corero network security plc interim...first line of defense corero network security plc ashley...

FIRST LINE OF DEFENSE

Corero Network Security plc Ashley Stephenson, CEO Andrew Miller, CFO and COO

2013 Interim Results

© 2012 Corero www.coreroplc.com

Contents

1 Introduction

3 Corero Network Security Update

Appendices

Financials 2


Summary 6 months ended 30-Jun-13:

– Revenue $9.5m (2012: $10.8m) – EBITDA loss $1.5m (2012: loss $1.5m)

Sold Corero Business Systems for £13.0m on 1-Aug-13

Pro-forma gross cash at 30-Jun-13 inc sale proceeds $21.2m (net cash $15.2m)

1 Strictly Private and Confidential

Solid progress in Corero Network Security division – CEO change and appointment of David Ahee as SVP Global

Sales to focus on sales growth

– Sales team reshaped and on-going investment

– Good progress in next generation FLoD product development

– Development of DDoS-as-a-service offering

Deployed in front of firewall


Strategy

Post disposal of CBS on 1-Aug-13 exclusively focused on network security market

Management changes: – Ashley Stephenson appointed CEO (and appointed to plc Board) – David Ahee appointed SVP Global Sales in May 2013 – Andrew Miller appointed Group CFO and COO

CNS investing in next generation FLoD product – Strategy is to achieve step change in revenue by increasing addressable market – $6.5m investment in 2013 – Good progress in product development

Group has sufficient cash for foreseeable future – To fund organic investment and launch of next generation product



Contents

1 Introduction


Appendices

Financials 2


H1 2013 Financial Highlights

Revenue $9.5m (2012: $10.8m)

EBITDA loss* $1.5m (2012: loss $1.5m)

Loss per share 4.8 cents (2012: loss 4.9 cents)

$5.3m gross cash at 30-Jun-13 (2012: $9.2m)

$21.2m pro-forma** gross cash at 30-Jun-13 (net cash $15.2m)

Corero Business Systems sale at an attractive valuation for cash – 8.0x 2012 EBITDA (before IFRS development costs capitalisation) – 2.2x 2012 revenue – Profit on disposal c. $15.0m

* before depreciation, amortisation and financing ** including proceeds from sale of CBS

3


H1 2013 P&L Summary

4

Revenue reflects CNS slow start to year

Gross margins held up

Operating expenses Include unrealised gain on intercompany loan in the period of $447k (H1 2012: loss $45k)

Finance costs – primarily interest on $5m loan note

6 months 6 months 12 months2013 2012 2012

$’000 $’000 $’000

Revenue 9,495 10,757 20,565Cost of sales (2,397) (2,634) (5,116)Gross profit 7,098 8,123 15,449 Gross profit % 75% 76% 75%Operating expenses * (8,598) (9,618) (18,554)Operating profit/(loss) * (1,500) (1,495) (3,105)Depreciation and amortisation of intangible assets (1,264) (1,107) (2,767)Profit/(loss) before financing (2,764) (2,602) (5,872)Finance income 11 56 119Finance costs (260) (246) (507)Profit/(loss) before taxation (3,013) (2,792) (6,260)

Adjusted profit/(loss) before tax ** (1,749) (1,685) (5,103)

* before depreciation, amortisation and financing** excluding amortisation of acquired intangibles


H1 2013 Segmental P&L Summary

5

CNS bookings/revenue – CNS sales leadership change – David Ahee appointed in May-13

– Pipeline for H2 2013 building

CBS strong performance – revenue growth 13%

* before depreciation, amortisation and financing

6 months to 30-Jun-13CNS CBS Central Total CNS CBS Central Total

$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000RevenueProduct and license revenue 1,830 1,694 3,524 3,109 1,343 4,452Professional services 149 1,180 1,329 82 1,132 1,214Support 2,890 1,752 4,642 3,467 1,624 5,091

4,869 4,626 9,495 6,658 4,099 10,757

Gross profit 3,360 3,738 7,098 4,991 3,132 8,123Operating expenses (5,617) (2,315) (666) (8,598) (7,071) (1,950) (597) (9,618)Operating profit * (2,257) 1,423 (666) (1,500) (2,080) 1,182 (597) (1,495)

Gross profit % 69% 81% 75% 75% 76% 76%Revenue mix:Product and license revenue 38% 37% 37% 47% 33% 41%Professional services 3% 26% 14% 1% 28% 11%Support 59% 38% 49% 52% 40% 47%

100% 100% 100% 100% 100% 100%

6 months to 30-Jun-12


H1 2013 Cash Flow Summary

6

Investment in IPR in CNS and CBS (capitalised 54% of CNS development costs and 64% of CBS development costs) Share issue in March 2013 – raised $5.9m Term loan received comprises the CBS Santander loan of £1.25m advanced in April 2013 (loan repaid as part of the sale of CBS on 1-Aug-13)

