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Aerohive Networks Reports Second Quarter 2015 Financial Results

[August 05, 2015]

Aerohive Networks Reports Second Quarter 2015 Financial Results

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 second quarter of 2015, ended June 30, 2015.

Financial Summary

Total revenue for the second quarter of 2015 was $36.8 million, an increase of 43% compared with $25.8 million for the first quarter of 2015 and a decrease of 2% compared with $37.6 million for the second quarter of 2014. Software subscription and services revenue was $6.1 million, or 17% of total revenue for the quarter, compared with $3.8 million, or 10% of total revenue for the second quarter of 2014.

For the second quarter of 2015, GAAP net loss was $11.4 million, compared with $6.3 million in the second quarter of 2014. GAAP gross margin was 67.0%, compared with 67.5% in the year-ago period. Non-GAAP net loss for the second quarter of 2015 was $7.0 million, compared with $4.3 million in the second quarter of 2014. Non-GAAP gross margin was 67.7%, compared with 67.8% 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."

"Our second quarter results validate our confidence in Aerohive's underlying business, with good growth in enterprise and a return towards more typical education buying patterns," stated David Flynn, President and Chief Executive Officer. "We look forward to continued diversification and growth based on improving sales execution, partnerships and further development of channel opportunities."

Conference Call Information

Aerohive Networks will host a conference call and webcast for analysts and investors to discuss its second quarter 2015 results and outlook for its third quarter of 2015 at 2:00 pm Pacific Time today, August 5, 2015. The call may be accessed by dialing 1-888-312-3048 (toll free) or 1-719-325-2428 (international) and providing the passcode 3200026. 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 3200026 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 Q2 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
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;
the 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 the litigation; and
other companies, including companies in this 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 22,000 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 http://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 NETWORKS, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)

	June 30, 2015			December 31, 2014
ASSETS	(unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	85,365		$	98,044
Accounts receivable, net of allowance for doubtful accounts of $108 and $106 as of June 30, 2015 and December 31, 2014, respectively		20,783			24,695
Inventory		11,942			8,360
Prepaid expenses and other current assets		3,903			2,610
Deferred cost of goods sold		772			1,001
Total current assets		122,765			134,710
Property and equipment, net		10,075			8,862
Goodwill		513			513
Other assets		311			169
TOTAL ASSETS	$	133,664		$	144,254

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	12,001		$	10,154
Accrued liabilities		8,992			9,181
Debt, current portion		-			12,451
Deferred revenue, current portion		23,978			22,014
Total current liabilities		44,971			53,800
Debt, long-term portion		20,000			7,301
Deferred revenue, non-current		27,003			24,141
Other liabilities		738			857
TOTAL LIABILITIES		92,712			86,099

STOCKHOLDERS' EQUITY:
Preferred stock, par value of $0.001 per share - 25,000,000 and 25,000,000 shares authorized as of June 30, 2015 and December 31, 2014, respectively; no shares issued and outstanding as of June 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 June 30, 2015 and December 31, 2014, respectively; 47,585,043 and 46,028,908 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively		48			46
Additional paid-in capital		219,288			208,998
Accumulated deficit		(178,384	)		(150,889	)
Total stockholders' equity		40,952			58,155
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	133,664		$	144,254


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,
	2015			2014			2015			2014
Revenue:
Product	$	30,751		$	33,721		$	51,231		$	58,582
Software subscriptions and service		6,085			3,833			11,422			7,204
Total revenue		36,836			37,554			62,653			65,786
Cost of revenue (1):
Product		9,619			10,560			16,427			18,442
Software subscriptions and service		2,526			1,639			4,354			3,005
Total cost of revenue		12,145			12,199			20,781			21,447
Gross profit		24,691			25,355			41,872			44,339
Operating expenses:
Research and development (1)		8,883			6,833			16,393			12,971
Sales and marketing (1)		20,804			19,011			39,574			35,580
General and administrative (1)		6,206			5,135			12,453			9,972
Total operating expenses		35,893			30,979			68,420			58,523
Operating loss		(11,202	)		(5,624	)		(26,548	)		(14,184	)
Interest income		19			8			33			9
Interest expense		(173	)		(459	)		(927	)		(924	)
Other income (expense), net		19			(58	)		154			59
Loss before income taxes		(11,337	)		(6,133	)		(27,288	)		(15,040	)
Income tax provision		(99	)		(135	)		(207	)		(155	)
Net loss	$	(11,436	)	$	(6,268	)	$	(27,495	)	$	(15,195	)

