Document and Entity Information Document
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Sep. 30, 2018
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Oct. 26, 2018
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Entity [Abstract] | ||
Entity Registrant Name | Aerohive Networks, Inc. | |
Entity Central Index Key | 0001372414 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2018 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q3 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 55,555,420 |
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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
In Thousands, except Share data |
Sep. 30, 2018
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Dec. 31, 2017
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Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts | $ 22 | $ 127 |
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 25,000,000 | 25,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 500,000,000 | 500,000,000 |
Common stock, shares issued | 55,505,380 | 54,171,498 |
Common stock, shares outstanding | 55,505,380 | 54,171,498 |
Treasury stock, shares outstanding | 1,929,016 | 1,361,243 |
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Consolidated Statements of Operations and Comprehensive Loss (USD $)
In Thousands, except Share data |
3 Months Ended | 9 Months Ended | ||||||
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Sep. 30, 2018
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Sep. 30, 2017
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Sep. 30, 2018
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Sep. 30, 2017
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Revenue: | ||||||||
Product | $ 28,817 | $ 29,162 | [1] | $ 83,151 | $ 88,234 | [1] | ||
Subscription and support | 11,735 | 10,139 | [1] | 33,643 | 29,597 | [1] | ||
Total revenue | $ 40,552 | $ 39,301 | [1] | $ 116,794 | $ 117,831 | [1] | ||
Cost of revenue | ||||||||
Product | $ 10,595 | $ 9,880 | [1] | $ 29,645 | $ 29,165 | [1] | ||
Subscription and support | 3,344 | 3,244 | 10,131 | 9,573 | ||||
Total cost of revenue | 13,939 | 13,124 | [1] | 39,776 | 38,738 | [1] | ||
Gross profit | $ 26,613 | $ 26,177 | [1] | $ 77,018 | $ 79,093 | [1] | ||
Operating expenses: | ||||||||
Research and development | $ 8,529 | $ 9,260 | $ 26,389 | $ 28,032 | ||||
Sales and Marketing Expense | 15,449 | 16,153 | [1] | 46,850 | 51,001 | [1] | ||
General and administrative | 5,243 | 5,700 | 16,469 | 17,486 | ||||
Total operating expenses | 29,221 | 31,113 | [1] | 89,708 | 96,519 | [1] | ||
Operating loss | (2,608) | (4,936) | [1] | (12,690) | (17,426) | [1] | ||
Interest income | 437 | 180 | 1,063 | 484 | ||||
Interest expense | (196) | (135) | (543) | (412) | ||||
Other expense, net | (6) | (90) | (210) | (268) | ||||
Loss before income taxes | (2,373) | (4,981) | (12,380) | (17,622) | ||||
Provision for income taxes | 60 | 75 | 202 | 369 | ||||
Net loss | (2,433) | (5,056) | [1] | (12,582) | (17,991) | [1] | ||
Net loss per share, basic and diluted (USD per share) | $ (0.04) | $ (0.09) | [1] | $ (0.23) | $ (0.34) | [1] | ||
Weighted-average shares used in computing net loss per share, basic and diluted | 55,381,268 | 53,683,727 | 54,851,435 | 53,070,863 | ||||
Stock-based compensation | $ 3,831 | $ 4,964 | $ 11,086 | $ 12,961 | ||||
Cost of Sales
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Operating expenses: | ||||||||
Stock-based compensation | $ 170 | $ 313 | $ 672 | $ 860 | ||||
Research and development
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Operating expenses: | ||||||||
Stock-based compensation | $ 1,094 | $ 1,329 | $ 3,108 | $ 3,082 | ||||
Sales and marketing
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Operating expenses: | ||||||||
Stock-based compensation | $ 1,152 | $ 1,566 | $ 3,259 | $ 4,361 | ||||
General and administrative
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Operating expenses: | ||||||||
Stock-based compensation | $ 1,415 | $ 1,756 | $ 4,047 | $ 4,658 | ||||
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Condensed Consolidated Statements of Comprehensive Loss (Unaudited) (USD $)
In Thousands |
3 Months Ended | 9 Months Ended | ||||||
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Sep. 30, 2018
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Sep. 30, 2017
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Sep. 30, 2018
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Statement of Comprehensive Income [Abstract] | ||||||||
Net loss | $ (2,433) | $ (5,056) | [1] | $ (12,582) | $ (17,991) | [1] | ||
Unrealized gain on available-for-sale investments, net of tax | 19 | 29 | 5 | 22 | ||||
Comprehensive loss | $ (2,414) | $ (5,027) | [1] | $ (12,577) | $ (17,969) | [1] | ||
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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
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9 Months Ended | ||||
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Sep. 30, 2018
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Sep. 30, 2017
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Cash flows from operating activities | |||||
Net loss | $ (12,582) | $ (17,991) | [1] | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||
Depreciation and amortization | $ 2,277 | $ 2,371 | |||
Stock-based compensation | 11,086 | 12,961 | |||
Other | $ (494) | $ (45) | |||
Changes in operating assets and liabilities: | |||||
Accounts receivable, net | $ 2,852 | $ 9,004 | |||
Inventories | (195) | (577) | |||
Prepaid expenses and other current assets | (34) | (1,054) | [1] | ||
Other assets | (344) | (183) | [1] | ||
Accounts payable | 2,874 | (911) | |||
Accrued liabilities | (30) | (329) | |||
Other liabilities | (20) | 93 | |||
Deferred revenue | 8,785 | 4,476 | [1] | ||
Net cash provided by operating activities | $ 14,175 | $ 7,815 | [1] | ||
