Piper Jaffray Technology, Media and Telecommunications Conference
MARCH 12–13, 2013 IN NEW YORK CITY Piper Jaffray Technology, Media and Telecommunications Conference
MARCH 12–13, 2013 IN NEW YORK CITY
Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decisions. This report should be read in conjunction with important disclosure information, including an attestation under Regulation Analyst Certification, found at the end of this report or at the following site: http://www.piperjaffray.com/researchdisclosures. Technology, Media and Telecommunications Conference March 12–13, 2013
CONTENTS
Technology, Media and Telecommunications Conference • Event Map...... 3 • Keynote Speakers...... 4 • Panels...... 6 • Participating Companies ...... 9 • Company Overviews...... 11 • Piper Jaffray Investment Research Team...... 41 • Technical Research...... 48 • Notes...... 67 • Important Research Disclosures...... 70
2 Technology, Media and Telecommunications Conference March 12–13, 2013
LE PARKER MERIDIEN NEW YORK
Third Floor
buffet
balcony balcony azekka tansa 2 2 tansa 1 atrium 1
STAIRS assembly assembly
mirus 2
buffet 3 5
coat banquet 6 room maitre’d buffet mirus 1 gamshoge audio visual 7 office
Second Floor
1 Track One azekka STAIRS 2 Track Two tansa 1 and 2
3 Track Three mirus 1 and 2
4 Track Four lorica (take the stairs to the second floor) ferion 5 Registration tansa assembly
6 1:1 Registration tansa assembly buffet 7 Speaker Ready and Internet Access gamshoge assembly
lorica buffet 4
56th street
3 Technology, Media and Telecommunications Conference March 12–13, 2013
KEYNOTE SPEAKERS
Steve Caniano Vice President, Hosting, Managed Applications and Cloud Solutions AT&T Business Solutions
Steve Caniano is responsible for developing the strategy and execution plan to scale AT&T’s cloud solutions business. This includes defining and establishing alignment with key industry players to ensure AT&T’s services are embedded in their cloud platforms, providing the broadest enablement of cloud solutions for our customers. Caniano previously led AT&T’s global hosting, application and cloud services business, where he directed product and investment strategy, marketing and communications, and held accountability for customer satisfaction, and the financial health of the business. Caniano developed AT&T’s network enabled cloud strategy and led the transformation of the company’s hosting business into scalable, on-demand solutions. He has been instrumental in forging key partner alliances to support the business, while scaling services globally. Caniano regularly collaborates with customers to ensure AT&T is meeting customer expectations and requirements, but more importantly, incorporating customer insights into AT&T’s cloud solutions strategy and portfolio. He frequently represents AT&T in key industry events and analyst forums to position cloud solutions and to shape marketplace perceptions of AT&T’s role in the “cloud”. During his career at AT&T, Caniano has held positions in sales, operations, program management, product management, strategic planning, supplier management and systems development. Caniano designed and launched the original Global Solution Center in support of business customers, and led the team having responsibility for engagement management, solution strategy and technical solution design for AT&T’s largest enterprise and global customers. He has worked with and managed leading-edge technologies throughout his career, while always maintaining focus on the customer solution.
David Kirkpatrick Internet and Technology Expert Author of The Facebook Effect
For more than 20 years, David Kirkpatrick was a writer for Fortune, most recently as senior editor of Internet and technology. He is regularly ranked one of the world’s top technology journalists. Kirkpatrick created Fortune’s Brainstorm brand, which ran for five years. Now, with a group of formerFortune colleagues, Kirkpatrick has a media company called Techonomy, focusing on the centrality of technology to business and social progress and the urgency of embracing the rapid pace of change brought by technology. Kirkpatrick’s expertise on technology subjects led him to pen the definitive book on Facebook, The Facebook Effect: The Inside Story of the Company That is Connecting the World. The Facebook Effect uncovers how in little more than half a decade, Facebook has gone from a dorm-room novelty to a company with over 900 million users. It is one of the fastest growing companies in history, an essential part of the social life not only of teenagers but hundreds of millions of adults worldwide. Kirkpatrick had the full cooperation of Facebook’s key executives in researching this fascinating history of the company and its impact on our lives.
4 Technology, Media and Telecommunications Conference March 12–13, 2013
KEYNOTE SPEAKERS
Zach Nelson President and Chief Executive Officer NetSuite Inc.
Zach Nelson has more than 25 years of leadership experience in the high-tech industry, where he has held a variety of executive positions spanning marketing, sales, product development and business strategy with leading companies including Oracle, Sun Microsystems and McAfee/Network Associates. Nelson has been CEO of NetSuite since 2002. He led NetSuite’s successful IPO in 2007 and its rise from start- up to the industry’s cloud ERP leader. Under his leadership, NetSuite has become the leading provider of cloud computing business management software suites in the world. Nelson holds bachelor’s and master’s degrees from Stanford University.
Fred Wilson Managing Partner Union Square Ventures
Fred Wilson is a managing partner of Union Square Ventures (“USV”), a New York-based firm that manages $450 million and has been one of the top performing venture funds over the past decade. USV was the initial investor in companies including Twitter, Zynga, Foursquare, Etsy, Covestar, Tumblr, Disqus and Indeed. Wilson writes a widely followed blog called AVC. He has sold portfolio companies to Google, Yahoo, AOL and other prominent Internet consolidators. At the conference, we will hear Wilsons’s view of the technology landscape, trends in the Internet and social media spaces, and his investment philosophy. We will also be exploring the growth of Silicon Alley and the opportunities it has provided. Finally, we will be discussing the differences between the Internet marketplace today and that of the late 90s. Wilson has been a venture capitalist since 1987 and founded Flatiron Partners (JP Morgan) before founding USV. Wilson holds a bachelor’s degree in mechanical engineering from MIT and a Master of Business Administration degree from The Wharton School of Business.
5 Technology, Media and Telecommunications Conference March 12–13, 2013
PANELS
Accelerating Design Cycles and Cloud-Based Human Resources Direct Digital Manufacturing Applications IT organizations are beginning to funnel greater amounts of As companies continue to search for ways to accelerate revenue money into HR and talent management solutions as more growth and better compete in the global marketplace, design organizations are recognizing employees as assets to their cycles are constantly being reworked in hopes of improving business rather than simply resources. “Strategic HR” is time to market for new product introductions. 3D printing becoming the talk of the table and next-generation HR processes manufacturers and service bureaus have experienced significant are gaining importance. The emergence of cloud-based systems, growth with product development teams, discovering how 3D which deliver a remarkable user experience and value proposition printer and services can help accelerate design cycles. In addition that eclipses that of pre-Internet solutions, is further catapulting to shortening design cycles, additive manufacturing technologies this trend into an acceleration mode. With a panel of executives have had significant technological improvements and 3D printers from Cornerstone OnDemand and Ultimate Software, we will are now being used for direct digital manufacturing (AKA rapid discuss the impact of cloud-based software on the HR industry prototyping or rapid manufacturing) to produce end user parts. and the contribution of these two companies toward this trend. This panel will include service provider Proto Labs, investment firm Lux Capital Management, and system manufacturers 3D Communicating with Customers in the Cloud Systems, Arcam and Stratasys. The way companies interact with both business and consumers has changed dramatically over the last decade with the All-Flash Storage introduction of SaaS-based software and the explosion of The “I/O bottleneck” problem has quickly become the top open-source software. With a panel of executives from ON24, threat to the data storage industry, driven by the accelerating SugarCRM and LivePerson, we will discuss the impact of cloud- improvements in CPU performance vs. the lagging performance based and open-source software on customer interaction and of disk drives. This performance gap creates an I/O bottleneck, which technologies will ultimately win or lose. which severely hinders the performance of applications and the overall efficiency and productivity of the data center. In order to Consumer Applications in 3D Printing address this problem, storage vendors are turning toward NAND The additive manufacturing (3D printing) market has taken a step flash to provide extremely fast access to the data. This panel will in a completely new direction, aimed at the consumer market. focus on the I/O bottleneck problem, its implications to data This market, which was relatively nonexistent a few years ago, has center productivity and how each vendor is specifically addressing grown substantially as new technology and more user-friendly the problem. We will hear from Whiptail and Nimbus Data, systems have hit the market. We believe several obstacles still both of which have incorporated NAND flash memory into their remain before consumer 3D printers can go mainstream and this respective storage arrays. panel will address how the industry is addressing some of these hurdles. Our consumer 3D printing panel will include service Back-End Test and content providers (Shapeways), system manufacturers Teradyne and LTX-Credence will join us in a panel on the back- (MakerBot, 3D Systems) and venture capitalist firm Lux Capital. end test market where we hope to get clarity on how the mobility and connectivity segments could evolve in 2013 and some of the Cross Media Convergence and Ad Effectiveness key drivers. We hope to hear about the timing of the recovery Mobile is shifting media consumption from a single screen in the microcontroller segments along with the competitive (TV or PC) to multi-screen (TV, PC, smartphone, tablet, radio) landscape in the RF testing segment. We expect an update on the simultaneous usage, creating an increasingly challenging overall wireless test segment and the medium-term and long- environment for advertisers to reach audiences. Key panel topics term prospects. We also expect to hear about traction of new include: 1) Despite “big data” captured everywhere, capturing product rollout. Use of cash is a key question given that both the ROI across a multitude of mediums remains a distant hope. companies have accumulated a pile of cash. Finally, we anticipate How close are we to a scalable cross-screen solution that can an update on OSAT’s spending outlook for 2013 along with a view demonstrate ROI and ultimately answer the age-old question: “I on upcoming inflection points that would increase test intensity. know half of my ad dollars are wasted, I just don’t know which half”? 2) Are gross rating points (GRP: the standard unit of Big Data and Analytics currency for TV reach and ad buying) an acceptable measure in The increase of large and complex data sets, driven by things the digital world? Do vast amounts of new digital media data like social networks, smart meters, RFID, and national defense argue for more advanced measurement beyond GRP? 3) How or scientific research, is creating new opportunities for software important is the ability to measure viewable impressions and how vendors to tackle the difficult tasks associated with aggregating, effective is measurement today? storing, analyzing and searching data. Datawatch and Jaspersoft will join us for a discussion on big data and how new technologies are solving the problems presented by big data, and what technologies and methodologies will be most suitable for capturing big data spending in the future.
6 Technology, Media and Telecommunications Conference March 12–13, 2013
PANELS
Data Privacy/Do-Not-Track Debate Healthcare in the Cloud Microsoft’s decision to enable “Do Not Track” (DNT) as default With the increasing adoption of cloud-based technology solutions setting in upcoming Internet Explorer 10 browser has brought in healthcare, we are stepping into a new avenue of growth for online data privacy back to the front and center. Key panel topics healthcare technology companies. Our panel consists of the include: 1) Can industry self-regulation come to a consensus companies that are at the forefront of this SaaS-based cloud on DNT, third-party cookie data collection and behavioral ad solution revolution. Athenahealth has built a strong reputation targeting standards before the FTC steps in and forces action? and foothold in physician-based cloud solutions and is 2) How does European privacy regulation compare to the U.S. considered the market leader in the segment, while CareCloud is and why may/not the U.S. develop similar policy? 3) What the newcomer. Medidata has disrupted the clinical trials market impact would a DNT default setting on Internet Explorer 10 with their revolutionary cloud-based EDC (Rave®) platform and/or other browsers have on the ad ecosystem? And on the and is ramping up analytical capabilities. We will be discussing consumer Web experience? why healthcare is the ideal use case for the cloud, and how new technologies can truly reform the nation’s largest industry. Emerging Laser Technology Newport and Raydiance join us to discuss current and emerging Local trends in laser technologies and applications. We expect to Local advertising remains the next frontier for online advertising gain insight into growing markets and applications for lasers dollars. As customers seek local information more rapidly such as UV lasers and green lasers. Newport’s broad laser on mobile devices, the opportunity has become much more product offering should help in terms of understanding some important to local businesses. Our panel will include platform of the key applications that are being actively targeted including and technology providers Marchex and ReachLocal to discuss microelectronic, semiconductor and industrial manufacturing how local businesses are navigating the available ad products. markets. Raydiance’s fascinating femtosecond-based laser approach should help investors gain a perspective into some of Next-Gen Content Consumption the new applications that are being pursued. The biggest story in consumer electronics over the last several years has been the explosive growth in the Internet-connected Fiber device ecosystem and the improving ways users can access and If you have metro fiber, there’s someone out there who may want interact with content. Whether via iOS devices, game consoles, to buy it. If history is any indicator, Zayo, who will be on this peripheral Internet set-top boxes or other, the average household panel, may be interested or has at least looked at it. While public now has multiple ways to access Internet-delivered content on investors were looking the other way, Zayo has quietly built one both the living room TV and mobile devices. Panelists will discuss of the largest networks of metro fiber. Why are private market the future direction of content consumption devices and changes multiples so much higher? What is it that the public markets are in how we will all interface with video content in the coming years. missing? Cogent carries an estimated 15% of the world’s Internet traffic connecting more than 30,000 customers in nearly 2,000 Next Leg of Online Travel buildings. Management will be on-hand to help discuss industry While traditional online travel agents (OTAs) have multiple pricing and demand dynamics. RedIT, another private company avenues for continued growth, we believe peripheral online that operates in the southwestern U.S. and Latin America, will travel services that go beyond the traditional OTA will continue address the importance of fiber and connectivity in a cloud and to emerge. Online travel offerings including reviews and data center-centric IT world. recommendations, travel inspiration, last-minute bookings, vacation rentals, metasearch and others will be discussed in Future of Radio this panel. Additionally, we will focus on the panelists’ view of The sector is in such a state of flux, it’s sometimes difficult to the leading OTAs in the current environment and how they will define ‘radio.’ We have assembled a panel (Slacker, CMLS and partner or be competitive with the major OTAs. HD Radio (iBiquity)) to discuss the evolving radio landscape and explore competitive strengths and weaknesses, shifts in Online Ad listenership growth, advertising trends, shift to mobile and how The emergence of mobile, social and video has reshaped both the changes to music licensing could alter the landscape. performance and branded online advertising spaces over the past two years. These three sectors will continue to increase in terms Green Power of advertising budget allocation, but we are only at the beginning Power consumption is a critical consideration in designing any of companies developing unique technologies to take advantage electronic system. In order to minimize power consumption of each unique medium. Our panel will explore the overall state in any system from a mainframe to a handheld, the power of the online ad industry and how each participant utilizes their delivery needs to be optimized across a broad range of operating technology platforms to serve advertisers. conditions. This creates opportunity for power semiconductor companies that solve these issues.
7 Technology, Media and Telecommunications Conference March 12–13, 2013
PANELS
Optical Software-Defined Networking The optical industry has been in a six-quarter funk with demand In its most basic form, software-defined networking (SDN) from telco service providers at a three-year low, but datacom aims to replace traditional networking architecture, creating optics have remained strong given the growing demand for 100G a more flexible and scalable network environment. We believe technologies and data center investments. Given the cyclical nature the continued adoption and deployment of SDN will have a of the optical industry, we believe spending on these technologies substantial effect on the core networking landscape, posing will improve with bandwidth-thirsty devices and video applications numerous challenges for traditional networking vendors. As consuming more data than ever before. This panel will focus such, a handful of these vendors have further explored the on telco spending intentions in 2013 and emerging products implications of SDN and are attempting to position themselves and technologies such as iTLAs, ROADMs, Tunable-XFPs and ahead of the curve. Our panel (consisting of Arista Networks, 100G coherent. We will be hosting two optical panels, including Brocade Communications and Silver Peak Systems) will provide component suppliers Ciena, EMCORE and Oclaro (day one) incremental insight into current SDN trends and how they believe followed by FNSR, Fabrinet and Neophotonics (day two). the market landscape will look as this revolutionary technology continues to penetrate the networking space. Rapid Growth in Real-Time Bidding (RTB) and Impacts on Display Ad Market What’s Next in Mobile and Social Games RTB has taken the online display market by storm the past Excitement in the social gaming arena has given way to two years (now 25%+ of online impression volumes) causing disappointment in recent months as leaders in the space (Zynga, average premium pricing contractions of 40% in LTM (PJC etc.) have faced challenges in replicating successful game launches estimate). Key panel topics include: 1) What prevents online/ and improving monetization. Mobile gaming continues to be an mobile/video display transactions moving to 100% RTB and how area of growth due to increasing footprint of mobile devices, but will ad networks, agencies, publishers and private exchanges could potentially face similar challenges. Our panelists will provide be impacted? 2) How will Facebook’s exchange (FBX) impact insight on the changing dynamics of social gaming, the potential supply and demand dynamics in the exchange marketplace? How implications for mobile gaming and the impact that growth in much demand can Facebook ultimately capture and can it be a these categories is having on console gaming. needle-mover for the stock? 3) How can Nielsen and comScore’s viewable impression solutions add support to display pricing and benefit publishers in an increasingly high-volume RTB world?
Semiconductor Opportunities in Communication Infrastructure We anticipate a broad upgrade cycle in communications driven by deferred capital investments, increasing speeds and feeds in access, government targets for broadband coverage, IPv6 upgrades, the ongoing transition from SONET to Ethernet and the explosion of wireless data to name a few. We believe the communication infrastructure IC companies that address these issues best will outperform the chip market in the years to come.
