Good day and welcome to the Aerohive Networks’ Third Quarter 2015 Financial Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the call over to Melanie Solomon. Please go ahead.

Thank you, Amber. Welcome to Aerohive Networks’ third quarter 2015 financial results conference call. After the market closed 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 John Ritchie, Chief Financial Officer. During the course of today’s call, management will make forward-looking statements including statements regarding our projections for fourth quarter operating results, expectations for future revenue growth, profitability and operating margins, plans for future investments, product development, deployment, adoption and performance, and expectations of customer buying patterns and the growth of the market for our products and business generally. These forward-looking statements involve a number of risks and uncertainties, some of which are beyond the control, and the actual outcomes and results may differ materially from those contemplated by these forward-looking statements as a result of these uncertainties, risks and changes in circumstances that could affect our financial and operating results, including risks and uncertainties included under the captions Risk Factors and Managements Discussion & Analysis of financial conditions and results of operations, in our 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 ir.aerohive.com and on the SEC’s website at www.sec.gov. All forward-looking statements in the referenced press release are based on information available us as of the date hereof and we disclaim 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. Today, we’ll be discussing, both GAAP and non-GAAP financial measures. The non-GAAP financial measures have been adjusted to exclude certain charges and are not intended to be considered in isolation or as a substitute to 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.

Thank you, Melanie and thank you all for joining us today. Third quarter 2015 was a record quarter for Aerohive, showing improved execution on all fronts, with revenue of $42.8 million, great traction on partnerships and positive cash flow. We’ve been working diligently over the last several quarters to improve our sales execution. And while we still have more work to do, you can see from the results that our efforts are paying off. These results reflect a good balance across vertical markets with continued strength in education and growing contribution from other verticals. Consistent with our land and expand strategy, we saw continued growth from our existing customer base with repeat customers contributing 73% of our business over the last four quarters. This repeat buying behavior is a testament to the quality and strength of our products. We’re seeing increasing customer interest in cloud-managed networking, which is playing to our strength. Competitors are resorting to build a multiple disparate product line in an attempt to address different market segments and deployment models. And as a result, their customers are forced to choose between these constrained offerings. In contrast, we’ve delivered a single elegant solution that scales from the single AP deployment to the global enterprise, and uniquely enables the same solution to be deployed in either public or private cloud environments. We believe we’ve built the strong foundation for 2016 and are optimistic about the future. I’d like to thank our employees, customers and partners, for helping to make this profitable. I’ll now review some of the key results from our third quarter, including important customer wins. Lower education contributed another strong quarter, representing 44% of our business in Q3. As expected, this included significant E-Rate business. As of the end of September, industry-wide, approximately 54% of funding requested…

Thanks Dave and good afternoon everybody. Before we begin, I want to reiterate how excited I am to be here at Aerohive. Dave has assembled a world class management team at Aerohive and I am glad to be part of it. Now, before we go through the quarter in detail, I’d like to highlight some milestones that we’ve achieved in the third quarter. In Q3, we recorded a record revenue of $42.8 million. Our software subscription and services revenue also set an all-time high of $6.7 million. Deferred revenues approached $55 million. DSOs came in at a record low of 32 days and even more impressive number when you look at some of the competitors in our space. We generated almost $3 million of cash during the quarter as well. During the quarter we continued to benefit from improved sales execution which began a couple of quarters ago under the stewardship of our new sales leader, Tom Wilburn whom we introduced to you a several quarters ago. In the third quarter, we experienced exceptionally strong growth with revenue increasing 16% from Q2 to Q3 and exceeding the top end of our $40 million to $42 million guidance range. This over-performance was driven by some deals that we expected to close in Q4 but ultimately materialized in Q3. That was on top of solid performance in the quarter, built on a strong U.S. K-12 business and healthy contribution from our other key verticals. As we’ve discussed, E-Rate is significantly changing our seasonality as compared to prior years. In 2015, E-Rate amplified the historic sequential decline in product revenue from Q4 to Q1 and shifted some buying from the first half of the year into the second half of the year. As we look to 2016, we expect our seasonality to be…

We’re pleased with our performance this quarter and the execution of our portfolio. [Ph] With positive trends in the business and the strength of our executive team, we’re well-positioned for the future. We’ll now take your questions. Operator?