H1 2013 H1 2012 FY 2012$’000 $’000 $’000

Cash flows from investing activitiesAcquisition of subsidiaries - - -Purchase of intangible assets (36) (135) (237)Capitalised development expenditure (2,195) (1,472) (3,174)Purchase of PPE (734) (225) (802)Net cash used in investing activities (2,965) (1,832) (4,213)

Cash flows from financing activitiesProceeds from issue of share capital 5,869 6,868 6,989Term loan received 1,893 250 250Interest received 11 56 119Interest paid (27) (68) (64)Repayment of term loans (379) - (121)Capital element of finance leases (13) (13) (27)Increase/repayment of credit facility 158 (136) (189)Net cash from financing activities 7,512 6,957 6,957

H1 2013 H1 2012 FY2012 $’000 $’000 $’000

Loss before taxation (3,013) (2,792) (6,260) Adjustments for: Amort'n of acquired intangible assets 596 570 1,157 Amorti'n of capitalised development costs 278 292 1,044 Depreciation 390 245 566 Finance income (11) (56) (119)

Finance expense 260 246 507

Decrease in provisions - - - Share based payment charge - 32 9 Changes in working capital (1,949) (1,149) (2,035) Net cash from operating activities (3,449) (2,612) (5,131) Net cash used in investing activities (2,965) (1,832) (4,213) Net cash from financing activities 7,512 6,957 6,957 Effects of exchange rates (638) 24 568 Net increase/(decrease) in cash 460 2,537 (1,819) Cash and cash equivalents at 1 January 4,861 6,680 6,680 Cash and cash equivalents 30 June 5,321 9,217 4,861


Contents

1 Introduction


Appendices

Financials 2

© 2012 Corero www.coreroplc.com 7

CNS Strategy

Investing in next generation platform to drive step change – Increase addressable market – Increase Corero’s share of wallet with greater functionality

Next Gen product investment and timing – $6.5m investment in 2013 for delivery in Q4 2013 (Phase 1 Product) – Investment will continue in 2014 (Phase 2 and 3)

Next Gen FLoD product features – Added functionality - packet capture, traffic analysis, real time forensics, SSL, load

balancing – Service Provider and DC scale (>10Gb networks, modularity, management) – Hardware independent solution - OEM opportunities – Deployment in virtual environments - targeting high growth Cloud Computing market

Strictly Private and Confidential

First Line of Defense


Why First Line of Defense (FLoD)?

Corero responds with a leadership First Line of Defense solution, the DDos Defense System (DDS) plus SecureWatch

– Restrict Access to expected (good) traffic for access to network resources

– Limit Rates at which requests / responses can be exchanged with Internet based trusted / untrusted / suspicious clients

– Inspect/Detect/Protect against Advanced Evasion Techniques (“AET”) and protocol abuse

– Prevent critical business servers from targeted malicious attacks such as malware, SQL injections and other exploits

– Provide Visibility into the attackers and attack vectors in order to deliver compliance, forensics and defense intelligence

Significant increases in unwanted and malicious traffic arriving via the Internet, breaching enterprise networks and compromising the performance of online services Market is emerging for new security solutions that are deployed in front of the traditional firewalls. Primary business driver for acquisition is DDoS protection

Note: The limited DDoS protection embedded in firewall, IPS and WAF offerings does not provide adequate First Line of Defense protection for most enterprises



FLoD = existing DDS product (DDoS protect & IPS) + optional SecureWatch

Deployed in front of firewall


Competitive/Complementary Solution Landscape


Backend IPS/WAF/LB Firewall FLoD Cloud Services SIEM Intelligence

Arbor

Akamai

Prolexic

Checkpoint Cisco

Fortinet Juniper

Palo Alto Silvertail

Arcsight

Splunk

Webroot

Symantec

McAfee

Corero

Arbor

RadWare

Sourcefire/Cisco HP

Fortinet IBM F5


Corero stops more unwanted traffic than competitor products (based on customer tests conducted with CNS)


CNS Key Markets

Online Businesses (.coms) from e-commerce to on-line gaming and betting – Dependent on the Internet for revenue and vulnerable to cyber criminals – Customers include: ChasePaymentech, BWIN, Camelot, GamersFirst, MoneySuperMarket

Financial Services (significant opportunity for CNS) – Ponemon Q4 2012 survey of 350 retail banks

• 64% of banks hit by at least one DDoS attack in past 12 months (48% hit by multiple DDoS attacks)

• 78% expect the attacks will continue or significantly increase

– Global spending on financial critical infrastructure security will total over $17bn by the end of 2017 (ABI Research)

– Customers include: Aetna, Zacks Investment Research, City Index

Telecommunication service providers – Protecting IT infrastructure for customer service delivery – Customers include: Telefonica, Telecom Malaysia, Telecom Thailand

Education – Increasingly dependent on internet for delivering learning and students demand access – Customers include: Bridgepoint Education, Malaysia Education Ministry, Spanish university




H1 2013 CNS Highlights Sales order intake $4.2m (2012: $6.2m)