Cash flows from investing activities | |||||
Purchases of property and equipment | $ (2,129) | $ (510) | |||
Maturities of short-term investments | 60,551 | 29,600 | |||
Purchases of short-term investments | (64,647) | (36,189) | |||
Net cash used in investing activities | $ (6,225) | $ (7,099) | |||
Cash flows from financing activities | |||||
Proceeds from employee stock option exercises and employee stock purchase plan | $ 1,659 | $ 3,113 | |||
Payment for shares withheld for tax withholdings on vesting of restricted stock units | (1,888) | (1,070) | |||
Payment to repurchase common stock | (2,356) | (3,030) | |||
Payment on capital lease obligations | (141) | (126) | |||
Net cash used in financing activities | (2,726) | (1,113) | |||
Net increase (decrease) in cash and cash equivalents | 5,224 | (397) | |||
Cash and cash equivalents at beginning of period | 27,249 | 34,346 | |||
Cash and cash equivalents at end of period | $ 32,473 | $ 33,949 | |||
Supplemental disclosure of cash flow information | |||||
Income taxes paid | $ 102 | $ 295 | |||
Interest paid | $ 557 | $ 424 | |||
Supplemental disclosure of noncash investing and financing activities | |||||
Unpaid property and equipment purchases | $ 363 | $ 62 | |||
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DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 the Company's customers to use the power of the Wi-Fi, cloud, analytics and applications to transform how they serve their customers. The Company's products include Wi-Fi access points, access switches and SD-WAN-capable routers required to build an edge-access network; a cloud-based services platform for centralized management; data collection and analytics; and applications that leverage the network to provide additional capabilities to the 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 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. The Company has eliminated all intercompany accounts and transactions in consolidation. Use of Estimates When preparing the accompanying consolidated financial statements in conformity with GAAP, management makes estimates and assumptions that affect the amounts the Company reports in the consolidated financial statements and accompanying notes. Those estimates and assumptions include, among others, the determination of a standalone selling price (SSP) for revenue arrangements with multiple performance obligations, 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 rebate 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. 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 reporting 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 (expense), 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. Recently Adopted Accounting Pronouncements In May 2014, the FASB issued 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. This standard 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 the first quarter of 2018, the Company adopted ASC 606, using the full retrospective method, which required the Company to restate its historical financial information to be consistent with the standard. The most significant impact of the standard related to the way the Company accounts for arrangements with its stocking distributors. The Company previously deferred the recognition of revenue and the cost of revenue from sales to these stocking distributors until the stocking distributors had sold the products to their customers (known as “sell-through” revenue recognition). Under the new standard, the Company recognizes all revenue and related cost of revenue on sales to stocking distributors upon shipment and transfer of control (known as “sell-in” revenue recognition), rather than deferring recognition until the stocking distributors report that they have sold the products to their customers, provided that all other revenue recognition criteria have been met. The Company also attributes the impact to its revenue and deferred revenue balance to the removal of the limitation on contingent revenue, which accelerates revenue recognition for certain contracts. Further, the adoption of this standard also resulted in differences in the timing of recognition of contract costs, such as sales commissions. The Company has finalized the adoption of the standard and adjusted product revenue was $113.1 million and $134.6 million for fiscal years ended December 31, 2017 and 2016, respectively, and subscription and support revenue was $40.4 million and $33.3 million for fiscal years ended December 31, 2017 and 2016, respectively. The adoption of the standard resulted in a decrease in total deferred revenue of $3.3 million as of December 31, 2017, driven by the Company's recognition in the period of revenue related to stocking distributors upon shipment and also the removal of the limitation on contingent revenue accelerating revenue recognition for certain contracts. The adoption of the standard resulted in a decrease of $0.3 million in capitalized contract costs as of December 31, 2017. The adoption of this standard resulted in an increase in total revenue by $2.2 million and $2.1 million, respectively, for the three and nine months ended September 30, 2017. The adoption of this standard did not have a significant impact on the Company's total costs of revenue and sales commission for the three and nine months ended September 30, 2017. In addition, the adoption of the standard had no significant impact on the provision for income taxes and the net cash provided by (used in) operating, investing, or financing activities on the Company's consolidated statements of cash flows. ASC 606 Adoption Impact to Previously Reported Results The following tables present the impacts to reported results from the Company's adoption of the standard on the Company's condensed consolidated balance sheets and condensed consolidated statements of operations.
