Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
 

x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016

o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to        
Commission file number: 001-36355
Aerohive Networks, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
 
 
20-4524700
(State or other jurisdiction of
incorporation or organization)
 
 
 
(I.R.S. Employer
Identification Number)
 

1011 McCarthy Boulevard
Milpitas, California 95035
(408) 510-6100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   ¨
 
Accelerated filer   x
Non-accelerated filer   ¨ (Do not check if a smaller reporting company)
 
Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
The number of shares of the registrant's common stock, par value $0.001, outstanding as of October 31, 2016 was 51,215,910.




TABLE OF CONTENTS
 
 
Page
 
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 

The Aerohive Networks design logo and the marks “Aerohive®,” “HiveManager®” and “HiveOS®” are the property of Aerohive Networks, Inc. All Rights Reserved. This Quarterly Report on Form 10-Q contains additional trade names, trademarks and service marks of other companies.


1


PART I. FINANCIAL INFORMATION
ITEM 1.    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AEROHIVE NETWORKS, INC.
Condensed Consolidated Balance Sheets
(unaudited, in thousands, except share and per share amounts)
 
September 30,
 
December 31,
 
2016
 
2015
ASSETS
 
 
(As Adjusted)*
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
43,900

 
$
45,741

Short-term investments
35,256

 
46,593

Accounts receivable, net of allowance for doubtful accounts of $33 and $15 as of September 30, 2016 and December 31, 2015, respectively
22,472

 
22,824

Inventories, net
15,691

 
10,775

Prepaid expenses and other current assets
7,239

 
7,613

Deferred cost of goods sold
230

 
757

Total current assets
124,788

 
134,303

Property and equipment, net
9,603

 
9,156

Goodwill
513

 
513

Other assets
5,273

 
3,680

Total assets
$
140,177

 
$
147,652

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
13,481

 
$
15,140

Accrued liabilities
10,703

 
11,856

Debt, current
20,000

 
—

Deferred revenue, current
31,349

 
27,893

Total current liabilities
75,533

 
54,889

Debt, non-current
—

 
20,000

Deferred revenue, non-current
34,060

 
31,369

Other liabilities
1,855

 
463

Total liabilities
111,448

 
106,721

Commitments and contingencies (Note 5)

 

Stockholders’ equity:
 
 
 
Preferred stock, par value of $0.001 per share - 25,000,000 shares authorized as of September 30, 2016 and December 31, 2015; no shares issued and outstanding as of September 30, 2016 and December 31, 2015
—

 
—

Common stock, par value of $0.001 per share - 500,000,000 shares authorized as of September 30, 2016 and December 31, 2015; 51,209,910 and 49,017,293 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
52

 
49

Additional paid–in capital
250,807

 
231,289

Treasury stock - 364,627 shares as of September 30, 2016
(2,139
)
 
—

Accumulated other comprehensive gain (loss)
2

 
(61
)
Accumulated deficit
(219,993
)
 
(190,346
)
Total stockholders’ equity
28,729

 
40,931

Total liabilities and stockholders’ equity
$
140,177

 
$
147,652

See notes to condensed consolidated financial statements.
 
 
 
 
* Certain amounts have been adjusted for the retrospective changes in accounting policy for sales commissions (See Note 1).


2


AEROHIVE NETWORKS, INC.
Condensed Consolidated Statements of Operations
(unaudited, in thousands, except share and per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Revenue:
 
 
(As Adjusted)*
 
 
 
(As Adjusted)*
Product
$
31,691

 
$
36,130

 
$
103,683

 
$
87,361

Software subscription and services
8,678

 
6,650

 
24,445

 
18,072

Total revenue
40,369

 
42,780

 
128,128

 
105,433

Cost of revenue (1):
 
 
 
 
 
 
 
Product
10,070

 
11,707

 
32,922

 
28,134

Software subscription and services
3,095

 
2,686

 
9,048

 
7,040

Total cost of revenue
13,165

 
14,393

 
41,970

 
35,174

Gross profit
27,204

 
28,387

 
86,158

 
70,259

Operating expenses:
 
 
 
 
 
 
 
Research and development (1)
10,685

 
10,098

 
31,457

 
26,491

Sales and marketing (1)
19,647

 
21,364

 
62,037

 
60,053

General and administrative (1)
6,515

 
7,212

 
22,135

 
19,665

Total operating expenses
36,847

 
38,674

 
115,629

 
106,209

Operating loss
(9,643
)
 
(10,287
)
 
(29,471
)
 
(35,950
)
Interest income
109

 
21

 
345

 
54

Interest expense
(115
)
 
(140
)
 
(351
)
 
(1,067
)
Other income, net
22

 
59

 
128

 
213

Loss before income taxes
(9,627
)
 
(10,347
)
 
(29,349
)
 
(36,750
)
Income tax provision
(85
)
 
(215
)
 
(298
)
 
(422
)
Net loss
$
(9,712
)
 
$
(10,562
)
 
$
(29,647
)
 
$
(37,172
)
Net loss attributable to common stockholders
$
(9,712
)
 
$
(10,562
)
 
$
(29,647
)
 
$
(37,172
)
Net loss per share allocable to common stockholders, basic and diluted
$
(0.19
)
 
$
(0.22
)
 
$
(0.59
)
 
$
(0.79
)
Weighted-average shares used in computing net loss per share allocable to common stockholders, basic and diluted
50,818,710

 
47,724,142

 
49,920,630

 
46,975,649

 
 
 
 
 
 
 
 
(1) Includes stock-based compensation as follows:

 
 
 
 
 
 
 
Cost of revenue
$
431

 
$
249

 
$
1,024

 
$
631

Research and development
1,576

 
1,338

 
4,287

 
3,325

Sales and marketing
2,505

 
1,965

 
6,336

 
5,189

General and administrative
1,903

 
1,633

 
5,118

 
4,226

Total stock-based compensation
$
6,415

 
$
5,185

 
$
16,765

 
$
13,371

See notes to condensed consolidated financial statements.  
 
 
 
 
* Certain amounts have been adjusted for the retrospective changes in accounting policy for sales commissions (See Note 1).



3


AEROHIVE NETWORKS, INC.
Condensed Consolidated Statements of Comprehensive Loss
(unaudited, in thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
(As Adjusted)*
 
 
 
(As Adjusted)*
Net loss
$
(9,712
)
 
$
(10,562
)
 
$
(29,647
)
 
$
(37,172
)
Unrealized gain (loss) on available-for-sale investments, net of tax
(18
)
 
—

 
63

 
—

Comprehensive loss
$
(9,730
)
 
$
(10,562
)
 
$
(29,584
)
 
$
(37,172
)
See notes to condensed consolidated financial statements.  
 
 
 
 
* Certain amounts have been adjusted for the retrospective changes in accounting policy for sales commissions (See Note 1).



4


AEROHIVE NETWORKS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
 
Nine Months Ended September 30,
 
2016
 
2015
Cash flows from operating activities
 
 
(As Adjusted)*
Net loss
$
(29,647
)
 
$
(37,172
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
2,665

 
2,601

Stock-based compensation
16,765

 
13,371

Other
280

 
296

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
352

 
8,347

Inventories
(4,916
)
 
(3,397
)
Prepaid expenses and other current assets
901

 
(2,663
)
Other assets
(93
)
 
(553
)
Accounts payable
(1,956
)
 
(17
)
Accrued liabilities
(1,239
)
 
3,830

Other liabilities
400

 
(409
)
Deferred revenue
6,147

 
8,695

Net cash used in operating activities
(10,341
)
 
(7,071
)
Cash flows from investing activities
 
 
 
Purchases of property and equipment
(1,737
)
 
(2,006
)
Capitalized software development costs
—

 
(1,913
)
Maturities of short-term investments
25,600

 
—

Purchases of short-term investments
(14,488
)
 
—

Investment in privately held company
(1,500
)
 
—

Net cash provided by (used in) investing activities
7,875

 
(3,919
)
Cash flows from financing activities
 
 
 
Proceeds from exercise of vested stock options
815

 
1,170

Proceeds from employee stock purchase plan
2,890

 
2,271

Payment for shares withheld for tax withholdings on vesting of restricted stock units
(941
)
 
(2,306
)
Payment to repurchase common stock
(2,139
)
 
—

Proceeds from issuance of debt
—

 
10,000

Repayments of debt
—

 
(10,000
)
Net cash provided by financing activities
625

 
1,135

Net decrease in cash and cash equivalents
(1,841
)
 
(9,855
)
Cash and cash equivalents at beginning of period
45,741

 
98,044

Cash and cash equivalents at end of period
$
43,900

 
$
88,189

Supplemental disclosure of cash flow information
 
 
 
Income taxes paid
$
535

 
$
394

Interest paid
$
364

 
$
845

Supplemental disclosure of noncash investing and financing activities
 
 
 
Unpaid property and equipment recorded in accounts payable, accrued liabilities and other liabilities
$
1,529

 
$
136

Unpaid capitalized software development costs
$
—

 
$
94

Vesting of early exercised stock options
$
—

 
$
45

Stock-based compensation in capitalized software development
$
—

 
$
257

See notes to condensed consolidated financial statements.
 
