Aerohive Networks Reports Third Quarter 2015 Financial Results

Sunnyvale, Calif. — November 4, 2015 — Aerohive Networks® (NYSE:HIVE), a leader in controller-less Wi-Fi and cloud-managed mobile networking for the enterprise market, today announced financial results for its third quarter of 2015, ended September 30, 2015.

Financial Summary

Total revenue for the third quarter of 2015 was $42.8 million, an increase of 16% compared with $36.8 million for the second quarter of 2015 and an increase of 21% compared with $35.3 million for the third quarter of 2014. Software subscription and services revenue was $6.7 million, or 16% of total revenue for the quarter, compared with $4.6 million, or 13% of total revenue, for the third quarter of 2014.

For the third quarter of 2015, GAAP net loss was $11.3 million, compared with $7.4 million in the third quarter of 2014. GAAP gross margin was 66.4%, compared with 67.6% in the year-ago period. Non-GAAP net loss for the third quarter of 2015 was $5.7 million, compared with $4.5 million in the third quarter of 2014. Non-GAAP gross margin was 67.0%, compared with 68.0% in the year-ago period.

A description of the non-GAAP calculations and a reconciliation to comparable GAAP financial measures are provided in the accompanying table entitled “Reconciliation of GAAP to Non-GAAP Financial Measures.”

Conference Call Information

Aerohive Networks will host a conference call and webcast for analysts and investors to discuss its third quarter 2015 results and outlook for its third quarter of 2015 at 2:00 pm Pacific Time today, November 4, 2015. The call may be accessed by dialing 1-888-312-3048 (toll free) or 1-719-457-2628 (international) and providing the passcode 554119. A live audio webcast of the conference call will be accessible from the “Investor Relations” section of the Company’s website at http://ir.aerohive.com. An audio replay of the call may be accessed via dial-in at 1-888-203-1112 with the passcode 554119 or by webcast on the Investor Relations section of Aerohive’s website at http://ir.aerohive.com.

Safe Harbor Statement

This press release contains forward-looking statements, including statements regarding Aerohive Networks’ financial expectations and operating performance and expectations for continued growth in 2015, including statements regarding progress on our sales execution, our efforts and investments to increase capacity and revenue diversification, our expectations regarding growth in the Wi-Fi market and our ability to capitalize on that growth and specifically from expanding education opportunities, our new product offerings and new sales leadership. These forward-looking statements are based on current expectations and are subject to inherent uncertainties, risks and changes in circumstances that are difficult or impossible to predict. The actual outcomes and results may differ materially from those contemplated by these forward-looking statements as a result of these uncertainties, risk and changes in circumstances, including, but not limited to, risks and uncertainties related to: our ability to continue to attract, integrate, retain and train skilled personnel, especially skilled R&D and sales personnel, in general and in specific regions, our ability to develop and expand our sales capacity and improve the effectiveness of our channel, our ability to improve our operating and sales execution, general demand for wireless networking in the industry verticals targeted or demand for Aerohive products in particular, our ability to benefit from our participation in the E-Rate program, unpredictable and changing market conditions, risks associated with the deployment, performance and adoption of new products and services, risks associated with our growth, competitive pressures from existing and new companies, including pricing pressures, changes in the mix and selling prices of Aerohive products, technological change, product development delays, reliance on third parties to manufacture, warehouse and timely deliver Aerohive products or international operations, our inability to protect Aerohive intellectual property or to predict or limit exposure to third party claims relating to its or Aerohive’s intellectual property, Aerohive’s limited operating history, particularly as a public company, and general market, political, regulatory, economic and business conditions in the United States and internationally.

Additional risks and uncertainties that could affect Aerohive’s financial and operating results are included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Company’s recent annual report on Form 10-K and quarterly report on Form 10-Q. Aerohive’s SEC filings are available on the Investor Relations section of the Company’s website at http://ir.aerohive.com and on the SEC's website at www.sec.gov. All forward-looking statements in this press release are based on information available to the Company as of the date hereof, and Aerohive Networks disclaims any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made, except as required by law.

Non-GAAP Financial Measures

Aerohive’s reported Q3 results include certain non-GAAP financial measures, including:

  • non-GAAP gross profit and non-GAAP gross margin;
  • non-GAAP product gross margin and non-GAAP software subscription and services gross margin;
  • non-GAAP operating expenses and non-GAAP functional expenses
  • non-GAAP operating expenses percentage and non-GAAP functional expenses percentage;
  • non-GAAP operating loss and non-GAAP operating loss percentage; and
  • non-GAAP net loss and non-GAAP net loss per share.

The Company defines non-GAAP financial measures to exclude share-based compensation, adjustment to internal-use software amortization, amortization of acquired intangibles, payroll taxes on certain stock-based compensation expense, one-time charges related to pending securities litigation, and the periodic fair value re-measurements related to convertible preferred stock warrants.

