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.

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.

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,…

Thank you, Dave, and good afternoon, everyone. We’re very pleased with our financial performance in Q2. We planned for, and delivered, significant sequential growth, which drove a corresponding improvement in our operating margin. In addition, our balance sheet metrics are positive and we are pleased with the continuing progress in our operating cash flow. I’ll review our GAAP and non-GAAP P&L, balance sheet, and cash flow metrics for Q2 and provide some related commentary on the business. Lastly, I will close by providing financial guidance for Q3. Net revenue for fiscal Q2 was $37.6 million, an increase of 34%, compared with the same quarter a year ago, and an increase of 33% sequentially. The significant sequential increase from Q1, derived primarily from product revenue, is a seasonal pattern from our Q1s into Q2s that we expect to continue, at least for the near term. Product revenue for fiscal Q2 was $33.7 million, an increase of 30%, compared with the same quarter a year ago, and a 36% increase sequentially. The vast majority of our product revenue continues to be driven by our access points and our related management software licenses. Software subscription and service revenue was $3.8 million for Q2, or 10% of revenue, an increase of 78%, compared with the same quarter a year ago, and a 14% sequential increase. As our software subscription and service revenue amortizes off of the balance sheet, we expect to continue to see sequential quarterly increases in this revenue line and to not reflect the same seasonality we expect to see with product revenue. We were pleased with our record revenue performance in Q2. In addition, linearity within the quarter was consistent with prior Q2s with a majority of business closing in June, which contributed to an anticipated sequential increase in accounts receivable…

Thanks, Gordy. Overall, we're very pleased with our strong performance in Q2. Our core products in well-established education business, combined with our expansion in additional verticals, growing value of our BYOD solutions, and our position in the .11ac transition have all provided a strong foundation for our growth. With our disruptive technology, costs and go-to-market strategy, we are addressing the challenges of mobility revolution, and look forward to continued growth domestically and internationally. And with that, we’ll take your questions.

(Operator Instructions) We’ll take our first question today from Tal Liani with Bank of America. And Tal, your line is open if you still have a question. I’m hearing no response. We’ll go next to Kent Schofield with Goldman Sachs.

To follow up on your comments around the ConnectED, FCC’s deployment of $1 billion in ’15 and ’16, just taking your comments there, it sounds like should we be thinking more a second half of ’15 where we might see some impact to your business, and obviously given the big swing in 2Q, so basically just trying to think about the timing of when you think you might see some additional funds, and then of that $1 billion, how should we think about the opportunity for you as a hardware vendor in that $1 billion?

So, in terms of the timing, the dollars will actually start flowing in July 2015. The E-Rate applications will be compiled and submitted between now and - I think early March time is the cut-off. That will be reviewed and then, will be - they will start to grant approvals, as I said, in early Q3. So, that’s when the bulk of the benefit will be seen. There is an expectation that the program will allow- if a deployment was made in Q2 and then there is subsequently the E-Rate funding is approved in Q3, that E-Rate funding can be used to pay against the deployment made in Q2. So that would - so co-schools have a high degree of confidence that they will get E-Rate funding or and have the ability to fund for an interim period, a project, could start to see some incremental upside in Q2, but the majority of the upside we expect to be in Q3 and beyond.

And then, as far as the $1 billion there for ’15, for example, I mean how much would you think or what percentage of that you think actually goes to hardware? So, for example, your access points as opposed to, say, services for deployment, just so we get a sense for the actual market impact to the Wi-Fi hardware market?

I think a wide range of estimates around what that might actually translate into, and specifically they won’t be clear until individual entities put in their E-Rate applications. It includes Wi-Fi, switches, cabling, installation, managed services, some firewalls, there is a variety of other things. I think that will become clear as we go forward. At this point, it depends on how people put together applications and what they want to decide to have funded.

Thanks for some of the detail there. And then, if I jump over to the retail side of things, great to hear that you are getting some good traction there. Can you help us understand why are you winning those deals? It sounds like the mix, as a percentage of your business, has improved quite a bit, maybe on like a year-on-year basis, do you think you’ve gotten to the point where that traction can kind of continue or is this going to be a little bit lumpy going forward?