Net loss per share, basic and diluted	$	(0.24	)	$	(0.14	)	$	(0.59	)	$	(0.58	)
Weighted-average shares used in computing net loss per share, basic and diluted		46,888,236			44,751,354			46,595,172			26,295,717


(1) Includes stock-based compensation as follows:
Cost of revenue	$	217		$	73		$	382		$	118
Research and development		1,001			502			1,987			853
Sales and marketing		1,727			798			3,224			1,419
General and administrative		1,419			566			2,593			1,115
Total stock-based compensation expense	$	4,364		$	1,939		$	8,186		$	3,505


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

	Six Months Ended June 30,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(27,495	)	$	(15,195	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,602			1,019
Stock-based compensation		8,186			3,505
Amortization and write-off of debt discount and debt issuance cost		296			97
Re-measurement of convertible preferred stock warrant liability		-			(90	)
Changes in operating assets and liabilities:
Accounts receivable, net		3,912			(6,073	)
Inventory		(3,582	)		(5,244	)
Prepaid expenses and other current assets		(1,064	)		(385	)
Other assets		(142	)		(73	)
Accounts payable		1,791			7,636
Accrued liabilities		189			1,693
Other liabilities		(119	)		(126	)
Deferred revenue		4,826			6,890
Net cash used in operating activities		(11,600	)		(6,346	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and intangible assets		(936	)		(1,131	)
Capitalized software development costs		(1,913	)		(2,016	)
Net cash used in investing activities		(2,849	)		(3,147	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net of underwriting discount		-			80,213
Payment of offering costs		-			(3,852	)
Proceeds from exercise of convertible preferred stock warrants		-			907
Proceeds from issuance of common stock under stock-based compensation plans		3,137			1,115
Payments for shares repurchased for tax withholdings on vesting of restricted stock units		(1,367	)		-
Proceeds from debt borrowings		10,000			-
Repayments of debt		(10,000	)		-
Net cash provided by financing activities		1,770			78,383
Net increase (decrease) in cash and cash equivalents		(12,679	)		68,890
Cash and cash equivalents-beginning of period		98,044			35,023
Cash and cash equivalents-end of period	$	85,365		$	103,913


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,
	2015			2014			2015			2014
Gross Profit Reconciliations:
GAAP gross profit	$	24,691		$	25,355		$	41,872		$	44,339
Stock-based compensation		217			73			382			118
Adjustment to internal-use software amortization		35			-			35			-
Amortization of acquired intangible assets		-			40			-			81
Non-GAAP gross profit	$	24,943		$	25,468		$	42,289		$	44,538

Gross Margin Reconciliations:
GAAP gross margin		67.0	%		67.5	%		66.8	%		67.4	%
Stock-based compensation		0.6	%		0.2	%		0.6	%		0.2	%
Adjustment to internal-use software amortization		0.1	%		-			0.1	%		-
Amortization of acquired intangible assets		-			0.1	%		-			0.1	%
Non-GAAP gross margin		67.7	%		67.8	%		67.5	%		67.7	%

Product Gross Margin Reconciliations:
GAAP product gross margin		68.7	%		68.7	%		67.9	%		68.5	%
Stock-based compensation		0.1	%		0.1	%		0.2	%		0.1	%
Amortization of acquired intangible assets		-			0.1	%		-			0.1	%
Non-GAAP product gross margin		68.8	%		68.9	%		68.1	%		68.7	%

Software Subscription and Services Gross Margin Reconciliations:
GAAP software subscription and services gross margin		58.5	%		57.2	%		61.9	%		58.3	%
Stock-based compensation		3.0	%		1.5	%		2.8	%		1.2	%
Adjustment to internal-use software amortization		0.6	%		-			0.3	%		-
Non-GAAP software subscription and services gross margin		62.1	%		58.7	%		65.0	%		59.5	%

Operating Expenses Reconciliations:
GAAP operating expenses	$	35,893		$	30,979		$	68,420		$	58,523
Stock-based compensation		(4,147	)		(1,866	)		(7,804	)		(3,387	)
Payroll taxes on certain stock-based compensation expense		(17	)		-			(17	)		-
One-time charges related to pending securities litigation		(86	)		-			(86	)		-
Non-GAAP operating expenses	$	31,643		$	29,113		$	60,513		$	55,136

GAAP research and development	$	8,883		$	6,833		$	16,393		$	12,971
Stock-based compensation		(1,001	)		(502	)		(1,987	)		(853	)
Non-GAAP research and development	$	7,882		$	6,331		$	14,406		$	12,118

