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Corero Network Security plc Results for the 12 months ended 31 December 2014
Ashley Stephenson, CEO Andrew Miller, CFO and COO
© 2015 Corero www.corero.com
1. Introduction 2. Results Summary 3. Market Opportunity 4. Why SmartWall? 5. Strategy 6. Outlook Appendices
What We Do: Corero stops DDoS Attacks and Cyber Threats
© 2015 Corero www.corero.com 1
SmartWall® Threat Defense System Customer
Network
Raw Internet Protected
Network
DDoS Attacks and
Cyber Threats
Example – Corero customer: One week of continuous multi-Gig attacks (blue spikes)
SmartWall – Service Provider Focus
© 2015 Corero www.corero.com 2
Peer point DDoS
Mitigation SP
Hosting Data Centre Corero SmartWall Network Threat Defense
Secure Internet
Service providers: Enterprise solutions:
Small / medium enterprise
Large enterprise
History
2015 Corero www.corero.com 3
Acquired Top Layer (focus on IPS with
DDoS capability)
Value proposition evolved to focus on
DDoS (“previous generation product”)
Announced 2 year investment plan to develop next-gen DDoS mitigation
platform
DDoS led with previous
generation product
Focus on enterprise customer segment
2011 2012 H2 2014
2015 2013 H2
2014 H2
2014
Selling previous
generation product
SmartWall TDS launched
Accelerated transition
to SmartWall
SmartWall led growth
Target market: ISPs, hosting/cloud providers and online enterprises
1. Introduction 2. Results Summary 3. Market Opportunity 4. Why SmartWall? 5. Strategy 6. Outlook Appendices
Overview of the Year
© 2015 Corero www.corero.com 4
A transitional year – strategic execution
• H1 2014 SmartWall introduced to the market
• H2 2014 accelerated transition to SmartWall
Successful launch and commercial roll out of SmartWall • Closed multiple SmartWall orders with target market customers – order intake $1.5m
- US hosting providers, European service providers, on-line services enterprises
- Flagship SmartWall order in October, on-line gaming company (Corero’s largest DDoS defence deployment to date)
• Growing number of customer trials - US, UK, Europe focus
Management team - key appointments • Dave Larson (CTO and VP Product), previously CTO for HP Networking
• Bipin Mistry (VP Product Management), previously with Juniper Networks and Cisco
Positioned for SmartWall led growth in 2015 • Focus on markets that are investing in DDoS protection
- ISPs, hosting providers, on-line services (e.g. gaming, financial services)
• Finite competition
P&L Summary Revenue impacted by:
• Lower order intake $8.6m (2013: $9.2m)
• Declining customer wins for the previous generation product
Gross profit % impacted by the lower revenue
• Fixed element of cost of sales is direct cost of Corero operations and support teams
Operating expenses ($1.7m reduction in 2014)
• Net of R&D costs capitalised $3.6m (2013: $3.8m)
• Skills rebalancing in 2014 following GA release of SmartWall in mid-2014
Depreciation and amortisation comprises
• Depreciation $0.9m (2013: $0.8m)
• Amortisation of R&D capitalised $1.1m (2013: $0.3m) reflects H2 2014 SmartWall GA
• Amortisation of acquired intangibles $1.2m (2013: $1.2m)
© 2015 Corero www.corero.com 5
2014 2013
$’000 $’000
Revenue 7,477 10,268
Gross profit 4,105 6,680
Gross profit % 55% 65%
Operating expenses (11,250) (12,911)
EBITDA loss (7,145) (6,231)
Depreciation and amortisation of intangible assets (3,272) (2,309)
Loss before financing (10,417) (8,540)
Net finance costs (2) (344)
Loss before taxation (10,419) (8,884)
Taxation 358 371
Loss for the year from continuing operations (10,061) (8,513)
Profit from discontinued operations - 1,436
Profit from sale of discontinued operations - 15,244
