Why Aerohive's Profit Timing Is Now In Question

Aerohive Networks Inc (NYSE: HIVE) issued a profit warning for Q3. “We expect Aerohive to remain successful with multisite deployment opportunities, but they tend to have complex/lengthy sales cycles and it appears more are needed for consistent execution,” Wunderlich’s Matthew S. Robison said in a report.

Analyst Robison downgraded the rating on the company from Buy to Hold and reduced the price target from $8 to $5, citing uncertainty around profit timing.

Lower Expenses Come To The Rescue

Management announced a reduction to the high-end of the non-GAAP EPS guidance range for Q3 to ($0.06), with a cut in the revenue expectation from $46-$50 million to $40 million. The guidance now reflects a 6.5 percent y/y decline in revenue. The company projected positive cash flow on the back of lower variable expenses.

Problems Are Here To Stay

For Q4, management guided to a non-GAAP loss per share of $0.06-$0.09 per share on revenue of $43-$45 million, representing a 4.8 percent y/y decline. Commenting that Aerohive was facing “more than a one-quarter problem,” Robison noted that consensus had been expecting the company to achieve breakeven non-GAAP EPS in Q4.

Aerohive attributed the Q3 shortfall to E-rate spending, which declined 70 percent y/y. The analyst added that the company’s sales cycles were “too long to overcome E-rate trouble.” He explained, “Win-rate for distributed enterprises is said to be a strong majority of opportunities where the company is able to bid, but size and complexity means some wins have sales cycles exceeding 12 months.”

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