Corero Network Security plc Network Security plc ... previously with Juniper Networks and Cisco ......

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


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

Overview of the Year


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)


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%)


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


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


Source: Corero Quarterly DDoS Trends and Analysis Report Q4 2014 Review

DDoS Attacks Increasingly Rampant


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%)


“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

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


* 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

Strategy for 2015 and Beyond


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

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


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."

Corero Network Security plc Network Security plc ... previously with Juniper Networks and Cisco ......

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Transcript of Corero Network Security plc Network Security plc ... previously with Juniper Networks and Cisco ......