(Loss)/profit for the year (10,061) 8,167
Cash Flow Summary
Working capital - increase in deferred revenue of $1.0m (higher support and services order intake in 2014) and reduction in accounts receivable of $0.9m
Investment in IPR • Development costs capitalised $3.6m (2013: $3.8m) – SmartWall development • Represents 56.8% of total engineering costs (2013: 56.4%)
© 2015 Corero www.corero.com 6
2014 2013
$’000 $’000
Cash flows from investing activities
Sale proceeds from disposal of subsidiary - 17,225
Purchase of intangible assets (142) (107)
Capitalised development expenditure (3,621) (4,202)
Purchase of PPE (net of disposals) (844) (1,148)
Net cash used in investing activities (4,607) 11,768
Cash flows from financing activities
Proceeds from issue of share capital 6,964 5,869
Term loan received - 1,897
Interest received 22 48
Interest paid (24) (39)
Repayment of term loans - (8,432)
Capital element of finance leases - (23)
(Repayment)/receipt of credit facility (236) 256
Net cash from financing activities 6,726 (424)
$’000 $’000
(Loss)/profit before taxation (10,419) 7,796
Adjustments for:
Amort'n of acquired intangible assets 1,229 1,202
Amort'n of capitalised development costs 1,118 511
Depreciation 925 822
Finance income (22) (48)
Finance expense 24 408
Profit on disposal of subsidiary - (15,244)
Share based payment (credit)/charge (8) 25
Changes in working capital 1,793 (2,976)
Net cash from operating activities (5,360) (7,504)
Net cash used in investing activities (4,607) 11,768
Net cash from financing activities 6,726 (424)
Effects of exchange rates (498) 1,074
Net (decrease)/increase in cash (3,739) 4,914
Cash and cash equivalents at 1 January 9,775 4,861
Cash and cash equivalents 31 December 6,036 9,775
Net Assets Summary
Net cash $6.0m (2013: $9.5m) – fund raise in Dec-14 raised $7.1m
Deferred revenue $5.6m (2013: $4.6) - higher mix of support and services order intake in 2014
© 2015 Corero www.corero.com 7
31-Dec-14 31-Dec-13 31-Dec-14 31-Dec-13
$’000 $’000 $’000 $’000
Assets Liabilities
Non-current assets Current liabilities
Goodwill 17,983 17,983 Trade and other payables (2,362) (2,171)
Acquired intangible assets 1,548 2,635 Borrowings (20) (256)
Capitalised development expenditure 8,624 6,121 Deferred income (4,055) (3,195)
Property, plant and equipment 1,175 1,343 (6,437) (5,622)
29,330 28,082 Net current assets 3,159 8,202
Current assets
Inventories 749 329 Non-current liabilities
Trade and other receivables 2,811 3,720 Deferred income (1,570) (1,423)
Cash and cash equivalents 6,036 9,775 Deferred taxation (467) (825)
9,596 13,824 (2,037) (2,248)
Net assets 30,452 34,036
1. Introduction 2. Results Summary 3. Market Opportunity 4. Why SmartWall? 5. Strategy 6. Outlook Appendices
© 2015 Corero www.corero.com 8
Source: Corero Quarterly DDoS Trends and Analysis Report Q4 2014 Review
DDoS Attacks Increasingly Rampant
© 2015 Corero www.corero.com 9
Source: Corero Quarterly DDoS Trends and Analysis Report Q4 2014 Review
DDoS Attacks are Costly
Market Opportunity for Corero Challenge: DDoS & Cyber Threats
• Online Enterprises, Hosting Providers, Service Providers and their customers are being impacted by DDoS attacks and cyber threats
• Customers are looking to Service Providers and Hosting/Cloud providers for protection against DDoS and cyber threats
High growth market (Infonetics Research)
• DDoS mitigation (products and services) to increase 66% to over $1.5B in 2018
• Strong growth in period 2013-2018 in DDoS products for data centres (CAGR 13.2%) and mobile providers (CAGR 20.8%)
© 2015 Corero www.corero.com 10
“The data centre and mobile DDoS prevention segments are projected to maintain healthy double CAGRs from 2013 to 2018.”