Social Media, Video and Mobile Advertising 2.0 We will debate the effectiveness of social, mobile and online video advertising beyond clicks to tangible sales and engagement. Key panel topics include: 1) What are the latest learnings of these next-gen ad mediums from an effectiveness standpoint? What is/is not working? 2) Are we closer to finding a holy grail (versus a year ago) to achieving high engagement and loyalty from an “always-on” and “on-the-go” consumer? 3) How have smartphones and tablets closed the gap between commerce and marketing? How effective are smartphone ads today? Will tablet ad platforms ultimately trump smartphones from an effectiveness standpoint?
8 Technology, Media and Telecommunications Conference March 12–13, 2013
PARTICIPATING COMPANIES (as of March 6, 2013)
Company Name Ticker Company Name Ticker
3D Systems Corporation DDD Hitachi Data Systems, subsidiary of Hitachi Ltd. HTHIY Accedo Broadband AB Private Home Loan Servicing Solutions, Ltd. HLSS Activision Blizzard, Inc. ATVI HomeAway, Inc. AWAY Alpha and Omega Semiconductor AOSL Hotel Tonight Inc. Private Altisource Asset Management Corporation AAMC iBiquity Digital Corporation Private Altisource Portfolio Solutions S.A. ASPS IMAX Corporation IMAX Altisource Residential Corporation RESI Impinj, Inc. Private Amazon.com, Inc. AMZN inContact, Inc. SAAS Anaren, Inc. ANEN Informatica Corp. INFA Appirio, Inc. Private Inphi Corporation IPHI AppSense Limited Private Internap Network Services Corporation INAP Aquantia Corp. Private Interpublic Group of Companies, Inc. (The) IPG Arcam AB ARCM SS Interxion Holding N.V. INXN Arista Networks, Inc. Private InvenSense, Inc. INVN Ascent Capital Group, Inc. ASCMA IPG Photonics Corporation IPGP ASML Holding NV ASML Iris Mobile Corporation Private AT&T Inc. T Isola Group Ltd. Private athenahealth, Inc. ATHN JasperSoft Corporation Private Axcelis Technologies Inc. ACLS JDS Uniphase Corporation JDSU Backflip Studios, Inc. Private Kinetic Social Private Batanga, Inc. Private Level 3 Communications, Inc. LVLT Boxee, Inc. Private LinkedIn Corporation LNKD Brocade Communications Systems, Inc. BRCD Lionsgate Entertainment Corp. LGF CareCloud Corporation Private LivePerson Inc. LPSN Ciena Corporation CIEN LTX-Credence Corporation LTXC Cisco Systems, Inc. CSCO Lux Capital Management Private Cogent Communications Group Inc. CCOI Majesco Entertainment Co. COOL Coherent Inc. COHR MakerBot Industries, LLC Private comScore, Inc. SCOR Marchex, Inc. MCHX Cornerstone OnDemand, Inc. CSOD MDC Partners Inc. MDCA Cumulus Media Inc. CMLS Medidata Solutions, Inc. MDSO Datawatch Corporation DWCH Mellanox Technologies, Ltd. MLNX DHX Media Ltd. DHX CN Millennial Media Inc. MM Digital River, Inc. DRIV Monolithic Power Systems Inc. MPWR DigitalGlobe, Inc. DGI Moody’s Corporation MCO DreamWorks Animation SKG Inc. DWA MoSys, Inc. MOSY Dun & Bradstreet Corp. DNB Nanometrics Incorporated NANO eMagin Corp. EMAN NeoPhotonics Corporation NPTN EMCORE Corporation EMKR NetApp, Inc. NTAP Emulex Corporation ELX NetSuite, Inc. N Equinix Inc. EQIX Newport Corp. NEWP Euronet Worldwide, Inc. EEFT Nimble Storage, Inc. Private Evidon, Inc. Private Nimbus Data Systems, Inc. Private Exar Corp. EXAR NQ Mobile Inc. NQ Expedia, Inc. EXPE Oclaro, Inc. OCLR Fabrinet FN Ocwen Financial Corporation OCN Financial Engines, Inc. FNGN OCZ Technology Group, Inc. OCZ Fingerprint Cards AB FINGB SS ON24, Inc. Private Finisar Corporation FNSR Pandora Media, Inc. P Freescale Semiconductor, Inc. (FSL) Power Integrations, Inc. POWI Gartner Inc. IT Proto Labs, Inc. PRLB Global Eagle Entertainment Inc. ENT QLogic Corp. QLGC Glu Mobile, Inc. GLUU Rackspace Hosting, Inc. RAX Green Dot Corporation GDOT Raydiance, Inc. Private Grupo redIT Private ReachLocal, Inc. RLOC Higher One Holdings, Inc. ONE RealD Inc. RLD
9 Technology, Media and Telecommunications Conference March 12–13, 2013
PARTICIPATING COMPANIES (as of March 6, 2013)
Company Name Ticker
Rentrak Corporation RENT Retail Solutions, Inc. Private Rimini Street, Inc. Private Rofin-Sinar Technologies Inc. RSTI Rovi Corporation ROVI salesforce.com, inc. CRM ServiceSource International, Inc. SREV Shapeways, Inc. Private Silver Peak Systems, Inc. Private SIRIUS XM Radio Inc. SIRI Slacker, Inc. Private Solera Holdings Inc. SLH STEC, Inc. STEC Stratasys, Inc. SSYS SugarCRM, Inc. Private Teradyne, Inc. TER Tessera Technologies Inc. TSRA The McGraw-Hill Companies, Inc. MHP The Trade Desk, Inc. Private TiVo Inc. TIVO TripAdvisor, Inc. TRIP Turn Inc. Private Ultimate Software Group, Inc. (The) ULTI Ultra Clean Holdings, Inc. UCTT Union Square Ventures Private ValueVision Media, Inc. VVTV VeriFone Systems, Inc. PAY Verizon Communications Inc. VZ Volterra Semiconductor Corporation VLTR Walter Investment Management Corp. WAC Web.com, Inc. WWWW WEX Inc. WXS WhipTail Technologies, Inc. Private WildTangent, Inc. Private WisdomTree Investments, Inc. WETF Yelp, Inc. YELP Zayo Group Inc. Private
10 Technology, Media and Telecommunications Conference March 12–13, 2013
COMPANY OVERVIEWS (Highlighted companies are followed by Piper Jaffray investment research)
3D Systems (DDD) – $36.96 Activision Blizzard, Inc. (ATVI) – $14.30 Market Cap: $2.14B Market Cap: $15.88B Rating: Overweight Rating: Overweight 12-mo. Price Target: $42 (30x CY14E op income + cash) 12-mo. Price Target: $17 (19x CY13E EPS) Thesis: We believe the market for 3D printers is in a secular growth Thesis: Activision holds a leading position among video game phase and the growing adoption of 3D CAD usage coupled with publishers due to the company’s ability to create engaging new price elasticity and increased awareness will continue to drive im- content in existing titles, while also consistently generating new pressive 3D printer unit growth for the industry. This ultimately IP that adds layers to the story beyond to the core franchises. In will create a growing annuity of high-margin consumable sales 2013, Activision faces tough comps due to the massive success into this captive audience of 3D printing users. 3D Systems has of Diablo 3 in 2012. The company has now factored this impact also done an impressive job of rolling up the 3D printing service into CY13 guidance and, we believe, this outlook could prove bureau industry, which has been one of the biggest factors in the conservative given the introduction of other new titles during the company’s earnings accretion and operating margin expansion. year, most notably Destiny (a Bungie title), and management’s We believe 3D Systems will continue to selectively acquire given consistent pattern of guiding initial full-year EPS well below ac- the success it has had with this strategy and anticipate the ac- tual results. Additionally, with the catalyst of a new hardware cycle quisition focus will be more on international expansion. Given coming, there is potential for an improved trajectory of growth for our belief in strong secular growth trends for the industry, and video game publishers in 2014/15. continued market penetration for 3D Systems, we reiterate our Key Questions: Overweight rating and $42 price target. • Will the company’s new game Destiny, a potentially material Key Questions: title, ship in late 2013 or sometime in 2014? This could mate- • When do you believe the consumer 3D printing market will rially impact EPS for the year. start to drive meaningful revenue growth? • Is Activision gearing up to purchase a portion of the 61% • Can you discuss how 3D Systems is helping to grow the con- stake in the company that Vivendi currently owns? sumer market by developing libraries of 3D content? • How will video game software sales be impacted near-term • How have you been able to acquire so many different busi- by the announcement that new consoles are coming later nesses without any channel/customer conflicts or integra- this year and are likely not backward compatible? tion issues? • Can continued growth of Skylanders, shipment of Starcraft II • Any estimate regarding how much of your system sales are and potential launch of Destiny lead to a revenue decline that going into direct digital manufacturing applications? is less material than the 14% year-over-year decline implied • How is 3D Systems protecting the material sales from third- in Street consensus for CY13? party suppliers? Michael Olson, Sr. Research Analyst, 612 303-6419 Description: 3D Systems is a leading provider of rapid prototyping services and 3D printers. Alpha and Omega Semiconductor (AOSL) – $8.06; Troy Jensen, CFA, Sr. Research Analyst, 612 303-6291 Market Cap: $204.96M Rating: Neutral Accedo Broadband AB – Private 12-mo. Price Target: $8 (8x CY14E EPS) Description: Accedo is an enabler of TV application solutions Thesis: Alpha and Omega is undergoing a unique transition from to media companies, CE manufacturers and TV operators glob- a fabless to a fab-lite business model, hoping to achieve margin ally. The company’s cloud-based platform provides applications, expansion through accelerated new product introduction. We be- tools and services that allow customers to deliver IPTV solutions. lieve this is still somewhat of a show-me story. We expect muted Accedo’s platform enables companies to cost-efficiently develop, revenue growth as personal computer (PC) sales (56% of rev- roll out, and manage IPTV applications and stores on multiple enue) are likely to be weak. Moreover, we expect AOSL’s content devices globally. Currently, CE device manufacturers and network per PC to decline. Gross margin expansion is also likely to slow operators are developing “TV Everywhere” solutions and are look- as the company approaches its prior peak and tailwinds from its ing to roll these solutions out over the very near-term. Oregon fab transition diminish. We remain Neutral due to high Key Questions: PC exposure and risks associated with a transition from a fabless • Will TV manufacturers attempt to build app ecosystems to fab-lite business model. themselves or increasingly look to third parties to enable this Key Questions: functionality? • The pace of new product introduction is important for the • How does Apple’s rumored entry into the TV space change company’s future; how will new products impact the com- the landscape for devices app ecosystems in the living room? pany’s mix and/or margin? Will it be no more impactful than the existing Apple TV STB? • How has owning a fab changed the way you run the company? • Are TV operators supportive of enabling more content deliv- • What is the current inventory situation in the distributor ery to the TV that is outside of the scope of their subscription channel? offerings? • How are your diversification efforts going? In what markets • Consumers are purchasing TVs that connect to the Internet, are you gaining traction? but in many cases not connecting them. What is the hurdle • With increasing content in PCs, can that part of your busi- to increased usage of this functionality? ness be flat year-over-year?
11 Technology, Media and Telecommunications Conference March 12–13, 2013
Description: Alpha and Omega Semiconductor is a global suppli- Description: Amazon.com, Inc. is a leading eCommerce er of MOSFET and power IC products typically used in notebooks, destination. netbooks, flat panel displays, mobile phones and set-top boxes. Gene Munster, Sr. Research Analyst, 612 303-6452 Gus Richard, Sr. Research Analyst, 415 616-1711 Anaren, Inc. (ANEN) – $19.35 Altisource Asset Management (AAMC) – $129.75 Market Cap: $245.67M Market Cap: $304.00M Description: Anaren is a supplier of high-frequency electronics Altisource Residential Corporation (RESI) – $19.04 used primarily in military and wireless communications applica- Market Cap: $148.70M tions. Anaren’s customers include leading OEMs in the wireless Description: RESI purchases non-performing mortgages to either infrastructure, wireless consumer products, satellite, defense be modified and resold, sold through a short sale, or foreclosed electronics and other sectors utilizing complex microwave and RF and used as single family rental properties. AAMC provides man- technology. agement services and oversees RESI’s relationship with vendors. Key Questions: Key Questions: • With the war in Afghanistan winding down and potential cuts • Help investors understand the business model and relation- to military budgets looming, do you see a slowing of military ship between the two companies. spending? • What are your top priorities for 2013? • Anaren’s space business has been growing as a percentage • With your base business model plan of 5,000 homes in 2013 of revenue—what is driving that business? and 10,000 in 2014, what are your projected dividends in • What drives your wireless business? How much is infrastruc- 2013 and 2014 for each company? ture and how much is consumer? • Do you see strong demand for LTE base stations? Altisource Portfolio Solutions S.A. (ASPS) – $81.54 • What is your content in small cell base stations? Market Cap: $1.91B • The company is starting to pursue the Internet of Things with Rating: Overweight your partnership with TXN. How is this effort ramping? What 12-mo. Price Target: $130 (sum-of-the-parts analysis) sort of applications are you getting into? Thesis: ASPS is levered to OCN’s servicing portfolio growth, a pri- mary benefactor of the secular wave of servicing being transferred Appirio, Inc. – Private from large banks and originators to specialty servicers. We also Description: Appirio is a global technology-enabled services believe ASPS’s diversification initiatives in origination services, provider, helping companies power their business with cloud, Hubzu and supporting RESI/AAMC will be drivers of long-term social and mobile technologies from companies like salesforce. value. com, Google, Workday and Cornerstone OnDemand. Appirio Key Questions: has worked with more than 400 enterprise customers including • Some believe ASPS is just a foreclosure play. How much organizations like the City of Los Angeles, Facebook, Flextronics, runway is left for the core business, and help investors un- International Hotels Group, Japan Post Network, Ltd., L’Oreal, derstand your efforts to diversify into origination services, NetApp, NYU, Starbucks, Thomson Reuters and VMware. Hubzu and supporting RESI/AAMC and how are these Appirio’s technology-enabled professional services are supported progressing? by a team of 600 cloud experts and CloudSpokes, a more than • ASPS has highlighted flat margins for 2013. Talk about mar- 70,000 person-strong global cloud developer community. Appirio gin tailwinds and headwinds for 2013 and where they can go has offices that span the U.S., Europe and Asia Pacific. in 2014. Key Questions: • What are ASPS’s top priorities for 2013? • What are some key criteria for selecting a software company Description: Using data-driven processes, Altisource provides real for which Appirio will provide services? estate mortgage portfolio services and related technology prod- • How large is the services opportunity around cloud comput- ucts, credit card collections and customer relationship manage- ing and how quickly is it growing? ment services. • How attractive is acquiring smaller service providers versus Michael Grondahl, Sr. Research Analyst, 612 303-6788 building out your own competencies?
Amazon.com, Inc. (AMZN) – $264.27 AppSense Limited – Private Market Cap: $120.12B Description: AppSense is a leading global software provider of Rating: Overweight user virtualization solutions that transform organizations into 12-mo. Price Target: $329 (40x 2014E PF EPS of $8.23) productive mobile workforces, securely governed by IT. AppSense Thesis: With eCommerce still representing less than 10% of retail works with customers to reduce IT complexity and enable enter- sales and Amazon continuing to grow its share of eCommerce, we prise consumerization with independent management of the user believe that Amazon will continue to earn robust multiples. experience across all mobile devices and desktops. User virtual- Key Questions: ization improves the deployment, management and migration of • What is the long-term goal for operating margins? multi-platform desktop and mobile environments. • How has the competitive nature changed with traditional re- Key Questions: tailers focusing on eCommerce, physical retailers offering price • How are you positioned relative to Citrix or VMware? matching and the emergence of verticalized online retailers? • What sort of cost savings can AppSense provide, and how • How large is the opportunity for AWS? quickly is that ROI realized?