Under ASC 606, the Company recognizes revenue as of the time of transfer of promised goods or services to customers in an amount that reflects the consideration the Company expects to be entitled to from those goods or services. As shown on the condensed consolidated statement of operations, the Company derives revenue from two sources: (i) product, which includes hardware and software license revenue, and (ii) subscription and support, which includes post-contract customer support (PCS) and software delivered as a service (SaaS). Beginning with its first quarter, fiscal year 2018, the Company follows the following five-step approach in recognizing revenue:
Revenue Recognition The Company’s product revenue consists of sales to distributors, and value-added resellers, or VARs and an original equipment manufacturing partner, or OEM partner. The Company considers purchase orders such distributors, VARs and OEM partner issue to the Company, which are in some cases governed by master sales agreements, to be the Company's contracts with such customers, as such documents provide enforceable rights and obligations between the Company and distributor, VAR or OEM partner. As part of its consideration of the contract, the Company evaluates certain factors, including the customer’s ability to pay (or credit risk). For each contract, the Company considers the promise to transfer goods or services to be the identified performance obligation. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled. The Company allocates the transaction price to each distinct performance obligation based on a relative standalone selling price. The Company recognizes revenue when control of the product or service is transferred to the customer (i.e., when the performance obligation is satisfied). Further, in determining whether control has transferred, the Company considers if there is a present right to payment and legal title, along with risks and rewards of ownership has transferred to the customer. The Company makes sales of products to most distributors under terms allowing certain price adjustments and limited rights of return (known as “stock rotation”) of the Company’s products held in their inventory. The Company recognizes revenue from sales to distributors upon the transfer of control of the product to the distributor. Frequently, distributors need to sell product at a discounted price lower than the standard distribution price in order to win business. After the Company verifies that the distributor had obtained the Company's pre-approval for the discount claim, the Company may issue a credit memo to the distributor representing a rebate of the amount of the discount. In determining the transaction price, the Company considers these price adjustments to be variable consideration. The Company estimates such price adjustments using the expected-value method based on an analysis of actual credit claims at the distributor level, over a period of time the Company considers adequate to account for current pricing and business trends. Historically, actual price adjustments relative to those the Company estimates and includes when determining the transaction price have not materially differed. Stock rotation rights provide distributor with the ability to return certain specified amounts of inventory. Stock rotation adjustments are an additional form of variable consideration which the Company also estimates using the expected-value method based on historical return rates. Historically, distributor stock rotation adjustments have not been material. The Company makes sales to certain distributors, VARs and its OEM partner under terms that do not include rights of return or price concessions after the product is shipped. Accordingly, upon application of steps one through five above, the Company recognizes product revenue upon shipment and transfer of control. The Company generally provides a limited lifetime warranty that its products will substantially conform to the published specifications. The Company limits its liability to either a credit equal to the purchase price or replacement of the defective part. The Company does not consider activities related to such warranty a separate performance obligation. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 90 days. In instances where the timing of the Company's revenue recognition differs from the timing of its invoicing, the Company has determined that its contracts generally do not include a significant financing component. The primary purpose of the Company's invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company's products and services, not for the Company's customers to provide financing or for the Company to provide customers with financing. The Company records accounts receivable at the invoiced amount, net of an allowance for doubtful accounts. The Company recognizes a receivable in the period the Company delivers goods or provide services or when the Company's right to consideration is unconditional. Significant Judgments The Company's contracts with customers often include promises to transfer multiple products and services to the customer. The Company may exercise significant judgment when determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together. The Company may also exercise judgment to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the hardware and recognized upon transfer of control. The Company may further require judgment to determine the SSP for each distinct performance obligation. The Company determines SSP for the purposes of allocating the arrangement, primarily based on historical transaction pricing. The Company segregates historical transactions based on its pricing model and go-to-market strategy, which includes factors such as type of sales channel (VAR, OEM or distributor), the geographies in which the Company sells its products and services (domestic or international) and offering type (product series, software subscriptions and level of support for PCS). Disaggregation of Revenue Product Revenue - The Company’s product revenue consists of revenue from the sale of the Company’s hardware products, majority of which contains an embedded HiveOS software, the Company's proprietary operating system that is not considered to be distinct in the context of the contract. Therefore, the Company considers its hardware appliances together with