Aerohive Networks, Inc. and its subsidiaries develop cloud networking and enterprise wifi solutions, which it sells in markets worldwide. The complaint for this class action centers around statements made on a conference call concerning its sales efficiencies and productivity as well as its prospects for the upcoming quarter.
The class for this action is all persons and entities who acquired the publicly-traded securities of Aerohive between November 1, 2017 and January 16, 2018.
After the markets had closed on November 1, 2017, Aerohive held a conference call to discuss its financial results for the third quarter of 2017. According to the complaint, during the call, CFO John Ritchie said the company was expecting revenue “in the range of $40 million to $42 million” for the fourth quarter of 2017.
The complaint also quotes him as saying, “We realized significant sales efficiency with our non-GAAP sales and marketing costs coming in at 39% of revenue” and, later on in the call, “We are encouraged by several metrics that point to improved sales productivity.”
On the same call, CEO David K. Flynn praised the sales team, saying the company had “continued to strengthen our go-to-market,” partly “through the initiative we launched at the start of this year to pivot to a more channel centric go-to-market model to improve our sales efficiency and better address the mid-market.” He claimed to be ready “to take on global sales leadership to drive this critical initiative working directly with our three fleet of sales leaders.”
However, the complaint says that these statements were misleading because the company had already uncovered sales execution issues which indicated that the company would not meet the guidance it was offering.
On January 16, 2018, Aerohive issued a press release that revealed that net revenue for the fourth quarter of 2017 was expected to be only $37 million, well short of its earlier guidance. The reason? The press release quotes CEO Flynn as saying, “Following the change in our sales leadership at the end of our third quarter, we uncovered underlying sales execution issues which became fully apparent in the last month of the fourth quarter.”
At the news, the company’s stock price fell by over 29%. The complaint claims that the company’s earlier failure to mention the sales problems, and instead touting the productivity and efficiency of its sales sector, were violations of Sections 10(b) and 20(a) of Securities Exchange Act of 1934.