12 Technology, Media and Telecommunications Conference March 12–13, 2013
• Have we already reached the tipping point in BYOD (bring significant risk to the established hardware suppliers? your own device) to the workplace? What sort of opportuni- • Arista has had great success penetrating the financial ser- ties does this open for AppSense? vices vertical. Has the company been able to duplicate this success in non-financial verticals? Aquantia Corp. – Private • Arista has historically been thought of as the leader in one- Description: Aquantia provides high-speed Ethernet connectivity tier data center switching architectures, but the company’s solutions for cloud computing and large-scale data center deploy- positioning now appears to be more of an SDN supplier. ments. The company recently acquired 10GBASE-T assets and How were you able to make this transition so quickly? patent portfolios from PLX Technologies. The acquisition added marquee customers such as Intel and Cisco to an already large Ascent Capital Group, Inc. (ASCMA) – $68.59 OEM customer base. Market Cap: $968.90M Key Questions: Description: Ascent Capital Group, through its subsidiary, • Describe the role of connectivity solutions within the data Monitronics International, Inc., provides security alarm monitor- center and cloud environment. ing and related services to residential and business subscribers in • What are the biggest trends in cloud computing in terms of the United States and Canada. connectivity? Key Questions: • 10GBASE-T is seeing an uptick in adoption with Intel’s • Late last year, you completed a sizable acquisition of custom- Romley server launch. How big could that market be? er accounts. What’s the decision process you use in evaluat- • Describe the competitive landscape. ing the economics of such a deal? • How scalable is your business to digest an influx of customer Arcam AB (ARCM SS) – 285.500 SEK accounts? Market Cap: 1.02B SEK • When you look at future acquisitions, are you primarily Description: Arcam is an additive manufacturing company lo- looking to add subscribers to the existing Monitronics busi- cated in Gothenberg, Sweden. The company was founded in 1997 ness or are there other businesses in which you might be and is listed on the NASDAQ OMX Stockholm exchange. As of interested? mid-2012, Arcam had 40 employees and more than 100 system • We’ve been hearing a lot about the connected home from installations worldwide. The company designs and manufactures AT&T lately, and we know that cable MSOs like Comcast additive manufacturing systems that utilize electron beam melt- are getting into the smart home area as well. How active is ing (EBM) technology. The EBM process is carried out in a vac- Monitronics in this space and how big of an opportunity is it? uum at elevated temperatures, and involves melting electrically What is the competitive threat of cable and phone? conductive powders layer by layer using electron beams. Arcam currently offers two printers in their product portfolio (Arcam A1 ASML Holding NV (ASML) – €54.52 and A2), which are primarily sold into the aerospace, automotive Market Cap: €24.83B and medical industries. Rating: Overweight Key Questions: 12-mo. Price Target: €57 (19x CY14E EPS) • What are the major applications that your systems are cur- Thesis: As the leading lithography equipment supplier, ASML rently being utilized for? remains a key beneficiary of increasing litho spending from one • 3D metal printing has received a lot of attention as of late, node to another. The company is on the cusp of the next new how has the technology changed over the last few years and product momentum—extreme ultraviolet (EUV) lithography tool where do you anticipate it going? where it has virtually no competition. By acquiring its critical sup- • What materials are you currently developing for use on the plier Cymer, we believe ASML de-risks itself on EUV given that Arcam A1 and A2? Cymer is a mission-critical path in terms of adoption. By minimiz- • What percent of your sales do you believe go to direct digital ing duplication efforts and focusing on technology development, manufacturing applications? we think ASML could potentially accelerate EUV even further for • What do you believe will drive the majority of growth for the greater adoption and into production. With overall gross margins industry over the next few years? >50% for Cymer, we see that in year two after the acquisition clos- es and assuming a nominal 10% savings in SG&A and 5% in R&D, Arista Networks, Inc. – Private ASML’s earnings could be accretive by $0.10. Description: Arista is a leading supplier of high-speed data center Key Questions: switching solutions. The company delivers software-defined cloud • What are the key areas of savings from Cymer acquisition? networking solutions for large data centers, high performance Will Cymer help in accelerating any EUV shipments to cus- computing environments and specializes in low latency and high tomers next year? speeds. Arista’s portfolio includes 1, 10 and 40 GbE switches that • How should one think of Litho re-use amongst foundry/logic redefine network architectures and dramatically change the price customers in 2013? performance of these large-scale data centers. • Progress in terms of EUV at existing customers? What are Key Questions: the roadblocks and where do you expect you will be by YE13? • Can you discuss the rollout of software-defined networks Description: ASML Holding is the leading provider of lithography with legacy switching and routing architectures? solutions to the semi industry. • Can you discuss the timeline for when software-defined net- Jagadish Iyer, Sr. Research Analyst, 212 284-5038 works will start getting deployed more broadly and is this a
13 Technology, Media and Telecommunications Conference March 12–13, 2013
AT&T Inc. (T) – $35.91 • What are your plans to employ big data algorithms, and how Market Cap: $197.20B do you thing about that opportunity? Rating: Overweight • How does the cloud improve your ability to promote 12-mo. Price Target: $40 (DCF to 2017, 9.7% NT WACC, 7.9% ter- interoperability? minal WACC, 2% terminal growth rate) Description: athenahealth, Inc. is a leading provider of revenue Thesis: AT&T is a leading integrated telecom provider in the cycle automation and EHR solutions to physician market in the United States. AT&T’s wireless business, of which the company United States. owns 100%, is one of the top two wireless providers. AT&T also Sean W. Wieland, Sr. Research Analyst, 415 616-1710 operates a substantial wireline network that services residential voice, data and television needs, as well as provides business Axcelis Technologies Inc. (ACLS) – $1.14 connectivity and services. While AT&T’s cloud and data center Market Cap: $123.02M operation is relatively small compared to these two businesses, it Description: Axcelis Technologies provides ion implantation is a formidable competitor in the data center, cloud and hosting equipment to the semiconductor industry and also supplies tools industry. to the MEMS, LED and chip packaging companies. Key Questions: Key Questions: • Investors are familiar with AT&T overall—its wireline and • Discuss your roadmap in terms of profitability? wireless operations—but probably not with its hosting and • Discuss the traction of your high dose ion implanters with cloud efforts. Can you size up how big that business is, say customers. How are you able to compete with AMAT? in comparison to AT&T overall or in relation to other public • What are your growth paths? players? • How does AT&T look at cloud and hosting? Is this a loss Backflip Studios, Inc. – Private leader/necessary offering to bring in more wireline business Description: Backflip Studios is a mobile game studio, based in contracts, an add-on to existing customers to bring in extra Boulder, Colo., that develops mobile games for a multitude of revenue, a separate side business or something else? mobile app platforms including the Apple App Store and Android • A few years ago, AT&T had a ‘measured’ approach to invest- Marketplace. The company’s games have been downloaded ing in data centers while every other data center player could more than 200 million times. Top games include DragonVale, not pour enough money into the space. How would you Gizmonauts, Paper Toss, NinJump, Strike Knight, Army of characterize the availability of capital and the desired pace of Darkness Defense and ShapeShift. In total, the company’s games growth from Dallas? are played by more than 4 million users per day and over 30 mil- • How does AT&T overcome the fact that its data centers are lion users per month. not network neutral? Key Questions: • What types of customers are coming to your cloud? Are they • What have been the monetization trends in the free-to-play using a hybrid approach, where your cloud is for peak use, or mobile game industry over the past 12 months and how do are they fully running in your cloud? you expect this to change over the coming 12 months to two Description: AT&T Inc. is the leading telecommunications com- years? pany in the U.S. with 35 million access lines, the second largest • There is a lot of talk about Google Play growth outpacing that wireless network by subscribers, and one of the world’s most ad- of Apple’s App Store. What are the dynamics at play for you vanced and powerful global backbone networks. between the two platforms currently and how do you expect Christopher Larsen, Sr. Research Analyst, 212 284-9339 this to change? • How do you look to keep players engaged in your games as athenahealth, Inc. (ATHN) – $93.79 the mobile games market becomes increasingly competitive Market Cap: $3.41B with new games releasing each day from a growing range of Rating: Overweight developers from relatively small studios to multibillion tradi- 12-mo. Price Target: $100 (5x EV/2014E revenue; net cash of tional console focused studios? $180M and 37M shares out) • What kind of adoption of mobile games have you seen in the Thesis: athenahealth entered the physician market with disruptive tablet market and do you see this as an incremental growth cloud-based solutions and continues to out-innovate the tradi- opportunity going forward or more of a cannibalizing effect tional players. While the company is strengthening its position in from the smartphone market? the revenue cycle management (RCM) and EHR market, it is also • Would you expect successful players in the market to focus looking at new solutions that will expand its offerings. The com- on a strategy of gaining a substantial download/user base or pany’s announced acquisition of EPOC will add pharma diversi- rather looking to monetize a relatively smaller user base at fication and, more importantly, access to a large physician base higher rates in the future? to cross-sell its solutions. We expect the new physician additions to accelerate into 2013 and 2014 along with new solutions. Piper Batanga, Inc. – Private Jaffray is advising EPOC on this transaction. Description: Batanga operates two businesses: the leading Key Questions: Hispanic ad network, which reaches more than 15 million U.S. • Why is the cloud a better delivery platform for software in Hispanics, according to comScore, and an online music portal healthcare? that offers content on Latin music and entertainment, includ- • What is the technology stack you use to deploy athenanet? ing an online streaming radio service with more than 50,000 • What are the greatest challenges to using the cloud in user-generated stations. Batanga is positioned to benefit from the healthcare? growing Latin population both in the United States and globally.
14 Technology, Media and Telecommunications Conference March 12–13, 2013
Key Questions: CareCloud Corporation – Private • What types of strategies are advertisers using to reach Description: CareCloud is a provider of cloud-based practice man- Hispanic customers that are unique to the demographic? agement, electronic health record and medical billing software • How can Batanga continue to expand its reach of Latin and services. The company’s products are connecting physicians American Internet users? in more than 45 states to their patients and each other through a • What important trends are you noticing about the usership of fully integrated digital healthcare ecosystem that can be accessed the Internet around Latin American users? on any browser or device. • How are mobile and video specifically impacting how adver- Key Questions: tisers are reaching consumers online? • Why is the cloud a better delivery platform for software in healthcare? Boxee, Inc. – Private • What is the technology stack you use to deploy athenanet? Description: Boxee provides an Internet-connected set-top box • What are the greatest challenges to using the cloud in (STB) that connects to a user’s TV and allows users to search, healthcare? find and watch TV shows and movies available on the Internet. • What are your plans to employ big data algorithms, and how The STB is sold for a flat fee and does not require a monthly fee. do you think about that opportunity? The box also allows users to download their favorite apps includ- • How does the cloud improve your ability to promote ing many of the most popular video, music and photo services interoperability? and utilize them on their TV. Boxee is poised to benefit from the growing trend of “TV Everywhere,” which makes content available Ciena Corporation (CIEN) – $15.24 on every screen that is connected to the Internet. Market Cap: $1.53B Key Questions: Description: Ciena Corporation is a leading supplier of optical • How are devices enabling easier consumption of Internet- transport equipment to service providers around the globe. The delivered content impacting potential for cable cutting? company leverages deep expertise in packet and optical network- • Is there a long-term market for peripheral hardware that ing along with advanced software functionality and is the founda- enables consumption of Internet-delivered content through tion to some of the leading next-generation networks at numerous the TV or will this shift to acquiring content directly through tier one service providers. Ciena is viewed by many in the industry Internet-enabled TVs? as the leader in 100G coherent optical systems and is well-posi- • Will Apple’s rumored entry into the TV space change the tioned to benefit from the upcoming 100G coherent upgrade cycle landscape for connected devices in the living room or will it Key Questions: be no more impactful than the existing Apple TV STB? • Expand on your pipeline of 100G coherent wins and when do you expect to see a more material inflection in service pro- Brocade Communications Systems, Inc. (BRCD) – $5.61 vider deployments? Market Cap: $2.56B • Can you discuss the process for carriers releasing capex Rating: Neutral budgets and when during the year does this typically start 12-mo. Price Target: $6 (8.5x FY14E EPS) to happen? Thesis: Brocade’s storage networking demand continues to • Can you size the market for optical equipment for core net- largely outpace overall storage market growth due to its first-to- works, metro networks, wireless backhaul and FTTX? market advantage for 16Gb Fibre Channel, though we believe the • Can you discuss your supplier relationships—specifically industry is slowly migrating toward a converged network based on with respect to dual sourcing, concerns regarding the finan- Ethernet. If this trend plays out, the Fibre Channel storage mar- cial strength of some of your suppliers and your recent imple- ket will remain in a slow and steady decline over the next two to mentation of vendor-managed inventory? three years. As such, Brocade’s longer-term growth will be depen- dent on traction within the Ethernet market, particularly from the Cisco Corporation (CSCO) – $20.86 campus LAN and Fabric market segments. Despite the improving Market Cap: $111.20B growth trends of the Ethernet segment, we see minimal oppor- Rating: Overweight tunities for operating margin expansion over the next two years 12-mo. Price Target: $25 (9x fully taxed FY14E op income + cash) and therefore little room for earnings growth. As such, we remain Thesis: Cisco is our top pick for 2013. Despite lagging demand Neutral on BRCD shares. for core networking gear (switching and routing), Cisco has ef- Key Questions: fectively ramped up product offerings across additional areas • Brocade is participating in the Software Defined Networking of the network, which we believe will help reaccelerate product panel, so most questions will be focused on this topic. growth throughout the year. Through various acquisitions and • How does the trend toward software-defined networks im- internal development, the company continues to expand its prod- pact Brocade? uct footprint to adapt to cloud, SDN and BYOB industry trends, • Which vendors do you typically compete against in the SDN which we anticipate will help Cisco remain on top of the IT sec- market? tor. Moreover, as the company begins to shift to a more software • What are the competitive advantages of Vyatta and how is it and service centric model, we believe better revenue visibility will different than the others? likely occur, driving sustainable bottom-line growth over the next Description: Brocade is a leading provider of data center network- several years. ing solutions. Key Questions: Andrew Nowinski, Sr. Research Analyst, 612 303-6933 • Can you discuss why the collaboration space has declined so much in 2012?
