unanticipated costs or liabilities, which could have a material adverse effect on our business,
results of operations and future sales, and could place additional burdens on the operations of our
business.
Radio emissions are subject to regulation in the United States and in other countries in which
we do business. In the United States, various federal agencies including the Center for Devices and
Radiological Health of the Food and Drug Administration, the Federal Communications Commission, the
Occupational Safety and Health Administration and various state agencies have promulgated
regulations that concern the use of radio/electromagnetic emissions standards. Member countries of
the European Union (EU) have enacted similar standards concerning electrical safety and
electromagnetic compatibility and emissions standards.
If any of our products becomes subject to new regulations or if any of our products becomes
specifically regulated by additional government entities, compliance with such regulations could
become more burdensome, and there could be a material adverse effect on our business and our
results of operations.
In addition, our wireless communication products operate through the transmission of radio
signals. Currently, operation of these products in specified frequency bands does not require
licensing by regulatory authorities. Regulatory changes restricting the use of frequency bands or
allocating available frequencies could become more burdensome and could have a material adverse
effect on our business, results of operations and future sales.
Compliance with environmental matters and worker health and safety laws could be costly, and
noncompliance with these laws could have a material adverse effect on our results of operations,
expenses and financial condition.
Some of our operations use substances regulated under various federal, state, local and
international laws governing the environment and worker health and safety, including those
governing the discharge of pollutants into the ground, air and water, the management and disposal
of hazardous substances and wastes, and the cleanup of contaminated sites. Some of our products are
subject to various federal, state, local and international laws governing chemical substances in
electronic products. We could be subject to increased costs, fines, civil or criminal sanctions,
third-party property damage or personal injury claims if we violate or become liable under
environmental and/or worker health and safety laws.
We are subject to governmental export and import controls that could subject us to liability or
impair our ability to compete in international markets.
Because we incorporate encryption technology into our products, our products are subject to
U.S. export controls and may be exported outside the United States only with the required level of
export license or through an export license exception. In addition, various countries regulate the
import of certain encryption technology and radio frequency transmission equipment and have enacted
laws that could limit our ability to distribute our products or could limit our customers ability
to implement our products in those countries. Changes in our products or changes in export and
import regulations may create delays in the introduction of our products in international markets,
prevent our customers with international operations from deploying our products throughout their
global systems or, in some cases, prevent the export or import of our products to certain countries
altogether. Any change in export or import regulations or related legislation, shift in approach to
the enforcement or scope of existing regulations, or change in the countries, persons or
technologies targeted by such regulations, could result in decreased use of our products by, or in
our decreased ability to export or sell our products to, existing or potential customers with
international operations.
Our business is subject to the risks of earthquakes, fire, floods and other natural catastrophic
events, and to interruption by manmade problems such as computer viruses or terrorism.
Our corporate headquarters are located in the San Francisco Bay Area, a region known for
seismic activity. A significant natural disaster, such as an earthquake, fire or a flood, occurring
at our headquarters or in either China or Singapore, where our major contract manufacturers are
located, could have a material adverse impact on our business, operating results and financial
condition. In addition, our servers are vulnerable to computer viruses, break-ins and similar
disruptions from unauthorized tampering with our computer systems. In addition, acts of terrorism
could cause disruptions in our or our customers businesses or the economy as a whole. To the
extent that such disruptions result in delays or cancellations of customer orders, or the
deployment of our products, our business, operating results and financial condition would be
adversely affected.
Risks Related to Ownership of our Common Stock
Our stock price may be volatile.
The trading price of our common stock has been and may continue to be volatile and could be
subject to wide fluctuations in response to various factors, some of which are beyond our control.
