Aerohive Networks Reports Q3 2017 Results

Milpitas, Calif. — November 1, 2017 — Aerohive Networks® (NYSE:HIVE), a Cloud Networking Leader, today announced financial results for its third quarter ended September 30, 2017.

”Our third quarter was highlighted by margin performance and EPS at the high end of our guidance ranges, along with strong increases in cash and short-term investments,” stated David Flynn, President and Chief Executive Officer. “We’re also pleased with the continued progress we have made on our product roadmap and that Dell EMC had the confidence in us to invest in moving to a full OEM relationship, which we announced today.”

Financial Summary

Total revenue for the third quarter of fiscal year 2017 was $37.1 million, compared with $40.4 million for the third quarter of 2016.  Subscription and support revenue was $10.3 million, or 28% of total revenue for the quarter, compared with $8.7 million, or 21% of total revenue, for the third quarter of 2016.

On a GAAP basis, net loss was $6.6 million for the third quarter of fiscal year 2017, compared with a net loss of $9.7 million for the third quarter of 2016.  GAAP gross margin was 65.9% for the third quarter of fiscal year 2017, compared with 67.4% for the third quarter of 2016.

On a non-GAAP basis, net loss was $1.6 million for the third quarter of fiscal year 2017, compared with a net loss of $3.3 million for the third quarter of 2016.  Non-GAAP gross margin was 66.8% for the third quarter of fiscal year 2017, compared with 68.5% for the third quarter of 2016.

Conference Call Information

Aerohive Networks will host a conference call and webcast for analysts and investors to discuss its third quarter 2017 results and outlook for its fourth quarter of 2017 at 2:00 pm Pacific Time today, November 1, 2017.  The call may be accessed by dialing 719-325-2499 and providing the passcode 1075652.  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 third 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 loss and non-GAAP operating margin;
  • non-GAAP net loss and non-GAAP net 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” is a registered trademark 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 September 30 Nine Months Ended September 30,
2017 2016 2017 2016
Revenue:
     Product $  26,750 $  31,691 $  85,666 $  103,683
     Subscription and support 10,318 8,678 30,053 24,445
          Total revenue 37,068 40,369 115,719 128,128
Cost of revenue (1):
     Product 9,408 10,070 28,760 32,922
     Subscription and support 3,244 3,095 9,573 9,048
          Total cost of revenue 12,652 13,165 38,333 41,970
Gross profit 24,416 27,204 77,386 86,158
Operating expenses:
     Research and development (1) 9,260 10,685 28,032 31,457
     Sales and marketing (1) 15,948 19,647 50,807 62,037
     General and administrative (1) 5,700 6,515 17,486 22,135
          Total operating expenses 30,908 36,847 96,325 115,629
Operating loss  (6,492)  (9,643)  (18,939)  (29,471)
    Interest income 180 109 484 345
    Interest expense (135) (115)  (412)  (351)
    Other income (expense), net (90) 22 (268) 128
Loss before income taxes  (6,537)  (9,627)  (19,135)  (29,349)
Provision for income taxes 75 85 369 298
Net loss $ (6,612) $ (9,712) $  (19,504) $  (29,647)
    Net loss per share allocable to common stockholders, basic and diluted $  (0.12) $  (0.19) $  (0.37) $  (0.59)
    Weighted-average shares used in computing net loss per share, basic and diluted 56,683,727 50,818,710 53,070,863 49,920,630
(1) Includes stock-based compensation as follows:
Cost of revenue $  313 $  431 $  860 $  1,024
Research and development 1,329 1,576 3,082 4,287
Sales and marketing 1,566 2,505 4,361 6,336
General and administrative 1,756 1,903 4,658 5,118
     Total stock-based compensation expense $  4,964 $  6,415 $  12,961 $  16,765

 