Thank you. [Operator Instructions] And we will go first to Doug Clark with Goldman Sachs.

Wondering if we can kind of tackle E-Rate first on this case; I know you said it was kind of strong during the quarter, wondering if you can help us kind of quantify the contribution. I think previously you had talked about kind of a $50 million booking opportunity perhaps. How much of that has been recognized and then the expectation for future recognition throughout kind of the next subsequent three or four quarters?

Yes. Doug, as we mentioned, the overall education was the 44% of the business, a substantial portion of that not E-Rate really. The commentary regarding how much of our E-Rate awards were booked versus remain to be booked is simply that more than half of the awards still remain to be booked. We did book some significant E-Rate deals in Q2 as well as in Q3 but more than half is still out there. The schools have through September of 2016 to make those purchases. They have some flexibility to extend that window with -- by filing additional paperwork. So, more than half of it will come over the following, in the next four quarters.

And then maybe also touching on the partnerships, specifically kind of Juniper and Brocade now, you are kind of sharing those relationships with perhaps a few other Wi-Fi equipment vendors, wondering if your perspective on potential mix within them, go-to-market strategies, and just the details on that. And then kind of a related question, I think recently you announced the effort to enter into the Australia and New Zealand market, just curious on kind of why attacking that at this point.

So, regarding the Brocade and Juniper relationships, so those two companies still, I guess have some leftover relationship with HP -- Aruba, now HP, although they are much more -- their sales team views HP as a direct competitor. And so, all that relationship is there on paper. Where those things get affected is on the street with sales reps making individual decision whether they partner with. So pragmatically, their partnering with Aerohive and Ruckus and those will be the two companies. So, it’s not many, not really a broad array of partners, it’s primarily those two. And how that gets broken out, we would expect to be broken out kind of consistent with where the companies are relatively strong. We’re strong in enterprise and cloud, very strong education business. The Ruckus tends to be primarily focused on hospitality and service provider market segments. So, it will -- the net results will also be a matter of being who does a better job of engaging with the sales reps in the field. And so, we’re working hard to make sure we make those engagements successful. Regarding Australia and New Zealand, yes, we should clarify that that was not a change. We’ve been in Australia and New Zealand for a long time. The team in New Zealand has been very, very successful over the years as well as we have a number of strong people in Australia but we did put in place a new head of the ANZA region. So that was a change in leadership, not necessarily a new initiative to open up the ANZA region.

And we will next to Troy Jensen with Piper.

I’ve got a quick for you John, 32-day DSO is kind of unheard in the industry. So, I think curious to know what linearity really looks like and how much business was done in the last month and why did that happen?

Well, I agree with you 32 is, 32 DSO is phenomenal level. We do expect it to move up from there and it’ll move up from there, between there a range over the next several quarters. Without getting into the specifics of what we booked in which quarter, I think what it really speaks to is the improvement in sales execution. We do encourage our sales team to help us with linearity. We have incentives out there to promote that. And I think you’re seeing the success of that.

Then maybe for David, maybe a question he can’t answer but just wanted to get your thoughts. Education spending on Wi-Fi, obviously kind of moved around this year with the E-Rate. What do you think a safe number to assume is for edu spending on Wi-Fi in ‘16, what’s the growth rate over ‘15 roughly.

That’s a good question; that’s a crystal ball question, what is that growth rate. I have seen some projections from Infonetics that have that growth rate very high, up in the mid-20s I think is where they projected; while most of the other vertical market segments were expected to grow 10%-ish was -- and there is a study where they’ve taken a crack at it with most markets growing 10 to low teens, and education growing more mid-20s. I think that’s probably as good of a guess as anyone. There certainly is expected to be a large, very large pool of unspent E-Rate money that was rolling over from last year. We’re gearing up to drive a much more aggressive E-Rate campaign and expecting to do more business, substantially more business than we did in this last year. But it’s a little bit of crystal ball work to put a hard number on that.

And we will go next to John Lucia with JMP Securities.

My first question is last quarter I think you guys’ enterprise business ex K-12 education grew over 20%. Was that the case this quarter?

I don’t have that. Give me a minute to make sure -- I’d actually do that math this time. Why don’t -- do you want to go on another question while we look that up.

