Investor Overview. March 2017 IRMT

Transcription

1 Investor Overview March 2017 IRMT

2 Safe Harbor Statement All statements in this presentation that are not based on historical fact are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. While management has based any forward-looking statements contained herein on its current expectations, the information on which such expectations were based may change. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of risks, uncertainties, and other factors, many of which are outside of our control, that could cause actual results to materially differ from such statements. Such risks, uncertainties, and other factors include, but are not necessarily limited to, those set forth under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, We operate in a highly competitive and rapidly changing environment, thus new or unforeseen risks may arise. Accordingly, investors should not place any reliance on forward-looking statements as a prediction of actual results. We disclaim any intention to, and undertake no obligation to, update or revise any forward-looking statements. Anyone reviewing this presentation is also urged to carefully review and consider the other various disclosures in the Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q and Current Reports on Form 8-K. Non-GAAP Measures This presentation contains certain non-gaap measures that are labeled as non-gaap. A reconciliation of these measures to the most comparable GAAP measures is available in the Company s prior earnings releases on Form 8-K as filed with the SEC. 2

3 Radisys at a Glance Telecom Experts $212M revenue: strategic products / services up 122% in employees with expanding sales force Leadership in driving industry towards open standards Market Disruption Deploy disruptive and largely open-based technologies Improve spectrum efficiency and increase ARPU Reduce operating and capital expenses Tier 1 Momentum U.S. service provider: 2015 revenue $5M grown in 2016 to >$70M Asian service provider: $30M+ direct business since 2014 Accelerating proof of concepts and trials empowering fundamental change in the way telecom networks are built and managed 3

4 Revenue (US$M) Revenue (US$M) Subscribers (millions) Service Providers Moving to the Cloud The Shift from Proprietary to Open Systems is an Unprecedented Opportunity Rapid Adoption of New Standards and Technologies Cloud SDN/NFV IP Communications VoLTE 10,000 8,000 1,200 8,000 6,000 6,000 1, , ,000 2,000 2, Primary Drivers 1. Maximize yield and scalability 2. Lower infrastructure investment SDN and NFV to revolutionize Service Provider infrastructure Source: Carrier SDN Hardware, Software, and Services Infonetics, May 2016 VoLTE driving meaningful efficiencies for Service Providers Source: VoLTE Services and Subscribers Infonetics, June

5 Competitive Advantage Traditional Competitors confined expertise and business models Radisys Approach comprehensive integrator of disruptive technologies Large Incumbents proprietary, expensive solutions embracing open-based software + hardware compelling product economics Services Integrators lack a complete solution Hardware Manufacturers lack software / telecom expertise diverse product portfolio deep enabling technology background Value Proposition ability to deploy Tier 1 service providers deep telecom software expertise 5

6 Mobile World Congress (MWC) Update Top Show Themes Virtualization of traditional network elements accelerating Traditional competitors increasingly embracing but impact to business models is massive SDN + NFV or SDN vs. NFV: lack of discrete standards or protocols Open-standard solutions driving significant interest 5G solutions just beginning to hit labs ON.Lab / ONF (Open Networking Foundation) Internet of Things (IoT) top of mind for service providers Inter-operability across network Must drive efficient spectrum utilization as data needs only increase Radisys Highlights Verizon Exponent: we are a partner FlowEngine TDE-2000 formally announced Our highly anticipated, disruptive next-generation intelligent switch / edge router / load balancer Open source of our EPC and RAN technologies Created meaningful buzz and disruption CORD (Central Office Re-architected as a Data center) driving significant interest New 5G access technology 6

7 Strategic Objectives Secure New Service Provider Trials Win New Tier 1 Service Providers Grow Annual Revenues 10+ >3 >20% Leverage success Build on early Tier 1 traction In Strategic Products & Services the new telecom solutions provider 7

8 Services: Accelerating Customer Success Value-add: Accelerating migration to next-generation standards Drive deep trust with Tier 1 service providers Pull-through product sales Proof Points: 2016 revenue up 24% Multiple engagements ongoing with Tier 1 service providers Certified Integrator for CORD: Professional Service capabilities to rapidly deploy Central Office Re-architected as a Data center (CORD) Projects Customer Success: Services engagement with a Tier 1 customer enables multi-million dollar product sales Collaboration project with China Unicom for CORD proof-of-concept Services Offerings Custom Development Services Network Design and Development Network Audit Services Installation and Decommissioning Network Upgrades 8

