Good day, and welcome to the Aerohive First Quarter 2019 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Melanie Solomon. Please go ahead.

Thanks, Todd. Welcome to Aerohive Networks’ first quarter 2019 financial results conference call. Today’s call is being hosted by David Flynn, President and Chief Executive Officer; and John Ritchie, Chief Financial Officer and Chief Operating Officer. We just distributed press release and filed an 8-K detailing Aerohive Networks’ first quarter 2019 financial results. Copies of these documents which include our GAAP to non-GAAP reconciliations are available on the Investor Relations section of our website at ir.aerohive.com. This call is also being webcast live in our website and will be available for 30 days. I’d like to remind you that during today’s call, our discussion may include forward-looking statements about Aerohive Networks and its future business and financial and operating results, products, customers, and markets. These statements involves risks and uncertainties that may cause actual results to differ materially from those anticipated by these statements. The risks and uncertainties include those described in the risk factors outlined under the caption Risk Factors and management’s discussion and analysis of financial condition and results of operations in our reports filed with the SEC including our most recent form 10-Q and Form 10-K both available on the Investor Relations page of our website 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. 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. We delivered first quarter results in line with our preannouncement last month. I want to spend some time discussing the revenue shortfall before getting into some of the highlights from the quarter and our go forward view on the business. Revenue came in below our original forecasts primarily because of two factors. One was a sales execution issue in United States, and the second factor was a two prong mix shift. First on sales execution, the sales team delivered results at or above forecast in EMEA, in APAC, and in much of the Americas. But this was not enough to compensate for very disappointing results in a few territories in the U.S. To be frank a much more active 2019 E-rate cycle with an end of March deadline for customers to make their vendor selection and file their funding requests likely cause some sales people that take their eyes off the ball and overly focused on E-rate at the expense of Q1 business. On a positive side, our 2019 E-rate campaign yielded very strong results. Reporting by E-rate profit works on customer funding request shows industry wide demand increased by 24% over 2018 and demand for Aerohive solution specifically increased 55% year-over-year demonstrating a significant increase in market share for Aerohive. We expect these funding requests to start to turn into orders begin in this quarter, but primarily to contribute to revenue over the second half of the year. It’s lack of focus on closing imminent deals heard our topline in Q1. And while we are optimistic about our position in 2019 E-rate cycle, I’m disappointed in the team’s execution. We’ve made changes in regional leadership and organizational design to improve the focus, execution and productivity of the U.S.…

Thanks, Dave, and good afternoon, everybody, and thanks for joining us here today. I’d like to start by providing some additional granularity as to what drove the lower than expected revenue performance in the first quarter. As Dave mentioned, the shortfall was attributable to two mix shift issues and original life sales execution issue. Regarding the mix shift issue, we saw an unprecedented mix shift towards our lower priced products at the expense of our mid range products. Interestingly, on a skew by skew basis, we saw minimal pricing erosion across the low end and mid range product lines with the resulting mix shift contributing to the revenue shortfall. On a unit basis, we shift approximately the number of units we expected, but the mix was materially different than anticipated resulting in the lower revenue levels. In addition, the mix also – the mix shift also resulted in a higher percentage than usual our revenue being deferred, because whether you purchase our higher or lower range products, the support, the subscription prices are generally the same. As such, more of the deal value was deferred with lower price products. Lastly, on the mix topic, we saw more customers than anticipated moved from our perpetual license to our multiyear subscription product offerings. Moving on to the sales execution issues, our America sales team specifically in the U.S. fell well short of their bookings goals. We have already begun several corrective actions towards remedying the situation. Next I’d like to highlight some milestones Aerohive achieved during our first quarter. Our subscription support business continues to perform very well. In Q1, we set a new record for subscription support revenues. Our subscriptions support businesses average growth in the mid-teens on a year-over-year basis for the trailing five quarters and we expect the street…

Thanks, John. Despite the revenue challenges in the first quarter of 2019, we are encouraged by the strong performance in key aspects of our business, such as EMEA, our subscription and support business and our strong E-rate results. All of which demonstrate the customer acceptance of our cloud networking platform. Our priority now is to improve sales execution and results in the Americas. So that is no longer a growth inhibitor, which should enable us to more fully deliver on the business opportunity that the strength of our product offering enables. We’ve taken action here and we’re encouraged by the strong start to Q2. I’d like to thank our employees, partners and customers for their ongoing support and commitment. I will now take your questions. Operator?

Thank you. [Operator Instructions] We’ll take our first question from Mark Kelleher of D. A. Davidson.

Great. Thanks for taking the questions. E-rate pickup seems pretty encouraging. What do you think the ramp of that looks like? You said it’s going to be a little bit in this quarter, but does that – is it a little bit more in September and then a lot more in December? How does the seasonality play out there? And kind of connected to that, I know you said that the 802.11ax Wi-Fi 6 was helping that, is there a situation where that may have been delaying sales in the March quarter?