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

September 30, 2017 December 31, 2016
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents $  33,949 $  34,346
     Short-term investments 49,064 42,408
     Accounts receivable, net 17,186 26,190
     Inventories 13,206 12,629
     Prepaid expenses and other current assets 7,864 6,289
          Total current assets 121,269 121,862
     Property and equipment, net 7,005 9,008
     Goodwill  513 513
     Other assets 5,362 5,100
TOTAL ASSETS $  134,149 $  136,483
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
     Accounts payable $  9,709 $  10,762
     Accrued liabilities 8,976 9,300
     Debt, current 20,000
     Deferred revenue, current 36,761 31,727
          Total current liabilities 55,446 71,789
     Debt, non-current 20,000
     Deferred revenue, non-current 35,732 34,177
     Other liabilities 1,791 1,829
TOTAL LIABILITIES 112,969 107,795
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
     Preferred stock
     Common stock 55 52
     Additional paid-in capital 273,287 258,063
     Treasury stock (5,169) (2,139)
     Accumulated other comprehensive loss (9) (31)
     Accumulated deficit (246,984) (227,257)
          Total stockholders’ equity 21,180 28,688
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $  134,149 $  136,483

 

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

Nine Months Ended September 30,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $  (19,504) $  (29,647)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
     Depreciation and amortization 2,371 2,665
     Stock-based compensation 12,961 16,765
     Other (45) 280
     Changes in operating assets and liabilities:
          Accounts receivable, net 9,004 352
          Inventories  (577)  (4,916)
          Prepaid expenses and other current assets (1,575) 901
          Other assets (262) (93)
          Accounts payable (911) (1,956)
          Accrued liabilities (329) (1,239)
          Other liabilities 93 400
          Deferred revenue 6,589 6,147
                 Net cash provided by (used in) operating activities 7,815  (10,341)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment  (510)  (1,737)
Maturities of short-term investments 29,600 25,600
Purchases of short-term investments (36,189) (414,488)
Investment in privately held company (1,500)
                  Net cash provided by (used in) investing activities (7,099) 7,875
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of vested stock options 723 815
Proceeds from employee stock purchase plan 2,390 2,890
Payment for shares withheld for tax withholdings on vesting of restricted stock units (1,070) (941)
Payment to repurchase common stock (3,030) (2,139)
Payment on capital lease obligations (126)
                    Net cash provided by financing activities (1,113) 625
Net increase (decrease) in cash and cash equivalents (397)   (1,841)
Cash and cash equivalents at beginning of period 34,346 45,741
Cash and cash equivalents at end of period $  33,949 $  43,900

 