The Company has included non-GAAP financial measures in this press release because they are key measures used to evaluate the business, measure performance, identify trends affecting the business, formulate financial projections and make strategic decisions. In particular, the exclusion of certain expenses in calculating these non-GAAP financial measures can provide a useful measure for period-to-period comparisons of the Company’s core business.

Although non-GAAP financial measures are frequently used by investors in their evaluations of companies, these non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP. Some of these limitations are:

  • the non-GAAP measures do not consider the dilutive impact of stock-based compensation, which is an ongoing expense for the Company;
  • although amortization is a non-cash charge, the assets being amortized often will have to be replaced in the future, and non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss, non-GAAP operating loss percentage, non-GAAP net loss, and non-GAAP loss per share do not reflect any cash requirement for such replacements;
  • non-GAAP net loss and non-GAAP net loss per share do not reflect the periodic fair value re-measurements related to convertible preferred stock warrants;
  • pending securities litigation may continue for an extended duration and excluding the associated expense does not reflect the impact on our ongoing operations over this period of the cash requirement to defend such litigation; and
  • other companies, including companies in our industry, may calculate these non-GAAP financial measures differently, which reduces their usefulness as a comparative measure.

Because of these limitations, you should consider non-GAAP financial measures only together with other financial performance measures, including various cash flow metrics, net loss and other GAAP results.

About Aerohive Networks

Aerohive (NYSE: HIVE) enables our customers to simply and confidently connect to the information, applications, and insights they need to thrive. Our simple, scalable, and secure platform delivers mobility without limitations. For our over 20,000 end customers worldwide, every access point is a starting point. Aerohive was founded in 2006 and is headquartered in Sunnyvale, CA. For more information, please visit www.aerohive.com, call us at 408-510-6100, follow us on Twitter @Aerohive, subscribe to our blog, join our community or become a fan on our Facebook page.

Investor Relations Contract:

The Blueshirt Group
Suzanne Schmidt or Melanie Solomon
(408) 769-6720
ir@aerohive.com

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AEROHIVE NETWORKS, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)

  September 30, 2015 December 31, 2014
ASSETS (unaudited)  
CURRENT ASSETS:
     Cash and cash equivalents $  88.189 $  98,044
     Accounts receivable, net of allowance for doubtful accounts of $27 and $106 as of September 30, 2015 and December 31, 2014, respectively 16,348 24,695
     Inventory 11,757 8,360
     Prepaid expenses and other current assets 4,324  2,610
     Deferred cost of goods sold 813 1,001
          Total current assets 121,431 134,710
     Property and equipment, net  9,916 8,862
     Goodwill  513 513
     Other assets 255 169
TOTAL ASSETS $  132,115 $  144,254
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
     Accounts payable $  9,962 $  10,154
     Accrued liabilities  12,620 9,181
     Debt, current portion  12,451
     Deferred revenue, current portion 26,178 22,014
          Total current liabilities 48,760 53,800
     Debt, long-term portion 20,000  7,301
     Deferred revenue, non-current 28,672 24,141
     Other liabilities 447 857
TOTAL LIABILITIES 97,879 86,099
 
STOCKHOLDERS’ EQUITY:  
     Preferred stock, par value of $0.001 per share - 25,000,000 and 25,000,000 shares authorized as of September 30, 2015 and December 31, 2014, respectively; no shares issued and outstanding as of September 30, 2015 and December 31, 2014
     Common stock, par value of $0.001 per share-500,000,000 and 500,000,000 shares authorized as of September 30, 2015 and December 31, 2014, respectively; 47,981,332 and 46,028,908 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively 48 46
     Additional paid-in capital 223,853 208,998
     Accumulated deficit (189,665) (150,889)
          Total stockholders’ equity 34,236 58,155
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $  132,115 $  144,254

 

AEROHIVE NETWORKS, INC.
Condensed Consolidated Statements of Operations
(unaudited; in thousands, except share and per share amounts)

  Three Months Ended September 30, Nine Months Ended September 30,
  2015 2014 2015 2014
Revenue:
     Product $  36,130 $  30,776 $  87,361 $  89,358
     Software subscriptions and service 6,650 4,550 18,072 11,754
          Total revenue 42,780 35,326 105,433 101,112
Cost of revenue (1):
     Product  11,707 9,764 28,134 28,206
     Software subscriptions and service 2,686
1,678 7,040 4,683
          Total cost of revenue 14,393 11,442 35,174 32,889
Gross profit 28,387 23,884 70,259 68,223
Operating expenses:
     Research and development (1) 10,098 7,544 26,491 20,515
     Sales and marketing (1) 22,083 18,056 61,657 53,636
     General and administrative (1) 7,212 5,224 19,665 15,196
          Total operating expenses 39,393 30,824 107,813 89,347
Operating loss  (11,006) (6,940)  (37,554)  (21,124)
Interest income 21 10 54 19
Interest expense (140)  (458)  (1,067)  (1,382)
Other income (expense), net 59 (95) 213 154
Loss before income taxes  (11,066)  (7,293)  (38,354) (22,333)
Income tax provision  (215)  (81)  (422) (236)
Net loss $ (11,281) $ (7,374) $  (38,776) $  (22,569)
 