GAAP sales and marketing	$	20,804		$	19,011		$	39,574		$	35,580
Stock-based compensation		(1,727	)		(798	)		(3,224	)		(1,419	)
Payroll taxes on certain stock-based compensation expense		(17	)		-			(17	)		-
Non-GAAP sales and marketing	$	19,060		$	18,213		$	36,333		$	34,161

GAAP general and administrative	$	6,206		$	5,135		$	12,453		$	9,972
Stock-based compensation		(1,419	)		(566	)		(2,593	)		(1,115	)
One-time charges related to pending securities litigation actions		(86	)		-			(86	)		-
Non-GAAP general and administrative	$	4,701		$	4,569		$	9,774		$	8,857

Operating Expenses Percentage Reconciliations:
GAAP operating expenses percentage		97.4	%		82.5	%		109.2	%		89.0	%
Stock-based compensation		(11.3	)%		(5.0	)%		(12.5	)%		(5.2	)%
Payroll taxes on certain stock-based compensation expense		-			-			-			-
One-time charges related to pending securities litigation		(0.2	)%		-			(0.1	)%		-
Non-GAAP operating expenses percentage		85.9	%		77.5	%		96.6	%		83.8	%

GAAP research and development percentage		24.1	%		18.2	%		26.2	%		19.7	%
Stock-based compensation		(2.7	)%		(1.3	)%		(3.2	)%		(1.3	)%
Non-GAAP research and development percentage		21.4	%		16.9	%		23.0	%		18.4	%

GAAP sales and marketing percentage		56.5	%		50.6	%		63.2	%		54.1	%
Stock-based compensation		(4.8	)%		(2.1	)%		(5.2	)%		(2.2	)%
Payroll taxes on certain stock-based compensation expense		-			-			-			-
Non-GAAP sales and marketing percentage		51.7	%		48.5	%		58.0	%		51.9	%

GAAP general and administrative percentage		16.8	%		13.7	%		19.9	%		15.2	%
Stock-based compensation		(3.8	)%		(1.5	)%		(4.2	)%		(1.7	)%
One-time charges related to pending securities litigation		(0.2	)%		-			(0.1	)%		-
Non-GAAP general and administrative percentage		12.8	%		12.2	%		15.6	%		13.5	%

Operating Loss Reconciliations:
GAAP operating loss	$	(11,202	)	$	(5,624	)	$	(26,548	)	$	(14,184	)
Stock-based compensation		4,364			1,939			8,186			3,505
Adjustment to internal-use software amortization		35			-			35			-
Amortization of acquired intangible assets		-			40			-			81
Payroll taxes on certain stock-based compensation expense		17			-			17			-
One-time charges related to pending securities litigation		86			-			86			-
Non-GAAP operating loss	$	(6,700	)	$	(3,645	)	$	(18,224	)	$	(10,598	)

Operating Loss Percentage Reconciliations:
GAAP operating loss percentage		(30.4	)%		(15.0	)%		(42.4	)%		(21.6	)%
Stock-based compensation		11.9	%		5.2	%		13.1	%		5.4	%
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		0.2	%		-			0.1	%		-
Non-GAAP operating loss percentage		(18.2	)%		(9.7	)%		(29.1	)%		(16.1	)%

Net Loss Reconciliations:
GAAP net loss	$	(11,436	)	$	(6,268	)	$	(27,495	)	$	(15,195	)
Stock-based compensation		4,364			1,939			8,186			3,505
Adjustment to internal-use software amortization		35			-			35			-
Amortization of acquired intangible assets		-			40			-			81
Payroll taxes on certain stock-based compensation expense		17			-			17			-
One-time charges related to pending securities litigation		86			-			86			-
Periodic re-measurement of convertible preferred stock warrants		-			-			-			(90	)
Non-GAAP net loss	$	(6,934	)	$	(4,289	)	$	(19,171	)	$	(11,699	)

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		46,888,236			44,751,354			46,595,172			26,295,717

Earnings Per Share Reconciliations:
Basic and diluted net loss per share on a GAAP basis	$	(0.24	)	$	(0.14	)	$	(0.59	)	$	(0.58	)
Stock-based compensation		0.09			0.04			0.18			0.13
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		-			-			-			-
Periodic re-measurement of convertible preferred stock warrants		-			-			-			-
Basic and diluted net loss per share on a Non-GAAP basis	$	(0.15	)	$	(0.10	)	$	(0.41	)	$	(0.45	)

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