Yes. So with regard to E-rate, I mean you’re right. It was very encouraging. Both that the industry return to growth 24% year-over-year growth and that we grew much faster. Our – the funding request for Aerohive was up by 55%, so a nice increase in market share, so very encouraged by that. The timing of when E-rate is actually books. It is a – it has wiggled around a lot over the years, because some it depends on the pace at which the FCC, the organization USAC, part of the FCC actually issues funding letters. But broadly speaking, we’ve seen some a portion of that 10%, maybe 20% in the high end or 10%-ish kind of a showing up early, people buying ahead of the official release of funds, which is July 1 and later. And the bulk of it tending to be kind of Q3 and Q4, if they get the funding letters out on a normal basis. So we would expect that the vast majority to be in Q3, Q4. Some can trickle on into the next year. But that’s the typical seasonality. With a concentration in Q3, if they are executing smoothly and getting funding letters out.

The ax issue, so we don’t see the ax, we’re shipping in volume and so we have no – there’s no issue with people waiting for ax or for that impeding funding. The education spending in Q1 is always – it was always a light quarter, because if they want to do fund E-rate process, they have to purchase after April 1. So Q1 wasn’t particularly low education quarter in the very low 20% of the business. That’s a little bit lower than usual, but kind of as expected. But we see ax is mostly an ASP upgrade and we think it helped us with our share grade – share gain, because we were out ahead of the competition.

Okay. And last question, you said the shift to the low end access points was an anomaly. Is there anything really nothing that drove that? I mean, are you sure that was an anomaly?

Well, actually a great question. So we’ve looked at our pipeline for the current quarter. We’ve looked at the mix shift and products that we’ve shipped so far in April. And it’s looking like a snapback. You can see that in our guidance, right. I mean we’re back to the guidance we gave you in gross margins. So all indicators were – it wasn’t an anomaly, it was some – also somewhat regionally focused as well. And we’re seeing it – we’re seeing the snapback, again that’s what gives us confidence that we’ll see margins take such a big step up in the second quarter.

Okay. Thanks.

Thank you.

Thank you. [Operator Instructions] We’ll take our next question from Christian Schwab of Craig-Hallum.

Hi, this is Tyler on for Christian. Thanks for taking the couple of questions here. So first, I was wondering if you could just help draw some parameters on the E-rate funding, I believe you said education as a whole is about 30% of revenue last year. What percent of that education, I assume it’s a large part, but what percent of that is directly E-rate.

Yes. E-rate is typically less than half of that. There’s a bunch of – all the international education business doesn’t, is unrelated to E-rate. And even in the U.S., it’s somewhere or roughly half. So you expect modestly below 50% of that business will be E-rate.

Awesome, thank you. And then I was hoping for maybe a little bit of an update on your expectations with the Dell and Juniper agreements. I guess, maybe first if you could somehow, what are they contributing to results now and what’s a maybe full run rate in a year or two kind of I’ll look for the contribution.

So the Juniper relationship is kind of in a wind down, following the purchase of a midst. It had never become a very material portion of the business. I think, order of magnitude, just modify above 1%, I think in Q4. So did not have a material impact on the business. We had originally hoped, it would be a growth catalyst, but it hadn’t developed into that prior to the acquisition. So that’s not going to contribute and we’ve got to Dell. Dell is generally a material customer in that around the 10%-ish range. We saw good quarter with Dell, optimistically, it’ll continue at that level and hopefully increase modestly.

All right, great. And then I understand the Q1, but looking out for the rest of the year, confident bounce back here in Q2. Do you guys believe you can grow full year revenue for the full year 2019?

Well, that’s given that we should be gradually give one quarters, where the guidance, that’s hard to respond to it, because we’re going to stick that given the quarters where the guidance. We different way of answering that, we think that E-rate given that E-rate’s going to be a back half of then for us, puts us in a position, to have some growth in the back half. But again, we’re working at building credibility back one quarter at a time at this point, given the size of the Q1 miss. So a little bit reticent to jump to telling a great back half story, although we think we have all the components or a great backup story. We’ll give you more updates on that, when we get into our second quarter conference call.

All right. That’s great. That’s all for me. Thanks, guys.

Thank you.

Thanks.

Thank you. This concludes our question for today. I’ll turn it back to management for closing remarks.

Thank you. Thank you all for joining us today. Later this quarter, we will be at the Craig-Hallum and Bank of America Merrill Lynch conferences. And we look forward to seeing many of you there. Thank you. Have a good night.

Thank you. Ladies and gentlemen, you may now disconnect and have a great evening.