Good day and welcome to the Aerohive Networks' third quarter 2017 financial results conference call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Melanie Solomon, Investor Relations. Please go ahead.

Thank you Matt. Welcome to Aerohive Networks' third quarter 2017 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 and Chief Operating Officer. During the course of today's call, management will make forward-looking statements including statements regarding our projections, operating results, expectations for future revenue growth, operating profitability and operating margins, plans for future investments, product development, deployment, adoption of 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 our 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 caption, Risk Factors and Management's Discussion and Analysis of Financial Condition 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 our website at ir.aerohive.com and on the SEC's website at sec.gov. All forward-looking statements in this presentation and the referenced press release are based on information available to 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 will 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 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. I will now turn the call over to David Flynn, President and CEO of Aerohive.

Thank you Melanie and thank you all for joining us today. We delivered third quarter results highlighted by non-GAAP gross margin performance and EPS at the high-end of our guidance ranges and a strengthening balance sheet with good growth in deferred revenue and $5 million of cash generation excluding buybacks. We are pleased with the strength of these metrics as well as our continued progress on product delivery and channel development. While our revenue came in slightly below our guidance, this was primarily due to challenges with forecasting the mix of current and deferred revenue as a result of better than expected progress in driving our business towards cloud-based subscriptions as well as the transition to our new Connect to Select model. John will discuss this in more detail. Before I detail our Q3 highlights, I wanted to touch on of the significant announcements we made today. We have expanded into a full OEM relationship with Dell EMC where they will sell both our hardware and cloud solution as Dell EMC branded products. Previously, they sold our APs as a reseller which created transactional complexity and limited us from fully benefiting from Dell EMC's global channels. With the whole solution now sold as a Dell EMC branded product, we will be able to leverage all of their global direct sales and indirect channels. While we do not expect immediate benefit in Q4, we expect the growth of our business with Dell EMC to accelerate in 2018. Now turning to Q3. We continue to make excellent progress on delivering new products and strengthening our overall offering. We also have a number of significant improvements and innovations coming in our near-term roadmap. I will highlight a few key areas. We have launched the AP150W wallplate AP to allow us to attack the…

Thanks Dave. Good afternoon everybody and thanks for joining us today. Before I go through the quarter in detail, I would like to highlight some financial and operational milestones Aerohive achieved this quarter. We realized significant sales efficiency with our non-GAAP sales and marketing costs coming in at 39% of revenue driving this important metric to under 40% on a year-to-date basis. We delivered gross margins and EPS at the high-end of our guidance range and we were meaningfully cash generator, including cash and equivalents and short-term investments in the third quarter and on a full year-to-date basis. During the balance of my prepared remarks, I will cover our GAAP and non-GAAP P&L, our balance sheet for Q3 and provide some related commentary on our business. I will close by reviewing our financial guidance for the fourth quarter of 2017. But before we begin the revenue discussion, I wanted to provide some context. For the last two quarters, we have delivered revenue which has been at the low-end or nominally below our revenue guidance. Offsetting this has been a better-than-expected build of our deferred revenue balances. Two factors have been driving this variance. The first was the variability introduced by the transition to our Connect to Select business model. The second factor was the better-than-expected percentage of our customers who chose our cloud-based offerings over on-premise solutions. With our subscription base public cloud products, we forgo immediate license revenue and instead book more deferred revenue. We view this change in customer behavior as a meaningful positive and proof that we have overcome the majority of our NG challenges that we talked about earlier in the year. Now with a couple of quarters of Connect to Select transition behind us and more insight into our customer's preference for our cloud offerings,…

Thanks John. I am encouraged by the significant progress of our product delivery and this has given Dell EMC the confidence in us to expand into a full OEM relationship. Our results demonstrate that we are steadily improving our operating efficiency while positioning ourselves to resume growth. I want to thank our customers and employees for their continued loyalty and dedication as we work towards this common goal. I will now take your questions. Operator?

