Good day, and welcome to the Aerohive Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Melanie Solomon, Investor Relations. Please go ahead, ma’am.

Thank you, Melissa. Welcome to Aerohive Networks’ fourth quarter and year-end 2018 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 discipline, profitability and margin, plans for future investments, productive 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 and circumstances that could affect our financial and operating results, including risks and uncertainties included under the captions 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 www.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 day 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 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 press release available on our website. And now I’ll turn the call over to David Flynn, President and Chief Executive Officer.

Thank you, Melanie, and thank you all for joining us today. While we did return to growth in 2018, it was less than the growth rates we aspire to going forward. However, 2018 was a year of improved operational execution and a reassertion of our position as an innovation leader on the space. We released a number of major new products, including A3, our standalone security offering; our new SD-WAN cloud-managed branch routing solution, Atom, the industry’s first enterprise Pluggable Access Point; and our industry-first portfolio of 802.11ax capable access points also referred to as Wi-Fi 6. We also delivered a continuous stream of innovation in our HiveManager cloud platform, including machine learning-based Client 360 and Network 360 as well as Alexa voice integration. These product enhancements strengthen our overall offering and reposition us as an innovator in the space. The strengthen in our cloud offering and strong execution in our renewals business led to 14% growth in our subscription and support revenue for the year. On the sales side, we increased our operational efficiency, driving down full year sales and marketing expenses from 39% to a record low of 37% of revenue. At the same time, we drove our business mix toward the enterprise, delivering 34% growth in our non-K-12 business in 2018. This drove our non-K-12 business contribution up from 63% in 2017 to 70% of total in 2018. These activities combined with increased productivity and efficiency contributed to return to year-over-year growth, non-GAAP profitability for three of the four quarters in 2018 and significant cash generation. Turning to our fourth quarter results. We delivered year-over-year revenue growth for the second-consecutive quarter. Our very successful subscription and support business showed double-digit growth and record revenue in Q4, accounting for 1/3 of our total revenue. We’re pleased with the…

Thanks, Dave, and good afternoon, everybody, and thank you all for joining here today. Before I begin, I would like to remind everyone that all numbers discussed today have been adjusted for ASC 606. Under this accounting standard, we generally recognize revenue when we ship products to our customers, including our stocking distributors. The stocking distributors then hold inventory to meet end-customer demand. Now looking back at 2018, on a full year basis, revenue came in at $154.9 million, up modestly compared to the $153.6 million recognized for fiscal 2017. 2018 benefited from strong results in our subscription and support revenues, which grew 14% on a year-over-year basis as well as strengthen our enterprise business. These combined to partially offset the revenue drag from the tough K-12 market. Despite challenging revenue performance, we focused on disciplined execution, which allowed us to drive positive operating margins and positive EPS. In our quarters there are seasonally low Q1, the same disciplined approach also resulted in meaningful cash generation. Maintaining this discipline, combined with revenue growth will put us in a path to a very successful 2019. Now moving on to the quarter. I’d like to highlight some financial and operational milestones Aero have achieved. We came in at the high end of our guidance for non-GAAP operating margins and non-GAAP EPS. We exceeded our guidance range for non-GAAP gross margins. Our subscription and support business continues to set all-time records for revenues and gross margins, and for the first time, our quarterly revenue run rate for the subscription and support business exceeded $12 million per quarter. Now during the balance of my prepared remarks, I will cover our GAAP and non-GAAP P&L, our balance sheet for the fourth quarter and provide some related commentary on our business. I will close by reviewing…

Thanks, John. In closing, we are encouraged by the strengthening of our business, and we believe we are well positioned to continue building on in the coming year. With the stronger product offering and more opportunities to showcase our innovation, we believe we will increasingly be viewed as a formidable competitor in the space. While we are focusing on continuing 2018’s double-digit enterprise growth, we are also seeing a number of leading indicators that the U.S. education market may return to growth. We could turn that market from a headwind to a tailwind for 2019. We are viewing E-Rate with caution because of the history of issues with the program. We are encouraged that the volume of request for quotes this year is running 30% to 40% higher than the same time last year and is on pace with the extremely robust levels we saw in the 2015 program. With Q4’s results and the positive foundational changes made throughout 2018 and this position heading into 2019, we believe we are positioned to deliver profitable growth, as we drive as a team to achieve our long-term goal of leadership and cloud networking. I’m proud of the progress we made in 2018 and the hard work of our employees, I’d like to thank them along with our partners for their ongoing dedication and support. We’ll now take your questions. Operator?

