Aruba Networks Conference Call Highlights

Aruba Networks, Inc. (NASDAQ: ARUN) reported its third quarter earnings on Friday. Shares of the company are down 13 percent.

Below are some key highlights from its conference call.

Financial Metrics:

• We were pleased to once again deliver an outstanding quarter across all of our key financial metrics.
• Record revenues of $207.8 million exceeded the top end of our guidance range growing 29% year-over-year and up 2% sequentially.
• While we saw broad based improvement, geographically, the standout performance was in EMEA.
• Further, we saw strong growth in the enterprise, federal and retail verticals where our differentiated offering continues to enable us to take market share.
• Based on publicly disclosed numbers of our competitors, both large and small, we were the fastest growing business on year-over-year basis in the enterprise wireless market.
• We believe our industry leading gross margins serve as a strong indicator of our product differentiation.
• Q1 non-GAAP gross margins grew to 72.3% up from 71.5% in Q4.
• This performance was up from 47% in the previous quarter and 11% a year ago.
• As expected, we saw nice growth in sales of our newer AP-205 and AP-215s, which also contributed to our stronger gross margin performance.
• In addition, our flagship AP-225s continue to perform very well.
• We're encouraged to see signs that the all-wireless workplace is becoming not only a CIO level priority, but also a key requirement for line of business heads, leaders of HR, CMOs and even CEOs.
• The all-wireless workplace addresses many key business initiatives, including recruiting top talent, improving productivity, and in the case of public-facing enterprises, deepening customer loyalty and expanding revenues.

Financial Metrics:

• In Q1, total revenue was $207.8 million, growing 29% year-over-year and 2% quarter-over-quarter.
• Product revenue of $168.5 million grew 29% year-over-year and 1% sequentially.
• Support and professional services revenue of $39.4 million increased 31% year-over-year and 12% sequentially.
• Services revenue in Q1 included a $1.2 million support transaction that will not repeat in Q2.
• U.S. revenue grew 23% year-over-year representing 64% of total Q1 revenue.
• EMEA revenue grew 73% year-over-year, representing 22% of total revenue.
• And Asia Pacific revenue grew 13% year-over-year representing 13% of total revenue.
• Total non-GAAP gross margin in Q1 grew to 72.3% compared with 71.5% in Q4 and 72.5% in Q1 2014.
• Q1 non-GAAP product gross margin was 71% compared to 70.6% in Q4 and 71.6% in Q1 2014.
• Product gross margins in our major product categories were in our normal historical ranges.
• Q1 non-GAAP services gross margin was 77.9%, up from 75.7% in the prior quarter and up from 76.3% in the same period a year ago.
• Our near-term target range for total non-GAAP gross margin will continue to be 71% to 73%.
• Non-GAAP research and development expense was $31.6 million in Q1, as a percentage of revenue R&D was 15.2% an improvement from 15.5% in Q4.
• In total, Q1 non-GAAP operating expenses were $105 million or 50.5% of revenue, an improvement from 51.4% of revenue in Q4.
• Q1 SBC decreased to 11.9% of revenue down from 13.4% in Q4 and 17% in Q1 2014.
• Our expected range for SBC expense for fiscal 2015 continues to be 12% to 14% of revenue.
• Improved profitability and effective working capital management led to approximately $47 million in cash flow from operations.
• In the first quarter, we purchased 1.1 million shares of common stock at an average price of $22.17 per share, for an aggregate purchase of approximately $25 million.
• The weighted average shares outstanding impact of the buyback on the quarter's diluted share count was approximately 0.7 million shares.
• Q2 2015 will reflect the full benefit of the 1.1 million shares repurchased.
• We have approximately $106 million remaining in our stock repurchase program.
• Net of these repurchases, cash and short-term investments at quarter-end were $315.3 million, an increase of $30 million from the prior quarter.
• As we move forward, we plan to continue to utilize our repurchase program to mitigate stock dilution, balancing our capital structure needs in any given quarter.
• We ended Q1 with a $107.2 million of accounts receivable, an increase of $4.9 million from Q4.
• Days sales outstanding in Q1 were 46 days compared to 45 days in Q4 and 38 days in Q1 2014.
• Our target range remains 45 to 55 days.
• Total deferred revenue of $195 million increased 8% from Q4 2014 and 24% year-over-year.
• Short-term deferred revenue of $146.2 million increased 8% sequentially and 25% year-over-year.