[Operator Instructions]. And at this time, we will go to Christian Schwab with Craig-Hallum. Please go ahead.

Yes. Congratulations on a good quarter, guys. As we kind of think to 2018, is there any way that you can kind of bracket the revenue opportunity, the expanded revenue opportunity with Dell EMC?

So I will take a shot at it first, Craig and I will let Dave chime in with additional color. So we reluctantly give 90-days worth the guidance. So we are a little reluctant to talk about 2018. I guess what we can do is, kind of scale were we were in 2017 with Dell. Our goal was that they would be about 10% of the business on a full-year basis. So we were nominally above that if we come where we think we would be in the fourth quarter. And we do expect off of that base to have some amount of growth. But at this point, we don't think we are not really modeling anything in for the fourth quarter. These things take a while, even though we have all the infrastructure in place to crank up. But we expect growth. We are just, at this point, not really prepared to scale that growth.

Is it fair to assume though that with an expanded channel and an expanded product and something labeled by themselves, over a multi-year timeframe, is it too unrealistic to assume that that would double at least?

On a multi-year timeframe?

Yes.

Yes. I mean certainly we believe that they have the potential to be that kind of a partner. I think also in the past, we have given indications around, before we got into the Dell relationship they were OEM in the Aruba product and that product, I think it got about $40 million annualized run rate and they were expecting to grow it to $100 million over time until HP blew up that deal. So it demonstrated it's ability to produce $40 million of revenue off of an OEM product. So if you kind of assume that we can get back that level of success over time, that would be consistent with your doubling the business.

Great. Yes. Thank you for mentioning that math so I didn't have to bring it up. I don't have any other questions. Thanks guys.

Thank you.

All right. Thank you.

We will now move to Erik Suppiger with JMP Securities.

Yes. Good quarter. On the Dell EMC OEM, how will the margins on that compare with your traditional reseller relationship?

So the margins on that deal will be lower. We haven't scaled how much they will be lower. But I think if you look at how we have managed through the Connect to Select business, I think that would give you kind of an indication or a broad outline of where it cold go.

Okay. The E-Rate business in the quarter, was that about what you were planning? And can you give us a sense for what contribution education was?

Yes. As I recall, overall E-Rate demand for the quarter, education was down because it was another bad E-Rate year. That all happened back in the spring. We discussed that last call. But the overall results came in generally in line with expectations. The worldwide K-12 was about 35% of the business which is lower, frequently it's 40% to low to mid-40s. So for this quarter being down at 35% was consistent with those expectations.

Okay. And then lastly, the SD-WAN features that you are developing, are you developing that organically? Or will you be partnering with anybody on that?

No. That is developed organically. We are actually utilizing the same kind of embedded HiveOS operating system on the WiFi and we have had routing and VPN capabilities in that product for a while. It's been enhanced to do the SD-WAN multipath optimization and application-based routing. And the biggest thing is, we are bringing that routing product line forward into our NG platform, which is kind of the last missing major piece of completing the NG transition. And that's on track to be launched by the end of December.

Very good. Thank you very much.

Thank you.

We will now take a question from Mark Kelleher with D.A. Davidson.

Hi guys. This is Luke, on for Mark.

Hi. How are you?

Good. So a quick question just touching back on E-Rate. I was wondering if you guys had any update on the upcoming cycle? If you guys have any visibility there or anything at all?

Yes. Unfortunately it's too early in that cycle to be really giving you commentary. We are just starting to see the first, they call it the 470 request for funding and very, very early stages. And you generally don't get a clear picture of that until late Q1 into early Q2 of next year in terms of how it's going to play out.

Okay. That's it.

All right.

And that will conclude the Q&A session. I will turn it back over to David for any closing remarks.

All right. Thank you all for joining us today. We will be at the upcoming Needham and Craig-Hallum conferences in New York later this month. I hope to see many of you there. Good night.

All right. Thank you.

Again, that does conclude today's call. Thank you all for your participation.