15 Technology, Media and Telecommunications Conference March 12–13, 2013
• Is the video conferencing market moving more toward soft- cated measurement peers. What is the long-run margin po- ware and services? What does this mean for the hardware tential for the business and how does it develop over the next vendors? couple years? • Is the set-top box, EMTA and WLAN likely to evolve into one platform? Or is the set-top functionality likely going to be a Cornerstone OnDemand, Inc. (CSOD) – $33.86 feature delivered from a cloud? Market Cap: $1.71b • How does the NDS acquisition fit with everything going on in Rating: Overweight the video delivery market? 12-mo. Price Target: $36 (8.6x EV/2014E revenue + net cash) • Will you discuss your VCE joint partnership with EMC and Thesis: Cornerstone OnDemand is a leading global provider of where you see the partnership headed? a comprehensive learning and talent management solutions Troy Jensen, CFA, Sr. Research Analyst, 612 303-6291 delivered as software-as-a-service (SaaS). Cornerstone leverages its pure cloud architecture and also enjoys strong differentiation Cogent Communications Group Inc. (CCOI) – $25.14 versus its peers because thus far, its enterprise suite is 100% Market Cap: $1.14B homegrown and fully integrated. Competitors are racing to de- Description: Cogent is one of the lowest cost IP service providers velop a broader suite of offerings, but struggling to integrate dis- in North America, Europe and Asia. The company’s longhaul and parate, acquired piece-parts that can’t interoperate smoothly. We fiber networks extend to over 180 markets in 34 countries. believe Cornerstone’s organically developed product set makes it Key Questions: extremely attractive to customers, and its industry-leading growth • Describe the competitive environment and strategies to sets it apart as one of the highest-quality SaaS names. compete effectively. Key Questions: • Where is demand coming from? How long is this level of • How has the acquisition of several of your competitors by leg- demand or growth in demand sustainable? acy software companies given you a competitive advantage? • Is metro viable without long-haul? Vice versa? • What are your biggest growth constraints? • What are the challenges of entering a new market? Is it typi- • How do you balance growth versus your timeline to cal to acquire an anchor tenant(s) before a new deployment? profitability? Description: Cornerstone OnDemand is a leading SaaS based Coherent (COHR) – $57.76 Learning and Talent Management solution vendor. Market Cap: $1.40B Mark Murphy, Sr. Research Analyst, 415 616-1705 Description: Coherent is a key provider of lasers and laser-based solutions for scientific, commercial and industrial customers. Cumulus Media Inc. (CMLS) – $3.27 Key Questions: Market Cap: $570.26M • What is the expected timing of recovery in the display Rating: Overweight segment? 12-mo. Price Target: $4.50 (5-Yr DCF using 10.2% WACC and 6.5x • How is Coherent positioned in terms of OLEDs? terminal EBITDA multiple) • What progress has been made in fiber lasers? What is the Thesis: Despite the obvious growth challenges of the broadcast value proposition against IPGP? Where do you think your radio industry, we believe Cumulus can generate attractive equity contribution from fiber lasers would be by YE13? returns driven by double-digit FCF growth. We think this growth can be achieved even if revenue growth is modest as costs are comScore, Inc. (SCOR) – $15.94 managed and the balance sheet is optimally levered. The story is Market Cap: $537.32M more compelling if CMLS is successful in redeploying FCF and Rating: Suspended leveraging its substantial scale to conjure up some growth from Description: ComScore is a leading third-party digital marketing new initiatives. We recommend the shares based on potential eq- intelligence and measurement platform, providing proprietary uity returns of the core business alone, but a call option also exists measurement of digital activity (i.e., online digital usage and buy- to create even more value. ing patterns). The comScore solution is differentiated through its Key Questions: proprietary panel of 2M opt-in users, which combined with tag- • Network: We expect the recently announced partnership with ging data can provide customers with insight necessary to drive CBS Sports to help Cumulus capture a significant share of appropriate business model and strategy decisions, as well as the $150M sports market through their new revenue share help drive advertising effectiveness. comScore has evolved into model. Discuss the opportunity in the network business and the recognized independent industry leader, with its data often next milestones. quoted as the standard for digital marketing success. • SweetJack: Management expects daily deal site SweetJack to Key Questions: have some 300 dedicated employees and to operate in 200 • Following multiple delays in converting the ancillary product markets by year-end. We expect CMLS to use their unsold in- pipeline, what gives you confidence in driving meaningful ventory on-air talent to efficiently promote the service which revenue growth from these channels? could generate ~$30M in revenue and $10-12M in EBITDA • Do you subscribe to the prophecy of an ultimate “death of by 2014. Update us on current tracking of this business Web sites?” How does comScore evolve if less interaction segment. is taking place on Web sites and more interaction moves to • iHeartRadio: Cumulus has joined Clear Channel to push ra- mobile, apps, social media platforms, etc.? dio streaming and playlist site iHeart.com, providing its own • comScore operates a margin structure well below its syndi- 525 radio stations. The iHeartRadio platform adds 30 mil-
16 Technology, Media and Telecommunications Conference March 12–13, 2013
lion ad units to Cumulus’ advertising inventory, and has no away from the traditional software download business. How revenue share agreement with Clear Channel. Management is Digital River transitioning to the SaaS and app world? highlighted on the call that they have already seen ‘meaning- • What revenue opportunities are presented from the release ful’ increases in their streaming traffic in just a few weeks and of Windows 8, outside of the Windows store? expects over time to expand its digital ad revenue from 1% to • What is the timeline for the rollout of standalone modules? 5%. Discuss current market share and expectations for this Description: Digital River, Inc. provides technology and infrastruc- business given new entrants (Microsoft, Apple, etc)? ture that enables software publishers and consumer electronics Description: Cumulus Media is the No. 3 radio broadcaster in the manufacturers to sell online. United States by revenue. Gene Munster, Sr. Research Analyst, 612 303-6452 James Marsh, CFA, Sr. Research Analyst, 212 284-9304 DigitalGlobe, Inc. (DGI) – $26.08 Datawatch Corporation (DWCH) – $10.88 Market Cap: $1.23B Market Cap: $69.77M Rating: Overweight Description: Datawatch is a leader in providing information op- 12-mo. Price Target: $32 (8.9x 2014 EBITDA) timization products and solutions that allow organizations to Thesis: We view the just completed acquisition of competitor deliver the greatest data variety possible into their big data and GeoEye as a “game-changer” for DGI, with the potential to drive analytic applications. Datawatch provides organizations the abil- meaningful improvement in key financial metrics. Equally impor- ity to integrate structured, unstructured and semi-structured tant, this transaction is another step in the transformation of DGI sources such as reports, PDF files and EDI streams into these from a satellite/defense business into a higher-growth, higher- applications to provide a 360 degree perspective of the issues and margin information services firm. We believe this transaction opportunities that exist in their businesses. More than 40,000 can drive meaningful valuation upside in the shares over the next organizations worldwide use Datawatch’s products and services, several years. including 99 of the Fortune 100. Datawatch is headquartered in Key Questions: Chelmsford, Mass. with offices in London, Munich, Singapore, • Provide updated thoughts on cost and capital synergies as- Sydney and Manila. sociated with the acquisition. Key Questions: • What are the drivers of growth in the commercial business? • How is Datawatch leveraged to the big data trend? • Discuss risks around further cuts in federal funding for sat- • Which industries or markets are most suited to Datawatch’s ellite imagery; successes in reducing government exposure. products? Description: DigitalGlobe operates a collection of satellites used • Who else does what you do, and how does Datawatch do it to provide commercial high resolution earth imagery. better? Peter Appert, Sr. Research Analyst, 415 616-1709
DHX Media Ltd. (DHX CN) – C$2.65 DreamWorks Animation SKG Inc. (DWA) – $16.60 Market Cap: C$140.64M Market Cap: $982.75M Description: DHX Media produces, distributes and licenses Rating: Neutral television and film programming in Canada and internationally. 12-mo. Price Target: $18 (5 yr DCF, 6.5% WACC, 7.0x terminal It focuses primarily on children, family and youth programming. EBITDA multiple) The company has approximately 15 children’s series including Yo Thesis: DWA shares lack catalysts for 2013 so we see little reason Gabba Gabba. It also maintains a content library of approximately for investors to jump into the shares. Fundamentals look shaky, 2,550 half-hours of programming and approximately 60 individual valuation is not compelling and upcoming films could present titles. some headline risk. Accordingly, we suggest investors re-evaluate the shares as we approach 2014 when the slate improves (and Digital River, Inc. (DRIV) – $14.25 moves to three releases per year), film production costs decline Market Cap: $466.70M (from the current $145M to $120M), and ancillary revenue streams Rating: Overweight from Netflix and others start to hit the income statement. 12-mo. Price Target: $18 (10x 2014E PF EPS + $9cash/sh) Key Questions: Thesis: Digital River is a leader in providing eCommerce solu- Discuss the upcoming slate and what actions are you taking to tions. One of its specialties is helping eCommerce sellers global- prevent Guardians-like results? ize operations as it operates in more than 160 countries and has Discuss the merchandizing opportunity and what are you doing call center support in over 15 languages. Overall, it helps to man- differently to drive higher sales? age more than $10B in global online sales. One of Digital River’s What are you expectations for the DVD and digital sales trends recent pushes has been into payments. Currently, it can display over the next few years? sites in over 150 currencies and more than 30 languages, and it re- Description: DreamWorks develops and produces computer-gen- cently acquired LML Payment Systems, which provides electronic erated animated feature films. payment processing. James Marsh, CFA, Sr. Research Analyst, 212 284-9304 Key Questions: • How big can the payments business become and how will the LML acquisition be integrated into the existing Digital River payments business? • Much of the concern regarding DRIV shares is the transition
17 Technology, Media and Telecommunications Conference March 12–13, 2013
Dun & Bradstreet Corp. (DNB) – $80.60 space power applications including high-efficiency multi-junction Market Cap: $3.59B solar cells, covered interconnect cells (CICs) and complete satel- Rating: Neutral lite solar panels. 12-mo. Price Target: $80 (11x 2013E EPS) Key Questions: Thesis: An attractive, sector-dominant franchise plus an appeal- • Are service provider capital expenditure plans shifting more ing business model add to DNB’s long-term investment appeal. toward optical equipment in 2013? However, near-term results have been constrained by soft revenue • Is vertical integration by system manufacturers going to con- trends in the core risk business and heavy investment spending tinue to eat into the optical component market? designed to accelerate revenue growth. Until the returns on this • How much of a lead do you have before more competitors investment become visible, which we do not anticipate before introduce ITLAs? mid-to-late 2013, the stock will likely be range-bound. • After reaching profitability, what do you think is a reasonable Key Questions: near-midterm operating margin target? • What are the catalysts to improved revenue growth in the • What is the next catalyst for the optical component industry? core risk business and when might we expect to see im- proved revenue trends? Emulex Corporation (ELX) – $6.45 • Comment on progress in the “MaxCV” technology invest- Market Cap: $584.35M ment program. Can you quantify the potential returns? Rating: Neutral • Discuss competitive dynamics in the risk business. 12-mo. Price Target: $8 (10x FY14E EPS) Description: Dun & Bradstreet is a leading provider of commercial Thesis: Emulex’s core market (Fibre Channel HBA) has been credit data and marketing information. in a secular decline for the last few years, which has prompted Peter Appert, Sr. Research Analyst, 415 616-1709 management to search for new growth opportunities in the Ethernet market. While we are confident Emulex can succeed in eMagin Corp. (EMAN) – $3.18 the Ethernet market, the ongoing patent litigation, coupled with Market Cap: $74.81M the pending closure of the Endace acquisition, keeps us on the Rating: Overweight sidelines. If revenue and cost synergies from this acquisition start 12-mo. Price Target: $6.00 (12x CY14E diluted proforma EPS0.50) to play out sooner than expected, we would be inclined to re-eval- Thesis: We expect eMagin to grow its revenues at least 20% YOY uate our overall thesis on shares of ELX. We are maintaining our for the next two years given the secular industry growth for mi- Neutral rating. crodisplays. We see the company benefiting from share gains Key Questions: against LCD microdisplays. In addition, we hope to see leverage • What drives 10GB Ethernet adoption? in the company’s operating model that is likely to unfold on ris- • Does Ethernet switch pricing have to fall before we see a ing revenues, which translates into 1500 bps of operating margin ramp in 10GB Ethernet products? improvement by 2014. Emerging applications in military and con- • What are the next catalysts for your 16Gb Fibre Channel sumer devices as well as disruptive technologies such as Google products? Glass position eMagin for revenue and earnings upside over the • Update us on the Endace acquisition. next 12-24 months. Description: Emulex is a global provider of Fibre Channel and Key Questions: Ethernet interconnect products that facilitate the transmission of • Provide an update on the new deposition tool, and any color data between servers, switches and storage systems. on yield or yield targets. Andrew Nowinski, Sr. Research Analyst, 612 303-6933 • Any new military contracts, and discuss your view of how CY13 is shaping up given potential cuts to defense spending? Equinix Inc. (EQIX) – $211.55 • Discuss any wins on the consumer side for electronic view Market Cap: $10.30B finders, gaming applications, etc. When can we see this in Rating: Overweight the numbers? Give the activity in Google Glasses, where do 12-mo. Price Target: $245 (DCF to 2017; 10.4% NT WACC, 8.7% you expect the next action in terms of OLED microdisplays? Terminal WACC and 3% terminal growth) Description: eMagin is the leading supplier of OLED-based Thesis: We’ve highlighted Equinix as a top pick for 2013. While microdisplays. the stock appreciated materially in 2012 and into 2013, we believe Jagadish Iyer, Sr. Research Analyst, 212 284-5038 there are a number of positive fundamental reasons the business will continue to perform. The secular trend to outsourced IT is EMCORE Corporation (EMKR) – $5.83 not changing, enhanced by the cyclical trend to asset-light, and Market Cap: $154.08M supply/demand trends are favorable. Equinix’s conversion to REIT Description: EMCORE offers a broad portfolio of compound process could act as a catalyst, and we believe the company is set semiconductor-based products for the fiber optics and solar pow- up for continued positive estimate revisions. er markets. EMCORE’s fiber optics business segment provides Key Questions: optical components, subsystems and systems for high-speed • How have “ecosystems” enabled you to grow? What new telecommunications, cable television (CATV) and fiber-to-the- ecosystems are you targeting today? premises (FTTP) networks, as well as products for satellite com- • Europe has been an area of concern for some investors. munications, video transport and specialty photonics technolo- What are you seeing in Europe today and how do you feel gies for defense and homeland security applications. EMCORE’s about the next 12 months? solar photovoltaics business segment provides products for • Equinix just reported near-record bookings in the fourth
18 Technology, Media and Telecommunications Conference March 12–13, 2013
quarter. Can you talk about the conversion of bookings to • How might the U.S. online privacy environment converge/ revenues, the length of the sales cycle and how adding new diverge with more conservative European privacy regulation? sales representatives impacts your growth? • What types of supply and demand trends are out there (pric- Exar Corp. (EXAR) – $11.75 ing, booking pipeline, changes in RFPs)? Market Cap: $542.80M • Can you walk us through the REIT conversion process, where Description: A new CEO and new management at EXAR have refo- you stand today and the benefits of converting to a REIT? cused this 40 year-old mixed signal company away from legacy ap- • How can Equinix benefit from the shift to cloud computing plications toward mobile and server technologies. The company as a colocation services provider? currently serves five major end markets: networking and storage, Description: Equinix is a global provider of network-neutral data computing and peripherals, industrial and embedded systems, centers and Internet exchange services for enterprises, content communications, and consumer products. The company’s prod- companies and network services providers. ucts address compression and security, connectivity, power man- Christopher Larsen, Sr. Research Analyst, 212 284-9339 agement and analog mixed signal. Key Questions: Euronet Worldwide, Inc. (EEFT) – $24.14 • What end markets do you expect to see the biggest growth Market Cap: $1.21B from? Rating: Overweight • After taking over the company recently, where are you invest- 12-mo. Price Target: $27 (9x 2013E EV/EBITDA, assuming $110M ing your time? net debt and 52.5M shares out) • What product areas are key to the company going forward? Thesis: We believe robust ATM unit growth over the past 12 • Is compression in the data center a growing market? Where months is set to continue as EEFT benefits from growing out- and how are your compression chips used? source trends in Europe, and expansion opportunities in India. • How big is the UART business? Can this business grow? Money transfer transaction volume has been strong, and FX has • The company has some power management designs in serv- recently turned into a tailwind after being a headwind for three ers. Can you talk about how your product is different and consecutive quarters. epay is also set to show year-over-year im- where you are winning? provement after 1Q13. • What are your plans for the cash on the balance sheet? Key Questions: • What are you most excited about for 2013? What are your top Expedia (EXPE) – $63.90 priorities for 2013? Market Cap: $8.65B • What can you do to jump start growth or improve margins Rating: Neutral at epay? 12-mo. Price Target: $73 (20x 2013E PF EPS) • What is new in Europe? Thesis: Expedia is a leading online travel agency with several large • Is your end customer/consumer feeling better or worse in global online travel brands under ownership including Hotels. 2013? Your leverage is extremely low—any plans to deploy com, Venere.com, Egencia, Hotwire.com and the Expedia brand more capital? itself. Expedia has had an eventful and extraordinarily successful Description: Euronet owns and operates the largest independent last 12-18 months. While gaining momentum after the spin-out ATM network in Europe, and offers prepaid wireless top up and of TripAdvisor in late 2011, Expedia has had a more focused, core money transfer services. strategy emphasizing platform upgrades, international expansion Michael Grondahl, Sr. Research Analyst, 612 303-6788 and conversion enhancements. Key Questions: Evidon, Inc. – Private • To what degree are new offerings like travel metasearch im- Description: Evidon, headquartered in New York, is a technology pacting traditional OTA bookings? Is there potential these solutions provider providing businesses and consumers unique services push consumers to book direct with hotels and insight into the collection, control and usage of online data. Its airlines? technology solutions include the Ghostery browser extension, • As occupancy rates continue to improve in the United enabling businesses and consumers to identify data collection States, is there potential for inability to access attractive in- (cookies) and tracking activity on accessed Web sites, helping to ventory? Do OTAs prefer a strong travel environment or an protect sensitive personal data, improve Web performance, and environment where higher occupancy makes more inventory maintain transparency in the control/use of online information. available? Evidon’s solutions also enable businesses to remain compliant • Are emerging markets ready for a major shift in travel book- with privacy laws and self-regulation across North America and ings from offline to online? Which markets are most critical Europe. Evidon was founded in 2009 by Scott Meyer (CEO). and does a company like Expedia face significant competi- Key Questions: tion from existing local competitors? • How would Do Not Track (DNT) of third-party cookie block- Description: Expedia, Inc. is a leading online travel agency with ing default setting on Web browsers impact both the adver- brands including Expedia, Hotels.com, Venere, Hotwire and tising ecosystem as well as consumers’ Web experience? Egencia. • Will the FTC be forced to step in and regulate online data Michael Olson, Sr. Research Analyst, 612 303-6419 privacy, or will industry participants come to a consensus on hotly debated topics including DNT, third-party cookie data collection and behavioral ad targeting?
