Aerohive Networks Reports Q2 2017 Results; Achieves Record Subscription and Support Revenue and Non-GAAP Profitability

Milpitas, Calif. — August 2, 2017 — Aerohive Networks® (NYSE:HIVE), a leader in cloud networking and enterprise Wi-Fi, today announced financial results for its second quarter ended June 30, 2017.

“We are pleased to deliver on our commitment of non-GAAP profitability, exceeding our guidance for gross margin, with revenue within our range and strong deferred revenue growth,” stated David Flynn, President and Chief Executive Officer. “We have made great progress maturing our HiveManager® NG platform, and we are seeing success leveraging our new Connect/Select offering to drive channel recruitment.  Our focus over the next few quarters will be to convert these improvements into revenue growth to offset the expected softness in the education market.”

Financial Summary

Total revenue for the second quarter of fiscal year 2017 was $42.3 million, compared with $47.6 million for the second quarter of 2016.  Subscription and support revenue was $10.3 million, or 24% of total revenue for the quarter, compared with $8.1 million, or 17% of total revenue, for the second quarter of 2016.

On a GAAP basis, net loss was $3.9 million for the second quarter of fiscal year 2017, compared with a net loss of $7.4 million for the second quarter of 2016.  GAAP gross margin was 67.4% for the second quarter of fiscal year 2017, compared with 67.5% for the second quarter of 2016.

On a non-GAAP basis, net income was $0.6 million for the second quarter of fiscal year 2017, compared with a net loss of $1.0 million for the second quarter of 2016.  Non-GAAP gross margin was 68.2% for the second quarter of fiscal year 2017, compared with 68.3% for the second quarter of 2016.

Conference Call Information

Aerohive Networks will host a conference call and webcast for analysts and investors to discuss its second quarter 2017 results and outlook for its third quarter of 2017 at 2:00 pm Pacific Time today, August 2, 2017.  The call may be accessed by dialing 1-888-596-2581 (toll free) or 1-719-325-4793 (international) and providing the passcode 2696603.  A live and archived audio webcast of the conference call will be accessible from the “Investor Relations” section of the Company’s website at http://ir.aerohive.com.

Safe Harbor Statement

This press release contains forward-looking statements, including statements regarding new Aerohive product and service offerings and statements regarding their expected performance, market receptiveness and competitive advantage. 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: general demand for wireless networking in the industry verticals targeted or demand for Aerohive products in particular, 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, technological change, product development delays, 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, 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 results for its second quarter of fiscal year 2017 reported in this press release and the related earnings conference call include certain non-GAAP financial measures, including:

  • non-GAAP gross profit and non-GAAP gross margin;
  • non-GAAP product gross profit and non-GAAP product gross margin;
  • non-GAAP subscription and support gross profit and non-GAAP subscription and support gross margin;
  • non-GAAP operating income (loss) and non-GAAP operating margin;
  • non-GAAP net income (loss) and non-GAAP net income (loss) per share;
  • non-GAAP operating expenses and non-GAAP functional expenses; and
  • non-GAAP operating expense percentage and non-GAAP functional expense percentage.

The Company defines non-GAAP financial measures to exclude share-based compensation, adjustments to internal-use software amortization, and certain charges related to litigation, headquarter relocation and restructuring.

The Company has included certain non-GAAP financial measures in this press release because the Company believes they are key measures which can be 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 expense related to stock-based compensation, which is an ongoing expense for the Company;
  • although amortization of internal-use software is a non-cash charge, the assets being amortized often will have to be replaced in the future, and non-GAAP net loss and non-GAAP loss per share do not reflect any cash requirement for such replacements;
  • excluding certain expenses associated with litigation in the quarter does not reflect the impact on our ongoing operations over this period of the cash requirement to defend such or other litigation;
  • excluding headquarter relocation expense in the quarter does not reflect the cash requirement relating to the one-time charges related to the lease abandonment costs incurred upon vacating buildings of our prior headquarters and double rent and utilities expense during the transition to our new headquarters facility;
  • excluding restructuring charges in the quarter does not reflect the cash requirement relating to the costs associated with restructuring and primarily relates to employee termination costs and benefits; 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 and other 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.