New customer wins (28) included significant orders from: – a US energy utility – a leading telecommunications service provider in Brazil – two US regional banks – an Asian based provider of on-line games – a web hosting company – a provider of real estate and mortgage portfolio management information services – a large US city corporation

Material orders (upgrades and support contract renewals) from existing customers included:

– a leading industrial group – a leading price comparison web site – Camelot (the UK Lottery operator) – two US university colleges – a satellite operator – a Middle East based investment services firm – a global electronics manufacturing services – a European telecommunications service provider

11


FLoD Current Product – Existing Market Access

12

Cloud / MSP

SP / Hosting

Enterprise

Today’s Features

Mar

ket t

oday

Current Product Line


Today First Line of Defense


FLoD Next Gen Product – Increased Market Access

13

Cloud / MSP

SP / Hosting

Enterprise

Next Gen First Line of Defense

Today First Line of Defense

Solution Leadership

Mar

ket E

xpan

sion


Phase 1

Phase 2

Phase 3 Next Gen Product Line

Investment in 2013: $6.5m

Next Gen Product Line


Next Gen FLoD “Hot” Security Technology for “Hot” Growth Markets

14

Market size is 2012 estimate (except PCAP which is 2011)

% = analyst growth forecasts to 2016

Next Gen FLoD First Line of Defense

FLoD Today First Line of Defense


SP/DC Hosting $24bn

(11.5%) Co-location $15bn

(9.3%)

Cloud Security $2bn (23%)

Enterprise Security

$61bn (8.9%)

IPS $1.5bn (-1.2%)

MSSP $9.5bn (17%)

SIEM $0.8bn (12%)

SSL Part of $4.1bn market (10.5%)

PCAP Part of $1.5bn

market

DDoS $272m (23%)

FLoD Today


FLoD Next Gen Product – Competitor Differentiation

Corero Next Gen FLoD designed to be market leading solution in: – Enterprise on-premise appliance – Service Provider in-network FLoD – Platform solution for the Cloud delivery of FLoD as-a-service

Differentiating features include – Effective protection derived from proven real time DPI techniques – Integrated feature set of best-of-breed FLoD technologies – Scale as customer requirements grow (10G-40G and beyond) – Specialized SW function blocks to respond to custom deployments – Integral SecureWatch service offerings

• To enable effective implementation and operation for non-expert customers

Virtual Machine implementation to complement hardware platform choice – Architected from day one (not an afterthought) – Expands deployment options from a single hosted service to cloud-scale ubiquity

15




CNS Summary & Outlook

Market Drivers - Significant increase in unwanted and malicious traffic – DDoS prevention market forecast to grow 25% CAGR between 2012 and 2017

(Infonetics) and to reach $870m in 2017 (IDC) – DDoS protection is one of the top five security technology growth opportunities for the

next three years given the increase in hactivism (Forrester)

Land Grab - Created an emerging market for a new security device – FLoD deployed in front of corporate firewalls – CNS has differentiated FLoD security product and services today

Sales team reconfigured under David Ahee’s leadership

Next Gen FLoD product investment to drive step change in revenue – Increase addressable market to include Cloud and Service Providers – Ride the technology curve by integrating hot security technologies



Contents

1 Introduction

3 Corero Network Security

Appendices

Financials 2


Net Assets Summary at 30-Jun-13

A1

$5.9m fund raise in Mar-13 Deferred income comprises support revenues received in advance from customers Short term borrowings includes $6.0m 8% Loan Notes issued to vendors of Top Layer including interest rolled up (repayment March 2014) Non-current borrowings comprises the CBS Santander loan of £1.25m advanced in April 2013 (which was repaid as part of the sale of CBS on 1-Aug-13) Deferred taxation arose on recognition of acquired intangibles

30-Jun-13 30-Jun-12 31-Dec-12 30-Jun-13 30-Jun-12 31-Dec-12$’000 £’000 £’000 $’000 £’000 £’000

Assets LiabilitiesNon-current assets Current liabilitiesGoodwill 18,758 18,778 18,811 Trade and other payables (3,664) (3,921) (3,972)Acquired intangible assets 3,174 4,225 3,739 Borrowings (6,653) (235) (182)Capitalised development expenditure 6,336 3,512 4,528 Deferred income (6,512) (8,466) (7,592)Property, plant and equipment 1,579 995 1,241 (16,829) (12,622) (11,746)

29,847 27,510 28,319 Net current assets/(liabilities) (4,336) 3,502 (698)Current assetsInventories 618 569 622 Non-current liabilitiesTrade and other receivables 6,554 6,338 5,565 Borrowings (1,426) (5,840) (5,984)Cash and cash equivalents 5,321 9,217 4,861 Deferred income (1,400) (1,740) (1,146)

12,493 16,124 11,048 Deferred taxation (1,010) (1,382) (1,196)(3,836) (8,962) (8,326)

Net assets 21,675 22,050 19,295

FIRST LINE OF DEFENSE

Thank You

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