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, Nine Months Ended September 30,
2017 2016 2017 2016
Amount / Margin Amount / Margin Amount / Margin Amount / Margin
Gross Profit and Gross Margin Reconciliations:
GAAP gross profit $  24,416 / 65.9% $  27,204 / 67.4% $  77,386 / 66.9% $  86,158 / 67.2%
          Stock-based compensation 313 / 0.8% 431 / 1.0% 860 / 0.8% 1,024 / 0.8%
          Amortization of internal use software 35 / 0.1% 35 / 0.1% 105 / 0.1% 105 / 0.1%
          Restructuring charges — / — — / — 51 / — — / —
Non-GAAP gross profit $  24,764 / 66.8% $  27,670 / 68.5% $  78,402 / 67.8% $  87,287 / 68.1%
Product Gross Profit and Product Gross Margin Reconciliations:
GAAP product gross margin $  17,342 / 64.8% $  21,621 / 68,2% $  56,906 / 66.4% $  70,761 / 68.2%
          Stock-based compensation 62 / 0.3% 127 / 0.4% 165 / 0.2% 241 / 0.3%
          Restructuring charges — / — — / — 51 / 0.1% — / —
Non-GAAP product gross margin $  17,404 / 65.1% $  21,748 / 68.6% $  57,122 / 63.7% $  71,002 / 68.5%
Subscription and Support Gross Profit and Subscription and Support Gross Margin Reconciliations:
GAAP subscription and support margin $  7,074 / 68.6% $  5,583 / 64.3% $  20,480 / 68.1% $  15,397 / 63.0%
          Stock-based compensation 251 / 2.4% 304 / 3.5% 695 / 2.4% 783 / 3.2%
          Amortization of internal use software 35 / 0.3% 35 / 0.4% 105 / 0.3% 105 / 0.4%
Non-GAAP subscription and support gross margin $  7,360 / 71.3% $  5,922 / 68.2% $  21,280 / 70.8% $  16,285 / 66.6%
Operating Loss and Operating Margin Reconciliations:
GAAP operating loss $  (6,492) / (17.5)% $  (9,643) / (23.9)% $  (18,939) / (16.4)% $  (29,471) / (23.0)%
          Stock-based compensation 4,964 / 13.4% 6,415 / 15.9% 12,961 / 11.2% 16,765 / 13.1%
          Amortization of internal use software 35 / 0.1% 35 / 0.1% 105 / 0.1% 105 / 0.1%
          Restructuring charges — / — — / — 1,327 / 1.2% — / —
          Charges related to securities litigation — / — — / — — / — 1,446 / 1.1%
          Charges related to headquarter relocation — / — — / — — / — 890 / 0.7%
Non-GAAP operating loss $  (1,493) / (4.0)% $  (3,173) / (7.9)% $  (4,546) / (3.9)% $  (10,265) / (8.0)%
Net Loss and Net Loss per Share Reconciliations:
Amount / Per Share Amount / Per Share Amount / Per Share Amount / Per Share
GAAP net loss $  (6,612) / $ (0.12) $  (9,712) / $ (0.19) $  (19,504) / $ (0.37) $  (29,647) / $ (0.59)
          Stock-based compensation 4,964 / 0.09 6,415 / 0.13 12,961 / 0.24 16,765 / 0.33
          Amortization of internal use software 35 / — 35 / — 105 / — 105 / —
          Restructuring charges — / — — / — 1,327 / 0.03 — / —
          Charges related to securities litigation — / — — / — — / — 1,446 / 0.03
          Charges related to headquarter relocation — / — — / — — / — 890 / 0.02
Non-GAAP net loss, basic and diluted $  (1,613) / $ 0.03 $  (3,262) / $ (0.06) $  (5,111) / $ (0.10) $  (10,441) / $ (0.21)
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 53,683,727 50,818,710 53,070,863 49,920,630
Operating and Functional Expenses and Expenses Percentages Reconciliations:
Amount / % of Revenue Amount / % of Revenue Amount / % of Revenue Amount / % of Revenue
GAAP research and development $  9,260 / 25.0% $  10,685 / 26.5% $  28,032 / 24.2% $  31,457 / 24.6%
          Stock-based compensation (1,329) / (3.6)% (1,576) / (3.9)% (3,082) / (2.7)% (4,287) / (3.4)%
          Restructuring charges — / — — / — (838) / (0.7)% — / —
Non-GAAP research and development $  7,931 / 21.4% $  9,109 / 22.6% $  24,112 / 20.8% $  27,170 / 21.2%
GAAP sales and marketing $  15,948 / 43.0% $  19,647 / 48.7% $  50,807 / 43.9% $  62,037 / 48.4%
          Stock-based compensation (1,566) / (4.2)% (2,505) / (6.2)% (4,361) / (3.8)% (6,336) / (4.9)%
          Restructuring charges — / — — / — (243) / (0.2)% — / —
Non-GAAP sales and marketing $  14,382 / 38.8% $  17,142 / 42.5% $  46,203 / 39.9% $  55,701 / 43.5%
GAAP general and administrative $  5,700 / 15.4% $  6,515 / 16.1% $  17,486 / 15.1% $  22,135 / 17.3%
         Stock-based compensation (1,756) / (4.8)% (1,903) / (4.7)% (4,658) / (4.0)% (5,118) / (4.0)%
         Restructuring charges — / — — / — (195) / (0.2)% — / —
         Charges related to securities litigation — / — — / — — / —  (1,446) / (1.1)%
         Charges related to headquarter relocation — / — — / — — / —  (890) / (0.7)%
Non-GAAP general and administrative $  3,944 / 10.6% $  4,612 / 11.4% $  12,633 / 10.9% $  14,681 / 11.5%
GAAP operating expenses $  30,908 / 83.4% $  36,847 / 91.3% $  96,325 / 83.2% $  115,629 / 90.2%
        Stock-based compensation (4,651) / (12.6)% (5,984) / (14.8)% (12,101) / (10.5)% (15,741) / (12.3)%
        Restructuring charges — / — — / —  (1,276) / (1.0)% — / —
        Charges related to securities litigation — / — — / — — / —  (1,446) / (1.1)%
        Charges related to headquarter relocation — / — — / — — / —  (890) / (0.7)%
Non-GAAP operating expenses $  26,257 / 70.8% $  30,863 / 76.5% $  82,948 / 71.7% $  97,552 / 76.1%