A reconciliation of non-GAAP guidance measures to corresponding GAAP guidance measures is not available on a forward-looking basis due to the high variability and low visibility with respect to the charges that are excluded from these non-GAAP measures.

About Aerohive Networks

Aerohive (NYSE: HIVE) has a proven history of innovation helping IT radically simplify wireless and wired access using Cloud Networking. Aerohive’s Public Cloud, Private Cloud, or Portable Cloud Architecture is based on the latest Cloud technology and offers unrivaled customer choice and flexibility in choosing a deployment option that meets their current and future needs. Aerohive was founded in 2006 and is headquartered in Milpitas, CA. For more information, please visit www.aerohive.com, call us at 408-510-6100, follow us on Twitter @Aerohive, subscribe to our blog, or become a fan on our Facebook page.

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“Aerohive” and “HiveManager” are registered trademarks and “Aerohive Networks” is a trademark of Aerohive Networks, Inc. All product and company names used herein are trademarks or registered trademarks of their respective owners. All rights reserved.

Investor Relations Contract:

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

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

Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Revenue:
     Product $  32,046 $  39,536 $  58,916 $  71,992
     Subscription and support 10,254 8,095 19,735 15,767
          Total revenue 42,300 47,631 78,651 87,759
Cost of revenue (1):
     Product 10,616 12,413 19,352 22,852
     Subscription and support 3,153 3,050 6,329 5,953
          Total cost of revenue 13,769 15,463 25,681 28,805
Gross profit 28,531 32,168 52,970 58,954
Operating expenses:
     Research and development (1) 9,222 10,562 18,772 20,772
     Sales and marketing (1) 17,420 21,322 34,859 42,390
     General and administrative (1) 5,489 7,725 11,786 15,620
          Total operating expenses 32,131 39,609 65,417 78,782
Operating loss  (3,600)  (7,441)  (12,447)  (19,828)
    Interest income 164 117 304 236
    Interest expense (147) (110)  (277)  (236)
    Other income (expense), net (93) 90 (178) 106
Loss before income taxes  (3,676)  (7,344)  (12,598)  (19,722)
Provision for income taxes 197 68 294 213
Net loss $ (3,873) $ (7,412) $  (12,892) $  (19,935)
    Net loss per share allocable to common stockholders, basic and diluted $  (0.07) $  (0.15) $  (0.24) $  (0.40)
    Weighted-average shares used in computing net loss per share, basic and diluted 53,175,684 49,798,994 52,808,412 49,467,667
(1) Includes stock-based compensation as follows:
Cost of revenue $  276 $  321 $  547 $  593
Research and development 1,065 1,366 1,753 2,711
Sales and marketing 1,501 2,063 2,795 3,831
General and administrative 1,605 1,704 2,902 3,215
     Total stock-based compensation expense $  4,444 $  5,454 $  7,997 $  10,350

 

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

June 30, 2017 December 31, 2016
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents $  34,619 $  34,346
     Short-term investments 45,613 42,408
     Accounts receivable, net 22,929 26,190
     Inventories 14,982 12,629
     Prepaid expenses and other current assets 7,128 6,289
          Total current assets 125,271 121,862
     Property and equipment, net 7,638 9,008
     Goodwill  513 513
     Other assets 5,375 5,100
TOTAL ASSETS $  138,797 $  136,483
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
     Accounts payable $  14,663 $  10,762
     Accrued liabilities 9,014 9,300
     Debt, current 20,000
     Deferred revenue, current 32,954 31,727
          Total current liabilities 56,631 71,789
     Debt, non-current 20,000
     Deferred revenue, non-current 34,957 34,177
     Other liabilities 1,795 1,829
TOTAL LIABILITIES 113,383 107,795
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
     Preferred stock
     Common stock 54 52
     Additional paid-in capital 268,929 258,063
     Treasury stock (3,159) (2,139)
     Accumulated other comprehensive loss (38) (31)
     Accumulated deficit (240,372) (227,257)
          Total stockholders’ equity 25,414 28,688
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $  138,797 $  136,483

