Download pdf - Q216 investor deck v final

1 | © 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED.

WE MAKE APPLICATIONS STRONGER

Investor Presentation – Q2 2016


Certain statements made in this presentation may be deemed to be forward-looking statements, including, without

limitation, statements regarding the growth in cloud outsourcing, data usage, and the number of connected devices,

customer base growth and diversification, the company’s target model for the relative sizes of its customer market

segments, growth drivers, and the company’s financial target model. In some cases, such forward looking statements

can be identified by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,”

“estimate,” “project,” “predict,” “potential,” and variations of these words and similar expressions. Such forward-looking

statements reflect our current intent, belief, and expectations and are subject to risks and uncertainties that could cause

our actual results to differ materially from those expressed or implied in such forward-looking statements. Factors that

could cause our actual results to differ materially from the results predicted include, among others: the risk that cloud

outsourcing, data usage, and the number of connected devices will not grow as contemplated by the company and/or

third parties; the risk that the company will not be successful in diversifying and growing its business while focusing on

operational fundamentals and driving financial discipline; the risk that the company will not realize all of the expected

benefits of our previously announced restructuring and cost reduction programs; changes in the global economy;

competition; consistency of orders from significant customers; our success in leveraging our IP portfolio, expertise, and

market opportunities; our expectations regarding the transition into Software Defined Networks (SDN), Network

Functions Virtualization (NFV), and virtualized networks; our success in developing and producing new products; our

success in developing new sales channels and customers; market acceptance of our products; and war, terrorism,

political unrest, natural disasters, cybersecurity attacks, and other circumstances that could, among other

consequences, reduce the demand for our products, disrupt our supply chain, and/or impact the delivery of our

products. The factors that may cause future results to differ materially from our current expectations also include,

without limitation, the risks identified in our Annual Report on Form 10-K for the year ended December 31, 2015, and in

our other filings with the U.S. Securities and Exchange Commission. Many of these risks and uncertainties are outside

of our control and are difficult for us to forecast or mitigate. We undertake no obligation to update any forward-looking

statements, whether as a result of new information, future events, or otherwise.

SAFE HARBOR STATEMENT


To supplement our consolidated financial results prepared in accordance with Generally Accepted Accounting

Principles ("GAAP"), we have included certain non-GAAP financial measures in this presentation. Specifically, we

have provided non-GAAP financial measures (e.g., non-GAAP operating income, non-GAAP operating expenses,

non-GAAP operating margin, and non-GAAP diluted earnings per share) that exclude certain non-cash and/or non-

recurring income and expense items such as expenses relating to internal investigations and any related remediation

efforts, the securities class action and shareholder derivative action against the company and certain of its current and

former officers and directors, as well as a an ongoing SEC investigation, the amortization of acquisition-related

intangible assets, stock-based compensation expenses, acquisition and other related costs, restructuring expenses,

and the related income tax effects of these items, as well as certain other non-cash income tax impacts such as

changes in the valuation allowance recorded against certain deferred tax assets. The aforementioned items represent

income and expense items that may be difficult to estimate from period to period and/or that we believe are not

directly attributable to and/or reflective of the underlying performance of our business operations. We believe that by

excluding these items, our non-GAAP measures provide supplemental information to both management and investors

that is useful in assessing our core operating performance, evaluating our ongoing business operations, identifying

and assessing financial and business trends, and comparing our results of operations on a consistent basis from

period to period. These non-GAAP financial measures are provided to enhance the user's overall understanding of our

financial performance. These non-GAAP financial measures are also used by management to plan and forecast future

periods and to assist management in making operating and strategic decisions. The company also uses these

measures in connection with determinations regarding executive compensation. The presentation of this additional

information is not prepared in accordance with GAAP. The information may not necessarily be comparable to that of

other companies that may calculate their non-GAAP financial measures differently and should be considered as a

supplement to, and not a substitute for, or superior to, the corresponding measures calculated in accordance with

GAAP. A reconciliation of GAAP to non-GAAP results is provided at the end of this investor presentation. Note that

unless specifically noted otherwise, all numbers in this presentation are on a non-GAAP basis.