9 Strategic Product Portfolio Strategic Focus Use Cases Value Add DCEngine MediaEngine FlowEngine CellEngine NFV Infrastructure Media Processing Traffic Distribution Small Cell Hardware Platform to pull-through software Differentiated Software IPR Service Provider Data Center & Central Office VoLTE, VoWIFI, WebRTC Conferencing, Transcoding IMS and OTT services SDN, NFV, DPI, Data Plane Load Balancing Small Cell Software 3G, LTE, 5G and Advanced- LTE Enhanced Packet Core PS Professional Services 9

10 TM DCEngine : Hyperscale Data Center for Service Providers Value-add Solution: High density, efficient design coupled with newly announced management software suite Significant price / performance advantages Markets & Applications: Multi-billion dollar market opportunity Optimized for service provider data centers Direct to service providers; focus on Tier 1 logos Proof Points: $65M revenue in 2016 from virtually $0 in 2015 (largely one customer) Multiple new Tier 1 service providers in trials Customer Success: Deployed >150 systems in 2016 with one customer to enable new data center build outs in support of one application / use case; displaced large, incumbent equipment manufacturer DCEngine Typical Data Center 10

11 TM FlowEngine : Packet Management Across Entire Core Value-add Solution: Classifies and intelligently distributes data flows to appropriate networking/processing resources Integrates routing, switching and load balancing into one solution Fraction of the cost of traditional network elements New appliance + software features mid-2017 Markets & Applications: Telecom and Cable service providers: enables enhanced services in SDN + NFV architectures Sales Model: Direct sales to service providers and strategic channel partners Customer Success: Tier 1 U.S. service provider deploying programmable edge router to displace existing equipment manufacturer Market 1 + Proof Points ~5 year, $2B+ market opportunity Revenue growth ~50% in 2016 Product margins ~60% Multiple proof-ofconcepts in flight 1 Source: Infonetics / IHS Carrier SDN Hardware, Software, and Services; May

12 Revenue (US$M) TM MediaEngine : Processing all Media in the Network Value-add Solution: Designed into the IP Multimedia Subsystem (IMS) core of telecom networks Includes software and/or specialty hardware Market leading Media Server for 10+ years Markets & Applications: MRF: Voice over LTE (VoLTE) + WiFi, Multimedia Conferencing TRF: Transcoding audio and video codecs, IP & Wireless Networks Sales Model: Direct & leveraging channels Customer Success: Over $30M business since 2014 with Tier 1 Asian service provider enabling a greenfield VoLTE deployment Recent direct win with Tier 1 U.S. service provider to deploy NFV conferencing Market Opportunity Media Server / MRF Transcoding 1 Source: Infonetics / IHS Service Provider VoIP and IMS Equipment and Subscribers; June

13 TM CellEngine : Enabling Spectrum Efficiency and 5G Deployments Value-add Solution: Optimizes utilization of wireless spectrum by providing a communication link between terminals and small cell base stations Markets & Applications: Any access-related technologies with increasing focus on 5G Sales Model: Leading with services and targeted opportunities to license / monetize our software Exploring increasing models to leverage our technology outside of traditional small cell deployments Customer Success: Delivering disruptive solution for device (handset) interop testing with Tier 1 service provider Proof Points Deployed across SE Asia and China in 3G and 4G networks Leveraging our access expertise to deliver disruptive solutions Open-source of our EPC and RAN technology driving market disruption 13

14 Embedded Products: Driving Steady Cash Flow Value-add Solutions: Systems and stand-alone hardware products focused on core customer base needing processing or connectivity Management and engineering expertise enabling successful deployment of other product lines Product Milestones: Focus on core customer base while managing legacy accounts for cash generation Increasingly shifting resources to focus on other growth engines Financial Profile: 2017 revenue of ~$55M supported by core customer base Operating income targeted at 8-10% of revenue; provides cash generation for growth product lines 14

15 Customers: Globally Deployed & Proven North and South America Europe and Middle East Asia Pacific & India 15

16 Financial Highlights 16

17 Financial Highlights and Target Model Yr/Yr Long-Term Target 3 SW-Systems Hardware Solutions $55M $130M $57M $156M Total Revenue $185M $212M $205M Strategic 1 $56M $125M $150M - 3% 20% CAGR + 20% SW-Systems Hardware Solutions Gross Margin* 58% 22% 33% 61% 19% 30% ~ 32% 28-32% Operating Margin* 4% 5% ~ 3% 8-10% Diluted EPS* $0.21 $0.25 $ Strategic revenue includes revenue from the Company s Software-Systems segment and DCEngine product line, which is included within the Hardware Solutions segment. 2 Reflects midpoint of guidance provided on February 9, Long-term model excludes non-gaap expenses. * Non-GAAP figures exclude stock-based compensation, amortization of acquired intangible assets, non-cash income tax expense, and other non-recurring charges. 17