 
 
 
* Certain amounts have been adjusted for the retrospective changes in accounting policy for sales commissions (See Note 1).


5


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Aerohive Networks, Inc. was incorporated in Delaware on March 15, 2006, and, together with its subsidiaries (the "Company"), has designed and developed a leading cloud and enterprise Wi-Fi solution that enables our customers to use the power of the Wi-Fi, cloud, analytics and applications to transform how they serve their customers. Our products include Wi-Fi access points, routers and switches required to build an edge-access network; a cloud services platform for centralized management; data collection and analytics; and applications that leverage the network to provide additional capabilities to business and IT organizations. Together, these products, service platforms and applications create a simple, scalable, and secure solution to deliver a better-connected experience.
The Company has offices in North America, Europe, the Middle East and Asia Pacific and employs staff around the world.
Basis of Presentation and Consolidation
The Company prepared the accompanying consolidated financial statements in accordance with generally accepted accounting principles in the United States ("GAAP"), which include the accounts of Aerohive Networks, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Those estimates and assumptions include, among others, the selling price of product, software and support services, determination of fair value of stock-based awards, inventory valuation, accounting for income taxes, including the valuation reserve on deferred tax assets and uncertain tax positions, allowance for sales reserves, allowance for doubtful accounts, and warranty costs. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. As the Company cannot determine future events and their effects with precision, actual results could differ from these estimates and assumptions, and those differences could be material to the consolidated financial statements.
Changes in Accounting Policy
In the first quarter of 2016, the Company voluntarily changed its accounting policy for sales commissions related to products, which include hardware and software revenue, and software subscription and services, which include post-contract support ("PCS") and Software-as-a-Service (“SaaS”) contracts. The Company changed its accounting policy from recording an expense when incurred to deferral of the sales commissions in proportion to the consideration allocated to each element in the arrangement and amortization in, or over, the same period the revenue is recognized for each of the elements in the arrangement (i.e., upon delivery for the product deliverables and over the non-cancellable term of the contract for the PCS and SaaS deliverables).
The Company believes the deferral method described above is preferable primarily because the direct incremental sales commission charges are so closely related to obtaining the revenue from the non-cancellable contracts that they should be deferred and charged to expense over the same period that the related revenue is recognized. Deferred commission amounts are recoverable through the future revenue streams (including up-front payments) under the non-cancellable arrangements.
Short-term deferred commissions are included in prepaid expenses and other current assets, while long-term deferred commissions are included in other assets in the accompanying consolidated balance sheets. The amortization of deferred commissions is included in sales and marketing expense in the accompanying consolidated statements of operations.
The accompanying consolidated financial statements and related notes have been adjusted to reflect the impacts of this change with the associated deferred tax impacts retrospectively for all prior periods presented. Under the as-previously reported basis, there were no book / tax basis differences related to commission expense. Under the as-adjusted basis, the deferred commission asset creates a deferred tax liability related to commission expense. Creating this deferred tax liability reduces the valuation allowance on the deferred tax assets by the same amount. The increase in the deferred tax liability is fully offset by

6


the reduction in the deferred tax asset valuation allowance and has no net impact to income tax provision in the consolidated statements of operations.
The cumulative effect of the change on accumulated deficit was $4.8 million as of January 1, 2015. The following tables present the effects of the retrospective application of the voluntary change in accounting principle for sales commissions related to non-cancellable product, PCS, and SaaS contracts for the current periods and the corresponding preceding periods presented (in thousands, except per share data):
Consolidated Balance Sheet (in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2016
 
December 31, 2015
 
Computed
under Prior
Method
 
Impact of
Commission
Adjustment
 
As Reported
 
As
Previously
Reported
 
Impact of
Commission
Adjustment
 
As Adjusted
Prepaid expenses and other current assets
$
4,244

 
$
2,995

 
$
7,239

 
$
4,129

 
$
3,484

 
$
7,613

Total current assets
$
121,793

 
$
2,995

 
$
124,788

 
$
130,819

 
$
3,484

 
$
134,303

Other assets
$
1,989

 
$
3,284

 
$
5,273

 
$
426

 
$
3,254

 
$
3,680

Total assets
$
133,898

 
$
6,279

 
$
140,177

 
$
140,914

 
$
6,738

 
$
147,652

Accumulated deficit
$
(226,272
)
 
$
6,279

 
$
(219,993
)
 
$
(197,084
)
 
$
6,738

 
$
(190,346
)
Total stockholders' equity
$
22,450

 
$
6,279

 
$
28,729

 
$
34,193

 
$
6,738

 
$
40,931

Total liabilities and stockholders' equity
$
133,898

 
$
6,279

 
$
140,177

 
$
140,914

 
$
6,738

 
$
147,652


Consolidated Statements of Operations (in thousands, except share and per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2016
 
Three Months Ended September 30, 2015
 
Computed
under Prior
Method
 
Impact of
Commission
Adjustment
 
As Reported
 
As
Previously
Reported
 
Impact of
Commission
Adjustment
 
As Adjusted
Sales and marketing
$
19,396

 
$
251

 
$
19,647

 
$
22,083

 
$
(719
)
 
$
21,364

Operating loss
$
(9,392
)
 
$
(251
)
 
$
(9,643
)
 
$
(11,006
)
 
$
719

 
$
(10,287
)
Net loss
$
(9,461
)
 
$
(251
)
 
$
(9,712
)
 
$
(11,281
)
 
$
719

 
$
(10,562
)
Net loss per share allocable to common stockholders, basic and diluted
(0.19
)
 
—

 
(0.19
)
 
(0.24
)
 
0.02

 
(0.22
)
Weighted-average shares used in computing net loss per share allocable to common stockholders, basic and diluted
50,818,710

 
—

 
50,818,710

 
47,724,142

 
—

 
47,724,142


 
Nine Months Ended September 30, 2016
 
Nine Months Ended September 30, 2015
 
Computed
under Prior
Method
 
Impact of
Commission
Adjustment
 
As Reported
 
As
Previously
Reported
 
Impact of
Commission
Adjustment
 
As Adjusted
Sales and marketing
$
61,578

 
$
459

 
$
62,037

 
$
61,657

 
$
(1,604
)
 
$
60,053

Operating loss
$
(29,012
)
 
$
(459
)
 
$
(29,471
)
 
$
(37,554
)
 
$
1,604

 
$
(35,950
)
Net loss
$
(29,188
)
 
$
(459
)
 
$
(29,647
)
 
$
(38,776
)
 
$
1,604

 
$
(37,172
)
Net loss per share allocable to common stockholders, basic and diluted
(0.58
)
 
(0.01
)
 
(0.59
)
 
(0.83
)
 
0.03

 
(0.79
)
Weighted-average shares used in computing net loss per share allocable to common stockholders, basic and diluted
49,920,630

 
—

 
49,920,630

 
46,975,649

 
—

 
46,975,649



7


Consolidated Statements of Comprehensive Loss (in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2016
 
Three Months Ended September 30, 2015
 
Computed
under Prior
Method
 
Impact of
Commission
Adjustment
 
As Reported
 
As
Previously
Reported
 
Impact of
Commission
Adjustment
 
As Adjusted
Net loss
$
(9,461
)
 
$
(251
)
 
$
(9,712
)
 
$
(11,281
)
 
$
719

 
$
(10,562
)
Comprehensive loss
(9,479
)
 
(251
)
 
(9,730
)
 
$
(11,281
)
 
$
719

 
$
(10,562
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
Nine Months Ended September 30, 2015
 
