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

MILPITAS, Calif.--()--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.

“Management's Discussion and Analysis of Financial Condition and Results of Operations”

“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 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 to strengthen our channels and product offerings, diversify our market opportunities and our ability to achieve and maintain non-GAAP operating profitability and resume revenue growth. 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 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 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) 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 customers worldwide, every access point is a starting point. 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, join our community, or become a fan on our Facebook page.

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

   

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, 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 1,602   1,704   2,902   3,215  
Total stock-based compensation $ 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,  

December 31,
2017

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
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, net 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 )%
 

Amount

Per share

Amount

Per share

Amount

Per share

Amount

Per share

Net Income (Loss) and Net Income (Loss) per Share Reconciliations:

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 52,808,412 49,467,667
Weighted average shares used in computing net income (loss) per share, diluted 54,413,327 49,798,994 52,808,412 49,467,667
 

Amount

% of
Revenue

Amount

% of
Revenue

Amount

% of
Revenue

Amount

% of
Revenue

Operating and Functional Expenses and Expenses Percentages Reconciliations:

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 % $ 16,181 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 %
 

Contacts

Investor Relations Contact:
The Blueshirt Group
Melanie Solomon, 408-769-6720
ir@aerohive.com

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