related embedded HiveOS software (collectively, the "hardware”) as a single performance obligation. The Company transfers these items to the customer concurrently. The Company recognizes hardware revenue upon transfer of control to its customers, which occurs upon shipment. The Company’s product revenue includes the sales of software licenses of HiveManager, a license-based unified networking management system, which consists of the purchase of a perpetual license of the HiveManager software. The Company generally recognizes revenue from its software licenses upon transfer of control to its customers. Subscription and Support Revenue - The Company’s subscription and support revenue consists of revenue from SaaS and PCS arrangements. SaaS arrangements with customers do not provide the right to take possession of the software at any time during the hosting period and have a defined contract term. PCS arrangements include software updates, access to technical support personnel, and expedited replacement of defective hardware products. Each of the promised services is distinct in the context of the contract as the services are not inputs to a combined output for which the Company provides any significant integration service, the provision of each service does not significantly modify or customize the other, and the Company could provide each service independently of the other. Though the Company has identified that each of the performance obligations is distinct, as each of the performance obligations represents a series of distinct services that has the same pattern of transfer (stand ready obligations) and the same measure of progress of transfer (days of service) the Company will account for the all series as a single performance obligation. The Company recognizes revenue from SaaS and PCS arrangements on a straight-line basis over the service contract term, which is typically one, three or five years. The contract term typically commences upon transfer of control of the corresponding products to our customer. See the condensed consolidated statement of operations for the Company's product revenue and subscription and support revenue amounts for the three and nine months ended September 30, 2018 and 2017, respectively. Costs to Obtain and Fulfill a Contract The Company capitalizes certain contract acquisition costs consisting primarily of commissions paid and the related payroll taxes when customer contracts are signed. The Company capitalizes commission expenses earned by sales personnel and the related payroll taxes that are incremental to obtaining customer contracts. The Company amortizes deferred sales commission amounts based on the expected future revenue streams under the customer contracts. The Company includes amortization of deferred sales commissions in sales and marketing expense in the accompanying consolidated statements of operations. The Company classifies deferred commissions as current or non-current based on the timing of when the Company expects to recognize the expense. The Company periodically reviews these costs for impairment. The Company records deferred revenue when it invoices the customer, collection is probable, and the associated revenue has not yet been earned. The current portion of deferred revenue represents the amounts the Company expects to recognize as revenue within one year of the condensed consolidated balance sheet date. See Note 3, Consolidated Balance Sheet Components, for the changes in the deferred revenue and deferred commissions during the three and nine months ended September 30, 2018 and 2017, respectively. Contracted-But-Not-Recognized Revenue The Company's contracted-but-not-invoiced performance obligations do not include the option for its customers to cancel. The Company's revenue allocated to remaining performance obligations represents contracted revenue that the Company has not yet recognized (“contracted-but-not-recognized”), which includes deferred revenue and non-cancelable amounts that the Company will invoice and recognize as revenue in future periods. Contracted-but-not-recognized revenue was $77.7 million as of September 30, 2018, of which the Company expects to recognize approximately 52% over the next 12 months and the remainder thereafter. Other Recently Adopted Accounting Pronouncements 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. In February 2018, the FASB issued ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments, to clarify certain aspects of ASU No. 2016-01. The Company adopted these standards effective January 1, 2018. The Company's adoption of these standards did not have a material impact on the Company's 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 Company adopted ASU 2016-15 in the first quarter of 2018. The Company's adoption of this standard did not have a material impact on the Company's financial statements. Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the lease accounting requirements in Topic 840. This standard 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 standard also requires qualitative and 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 the Company's significant judgments and changes in judgments. This standard is effective beginning January 1, 2019. The Company currently believes the standard will have a material impact on its consolidated balance sheet but will not have a material impact on its consolidated income statement. The most significant impact relates to our accounting for real-estate leases which will be recorded as Right of Use (ROU) assets with associated lease liabilities on the balance sheet upon adoption. The Company is continuing to evaluate the potential impact of this standard on its consolidated financial statements. In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. An impairment charge will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The standard is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company currently plans to adopt this standard in 2021 when it becomes effective. 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 Company maintains short-term investments in U.S. treasuries, corporate securities, and commercial paper. The Company sells its products primarily to channel partners, which include value-added resellers, or VARs, distributors, managed service providers, or MSPs, and original equipment manufacturers, or OEMs. 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. The Company has entered into separate agreements with certain individual channel partners that are part of a consolidated group of entities which collectively constitute greater than 10% of the Company’s total revenue or accounts receivable balance for certain periods, as presented in the tables below. The percentages of revenue from a consolidated group of entities (Channel Partner A and Channel Partner B) greater than 10% of total consolidated revenue were as follows:
The percentages of receivables from a consolidated group of entities (Channel Partner A, Channel Partner B and Channel Partner C) greater than 10% of total consolidated accounts receivable were as follows:
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FAIR VALUE DISCLOSURE
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FAIR VALUE DISCLOSURE | 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 the Company uses to measure the fair value. The categories are as follows:
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, 2018 and December 31, 2017, respectively. Level 1 assets include highly liquid money market funds that the Company includes in cash equivalents. The Company 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, agency securities and commercial paper. The Company classifies these instruments within Level 2 of the fair value hierarchy because they are valued based on pricing obtained from an independent pricing service, which may use quoted market prices for identical or comparable instruments or model driven valuations using observable market date or inputs corroborated by observable market data. The Company classifies these instruments as short-term investments unless their maturities are three months or less when purchased, in which case the Company includes them in cash and cash equivalents. 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 the Company obtains from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets. The components of the Company’s Level 1 and Level 2 assets were as follows:
All short-term investments the Company held as of September 30, 2018 and December 31, 2017 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 was no other-than-temporary impairment for these investments as of September 30, 2018 and December 31, 2017. |
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CONSOLIDATED BALANCE SHEET COMPONENTS
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Balance Sheet Related Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CONSOLIDATED BALANCE SHEET COMPONENTS | CONSOLIDATED BALANCE SHEET COMPONENTS Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following:
Property and Equipment, Net Property and equipment, net consists of the following:
The software category includes the capitalized software for the Company's cloud service platform. The Company amortizes these capitalized costs to cost of subscription and support revenue on a straight-line basis over an estimated useful life of the software of five years. Depreciation and amortization expense was $0.8 million and $0.7 million for the three months ended September 30, 2018 and 2017, respectively, and $2.3 million and $2.4 million for the nine months ended September 30, 2018 and 2017, respectively. Office furniture and equipment classified under capital lease was $1.2 million at September 30, 2018 and December 31, 2017 respectively, and the related accumulated depreciation was $0.6 million and $0.4 million at September 30, 2018 and December 31, 2017, respectively. Other Assets Other assets consist of the following:
Deferred Sales Commission The current portion of deferred commission represents the amounts that the Company expects to recognize as commission expense within one year of the consolidated balance sheet date. Significant changes in the balance of total deferred commission (contract asset) during the three and nine months ended September 30, 2018 and 2017 are as follows:
Of the $6.3 million total deferred commission balance as of September 30, 2018, the Company expects to recognize approximately 51% as commission expense over the next 12 months and the remainder thereafter. Investment in Privately Held Company 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. In June 2017, the convertible note and accrued interest on the note converted into shares of preferred stock of the privately held company and the note was canceled. The accrued interest on the note was immaterial. The Company currently has no significant voting rights, investor rights or influence over the privately held company. Since the investment has no readily determinable market value, the Company elected the measurement alternative. As of September 30, 2018, the Company carried the investment at the value of original principal and the Company reviews such carried value quarterly for indicators of fair-value changes when there are observable prices less any potential impairment. The Company did not recognize a change in value or impairment for the three months ended September 30, 2018 and 2017, as there were no identified events or changes in circumstances that might have a significant impact on the carrying value. The Company has classified the investment as other assets on the condensed consolidated balance sheet. Accrued Liabilities Accrued liabilities consist of the following:
Deferred Revenue The current portion of deferred revenue represents the amounts that the Company expects to recognize as revenue within one year of the consolidated balance sheet date. Significant changes in the balance of total deferred revenue (contract liability) during the three and nine months ended September 30, 2018 and 2017 are as follows:
Of the $75.8 million total deferred revenue balance as of September 30, 2018, the Company expects to recognize approximately 50% as revenue over the next 12 months and the remainder thereafter. Warranty Liability The following table summarizes the activity related to the Company’s accrued liability for estimated future warranty:
Changes in existing warranty reflect a combination of changes in expected warranty claims and changes in the related costs to service such claims. |