Computed
under Prior
Method
 
Impact of
Commission
Adjustment
 
As Reported
 
As
Previously
Reported
 
Impact of
Commission
Adjustment
 
As Adjusted
Net loss
$
(29,188
)
 
$
(459
)
 
$
(29,647
)
 
$
(38,776
)
 
$
1,604

 
$
(37,172
)
Comprehensive loss
(29,125
)
 
(459
)
 
(29,584
)
 
(38,776
)
 
1,604

 
(37,172
)

Consolidated Statements of Cash Flows (in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30 2016
 
Nine Months Ended September 30, 2015
 
Computed
under Prior
Method
 
Impact of
Commission
Adjustment
 
As Reported
 
As
Previously
Reported
 
Impact of
Commission
Adjustment
 
As Adjusted
Net loss
$
(29,188
)
 
$
(459
)
 
$
(29,647
)
 
$
(38,776
)
 
$
1,604

 
$
(37,172
)
Prepaid expenses and other current assets
$
412

 
$
489

 
$
901

 
$
(1,526
)
 
$
(1,137
)
 
$
(2,663
)
Other assets
$
(63
)
 
$
(30
)
 
$
(93
)
 
$
(86
)
 
$
(467
)
 
$
(553
)
Net cash used in operating activities
$
(10,341
)
 
$
—

 
$
(10,341
)
 
$
(7,071
)
 
$
—

 
$
(7,071
)
There have been no other material changes to the significant accounting policies during the three and nine months ended September 30, 2016 as compared to those described in the Company's audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 26, 2016.
Foreign Currency
The functional currency of the Company’s foreign subsidiaries is the U.S. dollar. The Company remeasures the transactions denominated in currencies other than the functional currency at the average exchange rate in effect during the period. At the end of each reporting period, the Company remeasures its subsidiaries’ monetary assets and liabilities to the U.S. dollar using exchange rates in effect at the end of the reporting period. The Company remeasures its non-monetary assets and liabilities at historical exchange rates. The Company records gains and losses related to remeasurement in other income, net in the consolidated statements of operations. Foreign currency exchange losses have not been significant in any period presented and the Company has not undertaken any hedging transactions related to foreign currency exposure.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2014-09, Revenue from contracts with customers (Topic 606), which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605) and most industry-specific guidance. The guidance requires entities to recognize revenue when they transfer promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 deferring the effective date of this standard by one year to December 15, 2017, and, thus, the new standard will be effective for the Company on January 1, 2018. This standard may be adopted using either the full or modified retrospective methods. In April 2016 and May 2016, the FASB issued ASU 2016-10 and ASU 2016-12, respectively, which clarify guidance on identifying performance obligations, collectability criterion and noncash consideration. The Company is currently evaluating the potential impact of these standards on its financial statements.

8


In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities.  This ASU will be effective for the Company beginning in the first quarter of fiscal year 2019.  The Company is currently evaluating the potential impact of this standard on its financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the lease accounting requirements in Topic 840. ASU 2016-02 requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize a straight-line total lease expense. The guidance also requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. This guidance is effective beginning in fiscal year 2019. The Company is currently evaluating the potential impact of this standard on its financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which is intended to simplify several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This guidance is effective beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the potential impact of this standard on its financial statements.    
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which provides guidance to decrease the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company does not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements.
Concentrations of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. The Company maintains cash equivalents in money market funds. The amount on deposit at any time with money market funds may exceed the insured limits provided on such funds.
The Company sells its products primarily to channel partners, which include value-added resellers, or VARs, and value-added distributors, or VADs. The Company’s accounts receivable are typically unsecured and are derived from revenue earned from customers located in the Americas, Europe, the Middle East and Africa, and Asia Pacific. The Company performs ongoing credit evaluations to determine customer credit, but generally does not require collateral from its customers. The Company maintains reserves for estimated credit losses and these losses have historically been within management’s expectations. 
Significant customers are those that represent more than 10% of the Company’s total revenue or gross accounts receivable balance at each respective balance sheet date. The Company has entered into separate agreements with certain individual VADs that are part of a consolidated group of entities which collectively constitutes greater than 10% of the Company’s total revenue or gross accounts receivable balance for certain periods, as presented in the tables below.
The percentages of revenue from a consolidated group of entities (VAD A) and from individual entities (VAD B and VAD C) greater than 10% of total consolidated revenue were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
VAD A
 
14.0
%
 
11.1
%
 
13.8
%
 
14.2
%
VAD B
 
19.2
%
 
*

 
11.0
%
 
*

VAD C
 
*

 
13.8
%
 
*

 
11.1
%
 
 
 
 
 
 
 
 
 
* Less than 10%
 
 
 
 
 
 
 
 

9


The percentages of receivables from VAD A and individual entities (VAD B and VAD D) greater than 10% of total consolidated accounts receivable were as follows:
 
 
September 30,
 
December 31,
 
 
2016
 
2015
VAD A
 
16.9
%
 
18.5
%
VAD B
 
17.0
%
 
*

VAD D
 
*

 
11.2
%
 
 
 
 
 
* Less than 10%
 
 
 
2. FAIR VALUE MEASUREMENTS
The Company records its financial assets and liabilities at fair value. The Company categorizes these assets and liabilities based upon the level of judgment associated with inputs used to measure the fair value. The categories are as follows:
Level 1
 
Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2
 
Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3
 
Unobservable inputs are used when little or no market data is available.
The Company classified its cash equivalents and short-term marketable investments within Level 1 and Level 2 in the fair value hierarchy as of September 30, 2016 and December 31, 2015, respectively. Level 1 assets include highly liquid money market funds that are included in cash and cash equivalents. The Company generally classifies these instruments within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. Level 2 assets include U.S. treasuries, corporate securities and commercial paper that are included in short-term investments. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets.
As of September 30, 2016, the Company held a convertible note from a privately held company, which the Company classified it as Level 3 in the fair value hierarchy (Note 3).
The components of the Company’s Level 1 and Level 2 assets are as follows:
 
September 30, 2016
 
Amortized Cost
 
Gross Unrealized Gain (Loss)
 
Estimated Fair Value
 
Cash equivalents
 
Short-term investments
 
(in thousands)
Level 1:
 
 
 
 
 
 
 
 
 
Money market funds
32,222

 
—

 
32,222

 
32,222

 
—

 
$
32,222

 
$
—

 
$
32,222

 
$
32,222

 
$
—

Level 2:
 
 
 
 
 
 
 
 
 
U.S. treasuries
17,499

 
7

 
17,506

 
—

 
17,506

Corporate securities
11,179

 
(6
)
 
11,173

 
—

 
11,173

Commercial paper
6,577

 
—

 
6,577

 
—

 
6,577

 
$
35,255

 
$
1

 
$
35,256

 
$
—

 
$
35,256

Total
$
67,477

 
$
1

 
$
67,478

 
$
32,222

 
$
35,256



10


 
December 31, 2015
 
Amortized Cost
 
Gross Unrealized Gain (Loss)
 
Estimated Fair Value
 
Cash equivalents
 
Short-term investments
 
(in thousands)
Level 1:
 
 
 
 
 
 
 
 
 
Money market funds
33,436

 
—

 
33,436

 
33,436

 
—

 
$
33,436

 
$
—

 
$
33,436

 
$
33,436

 
—

Level 2:
 
 
 
 
 
 
 
 
 
U.S. treasuries
15,988

 
(21
)
 
15,967

 
—

 
15,967

Corporate securities
23,679

 
(40
)
 
23,639

 
—

 
23,639

Commercial paper
6,987

 
—

 
6,987

 
—

 
6,987

 
$
46,654

 
$
(61
)
 
$
46,593

 
$
—

 
46,593

Total
$
80,090

 
$
(61
)
 
$
80,029

 
$
33,436

 
$
46,593

All Level 1 and 2 short-term investments the Company held as of September 30, 2016 and December 31, 2015, contractually mature within one year from these respective dates.
Unrealized gains and losses related to these investments are due to interest rate fluctuations as opposed to credit quality. In addition, the Company does not intend to sell, and it is not more likely than not that the Company would be required to sell, these investments before recovery of their cost basis. As a result, there is no other-than-temporary impairment for these investments as of September 30, 2016 and December 31, 2015.  
3. CONSOLIDATED BALANCE SHEET COMPONENTS
Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
 
 
 
September 30,
 
December 31,
 
 
 
2016
 
2015
 
 
 