19 Technology, Media and Telecommunications Conference March 12–13, 2013
Fabrinet (FN) – $16.41 and smart cards as well as IT application, Internet security and Market Cap: $567.36M access control. Rating: Overweight Key Questions: 12-mo. Price Target: $18 (10x taxed FY14E net op income + cash) • What are you seeing in terms of interest in fingerprint sensors? Thesis: Fabrinet recently reported impressive December quarter • How has the purchase of Authentec by Apple changed the results, exceeding consensus estimates on both the top and bot- market? tom lines. Although management provided cautious guidance, • Are you seeing other handset manufacturers adopting bio- our longer term thesis remains intact, and we believe the optical metric fingerprint identification? industry will see a material uptick in demand throughout 2013. • Can you talk about the company’s technology and barriers Service provider budgets are typically released in late February, to entry? and we believe management’s tone and demand forecasts will improve throughout the year. We believe recent carrier capex an- Finisar Corporation (FNSR) – $14.65 nouncements will materialize into accelerating demand for opti- Market Cap: $1.36B cal equipment in H2 of this year, and we recommend investors Rating: Overweight own shares of FN heading in to the upgrade cycle. 12-mo. Price Target: $16 (15x FY14E op income + cash) Key Questions: Thesis: Recent announcements from some of the largest global • Are service provider capital expenditure plans shifting more carriers leaves us incrementally more upbeat with regards to sec- toward optical equipment in 2013? ond half comeback for the optical space, and believe Finisar is • Has Fabrinet recaptured some of the share the company lost uniquely positioned to capitalize most off of a reversal in demand post market floods? trends. Moreover, the 10G upgrade cycle within the data center • When will the industrial lasers and sensors business be as should also help boost revenue upside heading in to Q1/2, and big as the optical component business and are profit mar- we expect meaningful revenue growth later in the year. Moreover, gins in this segment similar to those in the optical segment? now that macro trends seem to be improving, we believe pric- • What will be the next catalyst for the optical component ing environments may become slightly less disruptive to margins, industry? which may translate to earnings upside. • Is vertical integration by system manufacturers going to con- Key Questions: tinue to eat into the optical component market? • What are your expectations for a ramp in carrier capex in 2013? Description: Fabrinet is a leading outsourced manufacturer of op- • Is vertical integration by system manufacturers going to con- tical components and industrial lasers and sensors. tinue to eat into the optical component market? Troy Jensen, CFA, Sr. Research Analyst, 612 303-6291 • Can you discuss the risk of silicon photonics and what this means to your data center components? Financial Engines, Inc. (FNGN) – $32.68 • When will the inflection in Tunable-XFPs and ROADMs hit? Market Cap: $1.57B • What will be the next catalyst for the optical component Rating: Overweight industry? 12-mo. Price Target: $32 (21x 2013E EV/adj EBITDA, assumes Description: JDS Uniphase is a global provider of broadband test $181M net cash and 50.8M shares outstanding) and measurement solutions and optical products for communica- Thesis: Financial Engines is a play on the retirement demographic tions, commercial and consumer markets. tailwind, and the growing need for affordable financial advice Troy Jensen, CFA, Sr. Research Analyst, 612 303-6291 among middle-income citizens. Continuous improvement of en- rollment campaigns should help improve AUC penetration, while Freescale Semiconductor, Inc. (FSL) – $15.43 Income+ keeps FNGN relevant post-retirement. Lastly, its IRA Market Cap: $3.87B strategy doubles its total addressable market. Rating: Neutral Key Questions: 12-mo. Price Target: $13.50 (15x CY14E EPS) • Describe your strategy for entering the IRA market and how Thesis: Freescale underperformed the semiconductor market in you foresee this driving growth during 2013 and 2014? CY12, expects to narrow the gap in CY13, stabilize share in CY14 • What are your top priorities for 2013? and grow share in CY15. Most of company’s revenue is tied to • What is new on the competitive front? long design cycle programs. There is opportunity for the company • How would you handicap the Income+ initiative? What did to expand operating margins through mix, factory closures and you learn that you can apply to the IRA strategy? opex reductions. We remain Neutral awaiting signs of a pick-up Description: Financial Engines provides independent, personal- in growth. ized investment advice and portfolio management services to par- Key Questions: ticipants in employee-sponsored DC plans in the United States. • Freescale has a relatively new CEO and has recently em- Michael Grondahl, Sr. Research Analyst, 612 303-6788 barked on a re-alignment of resources; can you talk about some of the areas where the firm is re-allocating resources to Fingerprint Cards AB (FINGB SS) – 27.9000 SEK jump start revenue growth? Market Cap: 1.18B SEK • On the gross margin side, what are some of the things Description: Fingerprint Cards develops, produces and markets Freescale is doing to further drive costs down? fingerprint sensors used to verify a person’s identity. The tech- • How would you characterize the overall demand environ- nology consists of sensors, processors, algorithms and modules. ment? Any end markets stand out more than others? Fingerprint Cards’s technology can also be used in smartphones • Automotive has been a bright spot for Freescale; can you talk
20 Technology, Media and Telecommunications Conference March 12–13, 2013
about the content per vehicle that you are seeing and design Glu Mobile, Inc. (GLUU) – $2.26 win momentum? Market Cap: $148.43M • The networking business represents ~25% of total revenue; Rating: Neutral how is the momentum for the QorIQ processor? 12-mo. Price Target: $3 (2.0x CY13E revenue) • What is the timeline for transitioning to ARM-based Thesis: Glu Mobile, the only public mobile gaming pure-play, was processors? one of the first companies to transition from pay-to-play games Description: Freescale is a leading supplier of semiconductor so- to the free-to-play gaming model for mobile games. As such, the lutions to automotive, networking, industrial and consumer end company is now one of the top game developers on both Apple’s markets. App Store and Google Play. Glu continues to benefit from the ris- Gus Richard, Sr. Research Analyst, 415 616-1711 ing trend in smartphone ownership, especially as the iOS ecosys- tem goes through its upgrade cycle with the recent launch of the Gartner Inc. (IT) – $49.76 iPhone 5. We believe investors are taking a wait-and-see approach Market Cap: $4.65B as to the company’s ability to improve monetization of games that Rating: Neutral were delayed from late 2012 into 2013. Ability to show improve- 12-mo. Price Target: $52 (22x 2013E cash EPS) ment of monetization of these games will likely have a significant Thesis: Gartner dominates the IT research and advisory business impact on GLUU shares in the next 6-12 months. with an attractive business model and strong secular earnings Key Questions: growth prospects. Strong wallet retention rates, healthy growth in • What tactics can work to maintain or increase monetization contract value and strong attendance trends at key events suggest of free-to-play games and do certain genres monetize better positive underlying demand trends in Gartner’s business. We be- than others? lieve margin expansion to the mid-20% level (from 19.5% in 2012) • Can you describe the strategy in more detail of developing a can drive mid-20% EPS growth for the company. We view Gartner consistent release slate of relatively solid performing games as a way to have tech exposure, tech beta and tech growth without rather than looking for a few “homerun” titles? any of the product-specific risks of tech companies. • Should the weakness seen recently in the online social games Key Questions: market be a warning sign for mobile social games? Or is this • Salesforce productivity improvement will be a key driver of actually a positive for mobile gaming? contract value and sales growth. What are the prospects for • How is the increasingly competitive nature of the mobile productivity improvement in 2013? What is the company do- gaming space affecting your business? How do you see the ing to drive this improvement? competitive nature of the industry changing in the next 12-18 • The consulting business has been a weak link in recent re- months? sults. What steps can be taken to improve results here? Description: Glu Mobile is a leading developer of mobile games. • The company has seen strong margin improvement in recent Michael Olson, Sr. Research Analyst, 612 303-6419 years. What’s the upside limit? Can margins approach the high 20% level achieved historically? Green Dot Corporation (GDOT) – $14.02 Description: Gartner is a leading provider of IT research and ad- Market Cap: $504.64M visory services. Rating: Overweight Peter Appert, Sr. Research Analyst, 415 616-1709 12-mo. Price Target: $18 (12x 2013E adj. EPS + cash and equiv.) Thesis: Shares are attractively valued as we believe the increas- Global Eagle Entertainment Inc. (ENT) – $9.75; ingly competitive landscape is being reflected, and several cata- Market Cap: $534.71M lysts exist. Specifically, deals with Sallie Mae, Dollar Tree, Rush Rating: Overweight Card and the new checking account product (GoBank) should 12-mo. Price Target: $14 (blended 10x EV/2014 EBITDA) help support GDOT in 2013. GDOT also has scarcity value post Thesis: Global Eagle is well-positioned in the in-flight space. The TSYS acquiring NTSP. company’s recently closed transaction provides access to both Key Questions: content and the in-flight broadband technology. We are bullish on • Update investors on the competitive front including Wal- ENT as the new company becomes a substantial player in the in- Mart versus non Wal-Mart distribution? Can GDOT get its flight entertainment and connectivity market ($3B) that is growing share in the market? What is GDOT doing to get its share? at a 20% CAGR. • How are some new initiatives including SLM, Rush Card, Key Questions: DollarTree Stores and Go Bank progressing in 2013? What • Discuss the differences in technology currently available in is GDOT investing in each initiative and do you expect any the in-flight connectivity space (capacity, scale, required ca- revenues in 2013? pex, etc.) • What other priorities does GDOT have for 2013? • Highlight differences and similarities between the wide-body Description: Green Dot is a leading U.S. prepaid financial services and narrow-body jet opportunity. provider. • Discuss the current fragmentation of the in-flight entertain- Michael Grondahl, Sr. Research Analyst, 612 303-6788 ment and connectivity sector. What companies are best posi- tioned for consolidation? Grupo redIT – Private Description: Global Eagle is an in-flight entertainment company redIT supports the global IT community with private, customiz- providing in-flight connectivity and content. able cloud services and data centers in the southwestern U.S. James Marsh, CFA, Sr. Research Analyst, 212 284-9304 and Latin America. redIT enables its clients to focus resources on
21 Technology, Media and Telecommunications Conference March 12–13, 2013 what drives their competitive advantage—not the distractions of 5,900 employees located in more than 100 countries. Customers owning and managing IT. For clients such as Oracle, McDonald’s, include more than 70% of the Fortune 100 and more than 80% of Bloomberg and Carl Zeiss, among others, redIT customizes an IT the Fortune Global 100. strategy that’s scalable for the long term, delivering a lower total Key Questions: cost of ownership. • There is a notion that Hitachi Data Systems is primarily just Key Questions: a high-end storage vendor. What other segments do you par- • What is your view on the role of fiber connectivity in a data ticipate in? center-centric world? To what extent is the availability of mul- • You participate in the scale-out NAS market by way of your tiple connectivity options a factor in choosing a colocation or BlueArc acquisition. Who do you typically compete against hosting provider? and why are you wining? • What types of supply and demand trends are out there (pric- • What are your plans for participating in the all-flash market? ing, booking pipeline, changes in RFPs)? • What is your outlook on growth of bandwidth demands? Home Loan Servicing Solutions, Ltd. (HLSS) – $22.56 What technological advances are meeting these demands? Market Cap: $1.28B • How do you compete? Is price a leading factor, service, reli- Rating: Neutral ability or existing customers for peering? Or some combina- 12-mo. Price Target: $23.50 (1.5x 2013E book value) tion of them all? Do your customers look for total cost of Thesis: We believe HLSS’s portfolio has a long runway of opportu- ownership analysis (that is, build versus buy or on-premise nities at OCN, and could grow flow purchases during 2013. Lower location of their equipment)? funding costs have been very positive and underscore HLSS’s • How do you enter a new market? What are the challenges of early success. HLSS declared $13.7M of dividends during 4Q12 expanding your footprint? Do you require anchor customers ($0.35/share) and recently declared a $0.38/share 1Q13 dividend. for new builds? We continue to believe HLSS provides a consistent and stable • When competitors compete on price, what is the customer dividend stream. reaction? Do you see higher churn? Is it more difficult to win Key Questions: new business? • What are HLSS’s top priorities for 2013? • When customers churn, what reasons do they most often • Can funding costs go much lower and what needs to happen give? to increase the dividend from recent levels? • When do you envision financing MSRs/advances for some- Higher One Holdings, Inc. (ONE) – $8.94 one other than OCN? Market Cap: $455.92M Description: Home Loan Servicing Solutions finances and acquires Rating: Underweight mortgage servicing rights and associated servicing advances. 12-mo. Price Target: $8 (12x 2013E adj. EPS) Michael Grondahl, Sr. Research Analyst, 612 303-6788 Thesis: We believe enrollment and disbursement trends remain weak, and present a risk to ONE’s 2013 guidance. Furthermore, HomeAway, Inc. (AWAY) – $29.50 we believe competition will increase in 2013 as the GDOT/SLM Market Cap: $2.45B partnership could be compelling to schools as its GPR card does Description: HomeAway is the world’s largest vacation property not charge NSF fees and offers greater surcharge-free ATM access rental site with ~750,000 properties in more than 150 countries. (22,000 versus 700 at ONE). HomeAway has created a ‘network effect’ that enables the com- Key Questions: pany to grow by virtue of its already massive size; consumers want • What are ONE’s priorities for 2013? Will ONE try anything to use the site with the most properties and property owners want new to drive penetration at existing schools in 2013? to list their offerings on the site most visited by consumers. While • Clearly ONE’s customer retention rates have been stellar. HomeAway’s end market can be challenged by underlying travel However, the GDOT/SLM partnership, coupled with US trends, the company is well-positioned competitively and has a Bank’s entry into the market, could challenge this track re- significant head start in this category. cord. Have you seen any shift in the competitive landscape? Key Questions: • How do you expect revenue per card to trend going forward? • HomeAway is the clear market leader and has massive foot- • Is regulatory pressure increasing or decreasing in the print of vacation rental properties; what is the total address- marketplace? able market and is international a way to grow that address- • How would you rate the quality of your visibility for the next able market? 2-4 quarters? • Would international growth for the company likely come • What is the biggest opportunity for ONE? through additional acquisitions or organic growth of existing Description: Higher One provides payment products and services brands in new markets? to the U.S. higher education industry. • The vacation rental space is evolving competitively; to what Michael Grondahl, Sr. Research Analyst, 612 303-6788 degree will bigger players (OTAs, Google, etc.) increasingly focus on these peripheral online travel opportunities? Hitachi Data Systems, Inc., wholly owned subsidiary of Hitachi Ltd. (HTHIY) – $56.22; Hotel Tonight Inc. – Private Market Cap: $26.49B Description: Hotel Tonight is a hotel discovery service that helps Description: Hitachi Data Systems was founded in 1989 and is consumers find hotels at the last-minute on a mobile device. The headquartered in Santa Clara, Calif. Hitachi Data Systems has over app has been downloaded >3 million times. Hotel rates quoted
22 Technology, Media and Telecommunications Conference March 12–13, 2013 on the service are typically discounted; however, they are not an- Description: IMAX is a pioneer and leader in the large-format film nounced until noon on the day of check-in. Hotel Tonight provides industry. a valuable service to hotels by helping to drive occupancy growth James Marsh, CFA, Sr. Research Analyst, 212 284-9304 by filling otherwise vacant rooms. The hotel business is character- ized by high fixed costs and hoteliers are incentivized to fill rooms Impinj, Inc. – Private that would otherwise go unsold. Hotel Tonight offers inventory in Description: Impinj provides RFID solutions for identifying, locat- more than 50 U.S. markets, as well as the three largest markets in ing and authenticating items. Founded in 2000, the company sup- Canada and five markets in the United Kingdom. plies tags and reader chips as well as software and antennas for Key Questions: a broad range of end markets. The company currently targets re- • Is there a significant market for hotels looking to unload tail, manufacturing, transportation/baggage and pharmaceutical excess inventory for same-day bookings or is this a niche markets. Impinj focuses on UHF RFID solutions which currently market? support the global industry standard, UHF Gen 2. UHF solutions • OTAs (like Priceline’s “Tonight Only” deals) will likely enter allow for identification without line of sight and over very long this market to a greater degree as an additional service along- distances. side traditional bookings; how important will first mover ad- Key Questions: vantage be for companies like Hotel Tonight? • What applications are driving RFID demand? • Is mobile drastically changing the online travel landscape? • How many tags do you see a year? How penetrated is RFID? How has it enabled companies like Hotel Tonight to carve • What retailers are using your product today? out a niche missed by other players in the space? • What are the obstacles to adoption? • What does the current competitive landscape look like for iBiquity Digital Corporation – Private RFID? Description: iBiquity is the developer and licenser of HD Radio • How is Impinj’s solution differentiated? Technology, which is transforming AM and FM broadcasting with • Does the company have any patents to protect its technology vastly increased numbers of channels, drastically improved sound around UHF RFID? quality and an array of new data services. HD Radio Technology upgrades broadcast radio from analog to digital. Broadcasters inContact, Inc. (SAAS) – $6.79 that upgrade to HD Radio Technology can provide consumers Market Cap: $362.65M listening with HD Radio enabled receivers many benefits that Rating: Overweight improve their listening experience including CD-like digital audio 12-mo. Price Target: $10 (5.3x CY13E software rev + 1.5x CY13E tele- quality and useful data services such as real-time traffic, iTunes com rev + net cash) Tagging and Artist Experience. There are more than 2,100 stations Thesis: inContact is a leader in cloud-based contact center serving local markets across the country with HD Radio Broadcast software solutions. Feedback shows inContact has become the Technology. In addition to the upgrades to the original primary premier player in the space based on its size, expertise, growth channel – the HD1 – HD Radio Technology enables broadcasters and technology portfolio. Industry contacts sense momentum to create extra FM channels on the radio dial. These channels are and runway for the cloud software portion of inContact’s busi- called HD2/HD3 and today more than 1,400 HD2/HD3 channels ness, and we expect shares to outperform as investors begin are available in radio markets across the country, thereby provid- to recognize the transformation of the business and financial ing consumers more diverse listening options. model. Key Questions: IMAX Corporation (IMAX) – $25.70 • What key partnerships will you look to forge in 2013? Market Cap: $1.71B • How difficult is it to provide a cloud-based contact center so- Rating: Overweight lution versus an on-premise solution, and what technological 12-mo. Price Target: $32 (5-Yr DCF using 6.6% WACC and 7.0x lead do you have over premise-based vendors? terminal EBITDA multiple) • What does your long-term operating model look like? Thesis: We remain optimistic about the performance of IMAX Description: inContact is a provider of cloud-based contact center shares ahead of the holiday season. Our investment thesis re- solutions which allow its customers to improve contact center call mains on track and hinges on the strong box office performance routing, self-service and agent optimization. combined with robust screen growth. As we get closer to 2013, we Mark Murphy, Sr. Research Analyst, 415 616-1705 expect investors to start to focus on the magnitude of the laser opportunity, which is substantially larger than investors currently Informatica Corp. (INFA) – $35.01 believe. And second, investors still underestimate the power of Market Cap: $3.77B the IMAX model to drive free cash flow growth. We expect both to Rating: Overweight be major themes going forward. 12-mo. Price Target: $42 (22x 2014E EPS + net cash/sh) Key Questions: Thesis: Informatica is the undisputed leader in the ETL data in- • Can you discuss the impact of IMAX DNA on box office and tegration market—the industry standard for extracting data from earnings? multiple databases, transforming and cleansing the data, and • What are the expectations for growth in Latin America and reloading it for analysis. Our recent survey work shows that cus- Asia next year? tomers overwhelmingly feel that Informatica is increasing rather • When do you believe your new laser technology will start to than losing its technology differentiation (48% versus 5%) and drive meaningful returns? that Informatica will become more widely deployed rather than
23 Technology, Media and Telecommunications Conference March 12–13, 2013 less widely deployed in the next one to two years (43% versus 8%). provement can we expect to see going forward? Surprisingly, spending intentions for INFA licenses are stronger • What types of supply and demand trends exist (pricing, book- now than they were in our 2010 survey, suggesting growth may ing pipeline, changes in RFPs)? surprise to the upside in 2013. • How does Internap’s cloud offering and development com- Key Questions: pare to competitors? What are customers looking for? How • What is Informatica’s opportunity around big data, and what does Bare Metal fit in? don’t investors understand about it? • How do IP services fit into Internap’s future plans? What are • What allows Informatica to stay ahead of up-and-coming the benefits of continuing to offer IP? How do you manage vendors in the open source space, or tools offered by larg- the pressures from the IP business? er vendors, like Microsoft’s SSIS (SQL Server Integration Description: Internap offers data center colocation, managed and Services)? cloud hosting along with IP connectivity solutions. • How comfortable are you that license growth can accelerate Christopher Larsen, Sr. Research Analyst, 212 284-9339 throughout the year? What would cause upside or downside to license growth in 2013? Interpublic Group of Companies, Inc. (The) (IPG) – $12.78 Description: Informatica delivers data integration and data quality Market Cap: $5.29B software and services. Rating: Neutral Mark Murphy, Sr. Research Analyst, 415 616-1705 12-mo. Price Target: $11 (6x CY13E EV/EBITDA) Thesis: IPG has narrowed its operating performance gap versus Inphi Corporation (IPHI) – $9.66 agency peers, but still has ~300 bps of improvement to be on par Market Cap: $276.84M (~13% average industry operating margins). Near-term headwinds Rating: Overweight from key client losses and global macro uncertainty likely pauses 12-mo. Price Target: $12 (2.0x EV/CY14E revenue) near-term margin expansion; however, we believe this dynamic is Thesis: There has been a significant pause in infrastructure spend- likely priced into the stock as estimates already sit below initial ing due to the fiscal cliff as well as a regime change in China. FY12 guidance of 3% organic growth and at least 50 bps year-over- This has impacted Inphi’s major end markets: servers and opti- year margin improvement. While a strong balance sheet will al- cal networking. However, we think channel inventories are very low IPG to de-lever and buy back shares, supporting near-term lean, which will likely drive a strong inventory replacement cycle in double-digit EPS growth, we continue to wait for visible signs of 1H13. Moreover, the company is expected to launch a steady flow a potential recovery in organic revenue to get constructive on the of new 100G optical networking products in CY13. We expect this stock, which could come with easier compares beginning in 2Q13. to drive earnings momentum over the next 24 months. With more Key Questions: than $4/share in cash, we believe valuation remains compelling. • How is the traditional agency business model being disrupt- Key Questions: ed by greater emphasis on project-based work versus retainer • Do you see a recovery in the server market? and how is IPG positioning its agency portfolio in reaction? • What is your expectation of the uptake of LRDIMM? If • How does IPG’s unique approach to digital—rent (part- LRDIMM uptake remains slow, how quickly will RDIMM grow? ner with best ad tech offerings) versus own (acquire latest • The company has indicated that it expects to do $10M in op- technology or digital agency)—allow it to compete against tical SerDes revenue in CY13. Is that on track? agency peers with greater concentration of digital offerings? • How is demand for the 40G products? • What levers are available to drive ~300 bps margin improve- • Can you describe when you expect to sample your clock data ment (to come in line with agency peers at ~13%) and how recovery chip and driver chips for 100G? dependent is margin improvement on an acceleration in or- • Given current consensus, what do you expect the mix to be ganic revenue growth? between optical and server? Description: Interpublic Group (IPG) is an advertising agency Description: Inphi provides high-speed analog products for com- holding company. munications and computing markets James Marsh, CFA, Sr. Research Analyst, 212 284-9304 Gus Richard, Sr. Research Analyst, 415 616-1711 Interxion Holding N.V. (INXN) – $24.73 Internap Network Services Corporation (INAP) – $8.68 Market Cap: $1.68B Market Cap: $451.23M Rating: Overweight Rating: Overweight 12-mo. Price Target: $28 (DCF-based, 12.6% NT WACC, 3% termi- 12-mo. Price Target: $9.50 (DCF-based: 11.4% NT WACC, 8.7% nal growth rate) terminal WACC, and 2.5% terminal growth rate) Thesis: Interxion is a leading data center operator in Europe that Thesis: We believe Internap is at a point where we will start see- we have named a top small-cap pick for 2013. Given its strong rep- ing the benefits of recent strategic initiatives such as voluntarily utation, high-quality facilities and established customer base, the churning off low-profit customers and investing in company- company should continue to benefit from a significant demand owned data centers. The company is now well-positioned to capi- versus supply imbalance. We believe it is poised to benefit from talize on significant demand/supply imbalance in the market. We the secular trend to outsourced IT and cyclical trend to asset-light. rate Internap Overweight with a $9.50 target. Given its expansion in 2012, after being capacity constrained, we Key Questions: believe revenue growth should accelerate in 2013. • Is the company seeing the benefit of recent strategic initia- Key Questions: tives—better growth, profitability—and what type of im- • How has the macro environment in Europe impacted Interxion?
