Aerohive Networks Reports Q4 and Fiscal Year 2017 Results

Milpitas, Calif. — February 8, 2018 — Aerohive Networks® (NYSE:HIVE), a Cloud Networking Leader, today announced financial results for its fourth quarter and fiscal year ended December 31, 2017.

“We delivered fourth quarter results consistent with our preannouncement and believe we have taken appropriate actions to resolve recent sales execution issues,” stated David Flynn, President and Chief Executive Officer. “Despite revenue challenges in 2017, we improved our product offering and are now a full-stack cloud networking company poised to deliver innovative, new solutions. We also strengthened our financial foundation with increased recurring revenue, gross margins, and cash flow.”

Financial Summary

Total revenue for the fourth quarter of fiscal year 2017 was $37.2 million, compared with $41.7 million for the fourth quarter of 2016. Subscription and support revenue was $11.0 million, or 30% of total revenue for the quarter, compared with $8.8 million, or 21% of total revenue, for the fourth quarter of 2016.

On a GAAP basis, net loss was $3.4 million for the fourth quarter of fiscal year 2017, compared with a net loss of $7.3 million for the fourth quarter of 2016. GAAP gross margin was 68.0% for the fourth quarter of fiscal year 2017, compared with 68.0% for the fourth quarter of 2016.

On a non-GAAP basis, net income was $0.3 million for the fourth quarter of fiscal year 2017, compared with a net loss of $2.3 million for the fourth quarter of 2016. Non-GAAP gross margin was 68.8% for the fourth quarter of fiscal year 2017, compared with 68.8% for the fourth quarter of 2016.

Total revenue for fiscal year 2017 was $152.9 million, compared with $169.8 million for fiscal year 2016. Subscription and support revenue was $41.1 million, or 27% of total revenue for the year, compared with $33.3 million, or 20% of total revenue, for fiscal year 2016.

On a GAAP basis, net loss for fiscal year 2017 was $22.9 million, compared with $36.9 million in fiscal year 2016. GAAP gross margin was 67.1% for fiscal year 2017, compared with 67.4% in the year-ago period.

On a non-GAAP basis, net loss for fiscal year 2017 was $4.8 million, compared with $12.7 million in fiscal year 2016. Non-GAAP gross margin was 68.0% for fiscal year 2017, compared with 68.3% in the year-ago period.

Conference Call Information

Aerohive Networks will host a conference call and webcast for analysts and investors to discuss its fourth quarter and fiscal year 2017 results and outlook for its first quarter of fiscal year 2018 at 2:00 pm Pacific Time today, February 8, 2018. The call may be accessed by dialing 719-325-2170 and providing the passcode 1825507. 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 Aerohive Networks’ financial expectations and operating performance and expectations for continued momentum, including statements regarding the progress we are making to address challenges in our business, including sales execution issues, our ability to deliver innovative solutions as a full-stack cloud networking company, and our ability to strengthen our financial position. 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 revenue opportunities and sales capacity and improve the effectiveness of our channel, our ability to resolve challenges related to sales execution and improve our operating and sales execution, general demand for wireless networking in the industry verticals we target 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 our 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, 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, uses of Aerohive’s capital 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 fourth 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 income (loss) and non-GAAP income (loss) per share do not reflect any cash requirement for such replacements;
  • excluding certain expenses associated with litigation in the quarter or fiscal year 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 or fiscal year 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 or fiscal year 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 description of these non-GAAP financial measures and a reconciliation of the company’s historical non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included in this press release, and investors are encouraged to review the reconciliation.

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

[tables follow]

 

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

Three Months Ended December 31,
Year Ended December 31,
2017 2016 2017 2016
Revenue:
     Product $  26,173 $  32,887 $  111,839 $  136,570
     Subscription and support 11,007 8,810 41,060 33,255
          Total revenue 37,180 41,697 152,899 169,825
Cost of revenue (1):
     Product 8,577 10,309 37,337 43,231
     Subscription and support 3,320 3,018 12,893 12,066
          Total cost of revenue 11,897 13,327 50,230 55,297
Gross profit 25,283 28,370 102,669 114,528
Operating expenses:
     Research and development (1) 8,386 10,047 36,418 41,504
     Sales and marketing (1) 14,518 18,961 65,325 80,998
     General and administrative (1) 5,608 6,704 23,094 28,839
          Total operating expenses 28,512 35,712 124,837 151,341
Operating loss  (3,229)  (7,342)  (22,169)  (36,813)
    Interest income 236 123 720 468
    Interest expense (155) (123)  (567)  (474)
    Other income (expense), net (40) 49 (308) 177
Loss before income taxes  (3,188)  (7,293)  (22,323)  (36,642)
Provision for (benefit from) income taxes 234 (29) 603 269
Net loss $ (3,422) $ (7,264) $  (22,926) $  (36,911)
    Net loss per share allocable to common stockholders, basic and diluted $  (0.06) $  (0.14) $  (0.43) $  (0.73)
    Weighted-average shares used in computing net loss per share, basic and diluted 53,782,676 51,561,897 53,227,342 50,332,872
(1) Includes stock-based compensation as follows:
Cost of revenue $  272 $  281 $  1,132 $  1,305
Research and development 1,089 1,106 4,171 5,393
Sales and marketing 742 1,933 5,103 8,269
General and administrative 1,611 1,617 6,269 6,735
     Total stock-based compensation $  3,714 $  4,937 $  16,675 $  21,702