(in thousands)
Deferred sales commissions, current portion (Note 1)
 
 
$
2,995

 
$
3,484

Prepaid expenses
 
 
2,816

 
2,950

Other
 
 
1,428

 
1,179

Total prepaid expenses and other current assets
 
 
$
7,239

 
$
7,613

Property and Equipment, net
Property and equipment, net consists of the following:
 
 
 
 
September 30,
 
December 31,
 
 
Estimated Useful Lives
 
2016
 
2015
 
 
 
 
(in thousands)
Computer and other equipment
 
3 years
 
$
1,937

 
$
1,704

Manufacturing, research and development laboratory equipment
 
3 years
 
4,620

 
4,476

Software
 
2 to 5 years
 
8,469

 
8,470

Office furniture and equipment
 
3 to 7 years
 
2,070

 
1,041

Leasehold improvements
 
shorter of useful life or lease term
 
1,046

 
614

Property and equipment, gross
 
 
 
18,142

 
16,305

Less: Accumulated depreciation and amortization
 
 
 
(8,539
)
 
(7,149
)
Property and equipment, net
 
 
 
$
9,603

 
$
9,156

Software category includes the capitalized internal-use software for the Company's cloud service platform. In April 2015, the Company completed and launched the next generation of its cloud services platform, and began to amortize these

11


capitalized costs to cost of software subscription and services revenue on a straight-line basis over an estimated useful life of the software of five years.
Depreciation and amortization expense was $0.9 million and $1.0 million for the three months ended September 30, 2016 and 2015, respectively, and $2.7 million and $2.6 million for the nine months ended September 30, 2016 and 2015, respectively.
Other assets
Other assets consist of the following:
 
 
 
September 30,
 
December 31,
 
 
 
2016
 
2015
 
 
 
(in thousands)
Deferred sales commissions, non-current portion (Note 1)
 
 
$
3,284

 
$
3,254

Investment in privately held company
 
 
1,500

 
—

Other
 
 
489

 
426

Total other assets
 
 
$
5,273

 
$
3,680

In January 2016, the Company paid $1.5 million in cash to purchase a convertible note issued by a privately held company, which provides Wi-Fi application and analytics. The Company currently has no voting rights, investor rights or significant influence over the privately held company. The convertible note has been recorded at carrying value. Since the convertible note has no readily determinable market value, the Company has categorized it as a Level 3 asset in the fair value hierarchy. As of September 30, 2016, the fair value of the convertible note approximated its carrying value. The Company did not recognize an impairment for the three and nine months ended September 30, 2016, as there were no identified events or changes in circumstances that might have a significant adverse impact on the carrying values of the investment. Since the convertible note has a two-year contractual term and the Company does not intend to liquidate it in the next 12 months, the Company has classified the convertible note as other assets on the condensed consolidated balance sheet.
Accrued Liabilities
Accrued liabilities consist of the following:
 
 
 
September 30,
 
December 31,
 
 
 
2016
 
2015
 
 
 
(in thousands)
Accrued compensation
 
 
$
8,304

 
$
9,410

Accrued expenses and other liabilities
 
 
1,739

 
1,801

Warranty liability, current portion
 
 
660

 
645

Total accrued liabilities
 
 
$
10,703

 
$
11,856

Deferred Revenue
Deferred revenue consists of the following:
 
September 30,
 
December 31,
 
2016
 
2015
 
(in thousands)
Products
$
1,112

 
$
3,199

Software subscription and services
64,297

 
56,063

Total deferred revenue
65,409

 
59,262

Less: current portion of deferred revenue
31,349

 
27,893

Non-current portion of deferred revenue
$
34,060

 
$
31,369

Warranty Liability

12


The following table summarizes the activity related to the Company’s accrued liability for estimated future warranty:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Beginning balance
$
1,034

 
$
1,046

 
$
978

 
$
891

Charges to operations
142

 
339

 
515

 
867

Obligations fulfilled
(124
)
 
(132
)
 
(331
)
 
(452
)
Changes in existing warranty
(53
)
 
(277
)
 
(163
)
 
(330
)
Total product warranties
$
999

 
$
976

 
$
999

 
$
976

Current portion
$
660

 
$
638

 
$
660

 
$
638

Non-current portion
$
339

 
$
338

 
$
339

 
$
338

Changes in existing warranty reflect a combination of changes in expected warranty claims and changes in the related costs to service such claims.
4. DEBT
Financing Agreements
In June 2012, the Company entered into a revolving credit facility with Silicon Valley Bank (the "Revolving Credit Facility"). The Revolving Credit Facility is collateralized by substantially all of the Company’s property, other than intellectual property. Prior to March 31, 2015, the Revolving Credit Facility bore monthly interest at a floating rate equal to the greater of (i) 4.00% or (ii) prime rate plus 0.75%. By amendment in March 2015, interest on the Revolving Credit Facility adjusted as of March 31, 2015 to a floating rate equal to the lesser of (i) LIBOR rate plus 2.25% or (ii) prime rate minus 0.5%. In November 2015, the Company further amended the Revolving Credit Facility to revise the floating interest rate to the lesser of (i) LIBOR rate plus 1.75% or (ii) prime rate minus 1.0%, which was effective January 1, 2016. The weighted-average interest rate of the Revolving Credit Facility was 2.35% and 2.79% for the three months ended September 30, 2016 and 2015, respectively, and 2.36% and 3.05%, for the nine months ended September 30, 2016 and 2015, respectively.
The Revolving Credit facility currently provides, among other things, (i) a maturity date of March 31, 2017; and (ii) a revolving line up to $20.0 million, subject to certain conditions.
The Revolving Credit Facility contains customary negative covenants which, unless waived by SVB, limit the Company’s ability to, among other things, incur additional indebtedness, grant liens, make investments, repurchase stock, pay dividends, transfer assets and merge or consolidate, as well as requiring the Company to maintain a minimum adjusted quick ratio of 1.25 to 1.00 and minimum cash balances as of the last day of each month. The Revolving Credit Facility also contains customary events of default, subject to customary cure periods for certain defaults, that include, among other things, non-payment defaults, covenant defaults, material judgment defaults, bankruptcy and insolvency defaults, cross-defaults to certain other material indebtedness, and defaults due to inaccuracy of representation and warranties. Upon an event of default, the lender may declare all or a portion of the outstanding obligations payable by the Company to be immediately due and payable and exercise other rights and remedies provided for under the Revolving Credit Facility. During the existence of an event of default, interest on the obligations under the Revolving Credit Facility could be increased by 5.0%. As of September 30, 2016 and December 31, 2015, the Company was in compliance with these covenants.
As of September 30, 2016, $20.0 million remains outstanding under the Revolving Credit Facility, and is included in current liabilities in the condensed consolidated balance sheet.
5. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company currently leases its main office facility in Milpitas, California, which commenced on April 1, 2016 and is set to expire in June 2023. The Company pays rent on a monthly basis, which will increase incrementally over the term of the lease for an aggregate net base rent of approximately $6.5 million. In addition to the monthly base rent, the Company is responsible for payment of certain operating expenses, including utilities and real estate taxes. The Company incurred lease abandonment costs of $0.6 million in June 2016, which included remaining lease obligation and other contractual obligations

13


including utilities and real estate taxes related to its previous facilities. The lease abandonment costs are included in general and administrative expenses in the Company's condensed consolidated statements of operations.
In addition, the Company leases office space for its subsidiaries in the United Kingdom, the Netherlands and China under non-cancelable operating leases that expire at various times through August 2021. The Company has also entered into various lease agreements in other locations in the United States and globally to support its sales and research and development functions.
The Company recognizes rent expense on a straight-line basis over the lease period. Future minimum lease payments by year under operating leases as of September 30, 2016 are as follows:
 
Amount
Year Ending December 31,
(in thousands)
2016 (remaining three months)
$
350