Net loss per share, basic and diluted $  (0.24) $  (0.16) $  (0.83) $  (.69)
Weighted-average shares used in computing net loss per share, basic and diluted 47,724.142 45,606,694 46,975,649 32,803,436
 
(1) Includes stock-based compensation as follows:
Cost of revenue $  249 $  107 $  631 $  225
Research and development 1,338
724 3,325  1,577
Sales and marketing 1,965 1,065 5,189 2,484
General and administrative 1,633 906 4,226  2,021
     Total stock-based compensation expense $ 5,185 $  2,802 $  13,371 $  6,307

 

AEROHIVE NETWORKS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited; in thousands)

  Nine Months Ended September 30,
  2015 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $  (38,776) $  (22,569)
Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization 2,601 1,766
     Stock-based compensation 13,371 6,307
     Others 296 43
     Changes in operating assets and liabilities:
          Accounts receivable, net 8,347  (393)
          Inventory  (3,397)  (2,671)
          Prepaid expenses and other current assets (1,526) (704)
          Other assets (86) (116)
          Accounts payable (17) 1,392
          Accrued liabilities and other liabilities 3,421 2,329
          Deferred revenue 8,695 12,276
                    Net cash used in operating activities  (7,071)  (2,340)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and intangible assets  (2,006)  (1,639)
Capitalized software development costs (1,913) (3,126)
                    Net cash used in investing activities  (3,919)  (4,765)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net of underwriting discount 80,213
Payment of offering costs  (4,007)
Proceeds from exercise of convertible preferred stock warrants 907
Proceeds from exercise of stock options  1,170  1,206
Proceeds from employee stock purchase plan 2,271
Payments for shares repurchased for tax withholdings on vesting of restricted stock units (2,306)
Proceeds from debt borrowings 10,000
Repayments of debt (10,000)
                    Net cash provided by financing activities 1,135  78,319
Net increase (decrease) in cash and cash equivalents   (9,855)  71,214
Cash and cash equivalents-beginning of period 98,044 35,023
Cash and cash equivalents-end of period $  88,189 $  106,237

 

AEROHIVE NETWORKS, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(unaudited; in thousands, except share and per share amounts)

  Three Months Ended September 30, Six Months Ended September 30,
  2015 2014 2015 2014
Gross Profit Reconciliations:
GAAP gross profit $  28,387 $  23,884 $  70,259 $  68,223
          Stock-based compensation $249 $107 $631 $225
          Adjustment to internal-use software amortization 35 70
          Amortization of acquired intangible assets 40 121
Non-GAAP gross profit $  28,671 $  24,031 $  70,960 $  68,569
 
Gross Margin Reconciliations:
GAAP gross margin 66.4 % 67.6 % 66.6 % 67.5 %
          Stock-based compensation 0.6 % 0.3 % 0.6 % 0.2 %
          Adjustment to internal-use software amortization 0.1 %
          Amortization of acquired intangible assets 0.1 % 0.1 %
Non-GAAP gross margin 67.0 % 68.0 % 67.3 % 67.8 %
 
Product Gross Margin Reconciliations:
GAAP gross margin 67.6 % 68.3 % 67.8 % 68.4 %
          Stock-based compensation 0.1 % 0.1 % 0.1 % 0.1 %
          Amortization of acquired intangible assets 0.1 % 0.1 %
Non-GAAP product gross margin 67.7 % 68.5 % 67.9 % 68.6 %
 
Software Subscription and Services Gross Margin Reconciliations:
GAAP software subscription and services gross margin 59.6 % 63.1 % 61.0 % 60.2 %
          Stock-based compensation 3.1 % 1.9 % 2.9 % 1.4 %
          Adjustment to internal-use software amortization 0.5 % 0.4 %
Non-GAAP software subscription and services gross margin 63.2 % 65.0 % 64.3 % 61.6 %
 
Operating Expenses Reconciliations:
GAAP operating expenses $  39,393 $  30,824 $  107,813 $  89,347
          Stock-based compensation (4,936) (2,695) (12,740) (6,082)
          Payroll taxes on certain stock-based compensation expense (12) (29)
          One-time charges related to pending securities litigation (345) (431)
Non-GAAP operating expenses $  34,100 $  28,129 $  94,613 $  83,265
 