18 Balance Sheet $ millions Q415 Q316 Q416 Cash A/R Inventory Assets Total current assets Long term assets Total Assets A/P Deferred revenue Current debt Other current Total current liabilities Long term liabilities Shareholders' equity Total liabilities + equity Other Highlights $55M line of credit closed September 2016 Amended January 2017 to further expand borrowing availability Asset-backed line against receivables Expires Sept Q16 cash generation from operations of $7.2M ~$200M net operating losses and tax credits Net Cash

19 Why Radisys? Targeting a multi-billion dollar market going through unprecedented change Uniquely positioned given our deep telecom software, services, and hardware expertise Open approach has service providers viewing Radisys as the solution vs part of the problem Trading Multiples* $146M market cap $138M enterprise value EV / Revenue: 0.65x P/E: 15x Inflection points accelerating Direct Tier 1 wins with and Leveraging early Tier 1 success into accelerating trial activity Proven board and management team in place to lead the transformation *As of March 3, EV/Revenue and P/E ratio based on TTM figures 19

20 APPENDIX RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES 20

21 Reconciliation of GAAP to Non-GAAP Financial Measures Actual Results Three Months Ended December 31, Year Ended December 31, GROSS MARGIN: GAAP gross margin $ 13, % $ 13, % $ 56, % $ 52, % (a) Amortization of acquired intangible assets 1,927 1,927 7,707 7,862 (b) Stock-based compensation Non-GAAP gross margin $ 15, % $ 15, % $ 64, % $ 60, % RESEARCH AND DEVELOPMENT: GAAP research and development $ 6, % $ 5, % $ 24, % $ 25, % (b) Stock-based compensation Non-GAAP research and development $ 5, % $ 5, % $ 23, % $ 24, % SELLING, GENERAL AND ADMINISTRATIVE: GAAP selling, general and administrative $ 9, % $ 8, % $ 33, % $ 30, % (b) Stock-based compensation ,598 2,791 Non-GAAP selling, general and administrative $ 8, % $ 7, % $ 31, % $ 27, % INCOME (LOSS) FROM OPERATIONS: GAAP loss from operations $ (4,194) -10.3% $ (1,523) -3.5% $ (9,659) -4.5% $ (14,065) -7.6% (a) Amortization of acquired intangible assets 3,187 3,187 12,747 12,902 (b) Stock-based compensation ,797 3,952 (c) Restructuring and acquisition-related charges, net 1, ,917 5,020 Non-GAAP income from operations $ 1, % $ 2, % $ 9, % $ 7, % NET INCOME (LOSS): GAAP net loss $ (4,057) -10.0% $ (1,440) -3.3% $ (10,251) -4.8% $ (14,678) -8.0% (a) Amortization of acquired intangible assets 3,187 3,187 12,747 12,902 (b) Stock-based compensation ,797 3,952 (c) Restructuring and acquisition-related charges, net 1, ,917 5,020 (d) Income taxes 231 (72) (e) Gain on the liquidation of foreign subsidiaries (421) Non-GAAP net income $ 1, % $ 2, % $ 9, % $ 7, % GAAP weighted average diluted shares 38,468 36,936 37,668 36,789 Dilutive equity awards included in non-gaap earnings per share 1, , Non-GAAP weighted average diluted shares 39,781 37,073 38,870 36,940 GAAP net loss per share (diluted) $ (0.11) $ (0.04) $ (0.27) $ (0.40) Non-GAAP adjustments detailed above Non-GAAP net income per share (diluted) $ 0.04 $ 0.08 $ 0.25 $