2017
1,688

2018
1,652

2019
1,341

2020
1,034

Thereafter
2,604

Total
$
8,669

Rent expense was $0.5 million and $0.6 million for the three months ended September 30, 2016 and 2015, respectively, and was $1.9 million and $1.9 million for the nine months ended September 30, 2016 and 2015, respectively.
Manufacturing Commitments
The Company subcontracts with manufacturing companies to manufacture its hardware products. The contract manufacturers procure components based on non-cancellable orders the Company places with them. If the Company cancels all or part of an order, the Company is liable to the contract manufacturers for the cost of the related components they purchased under such orders.
As of September 30, 2016 and December 31, 2015, the Company had manufacturing commitments with contract manufacturers for inventory totaling approximately $9.2 million and $14.0 million, respectively.
Contingencies
The Company may be subject to legal proceedings and litigation arising in the ordinary course of business. The Company will record a liability when it believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. The Company expects to periodically evaluate developments in its legal matters that could affect the amount of liability that it has previously accrued, if any, and make adjustments as appropriate. Significant judgment is required to determine both likelihood of there being, and the estimated amount of, a loss related to such matters, and the Company’s judgment may be incorrect. The outcome of any proceeding is not determinable in advance. Until the final resolution of any such matter for which the Company may be required to accrue, there may be an exposure to loss in excess of the amount accrued and such excess amount could be significant.
The Company is currently engaged in the following separate litigations which allege that the Company’s products infringe certain patents.
•
Linex Technologies, or Linex, filed on March 19, 2013 a complaint in the U.S. District Court, Southern District of Florida, asserting that some or all of the Company’s products infringe U.S. Patents Nos. #6,493,377, or the ‘377 Patent, and #7,167,503, or the ’503 Patent. The Company filed an answer and counterclaims for declaratory judgment against Linex asserting that the Company’s products do not infringe the ‘377 and ‘503 Patents, and that the ‘377 and ‘503 Patents are, in any case, invalid and not enforceable. The Company separately filed with the U.S. Patent and Trademark Office, or the PTO, petitions to initiate reexamination of the ‘377 and ‘503 Patents, which the PTO granted. In the PTO reexaminations, all claims under the ‘377 and '503 Patents have been rejected and Linex has appealed the final rejections of the claims. This case is currently stayed pending the reexaminations.

14


•
Chrimar Systems, or Chrimar, filed in July 2015 a complaint in the U.S. District Court, Eastern District of Texas, asserting that certain of the Company’s products which utilize Power over Ethernet functionality infringe United States Patent Nos. 8,155,012, or the '012 Patent, 8,902,760, or the '760 Patent, 8,942,107, or the '107 Patent and 9,019,838, or the '838 Patent. A jury trial is currently scheduled to commence in January 2017. The Company filed with the PTO petitions to initiate reexamination of the '012 Patent and the '760 Patent, which petitions the PTO granted. The PTO has rejected all claims of the '012 Patent and is considering the Company's petition regarding the '760 Patent. The Company has also moved to join petitions previously instituted before the PTO for inter partes review of the '760, '107 and '838 patents.
•
Mobile Telecommunications Technologies LLC, or Mobile, filed in May 2016 a complaint in the U.S. District Court, Eastern District of Texas, asserting that certain of the Company’s products which utilize MIMO systems or frequency structures and functionality infringe United States Patent Nos. 5,590,403, 5,659,891, and 5,915,210. The case was consolidated with several other cases involving the same patents and transferred to U.S. District Court, Delaware, for pretrial purposes. The Company is evaluating the possible application of these claims, if any, to its products. 
•
Anza Technology, Inc., or Anza, filed in May 2016 a complaint in the U.S. District Court, Southern District of California, asserting that certain of the Company's products which utilize flip-chip bonding infringe United States Patent Nos. 7,124,927 and 7,389,905​​.  The Company is evaluating the possible application of these claims, if any, to its products.
The Company intends to defend these lawsuits vigorously, and is not able to predict or estimate any range of reasonably possible loss related to these lawsuits. If these matters have an adverse outcome, they may have a material impact on the Company’s financial position, results of operations or cash flows.
The Company was recently in litigation asserting claims under federal securities laws.
In June 2015, a class action complaint was filed in the Superior Court of the State of California, County of San Mateo, against the Company and certain of its current and former officers and directors. This action was subsequently related and consolidated with two identical, follow-on complaints and is captioned Hunter v. Aerohive Networks, Inc., et al., Shareholder Litigation, Master File No. 534070. The consolidated complaint alleged claims under federal securities laws that the Registration Statement which the Company filed with the Securities and Exchange Commission on Form S-1 in connection with its initial public offering in March 2014 contained false and/or misleading statements or omissions. The consolidated action also named as defendants the investment firms who underwrote the Company’s initial public offering.
The consolidated complaint alleged that the Registration Statement failed to disclose, among other things, product deficiencies, poor sales, and a decline in sales-related personnel. The complaint additionally alleged that the Company improperly recognized revenue, including by booking certain sales with rights of return. The consolidated complaint sought unspecified compensatory damages and other relief. The Company advanced certain defense costs with respect to individual defendants, including the underwriting investment firms, under written indemnification agreements.
During mediation, the parties reached a settlement, providing for payment to the class of plaintiffs in the amount of $5.75 million in return for a release of all claims against the defendants, including Aerohive and its current and former officers and directors. In September 2016, the Court approved the settlement and dismissed the action with prejudice. Pursuant to the terms of the settlement, Aerohive paid approximately $1.22 million of the $5.75 million settlement amount (reflecting the amount remaining under Aerohive’s insurance retention), and the Company’s insurance carrier paid the remainder of the settlement amount.      
Guarantees
The Company has entered into agreements with some of its customers that contain indemnification provisions in the event of claims alleging that the Company’s products infringe the intellectual property rights of a third party. The Company has at its option and expense, the ability to resolve any infringement, replace product with a non-infringing product that is equivalent-in-function, or refund the customers the total product price. Other guarantees or indemnification arrangements include guarantees of product and service performance. The Company has not recorded a liability related to these indemnifications and guarantee provisions and the Company’s guarantees and indemnification arrangements have not had any impact on the consolidated financial statements to date.
6. STOCKHOLDERS' EQUITY

15


Common Stock reserved for Future Issuance
As of September 30, 2016 and December 31, 2015, the Company had, on an as-if converted basis, reserved shares of common stock for future issuance as follows:
 
September 30,
 
December 31,
 
2016
 
2015
Common stock reserved for future grant under the 2014 Equity Incentive Plan
4,618,790

 
5,017,525

Common stock reserved for future purchase under the 2014 Employee Stock Purchase Plan
2,138,737

 
1,804,669

Options and Restricted Stock Units issued and outstanding
11,557,330

 
10,589,268

Warrants to purchase common stock
—

 
73,883

Total reserved shares of common stock for future issuance
18,314,857

 
17,485,345

Common Stock Warrants
On March 25, 2016, TriplePoint Capital LLC net exercised common stock warrants to purchase 27,715 shares of common stock, and 46,168 shares of common stock warrants used to satisfy the exercise price were cancelled.
As of September 30, 2016, no shares of the Company's common stock warrants remained outstanding.
7. STOCK-BASED COMPENSATION
2014 Equity Incentive Plan
On March 26, 2014, the Company's 2014 Equity Incentive Plan ("2014 Plan") became effective. On March 27, 2014, the Company's earlier 2006 Global Share Plan ("2006 Plan") was terminated and all reserved-but-unissued shares under the 2006 Plan were added to the 2014 Plan and all shares underlying stock awards granted under the 2006 Plan that otherwise would return to the 2006 Plan instead were rolled into the 2014 Plan. The Company may not grant additional awards under the 2006 Plan, but the 2006 Plan will continue to govern outstanding awards previously granted under the 2006 Plan.
The 2014 Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code, only to employees of the Company or any parent or subsidiary of the Company, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to employees, directors and consultants of the Company, and the employees and consultants of any parent or subsidiary of the Company.
In January 2016, the Company effected an increase of 2,450,865 shares reserved under the 2014 Plan. As of September 30, 2016, the Company had 4,618,790 total shares of common stock reserved and available for grant under the 2014 Plan.
The following table summarizes the total number of shares available for grant under the 2014 Plan as of September 30, 2016:
 
 
 
Shares Available for Grant
 
 
Balance, December 31, 2015
5,017,525

Authorized
2,450,865

Options granted
(936,000
)
Options canceled
621,074

Awards granted
(3,200,157
)
Awards canceled
665,483

Balance, September 30, 2016
4,618,790

Stock Options
The following table summarizes the information about outstanding stock option activity:

16


 
Options Outstanding
 
Number of
Shares
Underlying
Outstanding
Options
 
Weighted
Average
Exercise 
Price
 
Weighted
Average
Remaining
Contractual Term
(Years)
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
(in thousands)
Balance, December 31, 2015
6,543,162