Factors that could affect the trading price of our common stock could include:
| variations in our operating results; | ||
| announcements of technological innovations, new products or product enhancements, strategic alliances or significant agreements by us or by our competitors; | ||
| the gain or loss of significant customers; |
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| recruitment or departure of key personnel; | ||
| the impact of unfavorable worldwide economic and market conditions; | ||
| falling short of guidance on our financial results; | ||
| changes in estimates of our operating results or changes in recommendations by any securities analysts who follow our common stock; | ||
| significant sales, or announcement of significant sales, of our common stock by us or our stockholders; and | ||
| adoption or modification of regulations, policies, procedures or programs applicable to our business. |
In addition, the stock market in general, and the market for technology companies in
particular, has experienced extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those companies. Broad market and industry factors
may seriously affect the market price of our common stock, regardless of our actual operating
performance. In addition, in the past, following periods of volatility in the overall market and
the market price of a particular companys securities, securities class action litigation has often
been instituted against these companies. This litigation, if instituted against us, could result in
substantial costs and a diversion of our managements attention and resources.
If securities or industry analysts do not publish research or reports about our business, or if
they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume
could decline.
The trading market for our common stock will be influenced by the research and reports that
industry or securities analysts publish about us or our business. If any of the analysts who cover
us issue an adverse or misleading opinion regarding our stock, our stock price would likely
decline. If one or more of these analysts cease coverage of our company or fail to publish reports
on us regularly, we could lose visibility in the financial markets, which in turn could cause our
stock price or trading volume to decline.
Insiders have substantial control over us and will be able to influence corporate matters.
As of April 30, 2011, our directors and executive officers and their affiliates beneficially
owned, in the aggregate, approximately 9.8% of our outstanding common stock. As a result, these
stockholders will be able to exercise significant influence over all matters requiring stockholder
approval, including the election of directors and approval of significant corporate transactions,
such as a merger or other sale of our company or its assets. This concentration of ownership could
limit stockholders ability to influence corporate matters and may have the effect of delaying or
preventing a third party from acquiring control over us.
We may choose to raise additional capital. Such capital may not be available, or may be available
on unfavorable terms, which would adversely affect our ability to operate our business.
We expect that our existing cash and cash equivalents balances will be sufficient to meet our
working capital and capital expenditure needs for the foreseeable future. If we choose to raise
additional funds, due to unforeseen circumstances or material expenditures, we cannot be certain
that we will be able to obtain additional financing on favorable terms, if at all, and any
additional financings could result in additional dilution to our existing stockholders.
Provisions in our charter documents, Delaware law, employment arrangements with certain of our
executive officers, and our OEM supply agreement with Alcatel-Lucent could discourage a takeover
that stockholders may consider favorable.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or
preventing a change of control or changes in our management. These provisions include but are not
limited to the following:
| our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; | ||
| our stockholders may not act by written consent or call special stockholders meetings; as a result, a holder, or holders, controlling a majority of our capital stock would not be able to take certain actions other than at annual stockholders meetings or special stockholders meetings called by the board of directors, the chairman of the board, the Chief Executive Officer or the president; | ||
| our certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; |
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| stockholders must provide advance notice and additional disclosures in order to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquirors own slate of directors or otherwise attempting to obtain control of our company; and | ||
| our board of directors may issue, without stockholder approval, shares of undesignated preferred stock; the ability to issue undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us. |
As a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions.
Under Delaware law, a corporation may not engage in a business combination with any holder of 15%
or more of its capital stock unless the holder has held the stock for three years or, among other
things, the board of directors has approved the transaction. Our board of directors could rely on
Delaware law to prevent or delay an acquisition of us.
Certain of our executive officers may be entitled to accelerated vesting of their stock
options pursuant to the terms of their employment arrangements upon a change of control of Aruba.
In addition to the arrangements currently in place with some of our executive officers, we may
enter into similar arrangements in the future with other officers. Such arrangements could delay or
discourage a potential acquisition of Aruba.