We put together some significant attack plans a year ago or a little more than a year ago to go after this market. A couple of reasons for - there is some nice dynamics going on with their design to have a connected experience with their customers, looking for more value out of the wireless infrastructure, engage shopping, analytics, a whole lot of other very high value-added things that we can bring to them. So, there is a great dynamic happening in that marketplace, and we wanted to do tablets to transact in the stores and to turn the store around and [indiscernible] front so there is lot of things driving growth. We decided to go after that market because we saw the overall market growth dynamics. We saw - we have a very compelling solution. The controller-less approach is perfect for a highly distributed retail organization. So, we think we’ve got the right network architecture, the right kind of value and analytics and intelligence on top of it. And in addition, one of the strongest incumbents in that market, Motorola has been going through a lot of transition and turmoil, which has opened up the market. That has allowed us to enter and land a number of significant accounts. So, we intend to continue to push into that. We have seen steady growth on that since we put together these initiatives. We just launched a lot of new products in Q2, and are going to continue to push on it. As we mentioned, many of these are land-and-expand accounts, so some of the logos that we are landing today still have significant expansion potential going forward.

We’ll go back to Tal Liani with Bank of America.

Hi, guys, sorry. I just got disconnected before. Two questions, the first question is the AC cycle, can you speak about, first, the price difference between AC and N, you get any premium -- one versus another? And second, the impact on units, the monthly units, because AC has more throughput, does it mean that for the same deployment, unit demand is smaller? So that’s number one, that’s question number one. Question number two is more about to understand the source for the strength in the quarter. Does some segments this quarter that are seasonal, seasonally strong? Did you see the outperformance coming from these segments such as education or the outperformance came from the other segments? Thanks.

First on AC pricing, I think we talked last time that we were with the AP230, we decided to be aggressive to drive the transition, and we priced the 3x3 AP230 priced product much closer to where other competitors were pricing a 2x2 AC product, and we did that to be disruptive, drive growth. The price point for that product is $799. It’s a $150 premium to our 2x2 end product, and we actually priced it as a slight discount -- as a discount to our 3x3 end product, and it settled in, in that pricing, which is exactly where we expected it to be, and so it is a price premium over the 2x2 end. It’s actually a slight price discount to the 3x3 end. But because we engineered it very well, we actually have a better cost structure on it. We are able to do that while maintaining the gross margin that you saw in the quarter. So there is some uplift in the ASPs because some of the 2x2 end customers are trading up to it, offset by some decrease in ASPs with some of the 3x3 end customers are trading down, net effect has been fairly neutral. In terms of how many APs per deployment, we have not seen any indication of people doing fewer APs per deployment. In terms of -- the retail stores are still looking for the same coverage, it’s not really a throughput problem and the education environment, they are generally going with one AP per classroom regardless of what the technology is in it. So, there is no reduction in unit volume because of the AC transition. And then finally on the outperformance, I think we indicated obviously strong sequential education growth, but the percentage of the business that was education this quarter was meaningfully less than a year ago quarter, which indicates I think the success - there was a balanced growth with enterprise, retail, and education, all having strong sequential quarters.

And next from Piper, we’ll hear from Troy Jensen.

So just to follow up on the AC question, you touched on the revenues. Can you just touch on the product gross margin difference between the AC versus the N?

Yeah, Troy, this is Gordy. If you look at the .11n product or 330, in terms of direct gross margin just on the product COGS is about 5 percentage points higher than the 330. This quarter, because we were managing the transition of product lines, [Aero shipped] [ph] in a lot of products and all, we’ve probably just began to see some of the impact of that to positive gross margins, but again just on a net apples-to-apples basis, about 5 points higher on a product basis.

You mentioned briefly on the inventory spike. You said last year in Q2, it was actually down sequentially, so was this all related to just the [indiscernible] 802.11ac?

Yeah, so a couple of items. Last year, we seasonally built inventory again in the education buying cycle a lot of those shipments and purchases move over into July and August. Last year, we had plenty of inventory coming out of Q1 and into Q2, but we actually, because we’re still a private company and be very cash flow conscious, we didn’t carry as much inventory at the end of June and ended up having several weeks of inventory unavailability in July that we want to avoid this year. So, seasonally we consciously built up inventory to allow to fulfill the July and August continued surge of education for the summer. Then in addition to that, with the .11ac transition, we built up inventory in the variety of products so not just the 230 but the .11n 3x3 because again we were unclear about which way customers would go in this transition, so we made sure to have of all of our products enough inventory so that we can cover the various scenarios in this transition. All those products are current products. It will be around for a while. So, there is no concern about end of life or getting caught with particular over subscription of inventory.

And then, maybe one for David here, just on the retail wins, some of the higher profile ones, were those Motorola replacements, the new deployments, I know Motorola has been leaking share over the past couple of years, but have you seen any acceleration, or is that an opportunity to come?

We certainly have had a number of retail accounts that we’ve won that have been traditional Motorola accounts. Of the specific ones I referenced on the account, there is - I know the Mexican restaurant was actually not a Motorola replacement, that was more new, and Meraki was the competitor in that environment. I actually would need to go to reconfirm if Pier 1 was a Motorola replacement of not. Then I will say fairly consistently we are engaged with many retailers who have been using Motorola in the past and are looking at using Aerohive going forward.