 
$
6.05

 
7.03
 
$
6,570

Options granted
936,000

 
6.13

 
 
 
 
Options exercised
(387,428
)
 
2.10

 
 
 
 
Options canceled
(621,074
)
 
7.64

 
 
 
 
Balance, September 30, 2016
6,470,660

 
$
6.14

 
7.14
 
$
7,055

Options exercisable, September 30, 2016
3,829,466

 
$
5.51

 
6.12
 
$
6,710

Options vested and expected to vest, September 30, 2016
6,133,304

 
$
6.10

 
7.05
 
$
7,024

The weighted-average-grant-date fair value of options granted was $3.03 and $3.15 per share for the three and nine months ended September 30, 2016, and the aggregate-grant-date fair value of the Company's stock options granted was $0.1 million and $3.0 million for the three and nine months ended September 30, 2016, respectively. The weighted-average-grant-date fair value of the options granted was $2.76 and $3.47 per share for the three and nine months ended September 30, 2015, and the aggregate-grant-date fair value of the Company's stock options granted was $0.5 million and $5.4 million for the three and nine months ended September 30, 2015, respectively.
The aggregate intrinsic value of stock options exercised was $0.9 million and $0.4 million for the three months ended September 30, 2016 and 2015, respectively, and $1.6 million and $2.1 million for the nine months ended September 30, 2016 and 2015 respectively. The intrinsic value for each share underlying an option represents the difference between the option exercise price per share and the closing stock price of a share of the Company’s common stock.
Restricted Stock Units
The Company currently grants Restricted Stock Units ("RSUs") to certain employees and directors. The RSUs typically vest over a period of time, generally one year to four years, and are subject to the participant’s continuing service to the Company over that period. Until vested, RSUs do not have the voting and dividend participation rights of common stock and the shares underlying the awards are not considered issued and outstanding.
The following is a summary of the Company’s RSU activity and related information for the nine months ended September 30, 2016:
 
Restricted Stock Units Outstanding
 
Shares
 
Weighted Average
Grant Date
Fair Value Per Share
 
 
 
 
Balance, December 31, 2015
4,046,106

 
$
6.49

Awards granted
3,200,157

 
6.23

Awards vested
(1,650,296
)
 
6.65

Awards canceled
(509,297
)
 
6.35

Balance, September 30, 2016
5,086,670

 
$
6.29


The weighted-average-grant date fair value of RSUs granted was $6.09 and $5.99 per share for the three months ended September 30, 2016 and 2015, respectively, and was $6.23 and $6.53 per share for the nine months ended September 30, 2016 and 2015, respectively. The aggregate grant date fair value of RSUs granted was $1.0 million and $2.8 million, respectively for the three months ended September 30, 2016 and 2015, and was $19.9 million and $19.9 million, respectively, for the nine months ended September 30, 2016 and 2015. The aggregate fair value of shares vested as of the respective vesting dates was $4.1 million and $2.6 million, for the three months ended September 30, 2016 and 2015 and was $10.0 million and $7.2 million, for the nine months ended September 30, 2016 and 2015, respectively.

17


The number of RSUs vested includes shares that the Company withheld on behalf of certain employees to satisfy the minimum statutory tax withholding requirements, as determined by the Company. During the three months ended September 30, 2016 and 2015, the Company withheld 60,638 and 152,831 shares of stock, for an aggregate value of $0.4 million and $0.9 million, respectively. During the nine months ended September 30, 2016 and 2015, the Company withheld 156,186 and 383,825 shares of stock, for an aggregate value of $0.9 million and $2.3 million, respectively. The Company returned such shares to the 2014 Plan, which are available under the plan terms for future issuance.
The number of RSUs granted includes 222,875 shares of performance-based restricted stock units ("PBRSUs") that the Company granted to certain executives in March 2016 pursuant to the 2014 Plan. Each PBRSU represents the right to receive one share of the Company's common stock upon vesting, subject to the Company's achievement of a revenue target. As of September 30, 2016, the Company expects the minimum revenue target to be met. Accordingly, the Company recorded expense related to the PBRSUs expected to vest, net of estimated forfeitures, on a straight-line basis.

The number of RSUs granted also includes 404,000 shares of market-based restricted stock units ("MBRSUs") that the Company granted to certain executives effective June 2016 pursuant to the 2014 Plan. Each MBRSU represents the right to receive one share of the Company's common stock upon vesting subject to the Company's achievement of stock price targets. The Company estimates the fair value of the MBRSUs using the Monte Carlo option-pricing model on the date of grant as the MBRSUs contain both market and service conditions. The Company recorded the expense related to all of the MBRSUs, net of estimated forfeitures, on a graded-vesting method.
2014 Employee Stock Purchase Plan
The 2014 Employee Stock Purchase Plan ("ESPP") is a ten-year plan, effective in March 2014. The ESPP authorizes the Company to issue shares of common stock pursuant to purchase rights it grants to the Company's employees and those of its designated subsidiaries. In January 2016, the Company effected an increase of 980,346 shares reserved under the ESPP. As of September 30, 2016, the Company had 2,138,737 total shares of common stock reserved and available for issuance under the ESPP.
Under the ESPP, the Company grants stock purchase rights to all eligible employees, currently covering a two-year offering period ending December 1, 2016, with purchase dates at the end of each interim six-month purchase period. Employees purchase shares using employee payroll deductions at purchase prices equal to 85% of the lesser of the fair market value of the Company’s common stock at either the first day of each offering period or the date of purchase. The ESPP currently has a reset provision: If the closing price of the Company’s common stock on the last day of any purchase period during an offering period is lower than the closing sales price on the first day of the related offering period, that offering period will terminate upon the purchase of shares for such purchase period and participants will be automatically re-enrolled in the immediately following offering period. As a result, the reference price for purposes of determining the purchase price of shares for subsequent purchase periods for all participants of the new offering period resets to such lower price. No participant may purchase more than $25,000 worth of common stock in any calendar year, or 5,000 shares of common stock in any six-month purchase period. For the nine months ended September 30, 2016, the Company issued 646,278 shares under the ESPP. For the nine months ended September 30, 2015, the Company issued 552,109 shares under the ESPP. The Company did not issue any shares under the ESPP during the three months ended September 30, 2016 and 2015.
Stock Repurchase Program
In February 2016, the Company's board of directors authorized a stock repurchase program of up to $10.0 million, with stock purchases made from time to time in compliance with applicable securities laws in the open market or in privately negotiated transactions. The timing and amounts of any purchases will be based on market conditions and other factors including price, regulatory requirements and capital availability. The authorization does not require the purchase of any minimum number of shares, and the Company may suspend, modify or discontinue the program at any time without prior notice.  Unless modified, or earlier suspended or discontinued, the authorization will expire as of June 30, 2017, without the Company's further action.
During the three and nine months ended September 30, 2016, the Company repurchased a total of 103,112 and 364,627 shares of its common stock on the open market at a total cost of $0.7 million and $2.1 million with an average price per share of $6.68 and $5.87 respectively.
Determination of Fair Values
Weighted-average assumptions for the Company's stock options granted during the three and nine months ended September 30, 2016 were as follows:

18


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Stock options:
 
 
 
 
 
 
 
Expected term (in years)
5.85

 
6.08

 
5.78

 
6.03

Expected volatility
53.18
%
 
45.27
%
 
55.09
%
 
50.68
%
Risk free interest rate
1.15
%
 
1.71
%
 
1.49
%
 
1.74
%
Weighted average assumptions used to value employee stock purchase rights under the Black-Scholes model were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
ESPP purchase rights:
 
 
 
 
 
 
 
Expected term (in years)
0.5 - 2.00
 
0.50 - 1.5
 
0.5 - 2.00
 
0.50 - 1.5
Expected volatility
35% - 55.3%
 
41.0% - 55.3%
 
35% - 55.3%
 
41.0% - 55.3%
Risk free interest rate
0.07% - 0.51%
 
0.07% - 0.45%
 
0.07% - 0.51%
 
0.07% - 0.45%
Stock-based Compensation Expense
The total stock-based compensation the Company recognized for stock-based awards in the consolidated statements of operations is as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Cost of revenue
$
431