22 Reconciliation of GAAP to Non-GAAP Financial Measures Guidance RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE NET INCOME (LOSS) PER SHARE (In millions, except per share amounts, unaudited) RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE GROSS MARGIN (unaudited) Three Months Ended For the Year Ended Estimates at the midpoint of the guidance range March 31, 2017 December 31, 2017 Three Months Ended For the Year Ended Low End High End Low End High End March 31, 2017 December 31, 2017 GAAP net loss (11.3) (8.8) (14.4) (9.6) GAAP 20.8% 28.0% (a) Amortization of acquired intangible assets (a) Amortization of acquired intangible assets (b) Stock-based compensation (b) Stock-based compensation (c) Restructuring and acquisition-related charges, net Non-GAAP 26.0% 32.0% (d) Income taxes Total adjustments Non-GAAP net income GAAP weighted average shares Non-GAAP adjustments $ 5.0 (6.3) 39,000 1,000 $ 4.8 (4.0) 39,000 1,000 $ ,500 1,000 $ ,500 1,000 RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE RESEARCH AND DEVELOPMENT EXPENSE AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (In millions, unaudited) Non-GAAP weighted average shares (diluted) 40,000 40,000 40,500 40,500 Estimates at the midpoint of the guidance range GAAP net loss per share (0.29) (0.23) (0.36) (0.24) Non-GAAP adjustments detailed above Non-GAAP net income per share (diluted) $ (0.16) $ (0.10) $ 0.07 $ 0.17 Three Months Ended For the Year Ended March 31, 2017 December 31, 2017 GAAP $ 15.5 $ 63.0 (b) Stock-based compensation Non-GAAP $ 14.5 $

23 Description of Non-GAAP Financial Measures Following is a description of the Company s Non-GAAP measures included in the reconciliation GAAP to non-gaap guidance included in this presentation: (a) Amortization of acquired intangible assets: Amortization of acquisition-related intangible assets primarily relate to core and existing technologies, trade name and customer relationships that were acquired with the acquisitions of Continuous Computing and Pactolus. The Company excludes the amortization of acquisition-related intangible assets because it does not reflect the Company's ongoing business and it does not have a direct correlation to the operation of the Company's business. In addition, in accordance with GAAP, the Company generally recognizes expenses for internally-developed intangible assets as they are incurred, notwithstanding the potential future benefit such assets may provide. Unlike internally-developed intangible assets, however, and also in accordance with GAAP, the Company generally capitalizes the cost of acquired intangible assets and recognizes that cost as an expense over the useful lives of the assets acquired. As a result of their GAAP treatment, there is an inherent lack of comparability between the financial performance of internally-developed intangible assets and acquired intangible assets. Accordingly, the Company believes it is useful to provide, as a supplement to its GAAP operating results, non-gaap financial measures that exclude the amortization of acquired intangibles in order to enhance the period-over-period comparison of its operating results, as there is significant variability and unpredictability across companies with respect to this expense. (b) Stock-based compensation: Stock-based compensation consists of expenses recorded under GAAP, in connection with stock awards such as stock options, restricted stock awards and restricted stock units granted under the Company's equity incentive plans and shares issued pursuant to the Company's employee stock purchase plan. The Company excludes stock-based compensation from non-gaap financial measures because it is a non-cash measurement that does not reflect the Company's ongoing business and because the Company believes that investors want to understand the impact on the Company of the adoption of the applicable GAAP surrounding share based payments; the Company believes that the provision of non-gaap information that excludes stock-based compensation improves the ability of investors to compare its period-over-period operating results, as there is significant variability and unpredictability across companies with respect to this expense. (c) Restructuring and other charges, net: Restructuring and other charges, net relates to costs associated with non-recurring events. These include costs incurred for employee severance, acquisition or divestiture activities, excess facility costs, certain legal costs, asset related charges and other expenses associated with business restructuring activities. Restructuring and other charges are excluded from non-gaap financial measures because they are not considered core operating activities. Although the Company has engaged in various restructuring activities over the past several years, each has been a discrete event based on a unique set of business objectives. The Company does not engage in restructuring activities in the ordinary course of business. As such, the Company believes it is appropriate to exclude restructuring charges from its non-gaap financial measures because it enhances the ability of investors to compare the Company's period-over-period operating results. (d) Income taxes: Non-GAAP income tax expense is equal to the Company's projected cash tax expense. Adjustments to GAAP income tax expense are required to eliminate the recognition of tax expense from profitable entities where we utilize deferred tax assets to offset current period tax liabilities. We believe that providing this non-gaap figure is useful to our investors as it more closely represents the true economic impact of our tax positions. (e) Gain on the liquidation of foreign subsidiaries: On a non-recurring basis we have recorded a gain or loss to reflect the realization of accumulated foreign currency translation adjustments upon the liquidation of certain international subsidiaries. This gain or loss represents the net unrealized foreign currency translation gains or losses accumulated from changes in exchange rates and the related effects from the translation of assets and liabilities of these entities. The liquidation of foreign subsidiaries occurs on an infrequent basis and management does not view the impact of this non-cash charge as indicative of the ongoing performance of the Company. As such, the Company believes it is appropriate to exclude this gain from its non-gaap financial measures because it enhances the ability of investors to compare the Company's period-over-period operating results. 23

24 Thank You 24