NON-GAAP INFORMATION


COMPANY OVERVIEWBethany Mayer, President and CEO


IXIA HAS A STRONG HISTORY OF PERFORMANCE

0

100

200

300

400

500

600

2009 2010 2011 2012 2013 2014 2015

REVENUE

BUSINESS NOW RELATES TO SECURITY

TO MARKET WITH 10G, 40G, 100G, 400G,

25G, 50G

OF EMPLOYEES IN R&D

($MM)

U.S. AND FOREIGN PATENTS PENDING OR ISSUED

~45%

~400

1st

~30%

FOUNDED 1997

HEADQUARTERS CALABASAS, CA

EMPLOYEES ~1826

MARKET CAP* ~$935 MILLION

ENTERPRISE

VALUE*~$870 MILLION

*As of 8-2-16


WE ARE PROUD TO SERVE

ENTERPRISESERVICE PROVIDERSNEMs

77OF THE

FORTUNE 100

47OF THE

TOP 50 CARRIERS

15OF THE

TOP 15 NEMS


INTERNET OF THINGSCLOUD NETWORK SECURITY BIG DATA

MARKET DYNAMICS DRIVINGMore Data, More Complexity, More to Secure

MOBILE DATA TRAFFIC

MOVES TO CLOUD APPS

BY 2019

90%BILLION CONNECTED

THINGS REQUESTING

SUPPORT BY 2018

6GIGABYTES OF

NEW DATA PER

PERSON / DAY BY 2020

150GROWTH IN

GLOBAL SECURITY

INCIDENTS 2014 to 2015

38%


Jeep Hack

Forces 1.4M

Recalls; Drives

Congress

to Action

OPM Hack:

4 Million

Government

Workers Completely

Exposed

2.5 million people

have medical

device implants

with WiFi. Was

yours fully tested?

One out of three

Americans’

health records

were breached

CUSTOMER PAIN POINTSThe Cost of Inadequate Network Design, Monitoring and Security:


Network Design and Rollout

Financial Trading Exchange

• 10X DDoS response speed

• Prevented P1 service outage –

Priceless!

Payment Processing Company

• Ability to share security tools

freed $3M budget

• Delivered 10X ROI on cost of

Security Fabric

Network Operation

B I G D A T A C L O U D I o T

NetworkDesign

NetworkOperations

NetworkRollout

I X V I S I O NI X T E S T I X S E C U R E

WE MAKE APPLICATIONS STRONGERWe challenge the infrastructure, harden security and visualize the applications


CloudL

ens

MGR.

INTRODUCING CLOUDLENS

One solution for visibility across your physical network, data center

and cloud

Security

AdminApplication

Operations

Network

Operations

Forensics


END-TO-END APPLICATION STRENGTHENINGAcross the Infrastructure

Across ALL Platforms

Flex Taps, iBypass, Virtual Taps

802.11ac, MU-MIMO

PerfectStormBPS vEPCIxLoad/VE

IxNetwork/VEMultis SDN

ThreatARMOR,ATIP

Mobile Endpoint Network Data Center Cloud

Vision One, NTO, Hawkeye,

xStream40, Control Tower


Increased channel investment

Targeted markets and customers

>500 partners worldwide and growing

CRN 5-Star Rating0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2015 Target Model

CUSTOMER SEGMENTS*

NEM & Carrier Enterprise

CUSTOMER BASE CONTINUES

TO GROW AND DIVERSIFY

* Percentage based on estimated sales volume

CUSTOMER BASE EXPANSION


P O W E R F U L

G R O W T H

D R I V E R S

D E E P

A P P L I C AT I O N S

A N D

S E C U R I T Y I P

E X PA N D I N G

C U S TO M E R

B A S E

S T R O N G

F I N A N C I A L

M O D E L

WELL POSITIONED FOR GROWTH


FINANCIALSBrent Novak, CFO


SECOND QUARTER 2016 SUMMARY

At the top of guidance of

$110M - $120M

Record revenue in our

Enterprise customer vertical

Deferred revenue up 10%

year-over-year

R E V E N U E : $ 1 2 0 . 1 M

Up from 9.8% in Q1’16

Strong gross margin of

80.1%

Continued focus on

financial discipline

N O N - G A A P O P E R AT I N G

M A R G I N : 1 9 . 1 %

Exceeded guidance

of $0.05 to $0.12

Up from $0.09 in Q1’16

Generated $25M+ in

cash flow from

operations

N O N - G A A P E P S : $ 0 . 1 8

Please refer to reconciliation of GAAP to Non-GAAP measures in Appendix and in the investor relations section of the company’s website.


TARGET MODEL

100%

76 – 78%

58 – 53%

18 – 25%

12 – 16%

2014 2015YTD

Q2’16

Revenue $464M $517M $233M

Gross Margin 76% 78% 79%

Operating

Expenses65% 60% 64%

Operating Margin 11% 18% 15%

Net Margin 6% 11% 10%

Please refer to reconciliation of GAAP to Non-GAAP measures in Appendix and in the investor relations section of the company’s website.