 
$
249

 
$
1,024

 
$
631

Research and development
1,576

 
1,338

 
4,287

 
3,325

Sales and marketing
2,505

 
1,965

 
6,336

 
5,189

General and administrative
1,903

 
1,633

 
5,118

 
4,226

Total stock-based compensation
$
6,415

 
$
5,185

 
$
16,765

 
$
13,371

The following table presents stock-based compensation expense by award-type:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Stock Options
$
1,336

 
$
1,332

 
$
3,667

 
$
3,468

Restricted Stock Units
4,353

 
3,299

 
11,044

 
8,438

Employee Stock Purchase Plan
726

 
554

 
2,054

 
1,465

Total stock-based compensation
$
6,415

 
$
5,185

 
$
16,765

 
$
13,371

As of September 30, 2016, unrecognized stock-based compensation related to outstanding stock options, RSUs (including PBRSUs and MBRSUs) and ESPP purchase rights, net of estimated forfeitures, was $7.9 million, $24.5 million and $0.4 million, respectively, which the Company expects to recognize over weighted-average periods of 2.38 years, 2.51 years and 0.17 years, respectively. For the nine months ended September 30, 2015, the Company capitalized $0.3 million stock-based compensation expense to the development of its internal-use cloud services platform.
8. NET LOSS PER SHARE
The Company calculates basic and diluted net loss per share of common stock allocable to common stockholders by dividing the net loss allocable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per share of common stock is the same as basic net loss per share of common stock, since the effects of potentially dilutive securities are antidilutive.
The following table presents the computation of basic and diluted net loss per share allocable to common stockholders:

19


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
  
2016
 
2015
 
2016
 
2015
 
(in thousands, except for share and per share data)
Numerator:
 
 
 
 
 
 
 
Net loss
$
(9,712
)
 
$
(10,562
)
 
$
(29,647
)
 
$
(37,172
)
Denominator:
 
 
 
 
 
 
 
Weighted-average shares used to compute net loss per share, basic and diluted
50,818,710

 
47,724,142

 
49,920,630

 
46,975,649

Net loss per share:
 
 
 
 
 
 
 
Basic and diluted
$
(0.19
)
 
$
(0.22
)
 
$
(0.59
)
 
$
(0.79
)
The Company excluded the following period-end outstanding common stock equivalents from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive:
 
As of September 30,
 
2016
 
2015
Shares of common stock issuable under the Equity Incentive Plan
11,557,330

 
11,345,256

Common stock issuable upon exercise of warrants
—

 
73,883

Employee Stock Purchase Plan
392,029

 
430,141

Total
11,949,359

 
11,849,280

9. INCOME TAXES
The provision for income taxes was approximately $0.1 million and $0.2 million, respectively, for the three months ended September 30, 2016 and 2015, and was $0.3 million and $0.4 million, respectively, for the nine months ended September 30, 2016 and 2015. The provision for income taxes consisted primarily of state taxes and foreign income taxes.
For the three and nine months ended September 30, 2016 and 2015, the provision for income taxes differed from the statutory amount primarily due to maintaining a full valuation allowance against the U.S. net deferred tax assets, partially offset by foreign and state taxes.
The Company has intercompany services agreements with its subsidiaries located in the United Kingdom, Netherlands, New Zealand, Australia, Canada and China, which require payment for services rendered by these subsidiaries at an arm’s-length transaction price. The foreign tax expense represents foreign income tax payable by these subsidiaries on profit generated on intercompany services agreements.
The Company's realization of deferred tax assets depends on future taxable income, the existence and timing of which is uncertain. Based on the Company’s history of losses, management has determined it cannot conclude that it is more likely than not that the deferred tax assets will be realized and, accordingly, management has placed a full valuation allowance against its domestic deferred tax assets, including net operating loss carryforwards and research and development and other tax credits, as of September 30, 2016 and December 31, 2015.
10. SEGMENT INFORMATION
The Company’s chief operating decision maker ("CODM") is its Chief Executive Officer. The Company derives its revenue primarily from sales of hardware products and software subscription and services. The Company’s CODM reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Accordingly, the Company determined that it operates as one reportable and operating segment.
The following table represents the Company's revenue based on the billing address of the respective VAR or the VAD:

20


 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Americas
$
25,732

 
$
29,541

 
$
78,777

 
$
68,452

Europe, Middle East and Africa
10,538

 
10,374

 
34,695

 
28,670

Asia Pacific
4,099

 
2,865

 
14,656

 
8,311

Total revenues
$
40,369

 
$
42,780

 
$
128,128

 
$
105,433

     Included within Americas in the above table is revenue from sales in the United States of $24.0 million and $28.4 million, respectively, for the three months ended September 30, 2016 and 2015, and $74.2 million and $65.4 million, respectively, for the nine months ended September 30, 2016 and 2015. Aside from the United States, no country comprised 10% or more of the Company's total revenue for each of the three and nine months ended September 30, 2016 and 2015.
Property and equipment, net by location is summarized as follows:  
 
September 30,
 
December 31,
 
2016
 
2015
 
(in thousands)
United States
$
8,253

 
$
7,561

People's Republic of China
1,097

 
1,360

United Kingdom
253

 
235

Total property and equipment, net
$
9,603

 
$
9,156

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements reflecting our current expectations and involves risks and uncertainties. We intend the words “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” and similar expressions that convey uncertainty of future events or outcomes to identify forward-looking statements. Our actual results and the timing of events may differ materially from those discussed in our forward-looking statements as a result of various factors, including those we discuss below and those we discuss in the section entitled "Risk Factors" included in this Quarterly Report on Form 10-Q.
These forward-looking statements include, but are not limited to, statements concerning the following:
•
our ability to predict our revenue, operating results and gross margin accurately;
•
our ability to timely develop, deliver and transition to new product offerings and transition existing and new end-customers to such offerings, while maintaining existing product revenue and our existing service level commitments to end-customers;
•
our ability to continue to secure orders from larger customers and any potential loss of or reductions in orders from such larger customers;
•
our ability to maximize the economic opportunity of the U.S. Federal Communications Commission’s E-Rate program and the timing and uncertainty of the availability of funding, the level of available funding and the decisions by end-customers to purchase our products using such funding;
•
the length and seasonal unpredictability of our sales cycles, including with service provider end-customers;
•
the effects of increased competition in and consolidation of our market and our ability to compete with larger competitors with greater financial, technical and other resources;
•
our ability to continue to enhance and broaden our product offering and bring new products and product functionality to market;
•
our ability to attract new end-customers within the verticals and geographies in which we currently operate;

21


•
changes in global consumer confidence and demand for our products internationally, due to changes to foreign currency exchange rates and other factors, including following the decision of the United Kingdom to withdraw from the European Union;
•
our ability to continue to build and enhance relationships with channel partners and to derive revenue from our investments in those partnerships, particularly with our strategic partners;
•
our ability to protect our intellectual property and exposure to third party claims that we or our customers or channel partners infringe their intellectual property; and
•
other risk factors included under the section titled “Risk Factors.”    
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in “Risk Factors” included in Part II, Item 1A and elsewhere in this report. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, we caution you not to place undue reliance on such forward-looking statements

Overview
Our goal is to be the leading independent cloud networking company by delivering an open mobility platform that simplifies and transforms the connected experience through information, applications and insights. We have designed and developed a leading cloud-managed mobile networking platform that enables enterprises to deploy a mobile-centric network edge. Managing the network edge is becoming more complex because of the proliferation of mobile devices and the ways in which businesses use such devices. Increasingly, employees and clients are using Wi-Fi-enabled smartphones, tablets, laptops and other mobile devices instead of desktop computers for mission-critical business applications. The number and types of users continue to increase, as do the breadth of applications that users need to access on their mobile devices. As the difficulty and complexity of managing the network edge expands, we believe our platform offers simplicity, scalability and security. Customers around the world, from Fortune 500 businesses to small schools, have chosen our products.
For the three months ended September 30, 2016, our revenue was $40.4 million, a decline of $2.4 million, compared to $42.8 million for the three months ended September 30, 2015. However, for the nine months ended September 30, 2016, our revenue was $128.1 million, an increase of $22.7 million, compared to $105.4 million for the nine months ended September 30, 2015. We have yet to achieve profitability in any quarter. In the three months ended September 30, 2016 and 2015, our net losses were $9.7 million and $10.6 million, respectively, and for the nine months ended September 30, 2016 and 2015, our net losses were $29.6 million and $37.2 million, respectively.
Opportunities and Challenges
We believe that the growth of our business and our future success depends upon many factors, including our ability to continue to develop innovative technologies and timely provide new product offerings to the marketplace; continue to stabilize and improve performance of our sales function; increase our sales capacity and develop our channel partner program; acquire new end-customers; expand our end-customer base and increase penetration within our existing end-customer base (including through new product offerings); demonstrate revenue growth to our investors and financial analysts and at the same time demonstrate that we can achieve profitability on an acceptable timeline.
We operate in the highly competitive wired and wireless network access products market, which is characterized by rapid technological innovation. We will need to continue to innovate in order to achieve market adoption of our products and services. We have continued the expansion of our product portfolio, announcing HiveManager NG in April 2015. Over the four