24 Technology, Media and Telecommunications Conference March 12–13, 2013
• Has management seen a material change in pricing or Where will you be at the end of 2013? And where do you think demand? by the end of 2014? • How important is it to build a global footprint, and are there • How will the mix of various products change in 2013 versus critical locations where the company needs to have a pres- 2012? ence that it doesn’t today? Description: IPG Photonics manufactures fiber lasers and ampli- • Have there been any significant changes in the competitive fiers for use in materials processing, advanced technologies, tele- environment? How has the emergence of cloud computing com and medical applications. affected Interxion? Jagadish Iyer, Sr. Research Analyst, 212 284-5038 Description: Interxion is a market leader in the European multi- tenant data center (MTDC) market. It operates the most facilities Iris Mobile Corporation – Private in the most countries in Europe with 32 secure, high-quality facili- Description: Iris Mobile is an ad technology company most rec- ties located throughout 11 countries. ognized for pioneering “rich media messaging.” Iris’s technology Christopher Larsen, Sr. Research Analyst, 212 284-9339 enables advertisers to deliver rich media mobile communication via text messaging. Mobile ad campaigns utilizing Iris’s technolo- InvenSense, Inc. (INVN) – $12.02 gy can go beyond standard character “text” limitations to delivery Market Cap: $1.01b of rich media content such as images, audio and video—right- Rating: Overweight sized to any type of handset. According to comScore 2011 find- 12-mo. Price Target: $27 (25x CY14E EPS) ings, redemption rates are nearly twice as a high when customers Thesis: We favor InvenSense as an investment given its tablet and are presented with a “rich media message” versus a simple SMS smartphone exposure and believe the company’s design wins will message. drive continued revenue momentum in CY13. We believe 28nm Key Questions: constraints are starting to ease and the Apple/Samsung litigation • Given the nascent stage of mobile advertising filled with trial will have little to no impact on the company. We believe market and error, what is/is not working? share at Samsung will increase to ~50% from ~30% by the end of • How effective are mobile ads today? What type of campaigns, the March quarter. Additionally, we believe InvenSense will likely formats and locations are driving effectiveness? be designed into Apple in 2013 and think that the company is po- • What potential technology hurdles remain that prevent the sitioned to gain share with Nokia’s Windows 8 Phones. In our scaling of mobile advertising for advertisers? view, the recently announced CEO transition should be seamless. Key Questions: JasperSoft Corporation – Private • Discuss the company’s plans for future capacity additions at Description: JasperSoft provides a flexible, cost-effective, open- your fabs. source business intelligence (BI) suite, which enables better deci- • How has the competitive landscape evolved over the past sion-making through interactive reports, dashboards and analyt- year and what is INVN’s differentiation in the marketplace? ics. Leveraging a commercial open source business model and • InvenSense is designed into the reference designs of virtually a community of over 250,000 registered members, JasperSoft’s all major chip manufacturers; what are you seeing in terms open source BI software has been downloaded more than 14.5 of seasonality this year? million times. JasperSoft production deployments, in excess • How does the macro environment impact your outlook? of 175,000, power 100,000 data-driven applications spanning Description: InvenSense is a fabless supplier of MEMS-based 14,000 commercial customers. JasperSoft is headquartered in gyroscopes and other sensors used to detect motion in gaming San Francisco. devices, smartphones, tablets and other consumer products. Key Questions: Gus Richard, Sr. Research Analyst, 415 616-1711 • What advantages does open source BI provide over propri- etary BI solutions? IPG Photonics Corporation (IPGP) – $59.29 • How does JasperSoft benefit from the big data trend? Market Cap: $3.05B • How does JasperSoft fend off competitors such as IBM Rating: Overweight (Cognos), SAP (Business Objects) and TIBCO (Spotfire)? 12-mo. Price Target: $68 (20x FY13E EPS) Thesis: IPG Photonics is a clear beneficiary of the secular growth in JDS Uniphase Corporation (JDSU) – $14.16 fiber lasers, as the market could reach $1.4B by 2015 from $600M Market Cap: $3.33B in 2011 (~25% CAGR) given early-stage adoption in cutting and Rating: Overweight various material processing segments. We believe the threat from 12-mo. Price Target: $18 (14x CY14E op income + cash) competition remains overblown given the learning curve for any Thesis: JDSU has done a spectacular job of taking share in the op- new entrant is quite daunting both from yields and cost parity tical component market, which we expect will continue throughout compared to IPGP. We expect IPGP to sustain its gross margins of CY13. Telco spending on optical equipment is currently at three- 50–55% and maintain its 75–80% market share and likely increase year lows, but we believe the growing use of bandwidth-thirsty de- its revenues to $180–$200M/quarter from ~$150M/quarter pres- vices, video applications and recent carrier capex announcements ently, which could result in $1.00 in quarterly EPS exiting 4Q13. will drive further growth within the optical sector. JDSU also of- Key Questions: fers revenue diversification with exposure to test and measure- • Provide greater details on gross margin sustainability in ment equipment and other advanced optical technologies. The 2013? Where do you see the threats? company has a variety of new platforms and technologies in the • Any update on the cost reduction plan for laser diodes? T&M segment that should drive market share gains and margin
25 Technology, Media and Telecommunications Conference March 12–13, 2013 expansion. We believe 2013 will be a significantly better year for LinkedIn Corporation (LNKD) – $168.18 the optical sector and this should translate into better top line Market Cap: $18.34B growth and expanding margins. Rating: Overweight Key Questions: 12-mo. Price Target: $176 (40x CY14E EV/EBITDA + cash) • Are service provider capital expenditure plans shifting more Thesis: LinkedIn is still in the relatively early stages of fully mon- toward optical equipment in 2013? etizing its professional network asset and we believe the company • Is vertical integration by system manufacturers going to con- has the path to continue to grow in the mid-double-digit range tinue to eat into the optical component market? for at least the next three years. We believe LinkedIn may provide • Can you explain how JDSU has captured so much share in one of the best, if not the best, growth profiles for the $10 billion+ pluggables this year and is it sustainable? market cap companies under our coverage. As a result, we believe • Can you discuss the traction JDSU has had with developing shares of LNKD will trade at a healthy multiple for the foreseeable more software capability in the CommTest segment? future and deserve to trade at a larger premium than that already • What will be the next catalyst for the optical component assigned. industry? Key Questions: Description: JDS Uniphase is a global provider of broadband test • How big is LinkedIn’s market opportunity and what can and measurement solutions and optical products for communica- realistically be captured with the current suite of products? tions, commercial and consumer markets. We’ve seen $25B as the market for hiring services, but does Troy Jensen, CFA, Sr. Research Analyst, 612 303-6291 LinkedIn really serve all $25B of the markets? • What percentage of total inventory is mobile and how fast is Kinetic Social, Inc. – Private it shifting to mobile? When they turn mobile on, will there Description: Kinetic Social is an online advertising platform fo- be a noticeable change to the marketing services business? cusing on the opportunities in social and mobile. Kinetic utilizes • In terms of the pricing increase in Q2 for the talent solutions proprietary data and algorithms to serve advertising customers product, is this something that will be evaluated on a yearly including multiple Fortune 500 companies. basis or how should we think about pricing changes going Key Questions: forward? How underpriced is the product currently? • Aside from the growing importance of social, what trends are • Given stated investment intentions from Facebook and you seeing from performance advertisers heading into 2013? Yahoo, did that change plans for LinkedIn’s level of invest- • What trends from brand advertisers? ment, particularly in engineering, in 2013? • What about your platform unique positions Kinetic to deliver • What is the timeframe around additional international roll- a better product to your customers? outs of the recruiter product? Description: LinkedIn is a leading global digital network amassing Level 3 Communications, Inc. (LVLT) – $19.98 the largest professional database. Market Cap: $4.35B Gene Munster, Sr. Research Analyst, 612 303-6452 Rating: Neutral 12-mo. Price Target: $22 (DCF to 2017, 8.9% NT WACC, 9.3% ter- Lionsgate Entertainment Corp. (LGF) – $20.97 minal WACC, 2% terminal growth rate) Market Cap: $2.83B Thesis: Level 3 is a global operator of local and long distance fiber Rating: Overweight and fiber-based services. While the company had stumbled in 12-mo. Price Target: $25 (5-Yr DCF, 8.0x term EBITDA mult and the final years of the last decade, recently the company has found 6.2% WACC) itself on a better footing. The integration of Global Crossing is Thesis: Hunger Games is admittedly a substantial catalyst, but we progressing well, helping the company to both de-lever the busi- see a number of positive initiatives across the company. The slate ness and realize enough expense synergies to become free cash is looking deeper and distribution deals are improving. Television flow positive in 2013. While the core business continues to im- has plenty of momentum following Anger Management (with prove, recent disappointment in margins and management’s 2013 possible extension) and Nashville (ABC’s new TV series). Lastly, outlook has weighed on the stock. EPIX’s recent deal with Amazon highlights how the joint venture Key Questions: is making headway. The overarching theme to these initiatives are • How and when do you think you can return to your goal of moderating cash flow volatility and building out profitability in out 2% sequential CNS revenue growth? years. • What is the current competitive environment like and how is Key Questions: it affecting pricing? • Discuss the reasons behind recent success in Lionsgate U.K. • Now that you’re essentially over the hump in integrating • Comment on your TV segment: what is the pipeline and re- Global Crossing, are you ready to take additional acquisi- cap recent success with FX and ABC. tions? After much activity in recent years, what is your out- • Can you discuss the impact on the Hunger Games franchise look for future industry consolidation? post acquisition of Summit? Description: Level 3 offers facilities-based integrated communica- Description: Lionsgate Entertainment is an independent producer tions services. /distributor of film and TV content. Christopher Larsen, Sr. Research Analyst, 212 284-9339 James Marsh, CFA, Sr. Research Analyst, 212 284-9304
26 Technology, Media and Telecommunications Conference March 12–13, 2013
LivePerson Inc. (LPSN) – $14.47 than 28,000 projects, models and things that are available to be Market Cap: $808.76M downloaded and printed on the MakerBot Replicator 2 3D printer. Description: LivePerson is a market leader in real-time intelligent MakerBot is also the first company to establish a retail presence customer engagement. It provides online engagement solutions with a store located in New York City. that facilitate real-time assistance and expert advice through Key Questions: online interactions such as chat, voice/click-to-call, e-mail, and • When do you believe the consumer 3D printing market will self-service/knowledgebase for corporations of various sizes. The start to drive meaningful revenue growth for the industry? company is headquartered in New York City. • Can you discuss how MakerBot is helping to grow the con- Key Questions: sumer market by developing libraries of 3D content? • What are either new or higher-growth areas where LivePerson • Can you touch on the launch of MakerBot’s retail store is making investments? launch in New York? • What kind of opportunities does your platform, LiveEngage, • How does your product compare to competitors such as 3D create? systems, Formlabs and others? • Which vendors are you most often replacing, and how has that changed in the last year? Marchex, Inc. (MCHX) – $3.78 Market Cap: $128.92M LTX-Credence Corporation (LTXC) – $5.80 Rating: Overweight Market Cap: $275.06M 12-mo. Price Target: $7 (9x 2013E EV/EBITDA + the domain port- Description: LTX is a leading provider of automated test solutions folio and cash) to the wireless, computing, automotive and entertainment market Thesis: We believe that investors will begin to pay greater atten- segments. It competes with Teradyne and Advantest. tion to Marchex shares as the company nears the spinout of its Key Questions: slower growth non-call business. We believe that call revenue will • Provide an update in terms of timing on the recovery of the be able to grow at ~10% in 2013. microcontroller market. Key Questions: • Where is the opportunity for the new DiamondX testers to • Are there any recent partnerships that should be expected to gain share against the competition? drive revenue growth? • How much do you play in the mobility and connectivity seg- • What is the timeline for selling the non-call assets? ment? Where is the biggest opportunity to grow? • Is there a potential use for any cash that would be generated • What are your views on industry consolidation? from non-call assets? Description: Marchex, Inc. is the leading provider of call-based Majesco Entertainment Co. (COOL) – $0.53 advertising products. Market Cap: $21.45M Gene Munster, Sr. Research Analyst, 612 303-6452 Description: Majesco is primarily a console video game publisher, but has recently developed plans to venture into the high growth MDC Partners Inc. (MDCA) – $13.75 online social and mobile gaming markets. Most recently, the com- Market Cap: $427.43M pany has had success in the dance/fitness video game segment Rating: Overweight with its Zumba Fitness franchise, which currently accounts for 12-mo. Price Target: $16 (~6.7x CY13E EV/EBITDA) just under 90% of overall revenues, on the Wii and Kinect. Thesis: MDC continues to capture digital mindshare in the ad Key Questions: market and its industry leadership continues to yield growth well • The social and mobile gaming space has changed significant- above peers. With digital exposure >50% of sales, MDC is highly ly in the last 12 months; what can we learn from the broad levered to a digital advertising market growing 3x traditional me- underperformance we’ve seen in social gaming and increas- dia. We expect investor confidence in the scalability of the busi- ing focus on mobile? ness model to be restored over the next several months as mar- • There are a couple of business models in the space, with the gins continue to recover from some missteps in 4Q11 into 4Q12. trend skewing toward free-to-play. Will that continue to be the Restored growth and confidence in margin expansion should case and ultimately will console gaming shift that way as well drive the multiple back toward the high end of the peer range (7x- or at least will pricing on console games come down in favor 8x EV/EBITDA). of more purchases of DLC, with lower upfront cost? Key Questions: • How do you create a consistent pipeline of solid games vs. • Margin expansion is anticipated to return to the model in having a home run followed by a strike out; is more consis- 2013; what is required for MDC to sustain consistent margin tency possible? expansion and what is the timeline to long-term targets of 15-17% EBITDA margin? MakerBot Industries, LLC – Private • Questions remain over the long-run ability for a digital-cen- Description: MakerBot is a leading supplier of 3D printers for hob- tric agency to scale margins; what drives your confidence in byist and consumers. The company was founded in 2009 and as the model’s ability to scale? of the end of 2012, had shipped well over 15,000 MakerBot 3D • How will the leverage ratio trend over the next year and what printers to engineers, designers and researchers. The company is the company’s appetite for further acquisitions given the recently introduced the fourth generation of 3D printers called the robust activity of the past two to three years? With the acqui- Replicator 2. In addition to making 3D printer systems, MakerBot sition of a media agency under the MDC umbrella, are there has also developed the Web site Thingverse that consists of more any meaningful holes in the portfolio?