And then, can you give us a sense if you expect E-Rate to increase or decrease sequentially going into 4Q? I mean you still have 50% of the awards left. We get a sense of when you expect those to hit. When any of that come in 1Q, or as we move into next year where most of the schools wait for the summer months to purchase and install?

This is John speaking here. We expect the balance of E-Rate to extend into next year. In terms of giving specific growth rates with E-Rate and sub, it’s hard to do that. But again, we expect it to -- the current E-Rate cycle to extend from Q4 into Q1 and a little bit into Q2 of next year.

I think we have previously indicated, we thought Q3 would probably be the most robust quarter of E-Rate spending. There were some delays in those funding letters getting out, as you know. So, it could be -- the level between Q3 and Q4 maybe relatively similar but as a long tail that has gone out until September next year.

Okay, thank you.

And that’s -- if you do a little bit of math on that that other question, so we’ll work and get back in just a minute.

Great, thanks.

And we will go next to James Faucette with Morgan Stanley.

Hi. It’s Meta Marshall for James. First question on, just what updated timing on when the wave 2 product is planned to come out and then whether not having your wave 2 product out is hurting you in some of the partnerships versus some selling Aruba more roughest in those deals where customers stay along that?

Yes, so no change in the wave 2 schedule versus what we communicated last quarter. We expect it to be available Q1 and we expect the product that we plan to deliver on that time, we think we’ll have some compelling advantages over the products that our competitors have announced and/or may have shipped. Obviously Ruckus has made a noise about the wave 2 product. They’ve indicated the other products aren’t in the market yet, or they haven’t at least seen them in the marketplace. I’ll say we have seen very little interest in activity around wave 2 from the customer base. I think they’re very much in a wait and see mode, not unsure about how an important the value is and definitely less interest in being on the bleeding edge of a new technology when the clients don’t exist. It won’t be out for quite a while. So at this point, we’ve seen no impact from wave 2 affecting our customer engagement. As we go forward, that may increase but at this point it’s been a non-factor.

[Operator Instructions] We will go next to Catharine Trebnick with Dougherty & Company. Ms. Trebnick your line is open.

Two questions, one on the Dell relationship. Are you seeing any slowdown in the take rates since they announced the acquisition of EMC?

No. Obviously there is some distraction you’re going to see inside an organization when that’s happening. But I think all the sales guys still have quotas that they got to go ahead and they’ve got a good footprint on the table and looking to engage and sell. So to-date, it has not had a noticeable impact on it, we’re still focused on growing the pipeline and engaging, something we are watching closely to make sure it doesn’t cause more distraction but so far we’re not seeing it an issue.

And then what was -- you said strong contribution in the healthcare and retail, what was that? Is it 20%, 25%?

It was about 25%.

Okay, great.

It was about 25% across those, so that was a record, by far the best we’ve done across those verticals.

And then I hate to go back to this E-Rate but one more question on that, do you still anticipate the FCC’s relief funding in July 26 at the rate of $1.5 billion.

Yes, so the expectation is, these numbers are a little hard to calculate but yes, that planned out another $1.5 billion of committed funding is still in place plus all the rollover funds that were not spent this year. And so I think the number gets to be about a $3 billion number or something, it’s a big enough number that I don’t bother going in and recalculate it all the time. There’s a huge pile of the E-Rate money and I wouldn’t be surprised if it’s more than could be effectively spend in, spent once again. So, we’re going to chase it and should expect it to be a bigger year than we saw this year.

And we will take our follow-up question from Doug Clark with Goldman Sachs.

I was just curious on the gross margin point. You had commented on kind of a one-time expense. I was wondering what gross margins would have been on a like for like basis excluding that.

They’ve been towards the higher end of our guidance which was 66% to 68% overall.

And that expense is expected to be non-recurring or could we see that pop back up again?

I would expect it to be non-recurring at this point.

And then I was just kind as longer term, you previously kind of talked about hitting profitability at the $15 million quarterly revenue run rate, is that still on track in terms of targets and achievable in your view?

That’s our goal. I mean we said that before and we’re aiming towards it.

That concludes today’s question and answer session, I’d like to turn the call back over to Mr. David Flynn for any additional or closing remarks.

Thank you. I’d like to again thank our employees, customers and partners for contributing to a successful quarter. Thank you all for listening today and good afternoon.

That does conclude today’s conference, thank you for your participation.