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DEBT | 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. Since January 1, 2016, the Revolving Credit Facility bears interest rate at the lesser of (i) LIBOR rate plus 1.75% or (ii) prime rate minus 1.0%. In March 2017, the Company further amended the Revolving Credit Facility to extend the maturity date by two years and reduce the minimum cash requirements. The weighted-average interest rate of the Revolving Credit Facility was 3.89% and 3.09% for the three months ended September 30, 2018 and 2017, respectively, and 3.62% and 2.85% for the nine months ended September 30, 2018 and 2017, respectively. The Revolving Credit Facility contains customary negative covenants which, unless waived by the bank, limit the Company’s ability to, among other things, incur additional indebtedness, grant liens, make investments, repurchase stock, pay dividends, transfer assets or engage in merger and acquisition activity, including merge or consolidate with a third party. The Revolving Credit Facility also requires the Company to maintain a minimum adjusted quick ratio of 1.25 to 1.00 and a minimum net cash, cash equivalent and investment balance with the bank as of the last day of each month of $35.0 million and to demonstrate the absence of defined events of default in order to assure full access to the available borrowing. 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, 2018, the Company was in compliance with these covenants. The Revolving Credit facility currently provides, among other things (i) a maturity date of March 31, 2019; and (ii) a revolving line up to $20.0 million, subject to certain conditions. As of September 30, 2018, $20.0 million remains outstanding under the Revolving Credit Facility, and the Company classifies this amount as a current liability in the condensed consolidated balance sheet. |
COMMITMENTS AND CONTINGENCIES
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COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES Lease Commitments The Company currently leases its main office facility in Milpitas, California, which lease is set to expire in June 2023. In addition, the Company leases office space for its subsidiaries in the United Kingdom, the Netherlands, Korea, France and China under non-cancelable operating leases that expire at various times through September 2022. 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 respective lease period. Future minimum lease payments by year under operating leases as of September 30, 2018 are as follows:
Rent expense was $0.5 million for the three months ended September 30, 2018 and 2017, respectively, and was $1.4 million and $1.5 million for the nine months ended September 30, 2018 and 2017, respectively. Capital Lease Obligations The Company has certain office furniture and equipment that it classifies under capital leases. The terms of the capital leases range from three years to seven years. The interest expense is immaterial in any particular period. Future minimum lease payments by year under capital lease obligations as of September 30, 2018 are as follows:
Manufacturing Commitments The Company subcontracts with manufacturing companies to manufacture its hardware. The contract manufacturers procure components based on non-cancelable 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, 2018 and December 31, 2017, the Company had manufacturing commitments with contract manufacturers for inventory totaling approximately $9.7 million and $6.0 million, respectively. Other Purchase Commitments In August 2018, the Company amended an agreement with a third-party provider for our use of certain cloud services. Under the non-cancelable addendum, the Company is committed to a minimum purchase of $11.7 million between September 2018 and August 2021. As of September 30, 2018, the Company's remaining purchase commitment under the addendum was $11.7 million. Contingencies The Company may be subject to legal proceedings and litigation arising from time to time. 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 periodically to 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. The Company exercises significant judgment 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 Company cannot reasonably determine in advance the outcome of any litigation proceeding. Until the final resolution of any such matter for which the Company may be required to accrue, the Company may have an exposure to loss in excess of the amount the Company has accrued, and such excess amount could be significant. The Company is currently engaged in the following separate security litigations: In January 2018, three purported class actions were filed in the United States District Court for the Northern District of California against the Company and two of its officers. Those actions were subsequently consolidated into a single action titled as McGovney v. Aerohive Networks, Inc., et al., Case No. 5:18-cv-00435. The consolidated complaint, as amended, alleges that the defendants made false and misleading statements, in particular regarding the Company’s financial outlook for the fourth quarter of 2017. The complaint asserts claims for violations of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 on behalf of those who purchased the Company’s common stock between November 1, 2017 and January 16, 2018, inclusive. The complaint seeks monetary damages in an unspecified amount. On March 26, 2018, a purported shareholder derivative complaint was filed in the California Superior Court for the County of Santa Clara against the Company’s board of directors and two of its officers. The action is titled Flores v. Flynn, et.al, Case No. 18CV325517. The complaint alleges that the same general conduct alleged in the securities class actions also constituted a breach of fiduciary duty, waste of corporate assets, abuse of control, mismanagement, and unjust enrichment. The complaint seeks monetary damages in an unspecified amount, restitution, and certain changes to the Company’s corporate governance and internal procedures. On July 9, 2018, pursuant to a stipulation between the parties, the Court stayed the case until the completion of the motion-to-dismiss stage of the federal class action described above. In September 2018, Modern Telecom Systems, LLC, or MTS, filed a complaint in the U.S. District Court, for the District of Delaware, asserting that certain of the Company's products which utilize aspects of the IEEE 802.11 standard infringed United States Patent No. 6,504,886 prior to such patent's expiration. The Company is evaluating the possible application of these claims, if any, to its products. The outcomes of the legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to the Company's operating results and cash flows for any particular period. 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. Guarantees The Company typically enters into agreements with 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 to the customers the total product price. These agreements also typically include guarantees of product and service performance. The Company has not recorded a liability related to these indemnification and guarantee provisions and the Company’s indemnification and guarantee provisions have not had any impact on the consolidated financial statements to date. |