 

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

Six Months Ended June 30,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $  (12,892) $  (19,935)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
     Depreciation and amortization 1,631 1,795
     Stock-based compensation 7,997 10,350
     Other (30) 224
     Changes in operating assets and liabilities:
          Accounts receivable 3,261 (6,669)
          Inventories  (2,353)  (3,877)
          Prepaid expenses and other current assets (839) (4,470)
          Other assets (275) (202)
          Accounts payable 4,105  1,095
          Accrued liabilities (289)  5,097
          Other liabilities 53 226
          Deferred revenue 2,007 4,137
                 Net cash provided by (used in) operating activities 2,376  (12,229)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment  (466)  (735)
Maturities of short-term investments 18,600 11,400
Purchases of short-term investments (21,782) (4,592)
Investment in privately held company (1,500)
                  Net cash provided by (used in) investing activities (3,648) 4,573
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of vested stock options 709 353
Proceeds from employee stock purchase plan 2,390 2,890
Payment for shares withheld for tax withholdings on vesting of restricted stock units (451) (540)
Payment to repurchase common stock (1,020) (1,451)
Payment on capital lease obligations (83)
                    Net cash provided by financing activities 1,545 1,252
Net increase (decrease) in cash and cash equivalents 273   (6,404)
Cash and cash equivalents at beginning of period 34,346 45,741
Cash and cash equivalents at end of period $  34,619 $  39,337

 