27 Technology, Media and Telecommunications Conference March 12–13, 2013
Description: MDCA is a holding company with expertise in digital Description: Mellanox is a leading provider of high-performance interactive services. Its partner firms provide advertising, interac- InfiniBand and Ethernet interconnect products for servers, switch- tive, direct marketing, database and customer relationship man- es and storage systems. agement, public relations and other marketing services. Andrew Nowinski, Sr. Research Analyst, 612 303-6933 James Marsh, CFA, Sr. Research Analyst, 212 284-9304 Millennial Media Inc. (MM) – $9.37 Medidata Solutions, Inc. (MDSO) – $52.12 Market Cap: $742.72M Market Cap: $1.30B Rating: Neutral Rating: Overweight 12-mo. Price Target: $16 (8-year DCF, 12% WACC, 6% Terminal 12-mo. Price Target: $54 (4x EV/2014E revenue + net cash) Growth) Thesis: Medidata uprooted clinical trial market with its cloud- Thesis: We believe Millennial remains well-positioned as the top based Rave platform, which provides EDC and related solutions. “independent” platform with scale to capitalize on the larger and The company saw tremendous growth with its innovative SaaS growing mobile ad market. While the opportunities to partici- offering and is getting into the next leg of growth with non-EDC pate in the growing mobile business are attractive, the risks are solutions. Because of its unique cloud-based offering, the com- substantial, including heightened competition and challenges to pany is in a unique position to monitor, analyze and offer solu- monetizing its business model. tions to clients regarding their clinical trials, which can have far Key Questions: reaching impacts in optimizing and expediting trials. We believe • Discuss your plans to grow your market share in the U.S. the company can support 20%+ top-line growth given the traction mobile market? in the backlog and investments in new offerings. • Discuss mobile ad trends in 2013 and what direction you see Key Questions: the market heading to. • Why is the cloud a better delivery platform for software in Description: Millennial Media is a first mover within mobile adver- pharma? tising and the leading “independent” mobile advertising network • What’s the TAM you are going after? What’s your market offering scale of nearly 340 million unique users. The company is share today? riding the wave of mobile connectivity as more and more individu- • How are you beginning to use big data algorithms in your als consume content through mobile devices (both smartphones solutions, and how do you think about that opportunity lon- and tablets), which will be accompanied by an estimated $10B ger term? tailwind of ad dollars allocated towards mobile platforms over • Competitive landscape – what is being used in the market- the next four years (according to MagnaGlobal). Being (mobile) place today, and who are you running up against? operating system and device agnostic, Millennial can provide Description: Medidata Solutions is a leading provider of SaaS- advertisers, agencies, publishers and app-developers with the based software solutions for the clinical trial market. necessary tools and services to navigate an extremely diversified Sean W. Wieland, Sr. Research Analyst, 415 616-1710 and fragmented mobile advertising market by delivering engaging and targeting advertising based on demographics, behavior and Mellanox Technologies, Ltd. (MLNX) – $52.73 potentially location. Market Cap: $2.24B James Marsh, CFA, Sr. Research Analyst, 212 284-9304 Rating: Overweight 12-mo. Price Target: $52 (15x CY14E EPS) Monolithic Power Systems Inc. (MPWR) – $24.59 Thesis: Our thesis on shares of MLNX remains unchanged, Market Cap: $877.20M though we significantly lowered our estimates on January 24 on Rating: Neutral disappointing Q1 guidance. We were disappointed by the Q1 guid- 12-mo. Price Target: $23 (20x CY14E EPS) ance, attributable to the excessive inventory build at the OEM cus- Thesis: Monolithic Power is in the midst of several transitions tomer. We were also surprised management did not understand from consumer-driven revenue growth to communication in- the magnitude of this inventory build until after the preliminary frastructure and industrial-driven growth. MPWR is shifting its Q4 earnings call, but remain confident in the market opportunity revenue mix from consumer (45% of revenue) and PC (19% of that lies ahead for Mellanox. We continue to believe Mellanox will revenue) to more industrial (12%) and communication infrastruc- hold a competitive advantage via its FDR technology and due to ture (19%). In addition, the company is ramping its new BCD3 management’s decision to accelerate R&D spending this year, will process, but BCD3 currently only accounts for 3-5% of revenue. maintain its lead over the competition with the launch of EDR We believe these transitions will take more time than the mar- (100GB/s) products in 2014. As such, we reiterate our Overweight ket generally anticipates. In addition, based on the weak TV and rating. consumer electronics demand, we expect lackluster consumer Key Questions: electronics demand, increasing revenue risk. For these reasons, • Despite the inventory burn-off at your primary OEM partner we remain Neutral until revenue momentum re-accelerates or a in Q1, do you think 2013 could be a growth year? more attractive entry point emerges. • RDMA is a low-latency alternative to InfiniBand. How do you Key Questions: effectively compete against it and what are your large Web/ • What are the biggest growth drivers for the company over the cloud customers deploying? next several years? • What are your growth expectations for the HPC market in 2013? • Can you discuss how your power module business for com- • Since you are essentially protocol agnostic due to your VPI munication infrastructure is ramping? technology, where have you seen more growth—InfiniBand • Consumer is a large percentage of revenue. Do you expect or Ethernet? that business to decrease over time?
28 Technology, Media and Telecommunications Conference March 12–13, 2013
• What do you expect BCD3 to be as a percentage of revenue and Intel transitions to 14nm in 2013 and 2014. The company is next year? also leveraged to the growing use of FinFET technology. Based on • Your SSD business has seen significant growth. What is driv- this assessment, we expect revenue to be down slightly in CY13 ing it? and return to growth in CY14. We maintain our Neutral rating and • What kind of traction are you getting in the server market? would expect to become more constructive as the company nears • Can you talk about how you are doing in power management an inflection in demand. in notebooks? Key Questions: Description: Monolithic Power is a fabless supplier of highly in- • What is the primary driver of growth near-term? tegrated, high performance analog/mixed-signal power manage- • When do you see VNAND ramping in terms of demand? ment and audio ICs for a range of end markets. • Can you talk about your penetration at TSMC with 20nm and Gus Richard, Sr. Research Analyst, 415 616-1711 16nm? • What is driving the adoption of OCD in a fab? Moody’s Corporation (MCO) – $48.06 • Beyond FinFETs and DRAM capacitors, where is OCD used? Market Cap: $10.73B • Can you talk about your competitive positioning in OCD ver- Rating: Overweight sus Nova Measurement and KLA? 12-mo. Price Target: $59 (17x 2013E EPS) Description: Nanometrics is a supplier of advanced process con- Thesis: Exceptionally robust 2012 operating results and strong trol metrology systems. 2013 guidance serve to reinforce our enthusiasm for the MCO Gus Richard, Sr. Research Analyst, 415 616-1711 investment story. Strong near-term earnings momentum, attrac- tive secular revenue growth prospects, potential for margin up- NeoPhotonics Corporation (NPTN) – $5.02 side, fading regulatory concerns and manageable legal risks make Market Cap: $152.68M MCO one of our favorite investment ideas. Rating: Overweight Key Questions: 12-mo. Price Target: $7.00 (0.5x EV/CY13E sales) • Debt issuance volumes have been very robust. Is this sus- Thesis: NeoPhotonics has been an outperformer in the optical tainable? How much is pull-forward from 2013-14? component market and one of the only suppliers showing se- • The 2012 operating margin of 39.9% was well below the quential and year-over-year growth more consistently. The com- 50%+ peak achieved in 2006-07. Recognizing that the world pany’s success has been due to better product positioning with has changed and regulatory costs are higher, what are the significant exposure to fiber-to-the-home deployments in China limits to further recovery in margins? and throughout the world in addition to share gains in the ITLA • Moody’s Analytics accounts for about 15% of MCO earnings. product category. NeoPhotonics also has a significant amount of Recent growth has been impressive. What’s the upside for content in some of the leading 100G coherent systems, and we this unit? Are further acquisitions likely? anticipate all of these factors will help drive market share gains Description: Moody’s Corp. provides credit ratings and related into the future. We believe 2013 will be a significantly better year research and software services. for the optical sector and this should translate into better top-line Peter Appert, Sr. Research Analyst, 415 616-1709 growth and more sustainable profits for NPTN. Key Questions: MoSys, Inc. (MOSY) – $3.47 • Are service provider capital expenditure plans shifting more Market Cap: $138.65M toward optical equipment in 2013? Description: MoSys is a provider of high-density memory and • Is vertical integration by system manufacturers going to con- high-speed interface (I/O) as well as intellectual property. The tinue to eat into the optical component market? company markets a Bandwidth Engine memory solution that • How much of a lead do you have before more competitors reduces network bottlenecks for 100G networking equipment. introduce ITLAs? End market applications include networking, consumer products, • After reaching profitability, what do you think is a reasonable graphics systems, general computing and storage systems. near-mid-term operating margin target? Key Questions: • What will be the next catalyst for the optical component • How is the transition from an IP company to a product com- industry? pany going? Description: NeoPhotonics manufactures PIC components and • What network processor companies are you working with? subsystems for use in optical communications networks. • What kind of performance improvement does your product Troy Jensen, CFA, Sr. Research Analyst, 612 303-6291 provide over existing solutions? • What types of communication equipment are you designed NetApp, Inc. (NTAP) – $33.84 into and when do you expect these products to ramp into Market Cap: $12.17B production? Rating: Overweight 12-mo. Price Target: $39 (15x FY14E EPS) Nanometrics Incorporated (NANO) – $14.75 Thesis: Our long-term thesis on NetApp remains unchanged. The Market Cap: $342.94M company continues to improve its execution and is now deliver- Rating: Neutral ing more consistent results. We believe the ramping demand for 12-mo. Price Target: $13.50 (1.5x CY14E revenue) ONTAP 8.1 cluster-mode, the company’s expanding flash port- Thesis: Near-term visibility for Nanometrics is likely to be limited folio and increasing penetration of the telco/service provider in 1H13 as spending from its top customers has slowed. We be- market will drive margin expansion and market share gains over lieve spending will pick up in 2H13 as Samsung invests in capacity the course of FY14 (April fiscal year-end). If NetApp continues to
29 Technology, Media and Telecommunications Conference March 12–13, 2013 narrow the gap in terms of product revenue growth with industry • Can you give us update on your strategy in terms of geo- leader EMC, we believe the P/E multiple could drift back toward graphic end markets? Where do you see the most opportu- the company’s three-year average P/E multiple of 18.8x (currently nity and how do you plan to execute in those markets? 14-15x). We maintain our Overweight rating. Key Questions: Nimble Storage, Inc. – Private • OEM revenue was down 19% year-over-year last quarter. Description: Nimble Storage is a storage vendor that combines When should we expect growth to resume in this segment? primary and backup storage systems into a single solution. • FlashRay is a purpose-built all-flash array, but not expected Nimble’s solution was designed to specifically leverage the perfor- until 2014. How will you compete against the all-flash ven- mance benefits of flash, while enabling customers to benefit from dors in 2013, particularly with EMC’s XtremIO expected to hit the price/capacity of hard disk drives. Their first flash-optimized the market in the second half of 2013? system was launched in 2010 and the company now has systems • Update us on the pending launch of ONTAP 8.2. deployed worldwide in a wide range of applications and industry • Update us on Flash Accel. verticals. Description: NetApp is a provider of storage and data manage- Key Questions: ment solutions for managing, protecting and archiving data. • Why does Nimble win against the larger industry players and Andrew Nowinski, Sr. Research Analyst, 612 303-6933 what differentiates Nimble from the all-flash vendors? • What applications/use cases do you have the most success NetSuite, Inc. (N) – $69.79 in and why? Market Cap: $5.02B Rating: Neutral Nimbus Data Systems, Inc. – Private 12-mo. Price Target: $65 (11.8x EV/CY13E revenue) Description: Nimbus Data Systems is a storage vendor, providing Thesis: NetSuite is a leader in comprehensive on-demand offer- one of the industry’s only all-flash storage arrays. The company’s ings that enable customers to run their entire business opera- systems are engineered for server and desktop virtualization, da- tions. Because all elements of NetSuite’s application suite share tabases, HPC and next-generation cloud infrastructure. Nimbus the same transaction and customer data in a single database, cus- combines the use of flash memory hardware with robust data tomers can run their entire business without facing a burdensome protection software, enabling customers to achieve greater per- integration task. Therefore, NetSuite represents a fundamentally formance at a significantly lower operating cost than conventional new concept. Many small- and medium-sized entities struggle to disk-based primary storage arrays. Nimbus sold its first system in automate their business due to the complexity and inefficiency of 2006 and now has more than 200 active customers in 18 coun- traditional client-server software. If NetSuite can eventually make tries, one of which is eBay. it easy for SMBs and subsidiaries of much larger organizations Key Questions: to run their businesses by simply “plugging into the cloud,” then • Why does Nimbus win and who are you winning against the we believe it will be able to address a very real need for tens of most? thousands of customers or more. • How do you effectively compete against hybrid arrays, which Key Questions: leverage both flash and hard disk drives? • What is insulating NetSuite from the weakness that has plagued several on-premise software companies over the last NQ Mobile Inc. (NQ) – $6.92 couples of quarters? Market Cap: $325.58M • How do products like SuiteCommerce and Retail Anywhere Rating: Overweight change your addressable market and influence the uptake of 12-mo. Price Target: $17 (19x FY13E EPS) existing products? Thesis: NQ Mobile is a leading SaaS provider of consumer-centric • Over the last year, you’ve brought on several new partners. mobile Internet services focusing on security and productivity. We How does this benefit you in terms of offloading services, expect NQ Mobile to grow rapidly as it leverages its freemium and how do you resolve channel conflict with your resellers? business model with a sizeable installed base of more than 85M Description: NetSuite is a leading on-demand ERP provider. monthly active users against a backdrop of strong multi-year Mark Murphy, Sr. Research Analyst, 415 616-1705 growth in global smartphone shipments. Key Questions: Newport Corp. (NEWP) – $16.35 • How have retailer and carrier partnerships been ramping in Market Cap: $626.47M the United States, and what kind of revenue could we see Description: Newport offers equipment for three product groups: from them? photonics, optics and lasers. Products include wafer positioning • How do you think about maintaining high operating margins equipment, laser measurement systems, night vision technology versus investing for growth? and lasers used in medical technologies such as ophthalmic sur- • What plans to you have to increase conversion rates in over- gery applications. End markets include microelectronics, health- seas (non-Chinese) markets? care, defense and industrials. Description: NQ Mobile is a leading SaaS provider of mobile se- Key Questions: curity and productivity services. • How would you size your growth opportunities across the Mark Murphy, Sr. Research Analyst, 415 616-1705 various end markets you serve? • What are the new end markets you believe you can penetrate in the next 2-3 years?
