Aerohive Networks, Inc. (HIVE)

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Aerohive Networks, Inc. (HIVE)

Q2 2014 Earnings Conference Call

August 06, 2014, 5:00 PM ET

Executives

Melanie Solomon - IR

David Flynn - President & CEO

Gordy Brooks - CFO

David Greene - Chief Marketing Officer

Analysts

Kent Schofield - Goldman Sachs

Tal Liani - Bank of America

Troy Jensen - Piper Jaffray

Erik Suppiger - JMP Securities

Rohit Chopra - Buckingham

Presentation

Operator

Good day, everyone. Welcome to the Aerohive Networks Second Quarter 2014 Financial Results Conference. Today’s conference is being recorded.

At this time, I’d like to turn the conference over to Ms. Melanie Solomon, Investor Relations. Please go ahead, ma’am.

Melanie Solomon

Thank you, Caroline. Welcome to Aerohive Networks second quarter 2014 financial results conference call. After the market close today, Aerohive issued a press release through Business Wire. The release is also available on our website at aerohive.com. This call is being webcast live on the Investor Relations section of the Aerohive website, and will be available for 30 days.

Today's call is being hosted by David Flynn, President and Chief Executive Officer; and Gordon Brooks, Chief Financial Officer. David Greene, Chief Marketing Officer, will also be available for Q&A.

During this conference call, we will make forward-looking statements regarding future events or results of the company and its operations. These forward looking statements include statements regarding our projected financial results, including for the third quarter and 2014, general demand for wireless networking in the industry verticals we target or demand for our products in particular, potential drivers of growth in our business, new customer acquisitions, future product offerings, continued 802.11ac transition and adoption of Aerohive cloud management applications and product offerings, changing market conditions, risks associated with the deployment and adoption of new products and services, risks associated with our continued growth, and competitive pressures from existing and new companies.

Actual events or results could differ materially from those discussed in the forward-looking statements. Please refer to the risk factors in our recent quarterly report on Form 10-Q, which contain important factors that could cause actual results to differ materially from the forward-looking statements.

Aerohive disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise.

Today, we'll be discussing both GAAP and non-GAAP financial measures. The non-GAAP financial measures are not intended to be considered in isolation, or as a substitute, for results prepared in accordance with GAAP. For a reconciliation of these non-GAAP financial measures to the corresponding GAAP measures, and a discussion of why we present non-GAAP financial measures, please see today's press release available on our website.

And now, I’ll turn the call over to David Flynn, President and CEO of Aerohive.

David Flynn

Thank you, Melanie, and thank you all for joining us today. I’m very pleased to report the second quarter of 2014, our first full quarter as a public company, was another strong quarter for Aerohive. Our record revenue of $37.6 million, exceeded the top end of our guidance range, and grew 33% sequentially.

We added over 1,600 new end customers in the second quarter, that’s the highest number of new customers acquired in any quarter in our history, bringing the total number of end customers to over 16,000.

We also continued to see strong demand from our existing customers, with repeat business contributing 61% of our business over the last four quarters. Our growth continued to exceed the growth of the Wi-Fi market and of our major competitors, suggesting continued gains in market share.

Overall, our results for the quarter reflect continued strength of our core products in well-established markets, as well as the increasing impact of our emerging growth initiatives.

We saw increasing customer demand for our cloud-managed controller-less solutions, and we saw continued growth in K-12 education, our most established vertical market. At the same time, our increased focus on retail, mobility, applications, and the transition to 802.11ac is driving growth on top of our well-established foundation.

I’ll now go into more detail on each of these growth vectors. As you know, we’ve built Aerohive around a radically different approach to Wi-Fi and enterprise mobility. Simplicity of cloud management and the scalability of Wi-Fi solution without controllers increasingly resonates with customers in the marketplace.

We believe this is the fastest growing segment of the Wi-Fi market, and as the market move towards this solution, competitors are scrambling to catch up and deliver the solutions the market is asking for. We see this as further validation of our architecture, differentiation, and the years of experience that’s reflected in our products.

Our controller-less architecture and cloud capabilities made us a particularly effective solution for education. We continue to see this in our Q2 results. K-12 education has historically been our strongest vertical with the K-12 buying cycles driving our strong sequential growth in Q2, and the education surge this year resulted in Q2 being our biggest education quarter yet.

We transacted with over 1,000 schools, including some of the largest school districts in the country such as Broward County, Palm Beach County, and Baltimore County schools, the sixth, 12th, and 24th largest districts in the United States.

Aerohive solution allows districts like this to efficiently support huge one-to-one education initiatives. And for example, one of these customers has just two people managing a network of 14,000 access points.

Looking ahead, we see prospects for healthy growth in our education business. In the U.S., the ConnectED Initiative and the FCC plan currently call for allocating $1 billion per year of E-Rate money over the next two years to fund Wi-Fi connections in schools.

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