22


quarters ended September 30, 2016, approximately 76% of our end-customers and approximately 41% of our Wi-Fi access point products in operation were deployed using our public cloud platform. We also continue to invest to extend our product offering to include a family of Ethernet switches and branch routers to complement our wireless offering and allow us to deliver a unified wired and wireless network edge.
In addition, our market continues an evolution in related wireless technology standards from 802.11n to the new 802.11ac standard, which uses new radio hardware to deliver substantially higher wireless performance. We continue to develop new functionality in our product offerings to take advantage of the changes that these industry standards incorporated. Overall, our 802.11 ac products accounted for 87% of our Wi-Fi access point unit volume shipments in the quarter ended September 30, 2016.
In order to maintain a competitive position in this market, we continue to develop our next-generation “Wave 2” 802.11ac Wi-Fi access points to extend our portfolio and address higher-performance use cases, introducing in the second quarter of 2016 our AP250 and AP245X access points, which are our initial Wave 2 access point products. In our third quarter, we introduced our AP550 access point, with features specifically designed for high density and high performance requirements of enterprise environments.
We have developed a cloud services platform to provide network management and support additional value-added applications. HiveManager NG, our network management application, provides a single management interface that customers use to configure network policies, monitor and troubleshoot performance, manage access and security, and run reports on network operations. Our focus is to continue to transition new and existing end customers to HiveManager NG and make our cloud services platform and applications available to customers in either a subscription public cloud or on-premises private cloud deployment.
Our business is seasonal, with our product revenue typically decreasing in our first quarter but sequentially increasing from our fiscal first to second quarter. This has generally been due to annual budget cycles in the enterprise and spending seasonality in the education vertical. The buying cycle for K-12 schools in the United States historically has driven strong sequential growth for us in the second quarter, which we also see typically carry over from our second quarter to our third quarter. We also historically have seen a sequential increase in revenue in our fourth quarter from our third quarter due to end-of-year spending by enterprise customers.
Beginning in 2015, however, our seasonal trend changed as compared to prior years, primarily due to the change in timing of education spending based on the availability of funding under the federal E-Rate program. E-Rate is the commonly used name for the Schools and Libraries Program of the Universal Service Fund, which is administered by the Universal Service Administrative Company ("USAC") under the direction of the Federal Communications Commission ("FCC"). The program provides discounts to assist schools and libraries in the United States to obtain affordable telecommunications and Internet access. Significant funding for Wi-Fi products under the E-Rate program led certain schools to defer purchases depending on the timing of available E-Rate funding for their projects. As a result, we believe that beginning in 2015, E-Rate has caused increased seasonal variations in demand for our products and services in the education vertical and shifted spending from the first half of the year, and even into the following year. We believe that in the current 2016 E-Rate funding cycle, the timing of availability of E-Rate funding continues to cause schools to defer and delay purchasing decisions, which has made it more difficult for us to predict revenue from our education vertical during a particular period during the year.
On October 13, 2016, we provided preliminary revenue for the third quarter ending September 30, 2016 and a preliminary revenue outlook for the fourth quarter ending December 31, 2016, which we further discussed on our November 2, 2016 earnings call. Our third quarter revenue and fourth quarter outlook were below the estimates of financial analysts at that time for the respective quarters. We believe that the significantly slower pace of E-Rate funding approvals we experienced in the third quarter and that we assume for our fourth quarter are the primary drivers of our weaker-than-expected order volume and lower revenue performance in the third quarter and our outlook for the fourth quarter. For example, as of the end of the third quarter, E-Rate program funding approvals were running nearly 70 percent below the pace of approvals over the same period in 2015. We expect these delays, deferrals and lower levels of E-Rate funded transactions to continue for the fourth quarter of 2016 and potentially into 2017. We believe that the transition from our previous HiveManager Classic platform to our new HiveManager NG cloud service platform has elongated sales cycles and also is impacting certain revenue opportunities, particularly in our European market.
We realize that our revenue-dependence on the volatile education market may bring uncertainty to our results. For this reason, a priority for our business is to expand and diversify our offerings and revenue opportunities into other verticals, with particular focus on enterprise customers. This includes developing and introducing new products and solution offerings.

23


We intend to continue to invest significant resources in the development of our innovative technologies and new product offerings, acquire new end-customers in new and existing geographies, and increase penetration within our existing end-customer base. We expect to continue to invest in our organization and our channel and strategic partnerships to meet the needs of our customers to pursue opportunities in new and existing markets. In particular, we are investing to increase our sales capacity as well as our channel program. As such, we will continue to incur expenses in the near term, due to our continuing investments to grow our business, including internationally, in advance of and in preparation for, our expected increase in sales and expansion of our customer base. As a result, we may not be profitable for the foreseeable future and our use of cash over this period could also be greater and extend over a longer period as we make investments in areas of our operations, such as sales, marketing and research and product and channel partner development, which we feel may promote our growth and profitability over the long term. We believe that over the long term, we will be able to leverage these investments in the form of a higher revenue growth rate compared to the growth rate of our operating expenses.
Results of Operations
The following table sets forth our results of operations for the periods presented in dollars (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Revenue:
 
 
(As Adjusted)*
 
 
 
(As Adjusted)*
Product
$
31,691

 
$
36,130

 
$
103,683

 
$
87,361

Software subscription and services
8,678

 
6,650

 
24,445

 
18,072

Total revenue
40,369

 
42,780

 
128,128

 
105,433

Cost of revenue(1):
 
 
 
 
 
 
 
Product
10,070

 
11,707

 
32,922

 
28,134

Software subscription and services
3,095

 
2,686

 
9,048

 
7,040

Total cost of revenue
13,165

 
14,393

 
41,970

 
35,174

Gross profit
27,204

 
28,387

 
86,158

 
70,259

Operating expenses:
 
 
 
 
 
 
 
Research and development(1)
10,685

 
10,098

 
31,457

 
26,491

Sales and marketing(1)
19,647

 
21,364

 
62,037

 
60,053

General and administrative(1)
6,515

 
7,212

 
22,135

 
19,665

Operating loss
(9,643
)
 
(10,287
)
 
(29,471
)
 
(35,950
)
Interest income
109

 
21

 
345

 
54

Interest expense
(115
)
 
(140
)
 
(351
)
 
(1,067
)
Other income, net
22

 
59

 
128

 
213

Loss before income taxes
(9,627
)
 
(10,347
)
 
(29,349
)
 
(36,750
)
Income tax provision
(85
)
 
(215
)
 
(298
)
 
(422
)
Net loss
$
(9,712
)
 
$
(10,562
)
 
$
(29,647
)
 
$
(37,172
)
(1)Includes stock-based compensation as follows:    
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Cost of revenue
$
431

 
$
249

 
$
1,024

 
$
631

Research and development
1,576

 
1,338

 
4,287

 
3,325

Sales and marketing
2,505

 
1,965

 
6,336

 
5,189

General and administrative
1,903

 
1,633

 
5,118

 
4,226

Total stock-based compensation expense
$
6,415

 
$
5,185

 
$
16,765

 
$
13,371

 
 
 
 
* Certain amounts have been adjusted for the retrospective changes in accounting policy for sales commissions (See Note 1).

The following table sets forth our results of operations for the periods presented as a percentage of our total revenue:

24


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Revenue:
 
 
(As Adjusted)*
 
 
 
(As Adjusted)*
Product
79
 %
 
84
 %
 
81
 %
 
83
 %
Software subscription and services
21

 
16

 
19

 
17

Total revenue
100

 
100

 
100

 
100

Cost of revenue:
 
 
 
 
 
 
 
Product
25

 
28

 
26

 
26

Software subscription and services
8

 
6

 
7

 
7

Total cost of revenue
33

 
34

 
33

 
33

Gross profit
67