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STOCKHOLDERS' EQUITY | STOCKHOLDERS' EQUITY Common Stock Reserved for Future Issuance As of September 30, 2018, the Company had the following reserved shares of common stock for future issuance:
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. In August 2017, the Company's board of directors extended this program to June 30, 2018. In November 2017, the Company's board of directors increased the authorized amount under this program to $20.0 million. In July 2018, the Company's board of directors further extended this program through June 30, 2020. During the three months ended September 30, 2018, the Company repurchased a total of 318,812 shares of its common stock on the open market at a total cost of $1.3 million with an average price per share of $4.18. During the three months ended September 30, 2017, the Company repurchased a total of 587,837 shares at a total cost of $2.0 million with an average price per share of $3.42. During the nine months ended September 30, 2018, the Company repurchased a total of 567,773 shares of its common stock on the open market at a total cost of $2.4 million with an average price per share of $4.15. During the nine months ended September 30, 2017, the Company repurchased a total of 796,616 shares of its common stock on the open market at a total cost of $3.0 million with an average price per share of $3.80. As of September 30, 2018, the Company had repurchased under this program 1,929,016 shares of its common stock at a total price $8.6 million with an average purchase price $4.44 per share of our common stock. Approximately $11.4 million remains available to the Company as of September 30, 2018 for repurchases under this program. |
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STOCK-BASED COMPENSATION
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCK-BASED COMPENSATION | 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 terminated its earlier 2006 Global Share Plan ("2006 Plan"), added all reserved-but-unissued shares under the 2006 Plan to the 2014 Plan and rolled into the 2014 Plan all shares underlying stock awards granted under the 2006 Plan that otherwise would return to the 2006 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 2018, the Company effected an increase of 2,708,575 shares reserved under the 2014 Plan. As of September 30, 2018, the Company had 9,085,238 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, 2018:
Stock Options The following table summarizes the information about outstanding stock option activity:
There were no options granted during the three and nine months ended September 30, 2018 and 2017. The aggregate intrinsic value of stock options exercised during the three months ended September 30, 2018 and 2017 was $0.08 million and $0.03 million, respectively and during the nine months ended September 30, 2018 and 2017 was $0.13 million and $1.2 million, 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. The total grant-date fair value of the options vested was $0.3 million and $0.7 million, respectively, during the three months ended September 30, 2018 and 2017, respectively, and $1.3 million and $2.6 million during the nine months ended September 30, 2018 and 2017, respectively. Restricted Stock Units The Company currently grants Restricted Stock Units (RSUs) to certain employees and directors. The RSUs vest over a period of time, generally one-to-three 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 grant activity and related information for the three months ended September 30, 2018:
The weighted-average grant-date fair value of RSUs the Company granted during the three months ended September 30, 2018 and 2017 was $4.06 and $4.66 per share, respectively, and during the nine months ended September 30, 2018 and 2017 was $4.13 and $4.96 per share, respectively. The aggregate grant-date fair value of RSUs the Company granted during the three months ended September 30, 2018 and 2017 was $0.6 million and $0.4 million, respectively, and during the nine months ended September 30, 2018 and 2017 was $13.1 million and $16.3 million, respectively. The aggregate fair value of shares vested as of the respective vesting dates during the three months ended September 30, 2018 and 2017 was $2.7 million and $1.7 million, respectively, and during the nine months ended September 30, 2018 and 2017 was $7.6 million and $6.3 million, respectively. The number of RSUs vested during a particular period includes shares that the Company withheld during the period 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, 2018 and 2017, the Company withheld 50,699 and 180,345 shares of stock, respectively, for an aggregate value of $0.2 million and $0.6 million, respectively. During the nine months ended September 30, 2018 and 2017, the Company withheld 447,901 and 275,922 shares of stock, respectively, for an aggregate value of $1.9 million and $1.1 million, respectively. The Company returned such withheld shares to the 2014 Plan, which were then available under the plan terms for future issuance. In the three months ended March 31, 2017, the Company granted 378,644 shares of RSUs as performance-based restricted stock units (PBRSUs) to certain executives 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 certain performance conditions. 