 

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

December 31, 2017 December 31, 2016
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents $  27,249 $  34,346
     Short-term investments 57,675 42,408
     Accounts receivable, net 17,662 26,190
     Inventories 13,495 12,629
     Prepaid expenses and other current assets 6,513 6,289
          Total current assets 122,594 121,862
     Property and equipment, net 6,381 9,008
     Goodwill 513 513
     Other assets 5,124 5,100
TOTAL ASSETS $  134,612 $  136,483
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
     Accounts payable $  11,946 $  10,762
     Accrued liabilities 8,602 9,300
     Debt, current 20,000
     Deferred revenue, current 34,281 31,727
          Total current liabilities 54,829 71,789
     Debt, non-current 20,000
     Deferred revenue, non-current 36,083 34,177
     Other liabilities 1,791 1,829
TOTAL LIABILITIES 112,681 107,795
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
     Preferred stock
     Common stock 55 52
     Additional paid-in capital 278,528 258,063
     Treasury stock (6,216) (2,139)
     Accumulated other comprehensive loss (30) (31)
     Accumulated deficit (250,406) (227,257)
          Total stockholders’ equity 21,931 28,688
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $  134,612 $  136,483

 

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

Year Ended December 31,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $  (22,926) $  (36,911)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
     Depreciation and amortization 3,083 3,534
     Stock-based compensation 16,675 21,702
     Other (134) 278
     Changes in operating assets and liabilities:
          Accounts receivable, net 8,528 (3,366)
          Inventories  (866)  (1,854)
          Prepaid expenses and other current assets (224) 2,081
          Other assets (24) 80
          Accounts payable 1,322 (4,522)
          Accrued liabilities (701) (2,643)
          Other liabilities 126 425
          Deferred revenue 4,460 6,642
                 Net cash provided by (used in) operating activities 9,319  (14,554)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment  (595)  (2,161)
Maturities of short-term investments 60,150 50,761
Purchases of short-term investments (75,282) (46,824)
Investment in privately held company (1,500)
                  Net cash provided by (used in) investing activities (15,727) 276
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of vested stock options 759 870
Proceeds from employee stock purchase plan 4,001 5,326
Payment for shares withheld for tax withholdings on vesting of restricted stock units (1,190) (1,121)
Payment to repurchase common stock (4,077) (2,139)
Payment on capital lease obligations (182) (53)
                    Net cash provided by financing activities (689) 2,883
Net decrease in cash and cash equivalents (7,097)   (11,395)
Cash and cash equivalents at beginning of period 34,346 45,741
Cash and cash equivalents at end of period $  27,249 $  34,346

 