GAAP research and development $  10,098 $  7,544 $  26,491 $  20,515
          Stock-based compensation (1,338) (724) (3,325) (1,577)
Non-GAAP research and development $  8,760 $  6,820 $  23,166 $  18,938
 
GAAP sales and marketing $  20,083 $  18,056 $  61,657 $  53,636
          Stock-based compensation (1,965) (1,065) (5,189) (2,484)
          Payroll taxes on certain stock-based compensation expense (12) (29)
Non-GAAP sales and marketing $  20,106
$  16,991 $  56,439
$  51,152
 
GAAP general and administrative $  7,212
$  5,224 $  19,665
$  15,196
          Stock-based compensation (1,633) (906) (4,226) (2,021)
          One-time charges related to pending securities litigation (345) (431)
Non-GAAP general and administrative $  5,234 $  4,318 $  15,008 $  13,175
 
Operating Expenses Percentage Reconciliations::
GAAP operating expenses percentage 92.1 % 87.2 % 102.3 % 88.3 %
          Stock-based compensation (11.6) % (7.6) % (12.2) % (6.0) %
          Payroll taxes on certain stock-based compensation expense
          One-time charges related to pending securities litigation (0.8) % (0.4) %
Non-GAAP operating expenses percentage 79.7 % 79.6 % 89.7 % 82.3 %
 
GAAP research and development percentage 23.6 % 21.3 % 25.1 % 20.2 %
          Stock-based compensation (3.1) % (2.0) % (3.1) % (1.5) %
Non-GAAP research and development percentage 20.5 % 19.3 % 22.0 % 18.7 %
 
GAAP sales and marketing percentage 51.6 % 51.1 % 58.5 % 53.1 %
          Stock-based compensation (4.6) % (3.0) % (5.0) % (2.5) %
          Payroll taxes on certain stock-based compensation expense
Non-GAAP sales and marketing percentage 47.0 % 48.1 % 53.5 % 50.6 %
 
GAAP general and administrative percentage 16.9 % 14.8 % 18.7 % 15.0 %
          Stock-based compensation (3.9) % (2.6) % (4.1) % (2.0) %
          One-time charges related to pending securities litigation (0.8) % (0.4) %
Non-GAAP general and administrative percentage 12.2 % 12.2 % 14.2 % 13.0 %
 
Operating Loss Reconciliations:
GAAP operating loss $  (11,006) $  (6,940) $  (37,554) $  (21,124)
          Stock-based compensation 5,185
2,802
13,371
6,307
          Adjustment to internal-use software amortization 35 70
          Amortization of acquired intangible assets 40 121
          Payroll taxes on certain stock-based compensation expense 12
29
          One-time charges related to pending securities litigation 345
431
Non-GAAP operating loss $  (5,429) $  (4,098) $  (23,653) $  (14,696)
 
Operating Loss Percentage Reconciliations:
GAAP operating loss percentage (25.7) % (19.6) % (35.6) % (20.9) %
          Stock-based compensation 12.1 % 7.9 % 12.7 % 6.3 %
          Adjustment to internal-use software amortization 0.1 % 0.1 %
          Amortization of acquired intangible assets 0.1 % 0.1 %
          Payroll taxes on certain stock-based compensation expense
          One-time charges related to pending securities litigation 0.8 % 0.4 %
Non-GAAP operating loss percentage (12.7) % (11.6) % (22.4) % (14.5) %
 
Net Loss Reconciliations:
GAAP net loss $  (11,281) $  (7,374) $  (38,776) $  (22,569)
          Stock-based compensation 5,185 2,802 13,371 6,307
          Adjustment to internal-use software amortization 35 70
          Amortization of acquired intangible assets 40 121
          Payroll taxes on certain stock-based compensation expense 12 29
          One-time charges related to pending securities litigation 345 431
          Periodic re-measurement of convertible preferred stock warrants (90)
Non-GAAP net loss $  (5,704) $  (4,532) $  (24,875) $  (16,231)
 
Shares Used in Computing non-GAAP Basic and Diluted Net Loss per Share
Weighted average shares used in computing non-GAAP basic and diluted net loss per share 47,724,142 45,606,694 46,975,649 32,803,436
 
Earnings Per Share Reconciliations:
Basic and diluted net loss per share on a GAAP basis $  (0.24) $  (0.16) $  (0.83) $  (0.69)
          Stock-based compensation 0.11 0.06 0.29 0.20
          Adjustment to internal-use software amortization
          Amortization of acquired intangible assets
          Payroll taxes on certain stock-based compensation expense
          One-time charges related to pending securities litigation 0.01 0.01
          Periodic re-measurement of convertible preferred stock warrants
Basic and diluted net loss per share on a Non-GAAP basis $  (0.12) $  (0.10) $  (0.53) $  (0.49)