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

Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Amount / Margin Amount / Margin Amount / Margin Amount / Margin
Gross Profit and Gross Margin Reconciliations:
GAAP gross profit $  28,531 / 67.4% $  32,168 / 67.5% $  52,970 / 67.3% $  58,954 / 67.2%
          Stock-based compensation 276 / 0.7% 321 / 0.7% 547 / 0.7% 593 / 0.6%
          Amortization of internal use software 35 / 0.1% 35 / 0.1% 70 / 0.1% 70 / 0.1%
          Restructuring charges — / — — / — 51 / 0.1% — / —
Non-GAAP gross profit $  28,842 / 68.2% $  32,524 / 68.3% $  53,638 / 68.2% $  59,617 / 67.9%
Product Gross Profit and Product Gross Margin Reconciliations:
GAAP product gross margin $  21,430 / 66.9% $  27,123 / 68,6% $  39,564 / 67.2% $  49,140 / 68.3%
          Stock-based compensation 52 / 0.1% 62 / 0.2% 103 / 0.1% 114 / 0.1%
          Restructuring charges — / — — / — 51 / 0.1% — / —
Non-GAAP product gross margin $  21,482 / 67.0% $  27,185 / 68.8% $  39,718 / 67.4% $  49,254 / 68.4%
Subscription and Support Gross Profit and Subscription and Support Gross Margin Reconciliations:
GAAP subscription and support margin $  7,101 / 69.3% $  5,045 / 62.3% $  13,406 / 67.9% $  9,814 / 62.2%
          Stock-based compensation 224 / 2.2% 259 / 3.3% 444 / 2.3% 479 / 3.0%
          Amortization of internal use software 35 / 0.3% 35 / 0.4% 70 / 0.3% 70 / 0.5%
Non-GAAP subscription and support gross margin $  7,360 / 71.8% $  5,339 / 66.0% $  13,920 / 70.5% $  10,363 / 65.7%
Operating Income (Loss) and Operating Margin Reconciliations:
GAAP operating loss $  (3,600) / (8.5)% $  (7,441) / (15.6)% $  (12,447) / (15.8)% $  (19,828) / (22.6)%
          Stock-based compensation 4,444 / 10.5% 5,454 / 11.4% 7,997 / 10.1% 10,350 / 11.8%
          Amortization of internal use software 35 / 0.1% 35 / 0.1% 70 / 0.1% 70 / 0.1%
          Restructuring charges — / — — / — 1,327 / 1.7% — / —
          Charges related to securities litigation — / — 70 / 0.1% — / — 1,446 / 1.6%
          Charges related to headquarter relocation — / — 890 / 1.9% — / — 890 / 1.0%
Non-GAAP operating income (loss) $  879 / 2.1% $  (992) / (2.1)% $  (3,053) / (3.9)% $  (7,072) / (8.1)%
Net Income (Loss) and Net Income (Loss) per Share Reconciliations:
Amount / Per Share Amount / Per Share Amount / Per Share Amount / Per Share
GAAP net loss $  (3,873) / $ (0.07) $  (7,412) / $ (0.15) $  (12,892) / $ (0.24) $  (19,935) / $ (0.40)
          Stock-based compensation 4,444 / 0.08 5,454 / 0.11 7,997 / 0.15% 10,350 / 0.21
          Amortization of internal use software 35 / — 35 / — 70 / — 70 / —
          Restructuring charges — / — — / — 1,327 / 0.02 — / —
          Charges related to securities litigation — / — 70 / — — / — 1,446 / 0.03
          Charges related to headquarter relocation — / — 890 / 0.02 — / — 890 / 0.01
Non-GAAP net income (loss), basic and diluted $  606 / $ 0.01 $  (963) / $ (0.02) $  (3,498) / $ (0.07) $  (7,179) / $ (0.15)
Shares Used in Computing non-GAAP Basic and Diluted Net Income (Loss) per Share
Weighted average shares used in computing net income (loss) per share, basic 53,175,684 49,798,994 52,080,412 49,467,667
Weighted average shares used in computing net income (loss) per share, diluted 54,413,327 49,798,994 52,080,412 49,467,667
Operating and Functional Expenses and Expenses Percentages Reconciliations:
Amount / % of Revenue Amount / % of Revenue Amount / % of Revenue Amount / % of Revenue
GAAP research and development $  9,222 / 21.8% $  10,562 / 22.2% $  18,772 / 23.9% $  20,772 / 23.7%
          Stock-based compensation (1,065) / (2.5)% (1,366) / (2.9)% (1,753) / (2.2)% (2,711) / (3.1)%
          Restructuring charges — / — — / — (838) / (1.1)% — / —
Non-GAAP research and development $  8,157 / 19.3% $  9,196 / 19.3% $  1,6181 / 20.6% $  18,061 / 20.6%
GAAP sales and marketing $  17,420 / 41.2% $  21,322 / 44.8% $  34,859 / 44.3% $  42,390 / 48.3%
          Stock-based compensation (1,501) / (3.6)% (2,063) / (4.4)% (2,795) / (3.6)% (3,831) / (4.4)%
          Restructuring charges — / — — / — (243) / (0.2)% — / —
Non-GAAP sales and marketing $  15,919 / 37.6% $  19,259 / 40.4% $  31,821 / 40.5% $  38,559 / 43.9%
GAAP general and administrative $  5,489 / 13.0% $  7,725 / 16.2% $  11,786 / 15.0% $  15,620 / 17.8%
         Stock-based compensation (1,602) / (3.8)% (1,704) / (3.6)% (2,902) / (3.7)% (3,215) / (3.7)%
         Restructuring charges — / — — / — (195) / (0.3)% — / —
         Charges related to securities litigation — / —  (70) / (0.1)% — / —  (1,446) / (1.6)%
         Charges related to headquarter relocation — / —  (890) / (1.9)% — / —  (890) / (1.0)%
Non-GAAP general and administrative $  3,887 / 9.2% $  5,061 / 10.6% $  8,689 / 11.0% $  10,069 / 11.5%
GAAP operating expenses $  32,131 / 76.0% $  39,609 / 83.2% $  65,417 / 83.2% $  78,782 / 89.8%
        Stock-based compensation (4,168) / (9.9)% (5,133) / (10.8)% (7,450) / (9.5)% (9,757) / (11.1)%
        Restructuring charges — / — — / —  (1,276) / (1.6)% — / —
        Charges related to securities litigation — / —  (70) / (0.1)% — / —  (1,446) / (1.7)%
        Charges related to headquarter relocation — / —  (890) / (1.9)% — / —  (890) / (1.0)%
Non-GAAP operating expenses $  27,963 / 66.1% $  33,516 / 70.4% $  56,691 / 72.1% $  66,689 / 76.0%