NON-GAAP FINANCIALS AND MODEL


IN MILLIONS DEC. 2014 DEC. 2015 JUN. 2016

Cash, cash equivalents

and marketable securities$126 $67 $101

Total assets $869 $780 $757

Convertible debt $199 - -

Term loan - $38 $35

Shareholders’ equity * $481 $519 $525

Availability under Credit Facility - $75 $150

* On February 23, 2016, the company announced that its Board of Directors authorized a $25 million share repurchase program. As of June 30, 2016, the

company has repurchased shares under the share repurchase program for a total consideration of approximately $6.9 million.

BALANCE SHEET DETAILS


THANK YOU


RECONCILIATION OF GAAP TO NON-GAAP 1 OF 3FY 2014 FY 2015

YTD

Q2/16

Revenue 100% 100% 100%

GM %, GAAP 75.2% 78.0% 78.9%

Inventory adjustments (a)

0.3% 0.0% 0.0%

Stock-based compensation (b)

0.1% 0.1% 0.1%

GM %, non-GAAP 75.6% 78.1% 79.0%

Operating expense, GAAP 84.8% 73.5% 77.1%

Amortization of intangible assets (c)

-10.1% -8.2% -8.6%

Acquisition and other related (d)

-0.7% -0.1% 0.0%

Restructuring (e)

-2.2% 0.1% 0.1%

Stock-based compensation (b)

-3.5% -3.6% -3.6%

Legal, contract settlements, and other (f)

-3.3% -1.2% -0.6%

Operating expense, non-GAAP 65.0% 60.5% 64.4%

Operating Margin (loss), GAAP -9.6% 4.5% 1.8%

Effects of reconciling items (g) 20.2% 13.1% 12.8%

Operating Margin (loss), non-GAAP 10.6% 17.6% 14.6%

Net income (loss), GAAP -9.0% 1.2% -0.5%

Effects of reconciling items (j)

15.1% 9.8% 10.1%

Net income, non-GAAP 6.1% 11.0% 9.6%

Diluted earnings / (loss) per share, GAAP ($0.54) $0.07 ($0.01)

Effects of reconciling items (k) (l)

$0.90 $0.60 $0.28

Diluted earnings per share, non-GAAP $0.36 $0.67 $0.27


RECONCILIATION OF GAAP TO NON-GAAP 2 OF 3

(a) These adjustments represent purchase price accounting adjustments related to the fair value of inventory as a result of our acquisitions.

(b) These adjustments represent non-cash stock-based compensation expenses.

(c) This adjustment represents the amortization of intangible assets related to the acquisitions of various businesses and technologies.

(d) This adjustment represents costs associated with acquisition-related activities. Acquisition and other related costs consist primarily of

transaction and integration related costs such as success-based banking fees, professional fees for legal, accounting, tax, due diligence,

valuation and other related services, change in control payments, consulting fees, required regulatory costs, certain employee, facility and

infrastructure costs, and other related expenses.

(e) This adjustment represents costs associated with our restructuring plans/reorganization plans. These costs primarily relate to one-time

employee termination benefits consisting of severance, facility-related costs, and other costs.

(f) This reconciling item represents costs incurred related to (i) internal investigations and any related remediation efforts, (ii) the restatement of

our financial statements for the first quarter of 2013 and for the three and six months ended June 30, 2013, (iii) the securities class action

against the company and certain of its current and former officers and directors as well as a shareholder derivative action and (iv) an SEC

investigation. These costs consisted primarily of legal and accounting fees, recruiting and consulting expenses, severance and retention

costs, and other related expenses. The fourth quarter of 2014 also includes a $1.0 million write-off for a one-time item related to a certain

contractual matter.

(g) These adjustments represent the effects of the adjustments noted in footnotes (a), (b), (c), (d), (e) and (f).

(h) These adjustments represent the effects of the adjustments noted in footnotes (a), (b), (c), (d), (e) and (f), on a per share basis.

(i) This adjustment, if applicable, includes the impact of the convertible senior notes if these were anti-dilutive for the equivalent GAAP earnings

per share calculations.


RECONCILIATION OF GAAP TO NON-GAAP 3 OF 3

Target Model - Low Target Model - High

GAAP

Adjustments (1)

Non-

GAAP GAAP

Adjustments(1)

Non-

GAAP

Revenue 100% 0% 100% 100% 0% 100%

GM% 76% 0% 76% 78% 0% 78%

Operating expense 70% -12% 58% 66% -13% 53%

Operating income 6% 12% 18% 12% 13% 25%

Interest income and other, net 0% 0% 0% 0% 0% 0%

Interest expense -2% 0% -2% -1% -1% -2%

Income tax expense 1% 4% 5% 3% 4% 7%

Net income 3% 8% 12% 8% 8% 16%