Thank you. [Operator Instructions] Our first question will come from Christian Schwab with Craig-Hallum.

Hey, Great. Thanks for taking the question. Could you remind us how much money you won in E-Rate in 2015?

Yes. Give me one minute to look that up. It was in – I think the total 471 awards were in the kind of mid-$20 million range. I’ll have to pull that back. And yes, remember that award volume is – that’s the VARs revenue to the end customer is what they reflect there.

Right, right. So is there was – all of the schools that in fiscal year 2015 being able to come back this year after having to take three off. We’re seeing, as you said, quite high surge of volume of people looking to upgrade the schools again. If this goes really well, could you give us a range of outcomes of what you would anticipate, since I’m sure the sales force has been active here?

Christian, that puts us in an odd position, right? Because while we’ve given one quarter for the guidance, and we’ve been whip shot before with this function in the E-Rate market. Although, we do believe and we’ve talked before that it’s clearly not going to be contracting next year, and there is high likelihood of growth. We just want to be very cautious on that, and that’s a long way of saying that we won’t specifically answer that question.

Would you expect to see revenue pick up in this in the June quarter? Or would you expect the majority of it to kind of be in the September quarter?

Typically, the bulk of the E-Rate benefit comes in Q3 and beyond because the direct reimbursement for the purchases is only available for products made after July 1. People are eligible, able to buy in Q2 if they use their own money and later get reimbursed, so typically a little bit of lift in Q2. But it’s mostly in the back half of the year. And it can continue on into the next year even.

Right, right, right. Okay, great. No other questions, thank you.

Thank you.

The next question will come from Chase Bunnell with Dougherty & Company.

Hi, thank you for taking my question. So you’ve launched a lot of new products recently in the last 12 months. Can you talk a little bit about the number of deals you’ve closed directly related to products? Or what kind of traction you’re seeing with new products?

Yes, I think if you look at the most successful – probably the strongest reaction we’ve seen so far is on the ax portfolio. As we said in the first quarter, it was – first full quarter is 15% of our Wi-Fi shipment. So that’s well received and rattled off a significant large enterprises that have purchased that product. So very pleased with the results of that, very pleased, universal enthusiasm about all the cloud innovations that we’re delivering, things like Client 360 and Network 360 being well received. A3 is probably the more interesting wildcard, that’s a business starting from scratch, completely new standalone security business, high degrees of interest. The business is still is not material yet but it is growing with a significant growth in the quarter, mentioned a six-figure win at a large Canadian customer. That’s six figures of just A3 revenue and that’s pretty much – that’s pure software product on a percent margin business. So in general, we’re very encouraged by all that. Probably more importantly is there is a halo effect that we’re seeing that customers and partners are seeing the pace of innovation and they’re realizing that we’re back to being the innovator of the historic where we have been and seeing things. We did a – just a seminar – a little webinar over the last couple of weeks and 5,000 people signed up to it. A year or two ago, we used to have 1,500 people sign up to it. So I think it’s that kind of thing that’s – over time that will pay off from the halo effect as well as the acceptance of the products directly by customers.

Awesome. That’s great. And One more is so you said that you’ve had some good growth in your non-K-12 business. What portion of that is healthcare and retail? And like how – what is the growth from that kind of driving, is it all from the new products or are you getting better traction with your sales team from – or is it kind of a combination of all of that?

Yes. I think it’s a combination of all. The health and retail continue to be pretty significant portion of our business and they actually bolstered up pretty sharply in Q4, in quickly kind of a year-over-year growth rates and kind of double-digit growth in both health and retail. So they are material contributors they’re generally in that 15% to 20% range of the total business in that and then most of the rest in other general enterprise. European growth, we highlighted, that’s a great indicator of the business without the K-12 headwind. You’ve seen double-digit growth for the year in Europe and three out of the last four quarters and that’s indicative of what’s going on outside of the K-12 space.

Okay, great. That’s all I have. Thank you.

And that does conclude our question-and-answer session at this time. And I’d like to turn the call back over to David Flynn for any additional or closing remarks.

Thank you all for joining us today. We look forward to seeing in upcoming conferences and on the road and good night.

That does conclude our conference for today. Thank you for your participation. You may now disconnect.