Q216 investor deck v final

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  1. 1. 1 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. WE MAKE APPLICATIONS STRONGER Investor Presentation Q2 2016
  2. 2. 2 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. 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 companys target model for the relative sizes of its customer market segments, growth drivers, and the companys 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
  3. 3. 3 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. 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
  4. 4. 4 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. COMPANY OVERVIEW Bethany Mayer, President and CEO
  5. 5. 5 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. 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
  6. 6. 6 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. WE ARE PROUD TO SERVE ENTERPRISESERVICE PROVIDERSNEMs 77 OF THE FORTUNE 100 47 OF THE TOP 50 CARRIERS 15 OF THE TOP 15 NEMS
  7. 7. 7 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. INTERNET OF THINGSCLOUD NETWORK SECURITY BIG DATA MARKET DYNAMICS DRIVING More 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%
  8. 8. 8 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. 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 POINTS The Cost of Inadequate Network Design, Monitoring and Security:
  9. 9. 9 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. 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 Network Design Network Operations Network Rollout I X V I S I O NI X T E S T I X S E C U R E WE MAKE APPLICATIONS STRONGER We challenge the infrastructure, harden security and visualize the applications
  10. 10. 10 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. CloudL ens MGR. INTRODUCING CLOUDLENS One solution for visibility across your physical network, data center and cloud Security Admin Application Operations Network Operations Forensics
  11. 11. 11 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. END-TO-END APPLICATION STRENGTHENING Across the Infrastructure Across ALL Platforms Flex Taps, iBypass, Virtual Taps 802.11ac, MU-MIMO PerfectStorm BPS vEPC IxLoad/VE IxNetwork/VE Multis SDN ThreatARMOR, ATIP Mobile Endpoint Network Data Center Cloud Vision One, NTO, Hawkeye, xStream40, Control Tower
  12. 12. 12 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. Increased channel investment Targeted markets and customers >500 partners worldwide and growing CRN 5-Star Rating 0% 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
  13. 13. 13 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. POW ER FU L GR OW TH D R IVER S DEEP A PPLIC ATION S A N D SEC U R ITY IP EXPANDING C U STOMER B A SE STRONG FIN A N C IA L MOD EL WELL POSITIONED FOR GROWTH
  14. 14. 14 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. FINANCIALS Brent Novak, CFO
  15. 15. 15 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. 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 EVEN U E: $120.1M Up from 9.8% in Q116 Strong gross margin of 80.1% Continued focus on financial discipline N ON - GA A P OPER ATIN G MA R GIN : 19.1% Exceeded guidance of $0.05 to $0.12 Up from $0.09 in Q116 Generated $25M+ in cash flow from operations N ON - GA A P EPS: $ 0 .1 8 Please refer to reconciliation of GAAP to Non-GAAP measures in Appendix and in the investor relations section of the companys website.
  16. 16. 16 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. TARGET MODEL 100% 76 78% 58 53% 18 25% 12 16% 2014 2015 YTD Q216 Revenue $464M $517M $233M Gross Margin 76% 78% 79% Operating Expenses 65% 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 companys website. NON-GAAP FINANCIALS AND MODEL
  17. 17. 17 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. 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
  18. 18. 18 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. THANK YOU
  19. 19. 19 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. RECONCILIATION OF GAAP TO NON-GAAP 1 OF 3 FY 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
  20. 20. 20 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. 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.
  21. 21. 21 | 2016 IXIA AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. 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%