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

Three Months Ended December 31, Year Ended December 31,
2017 2016 2017 2016
Amount / Margin Amount / Margin Amount / Margin Amount / Margin
Gross Profit and Gross Margin Reconciliations:
GAAP gross profit $  25,283 / 68.0% $  28,370 / 68.0% $  102,669 / 67.1% $  114,528 / 67.4%
          Stock-based compensation 272 / 0.7% 281 / 0.7% 1,132 / 0.8% 1,305 / 0.8%
          Amortization of internal use software 35 / 0.1% 35 / 0.1% 140 / 0.1% 140 / 0.1%
          Restructuring charges — / — — / — 51 / — — / —
Non-GAAP gross profit $  25,590 / 68.8% $  28,686 / 68.8% $  103,992 / 68.0% $  115,973 / 68.3%
Product Gross Profit and Product Gross Margin Reconciliations:
GAAP product gross margin $  17,596 / 67.2% $  22,578 / 68.7% $  74,502 / 66.6% $  93,339 / 68.3%
          Stock-based compensation 25 / 0.1% 57 / 0.1% 190 / 0.2% 298 / 0.3%
          Restructuring charges — / — — / — 51 / — — / —
Non-GAAP product gross margin $  17,621 / 67.3% $  22,635 / 68.8% $  74,743 / 66.8% $  93,637 / 68.6%
Subscription and Support Gross Profit and Subscription and Support Gross Margin Reconciliations:
GAAP subscription and support margin $  7,687 / 69.8% $  5,792 / 65.7% $  28,167 / 68.6% $  21,189 / 63.7%
          Stock-based compensation 247 / 2.3% 224 / 2.6% 942 / 2.3% 1,007 / 3.1%
          Amortization of internal use software 35 / 0.3% 35 / 0.4% 140 / 0.3% 140 / 0.4%
Non-GAAP subscription and support gross margin $  7,969 / 72.4% $  6,051 / 68.7% $  29,249 / 71.2% $  22,336 / 67.2%
Operating Income (Loss) and Operating Margin Reconciliations:
GAAP operating loss $  (3,229) / (8.7)% $  (7,342) / (17.6)% $  (22,168) / (14.5)% $  (36,813) / (21.7)%
          Stock-based compensation 3,714 / 10.0% 4,937 / 11.8% 16,678 / 10.9% 21,702 / 12.8%
          Amortization of internal use software 35 / 0.1% 35 / 0.1% 140 / 0.1% 140 / 0.1%
          Restructuring charges — / — — / — 1,327 / 0.9% — / —
          Charges related to securities litigation — / — — / — — / — 1,446 / 0.9%
          Charges related to headquarter relocation — / — — / — — / — 890 / 0.5%
Non-GAAP operating loss $  520 / 1.4% $  (2,370) / (5.7)% $  (4,026) / (2.6)% $  (12,635) / (7.4)%
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 $  (3,422) / $ (0.06) $  (7,264) / $ (0.14) $  (22,926) / $ (0.43) $  (36,911) / $ (0.73)
          Stock-based compensation 3,714 / 0.07 4,937 / 0.10 16,675 / 0.32 21,702 / 0.43
          Amortization of internal use software 35 / — 35 / — 140 / — 140 / —
          Restructuring charges — / — — / — 1,327 / 0.02 — / —
          Charges related to securities litigation — / — — / — — / — 1,446 / 0.03
          Charges related to headquarter relocation — / — — / — — / — 890 / 0.02
Non-GAAP net loss, basic and diluted $  327 / $ 0.01 $  (2,292) / $ (0.04) $  (4,784) / $ (0.09) $  (12,733) / $ (0.25)
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 53,782,676 51,561,897 53,227,342 50,332,872
Weighted average shares used in computing net income (loss) per share, diluted 55,349,918 51,561,897 53,227,342 50,332,872
Operating and Functional Expenses and Expenses Percentages Reconciliations:
Amount / % of Revenue Amount / % of Revenue Amount / % of Revenue Amount / % of Revenue
GAAP research and development $  8,386 / 22.6% $  10,047 / 24.1% $  36,418 / 23.8% $  41,504 / 24.4%
          Stock-based compensation (1,089) / (3.0)% (1,106) / (2.7)% (4,171) / (2.7)% (5,393) / (3.1)%
          Restructuring charges — / — — / — (838) / (0.6)% — / —
Non-GAAP research and development $  7,297 / 19.6% $  8,941 / 21.4% $  31,409 / 20.5% $  36,111 / 21.3%
GAAP sales and marketing $  14,518 / 39.0% $  18,961 / 45.5% $  65,325 / 42.7% $  80,998 / 47.7%
          Stock-based compensation (742) / (1.9)% (1,933) / (4.7)% (5,103) / (3.3)% (8,269) / (4.9)%
          Restructuring charges — / — — / — (243) / (0.2)% — / —
Non-GAAP sales and marketing $  13,776 / 37.1% $  17,028 / 40.8% $  59,979 / 39.2% $  72,729 / 42.8%
GAAP general and administrative $  5,608 / 15.1% $  6,704 / 16.1% $  23,094 / 15.1% $  28,839 / 17.0%
         Stock-based compensation (1,611) / (4.3)% (1,617) / (3.9)% (6,269) / (4.1)% (6,735) / (4.0)%
         Restructuring charges — / — — / — (195) / (0.1)% — / —
         Charges related to securities litigation — / — — / — — / —  (1,446) / (0.9)%
         Charges related to headquarter relocation — / — — / — — / —  (890) / (0.5)%
Non-GAAP general and administrative $  3,997 / 10.8% $  5,087 / 12.2% $  16,630 / 10.9% $  19,768 / 11.6%
GAAP operating expenses $  28,512 / 76.7% $  35,712 / 85.6% $  124,837 / 81.6% $  151,341 / 89.1%
        Stock-based compensation (3,442) / (9.3)% (4,656) / (11.1)% (15,543) / (10.2)% (20,397) / (12.0)%
        Restructuring charges — / — — / —  (1,276) / (0.8)% — / —
        Charges related to securities litigation — / — — / — — / —  (1,446) / (0.9)%
        Charges related to headquarter relocation — / — — / — — / —  (890) / (0.5)%
Non-GAAP operating expenses $  25,070 / 67.4% $  31,056 / 74.5% $  108,018 / 70.6% $  128,608 / 75.7%