251,037 of these PBRSU awards vested during the nine months ended September 30, 2018. The Company does not expect additional PBRSUs to vest during the remainder of the fiscal year 2018. The Company did not grant any PBRSUs during the three and nine months ended September 30, 2018. The Company granted 351,500 and 358,000 market-based restricted stock units (MBRSUs) to certain executives during the three months ended June 30, 2018 and 2017 respectively, pursuant to the 2014 Plan. The Company did not grant any MBRSUs during the three months ended September 30, 2018. Each MBRSU represents the right to receive one share of the Company's common stock upon vesting subject to the Company's achievement of certain stock price targets. The Company estimated the fair value of the MBRSUs using the Monte Carlo option-pricing model as of the date of grant as the MBRSUs contain both market and service conditions. The weighted-average grant-date fair value of these MBRSUs granted during the three months ended June 30, 2018 and 2017 was $3.05 and $4.18 per share, respectively. The Company records the total expense related to all of the MBRSUs on a graded-vesting method over the estimated term. 32,875 and 106,125 shares of these MBRSU shares vested during the three and nine months ended September 30, 2018, respectively. The Company expects an additional 32,875 MBRSU shares to vest during the remainder of the fiscal year 2018. 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 its employees and those of its designated subsidiaries. In January 2018, the Company effected an increase of 541,715 shares reserved under the ESPP. As of September 30, 2018, the Company had 1,680,335 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 one-year offering period ending December 1, 2018, 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. During the nine months ended September 30, 2018 and 2017, the Company issued 493,914 and 563,174 shares respectively, under the ESPP. Determination of Fair Values The Company used the following weighted-average assumptions to value MBRSUs under the Monte Carlo model:
The Company used the following weighted-average assumptions to value employee stock purchase rights under the Black-Scholes model:
Stock-based Compensation Expense The Company recognized total stock-based compensation for stock-based awards in the condensed consolidated statements of operations as follows:
The following table presents stock-based compensation expense by award-type:
The stock-based compensation expense the Company recorded for RSU for the three months ended September 30, 2018 and 2017 includes the amount of stock-based compensation recorded for MBRSUs of approximately $0.3 million and $0.6 million, respectively, and for the three months ended September 30, 2017 includes the amount of stock-based compensation the Company recorded for PBRSUs of approximately $0.3 million. The stock-based compensation expense the Company recorded for RSU for the nine months ended September 30, 2018 and 2017 includes the amount of stock-based compensation the Company recorded for PBRSUs of approximately $0.2 million and $0.7 million, respectively, and for MBRSUs of approximately $0.7 million and $0.9 million, respectively. As of September 30, 2018, unrecognized stock-based compensation related to outstanding stock options, RSUs (including PBRSUs and MBRSUs) and ESPP purchase rights, was $0.8 million, $17.7 million and $0.3 million, respectively, which the Company expects to recognize over weighted-average periods of 0.75 years, 2.01 years and 0.17 years, respectively. |
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NET LOSS PER SHARE | NET LOSS PER SHARE The Company calculates basic and diluted net loss per share by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive. The following table presents the Company's computation of basic and diluted net loss per share:
The Company excluded the following period-end outstanding common stock equivalents from its computation of diluted net loss per share for the periods presented because including them would have been antidilutive:
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INCOME TAXES
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Sep. 30, 2018
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Income Tax Disclosure [Abstract] | |
INCOME TAXES | INCOME TAXES The Company's provision for income taxes was approximately $0.1 million and $0.1 million, respectively, for the three months ended September 30, 2018 and 2017, and was approximately $0.2 million and $0.4 million, respectively, for the nine months ended September 30, 2018 and 2017. The Company's provision for income taxes consisted primarily of state taxes and foreign income taxes. For the three and nine months ended September 30, 2018 and 2017, the Company's provision for income taxes differed from the statutory amount primarily due to the Company's 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, the 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, 2018 and December 31, 2017, respectively. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one‑time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (6) creating the base erosion anti‑abuse tax (“BEAT”), a new minimum tax; (7) creating a new limitation on deductible interest expense; and (8) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. The Company has not completed its accounting assessment for the effects of the Tax Act; however, based on its initial assessment, the Company has determined that the Tax Act did not have a material effect on its consolidated financial statements for the three and nine months ended September 30, 2018. |
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SEGMENT INFORMATION
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SEGMENT INFORMATION | SEGMENT INFORMATION The Company’s chief operating decision maker (CODM) is its Chief Executive Officer. The Company derives its revenue primarily from sales of products and subscription and support 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 channel partners:
The Company has included within Americas in the above table revenue from sales in the United States of $24.6 million and $22.4 million, respectively, for the three months ended September 30, 2018 and 2017, and $65.4 million and $71.8 million, respectively, for the nine months ended September 30, 2018 and 2017. Aside from the United States, no country comprised 10% or more of the Company's total revenue for each of the three months ended September 30, 2018 and 2017, respectively. Property and equipment, net by location is summarized as follows:
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