Hey, Troy, this is David Greene. Maybe just to add, we’re also seeing interest in Motorola’s channel in terms of seeing a new opportunity to work with us to engage with retail accounts, and so that also is promising in terms of the opportunity that might come.

We will now go to Erik Suppiger with JMP Securities.

Just on the E-Rate question, would you anticipate that might create some pause as you get into the first half of next year as customers hold off in anticipation of that?

The expectation, as I said, is that those that are going - that will get E-Rate funding could potentially deploy in April and still get retroactive reimbursement of it. So I think that those who believe they have a high probability of getting the funding, that would not be a good reason for them to hold off on those purchases. The other thing to consider about this is that even though there is a lot of money flowing for E-Rate, only a small fraction of the schools even have a chance of getting access to this, and many of those are ones that wouldn’t have the money normally to go deploy. The expectation that we have is that E-Rate [indiscernible] what percentage of the students in the environment are on a subsidized lunch program, and our current expectation is that the demark-line will be 80% or 85% of the students in the district need to be on free and subsidized lunch, which is a relatively small percentage of the overall schools in the country. So the vast majority of schools will actually not benefit from this, and they will go forward and fund their projects as they always have, and I think they will realize they will probably not benefit from it, and then the other schools are likely ones that were really struggling to fund their projects. So it is not clear how much they would pause on because probably the reason they are doing this is to help them fund projects that would otherwise be unfunded.

So in the past you said that the most E-Rate funding financed projects you had was around 2%. If you look out a year when you start getting the E-Rate, would you expect that to be 5% or what kind of range could that be?

I think it’s little premature to guide so specifically on this. The documents are still circulating for comment and review. The exact threshold of where they going to draw the line, there are many, many moving variables, and I think we need to get a little bit further down before we would speculate like that, but overall it certainly has to be a - certainly expect it to be a significant positive for us.

Your Asia business had some good growth, have you seen some pick up in the business with your partnership with Lenovo?

I think across Asia, I think we’ve seen good pickup in many regions. We’re seeing China, Korea, Southeast Asia, New Zealand is a particular hotspot for us right now, and I think all those - we saw some good strength in those environments. We did see some additional nice enterprise deployments through the Lenovo relationship. So there is progress there. I wouldn’t attribute the majority of the growth to that, but it was definitely a contributing factor.

Then lastly, how was the router and switch business in the quarter?

It was fairly consistent with last quarter. I think it’s kind of still under 10%. We did see sequential growth in that business, although Q2 a lot of the education business tends to be obviously much more Wi-Fi. We saw a couple of very nice large retail deals with - excuse me, one of the large retail deals in the quarter was a half switch, half Wi-Fi project, so pleased to see those kind of distributed enterprise unified single branch solution in the retail market taking off well.

We’ll hear now from Rohit Chopra with Buckingham.

Just wanted to ask you a question about the number of customers now in the public cloud, I think you talked about that last quarter. That was my first question. Second one, I just wanted to get a sense of any changes in the competitive market, I think Troy mentioned, and I think everyone knows that Motorola has been having some challenges, but has anyone stepped up to become more aggressive, thinking more of the larger vendors pushing up against you, maybe those two questions that would be helpful.

Hey, Rohit, this is Gordy just to talk about the metrics around the public cloud; we actually had an increase of the customers in the quarter on the public cloud. It discretely turned out to be about 83% of the current quarter customers, and therefore, the total customers have risen to about 72% of our total customers who are on the public cloud, still continues to be about 40% of our units are managed by the public cloud, but the metric is still over 70% of the total customers themselves on the public cloud.

Regarding the competitive environment, we actually did not see any material changes in the competitive environment inside the quarter. I think the normal players are behaving in a normal way.

Gordy, can I just ask a quick follow up. You mentioned something about some work in the data centers that you need to get done, can you just elaborate on that, I know you have your work with Amazon Web Services, but is there anything else that you are planning or what needs to be done as far as expenditures?

Just continued on the software subscription and service gross margin. We’ll continue to expand the support delivery, so with all those new customers we need to make sure to continue to build out support delivery as well as just the cloud infrastructure, but there is no significant material change to that. It’s just the scaling of the business to incorporate that infrastructure. Although as we are doing our work on the new cloud offerings, there is some infrastructure work we are doing there, but again all in the normal course of business, nothing that’s discretely incremental.

And with no other questions at this time, Mr. Flynn, I’d like to turn things back to you for closing remarks.

Thank you. Thank you all for joining us today and enjoy the rest of your summer, and hope to see you soon.