Jeff Wilson, principal analyst for security at Infonetics Research (Jun-14)
Data centre
Government
Carrier transport
Mobile
2013 Total $348M
Data centre
Government
Carrier transport
Mobile
2018 Total $563M
Source: Infonetics Research
DDoS product market 2013-2018
1. Introduction 2. Results Summary 3. Market Opportunity 4. Why SmartWall? 5. Strategy 6. Outlook Appendices
Commercial Opportunity – SmartWall Focus
Typical / Expected Deal size
Hosting providers (single location): $100-250k
Hosting providers (multiple locations): $250k+
Tier 3 ISPs: $200-500k
Tier 2 ISPs: $500K+ Tier 1 ISPs: $1M+
Large enterprise: $200k+
11 © 2015 Corero www.corero.com
Web hosting companies offering
managed, dedicated, and co-
location based hosting
Internet Service Providers, Multi-
Service Operators (MSOs), Cloud
based DDoS mitigation providers
Target Addressable Market
US & Canada: >17,000 providers
UK & Europe: > 9,000 providers
US & Canada: >300 ISPs, cable and mobile operators
UK & Europe: >150 ISPs cable and mobile operators
Tens of thousands of mid to large corporations & public sector entities
Enterprise
Service Provider
Hosting & Data Centre
Deal size variants: # of sites being protected (and therefore # of hardware appliances required), length of the service and support contract (multi-year), additional services e.g. SecureWatch PLUS
Corero Competitive Differentiation
© 2015 Corero www.corero.com 12
* A key differentiator - SmartWall is only DDoS mitigation product designed to be deployed in-line. Alternate vendor deployments do not provide this level of protection and cannot maintain high throughput
and low level of false positive detection while being deployed in-line
Corero SmartWall Competitors
Deployment Options
• Modular deployment (nx10G) • In-line*, out-of-band scrubbing
or monitor
• Monolithic • Mainly out-of-band or
sampled scrubbing
Mitigation Time
• Instantaneous
• Seconds to minutes
Visibility & Analytics
• Security focused • Based on market leading
Splunk UI/Analytics portal
• System health focused • Mostly proprietary UI
Focused DDoS players:
Arbor (now part of NetScout)
Radware
Other players
A10
Juniper
Fortinet
1. Introduction 2. Results Summary 3. Market Opportunity 4. Why SmartWall? 5. Strategy 6. Outlook Appendices
Strategy for 2015 and Beyond
© 2015 Corero www.corero.com 13
Objectives Plan
Product
Establish Corero – SmartWall as a leading solution
for DDoS protection
Raise Corero profile
Referenceable customers in key markets
Independent market testing
Thought leadership
Continuously improve Corero DDoS defence
Continuous improvement approach to development
New DDoS attack defences
Software only deployment model (Cloud enablement)
Additional forensics and analysis capability
Go To
Market
Prioritise markets
Geographic and provider segments
Expand routes to market
Systems Integrators, OEM, Partnerships
US, UK and Europe sales focus
Service provider, hosting/Cloud provider and on-line
enterprises
Pursue SI and OEM channels
1. Introduction 2. Results Summary 3. Market Opportunity 4. Why SmartWall? 5. Strategy 6. Outlook Appendices
Outlook Market Drivers – DDoS attacks growing problem for all
• Impacts all businesses and governments
• DDoS mitigation (products and services) to increase 66% to over $1.5B in 2018
SmartWall – Drive step change in revenue by expanding into new markets • Service provider and hosting provider focus
• Addresses market need:
- Solves providers pain caused by DDoS attacks – scalable, advanced protection, and visibility
- Platform for providers to deliver incremental services / revenue
• Differentiated and competitive technology
Focus to deliver profitable growth • Targeting markets which are investing in DDoS protection
• Future development focused on market driven SmartWall features
• US / Europe sales focus
© 2015 Corero www.corero.com 14
1. Introduction 2. Results Summary 3. Market Opportunity 4. Why SmartWall? 5. Strategy 6. Outlook Appendices
Customer References On-line gaming company (UK based)
“With the deployment of the Corero SmartWall Threat Defense System as a First Line of Defense against DDoS attacks in five of our
datacentres, protecting a total of 200Gbps of bandwidth, we saw an immediate reduction in customer impacting DDoS events.
Whereas prior to the deployment, 20k or 30k customers were being knocked offline during a single attack. Today, we have
practically zero users impacted by a DDoS attack. This has led to better retention of our existing customers as they are not aware
or impacted by the attack in any way.”
© 2015 Corero www.corero.com A1
Hosting provider (US based)
The most important thing is that Corero protects our customers’ networks and their data. That is critical to our clients, which makes
it critical to us. The second thing is that it helps our security department run more smoothly. Our technicians don’t have to deal
with as many attacks, floods, syn floods, hacked boxes and that sort of thing. Much of that has gone away, so now we have less
unwanted traffic coming in. We pay for less bandwidth, and we have a faster network with less latency. And not only do we save
money, but the added security that Corero provides helps us generate revenue through new solution offerings.”
Customer References Service Provider (UK based)
“We deployed Corero’s SmartWall Threat Defense System in a large multi-gigabit network managed on behalf of a UK regional
government, which serves the communication needs of all government related organisations – schools, higher education, law
enforcement and the like. DDoS attacks are a major threat to our ability to provide uninterrupted customer connectivity to
essential services, particularly given the high profile nature of the customers concerned. The Corero FLoD technology was chosen over
the competition due to its ability to provide multi-10Gbps, real-time DDoS attack protection, superior visibility into the network
traffic and its sophisticated analytics capabilities. We look forward to building upon this next generation DDoS defence and scaling
according to the needs of our customers in the coming years.”
© 2015 Corero www.corero.com A2
Hosting provider (US based)
"I call our Corero SmartWall TDS, 'The Beast' because it just handles everything we throw at it. We continue to get pounded with
attacks every day but they have no impact anymore. "We haven't had any downtime since we installed this device. We have pretty
much eliminated the DDoS problem for our company."
Thank you
© 2014 Corero www.corero.com