In addition, our OEM supply agreement with Alcatel-Lucent provides that, in the event of a
change of control that would cause Alcatel-Lucent to purchase our products from an entity that is
an Alcatel-Lucent competitor, we must, without additional consideration, (1) provide Alcatel-Lucent
with any information required by Alcatel-Lucent to make, test and support the products that we
distribute through our OEM relationship with Alcatel-Lucent, including all hardware designs and
software source code, and (2) otherwise cooperate with Alcatel-Lucent to transition the
manufacturing, testing and support of these products to Alcatel-Lucent. We are also obligated to
promptly inform Alcatel-Lucent if and when we receive an inquiry concerning a bona fide proposal or
offer to effect a change of control and will not enter into negotiations concerning a change of
control without such prior notice to Alcatel-Lucent. Each of these provisions could delay or result
in a discount to the proceeds our stockholders would otherwise receive upon a change of control or
could discourage a third party from making a change of control offer.
We have incurred and will continue to incur significant increased costs as a result of operating as
a public company, and our management will be required to devote substantial time to new compliance
initiatives.
The Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act, as well as rules subsequently
implemented by the Securities and Exchange Commission and the Nasdaq Stock Market, have imposed
various requirements on public companies, including requiring changes in corporate governance
practices. Our management and other personnel devote a substantial amount of time to these
compliance initiatives. Moreover, these rules and regulations have increased our legal and
financial compliance costs and will make some activities more time-consuming and costly. For
example, we expect these rules and regulations to make it more difficult and more expensive for us
to obtain director and officer liability insurance, and we may be required to accept reduced policy
limits and coverage or incur substantial costs to maintain the same or similar coverage. These
rules and regulations could also make it more difficult for us to attract and retain qualified
persons to serve on our board of directors, our board committees or as executive officers.
In addition, the Sarbanes-Oxley Act requires us to furnish a report by our management on our
internal control over financial reporting. Such report contains, among other matters, an assessment
of the effectiveness of our internal control over financial reporting as of the end of our fiscal
year, including a statement as to whether or not our internal control over financial reporting is
effective. This assessment must include disclosure of any material weaknesses in our internal
control over financial reporting identified by management. While we were able to assert in our Form
10-K for the year ended July 31, 2010, filed on September 24, 2010, that our internal control over
financial reporting was effective as of July 31, 2010, we must continue to monitor and assess our
internal control over financial reporting. If we are unable to assert in any future reporting
period that our internal control over financial reporting is effective (or if our independent
registered public accounting firm is unable to express an opinion on the effectiveness of our
internal controls), we could lose investor confidence in the accuracy and completeness of our
financial reports, which would have an adverse effect on our stock price.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(a) Sales of Unregistered Securities
None.
(b) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 3. | Defaults Upon Senior Securities |
None.
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Item 4. | (Removed and Reserved) |
Item 5. | Other Information |
None.
Item 6. | Exhibits |
Exhibit No. | Description | |||
31.1
|
Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | |||
31.2
|
Certification of Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
32.1
|
Certifications of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
101.INS
|
XBRL Instance Document | |||
101.SCH
|
XBRL Taxonomy Extension Schema Document | |||
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document | |||
101.CAL
|
XBRL Taxonomy Calculation Linkbase Document | |||
101.LAB
|
XBRL Taxonomy Label Linkbase Document | |||
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: June 7, 2011
ARUBA NETWORKS, INC. | ||||
By:
|
/s/ Dominic P. Orr
|
|||
President, Chief Executive Officer and Chairman of | ||||
the Board of Directors (Principal Executive Officer) | ||||
Dated: June 7, 2011 | ||||
ARUBA NETWORKS, INC. | ||||
By:
|
/s/ Michael Galvin
|
|||
Vice President, Finance and Interim Principal | ||||
Financial Officer (Principal Financial Officer) |
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EXHIBIT INDEX
Exhibit No. | Description | |||
31.1
|
Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | |||
31.2
|
Certification of Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
32.1
|
Certifications of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
101.INS
|
XBRL Instance Document | |||
101.SCH
|
XBRL Taxonomy Extension Schema Document | |||
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document | |||
101.CAL
|
XBRL Taxonomy Calculation Linkbase Document | |||
101.LAB
|
XBRL Taxonomy Label Linkbase Document | |||
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document |
46