30 Technology, Media and Telecommunications Conference March 12–13, 2013
Oclaro, Inc. (OCLR) – $1.32 Key Questions: Market Cap: $121.20M • What is the new revenue break-even level on a quarterly Description: The combination of Oclaro and Opnext has created basis? one of the largest providers of lasers and optical components, • What is the status of your working capital and inventory modules and subsystems for the optical communications, in- balance? dustrial and consumer laser markets. The company is a global • What is the new operating expense level going forward on a leader dedicated to photonics innovation, with cutting-edge re- quarterly basis? search and development (R&D) and chip fabrication facilities in • What kind of traction has the new Vertex 3 received? the U.S., U.K., Italy, Switzerland, Israel, Korea and Japan. It has Description: OCZ Technology was founded in 2002 and today is in-house and contract manufacturing sites in China, Malaysia and one of the largest pure-play SSD providers in the industry. Thailand, with design, sales and service organizations in most of Andrew Nowinski, Sr. Research Analyst, 612 303-6933 the major regions around the world. Key Questions: ON24, Inc. – Private • Are service provider capital expenditure plans shifting more Description: ON24 is a virtual communications platform for the toward optical equipment in 2013? global enterprises. ON24 offers a broad product portfolio, includ- • Is vertical integration by system manufacturers going to con- ing Webcasting, virtual events and virtual environments, acces- tinue to eat into the optical component market? sible from any device and supported by reporting and analytics. • Can you discuss the benefits and risks of combining with Applications for the ON24 platform include demand generation, Opnext? partner enablement, training, product launches, company town • After reaching profitability, what do you think is a reasonable hall meetings and user conferences. More than 700 organizations near-midterm operating margin target? use ON24, including IBM, CA Technologies, Merck, Unilever, • What is the next catalyst for the optical component industry? JPMorgan Chase, Deloitte, Credit Suisse, Ernst & Young, Amazon and New York Life. The company is headquartered in San Francisco Ocwen Financial Corporation (OCN) – $39.42 with offices throughout the world. Market Cap: $5.32B Key Questions: Rating: Overweight • What differentiates ON24 versus a service like WebEx or Live 12-mo. Price Target: $47 (10x 2013E core EPS) Meeting? Thesis: Ocwen is positioned to benefit from the secular wave of ser- • What is the market’s perception of Web-only events as re- vicing being transferred from large banks and legacy mortgage origi- placements of in-person events? nators to specialty servicers. We believe OCN has the liquidity neces- • What is the market growth rate and size of virtual environ- sary to actively pursue its $350B pipeline, and its low-cost servicing ments relative to traditional Webcasting? platform and principal-reduction modification core competency are key differentiators. Lastly, its recent Homeward and ResCap acquisi- Pandora Media, Inc. (P) – $12.20 tions are very accretive, and include an origination platform which Market Cap: $2.07B will help support portfolio growth and reduce run-off. Rating: Neutral Key Questions: 12-mo. Price Target: $11 (5-Yr DCF using 6.3% WACC and 12.5x • Help investors see past the next deal. terminal EBITDA multiple) • What does OCN look like in a few years? Thesis: We remain on the sidelines for now on P shares until we • What does mortgage servicing look like in a few years? get better clarity on the ability of management to monetize its • How big is the pipeline really? rapidly growing listenership. Improved monetization would help • How big can OCN be? resolve concerns about relatively high music licensing costs and • What are OCN’s top priorities for 2013? worries about new competitors, but could be challenging as mix • With OCN’s low-cost operations, how does it lose deals? shift moves toward mobile that has been harder to monetize than • After NSM’s refinances its servicing portfolio, would OCN desktop. We like the listenership growth trajectory, but need to see ever acquire the company and consolidate the industry? some business model improvements to get more constructive. Description: Ocwen specializes in the servicing and special servic- Key Questions: ing of nonprime and prime, residential and commercial mortgage • Discuss recent listenership trends and your expectations for loans. Ocwen is also expanding into mortgage originations in a 2013. measured way. • Comment on the growth of the local sales force and its im- Michael Grondahl, Sr. Research Analyst, 612 303-6788 pact on ad rates. • What is the likely impact of the recently introduced The OCZ Technology Group, Inc. (OCZ) – $1.77 Internet Radio Fairness Act? Market cap: $119.74M Description: Pandora is a leader in online radio. Rating: Overweight James Marsh, CFA, Sr. Research Analyst, 212 284-9304 12-mo. price target: $6 (12x CY13E EPS) Thesis: OCZ has yet to file 10-Q reports for the August and Power Integrations, Inc. (POWI) – $40.94 November quarters of 2012, due to an ongoing investigation into Market Cap: $1.17B its customer incentive programs. We will review our thesis on Rating: Neutral OCZ shares when the company becomes current with its SEC fil- 12-mo. Price Target: $42 (19x CY14E EPS) ing requirements, now expected on April 8, 2013. Thesis: Power Integrations delivered a strong Q4 and outlook,
31 Technology, Media and Telecommunications Conference March 12–13, 2013 finishing out CY12 with renewed momentum. The company is QLogic Corp. (QLGC) – $11.38 once again seeing strength in the cell phone market with growth Market Cap: $1.03B coming from new Chinese handset OEMs as well as an improv- Rating: Neutral ing position at Samsung and renewed strength at Blackberry and 12-mo. Price Target: $11 (13x FY14E EPS) Nokia. While the PC market is weak, the company is increasing Thesis: Despite the solid Q3 (Dec.) results and in-line guidance its content in desktops in main power supplies as well as picking for the March quarter, we are not convinced that this momentum up share in stand-by power. The improving industrial demand in will continue into FY14. QLogic continues to lag Emulex in the China is fueling growth from its recent acquisition of CT Concept. 10Gb Ethernet space, which we believe is the largest growth op- Finally, the company expects to launch a number of sub 50W portunity for the company. That said, valuation remains relatively products that should start to ramp in 2H. We remain at Neutral as attractive, particularly with shares trading at ~2x cash. If we are we see limited upside in the shares given the recent run. We look wrong in our assessment of Mt. Rainier and the company actually to a pull-back to become more constructive. experiences modest incremental revenue growth from this prod- Key Questions: uct, without affecting the company’s existing OEM relationships, • What power management markets does your company ad- then valuation would look much more interesting. As such, we dress and what is unique about your solution? recommend taking a “wait and see” approach and are maintain- • It looks like you are winning back some share in cell phones. ing our Neutral rating. Can you talk about the impact to margins? Key Questions: • What is your outlook for LED this year? What is the competi- • Update us on Mt. Rainier; compare and contrast it to the tive landscape? competition. • How is the integration of CT Concept going? • What use cases are you targeting with Mt. Rainier and what • It seems like you are picking up some share at Samsung at competitive advantages does it have over the competition? the low-end. Who is your competitor at the account? • Why has growth in 16Gb Fibre Channel lagged your • What is the impact of the yen on your gross margin? competition? Description: Power Integrations is a power management IC com- • What are the next catalysts for your 10 Gb Ethernet segment? pany, focused primarily on high-voltage AC-DC and DC-DC inte- Description: QLogic designs and provides high-performance grated solutions for applications that are sensitive to size, porta- Fibre Channel and Ethernet interconnect products that facilitate bility, energy efficiency and time-to-market. the transmission of data between servers, networks and storage Gus Richard, Sr. Research Analyst, 415 616-1711 systems. Andrew Nowinski, Sr. Research Analyst, 612 303-6933 Proto Labs, Inc. (PRLB) – $46.49 Market Cap: $1.14B Rackspace Hosting, Inc. (RAX) – $55.86 Rating: Overweight Market Cap: $7.66B 12-mo. Price Target: $51 (30x CY14E net op income + cash) Rating: Overweight Thesis: We continue to view Proto Labs as an attractive long-term 12-mo. Price Target: $71 (DCF to 2018, 13.2% WACC, 5.25% growth) investment. As more companies turn to rapid manufacturing to Thesis: Rackspace is a leading hosting and cloud service provider. speed up design cycles, we think Proto Labs is extremely well po- The trend toward more outsourced hosting, managed cloud com- sitioned to capitalize on this changing industry trend. Proto Labs puting is likely to continue, and we believe that Rackspace’s domi- is also the leader in quick-turn, low-volume production, and we nant, best-in-breed, thought-leader position affords the company believe the introduction of new materials will help accelerate the the opportunity to increase share. Rackspace wants to be “the company’s growth rate. Proto Labs has recently expanded manu- IBM” of cloud—the trusted name for managing reliable, scalable facturing capacity, which lowered the company’s operating mar- cloud computing. Fresh off its introduction of OpenStack, we’ll gin from 32% (achieved twice in 2011) to 27%, so we believe Proto discuss with the company how customers are responding to the Labs can show impressive top-line growth and margin expansion. new operating platform. While the core dedicated server business Key Questions: continues to grow, we’ll discuss how the company may transform • What is the status of some of your new R&D investments and its business by supporting off-site OpenStack installations and new material introductions? what that means for its fundamentals. • Can you size up the market opportunity for metals such as Key Questions: magnesium and steel? • What kind of traction are you seeing to-date with OpenStack? • How do you plan on accelerating growth in Japan and turning What OpenStack offerings do you have today? Who is adopt- that geography into a profit center from a loss generator? ing OpenStack and what is their feedback so far? • Can you discuss how Proto Labs plans on maintaining its • How do you differ from your competitors? competitive differentiation if other large competitors start to • What is off-premise cloud support and what could it mean target this market? for your business? Description: Proto Labs is a leading provider of CNC machined and • What do you see as the biggest drivers or determinants of injection molded parts. The company’s Firstcut and Protomold your future growth? services utilize proprietary technologies and automated manufac- • What was the impetus for the recent cloud price cut? Is this turing to provide prototypes and short-run production parts. something we’d expect to continue? Troy Jensen, CFA, Sr. Research Analyst, 612 303-6291 • How can you reaccelerate growth in your cloud business?
32 Technology, Media and Telecommunications Conference March 12–13, 2013
Description: Rackspace is a world leader in hosting. The company Description: RealD designs, manufactures, and licenses 3D delivers Web sites, Web-based IT systems and computing as a technology. service. James Marsh, CFA, Sr. Research Analyst, 212 284-9304 Christopher Larsen, Sr. Research Analyst, 212 284-9339 Rentrak Corporation (RENT) – $20.90 Raydiance – Private Market Cap: $247.81M Description: Raydiance is a California-based leading developer of Description: Rentrak is an emerging digital media measurement femto-second laser technology, including software and solutions firm tracking, reporting and analyzing consumer media consump- for a variety of applications. These ultrafast lasers are fast enough tion across multiple screens, including a primary focus on box and generate little or no heat during processing, and are used to office, TV and Video OnDemand (VOD). Census-level measure- process heat-sensitive materials, bio-absorbable polymers as well ment data collected by Rentrak provides proprietary insight into as consumer electronics. where media is consumed (what screen) and how consumers are Key Questions: obtaining that media (e.g., purchased, rented, recorded, down- • How do you fit in the value chain? What is the value proposi- loaded, streamed). The fusion of Rentrak’s measurement data tion you bring to customers? and third-party consumer segment data can help primary clients, • View of overall fiber laser market through their prism? What including broadcasters, advertisers and ad agencies, better under- are the opportunities that lie ahead and how can margins be stand audience viewing and consumption behavior, helping drive sustained? programming and targeted advertising initiatives. Key Questions: ReachLocal, Inc. (RLOC) – $12.53 • How has recent competitive responses in local TV audience Market Cap: $354.09M measurement impacted your progress with converting new Rating: Overweight contracts wins? 12-mo. Price Target: $17 (13x FY13E EBITDA + cash) • What is the timeline of new product releases for box office Thesis: ReachLocal is an online marketing tool for local busi- and what are proper expectations for revenue contribution? nesses that is in the process of adding new products to help con- • Video OnDemand (VOD) represents a $1 billion advertising vert leads and facilitate booking and buying. The company is also market opportunity; how does Rentrak leverage its unique rolling out a new sales process and expanding in TAM through position as the sole provider of census measurement of VoD international and call center rollouts. content to capitalize on this emerging, robust opportunity? Key Questions: • What is the potential for the booking and buying products? Retail Solutions, Inc. – Private • How can sales 2.0 impact the bottom line and leverage in Description: Retail Solutions develops and delivers a comprehen- the model? sive suite of award-winning software-as-a-service (SaaS) solutions • How are the call centers in smaller markets trending? that turn downstream data, such as point-of-sale (POS), supply • How is mobile impacting the way you acquire leads for your chain, merchandiser feedback and category data, into actionable customers? visibility into the store and onto the shelf. Retailers and consumer Description: ReachLocal acts as an outsourced Internet market- product goods (CPG) companies trust Retail Solutions to grow ing arm for small local businesses to deliver business leads to sales, reduce out-of-stocks, improve promotion execution and ef- customers. fectiveness, maximize retail operation productivity and foster col- Gene Munster, Sr. Research Analyst, 612 303-6452 laborative relationships in the retail industry to improve product availability for the end-consumer. Retail Solutions serves more RealD Inc. (RLD) – $11.64 than 300 CPG companies, including nine of the top ten global Market Cap: $579.96M consumer goods companies, and processes data from more than Rating: Overweight 30 leading retailers in the Americas and Europe. Retail Solutions is 12-mo. Price Target: $15 (5-Yr DCF using 8.1% WACC and 7.5x term headquartered in Mountain View, CA and has offices in Cranston, EBITDA multiple) RI, Bentonville, AR, Paris, France and Shanghai, China. Thesis: We continue to like the long-term prospects for theatrical Key Questions: 3D and continue to recommend RLD shares over the longer term • How has the rapid growth of cloud, mobility and social net- (12 months). We expect a robust FY14 film slate, which includes works impacting the retail execution management space? blockbusters like Iron Man 3, Star Trek 2 and Man of Steel (an- • How would you characterize this space in terms of choring the summer slate) and Hobbit 2 (anchoring the holiday competition? season). We recently raised our 3D box office expectations by • What differentiates you from the competition? ~1.5% for FY14. Key Questions: Rimini Street, Inc. – Private • Discuss recent 3D trends domestically and abroad. What are Description: Rimini Street operates as a third-party provider of your expectations for 3D share? enterprise software support and maintenance services for Siebel, • Can you comment on your growth opportunities in Russia PeopleSoft, JD Edwards, Oracle and SAP licensees. Its support and China? program features premium services, including a primary support • Provide an update on your recently created team to focus on engineer for each account, guaranteed 30-minute response time, the industry’s creation of additional 3D content. and support for customizations, interoperability and performance
33 Technology, Media and Telecommunications Conference March 12–13, 2013 tuning. Rimini says that some customers have seen up to a 50% Description: Rovi offers solutions to search, manage, and protect reduction in maintenance costs. digital media. Key Questions: Michael Olson, Sr. Research Analyst, 612 303-6419 • What does third-party support offer, and what doesn’t it do, or what can’t it offer? salesforce.com, inc. (CRM) – $169.22 • Describe typical scenarios where a company would move Market Cap: $24.03B from vendor maintenance to support from Rimini. What per- Rating: Overweight centage of companies using vendor maintenance falls into 12-mo. Price Target: $208 (36.7x CY13E OCF of $5.46/sh + $8.07 this category? net cash/sh) • What specifically do you do to reduce the cost of mainte- Thesis: Customers are embracing on-demand offerings over lega- nance by as much as 50% versus the vendor? What is the cy client-server products because they can save money by forego- typical cost savings? ing complex on-premise technology deployments. Salesforce.com handles the complex infrastructure, while customers only need a Rofin-Sinar Technologies, Inc. (RSTI) – $26.57 Web browser and an Internet connection to be up-and-running. Market Cap: $747.65M We believe salesforce.com’s combination of corporate culture Rating: Neutral and its on-demand business model should enable it to outflank 12-mo. Price Target: $20 (13x CY13E EPS of $1.55) its competitors in the coming years and win the high stakes on- Thesis: We believe Rofin-Sinar is on a path to improve its target demand war. If salesforce.com can continue to succeed in rapidly gross margin to 40% in 2014 from 35.3% in the December 2012 forming an ecosystem around its platform, then its corporate mo- quarter as it improves the profitability of fiber lasers (~10% of mentum is more likely to persist because the ecosystem’s efforts its sales) which have gross margins of less than 10% presently. will further augment the breadth of offerings available to sales- While the company continues to move on a path similar to IPGP force.com’s customers. Platforms win in the software industry. in terms of vertical integration in fiber laser, execution remains Key Questions: the key in enabling lower cost fiber laser which can address the • How does the trajectory of the marketing cloud compare profitability in this segment. to the trajectory of the service cloud at a similar point of its Key Questions: product lifecycle? • What kind of roadblocks do you envision for your captive fi- • What needs to be done so that the market understands sales- ber laser production? What kind of cost/watt do you expect force.com’s vision of a “customer company”, and are there in your first iteration of your laser diode? any product holes that CRM is looking to fill while bringing • What is the biggest reason customers have come to you for this vision to its customers? your fiber laser (excluding price)? • What has to happen so that salesforce.com maintains its rev- • Where do you think the traditional CO2 market is heading enue growth of mid-20s? (market size, growth)? Is it in a secular decline? Would you Description: Salesforce.com is a leading provider of on-demand consider an acquisition for fiber laser to improve your portfo- applications and infrastructure. lio? Which geographies do you think you may be at an advan- Mark Murphy, Sr. Research Analyst, 415 616-1705 tage with your products? Jagadish Iyer, Sr. Research Analyst, 212 284-5038 ServiceSource International, Inc. (SREV) – $6.34 Market Cap: $475.69M Rovi Corporation (ROVI) – $17.80 Rating: Overweight Market Cap: $1.79B 12-mo. Price Target: $11 (2.8x EV/FY13E rev + net cash) Rating: Neutral Thesis: ServiceSource uses a combination of cloud-based ap- 12-mo. Price Target: $19 (9x CY13E EPS) plications, dedicated service sales teams and its intelligent data Thesis: Rovi’s core business, its IPG licensing business, contin- warehouse platform to optimize the service contract renewals ues to be strong driver for top-line growth and while this business business. ServiceSource offers a compelling value proposition may be less exciting from a standpoint of potential upside, it is because customers do not have to pay any start-up costs or im- highly recurring and offers a high level of visibility. The company’s plementation fees. It employs a pay-for-performance model that growth initiatives, specifically TotalGuide, Rovi Entertainment creates a very low-risk proposition for the customer. In the longer Store (being divested) and a new stream of revenue from Internet term, we expect ServiceSource will behave relatively “uncyclically,” content service licensees remain challenged, but could create up- like an ETF consisting of maintenance revenue streams. side to estimates if any significant inroads are made. Key Questions: Key Questions: • Can you talk about Renew OnDemand and the opportunities • Why are consumers not connecting their “connected” TVs for both SREV and your customers? and how does that impact pace of adoption for Total Guide? • How big is the renewal market outside of technology, and • Is Total Guide adoption “on hold” or have TV manufacturers what successes are you having renewing non-tech recurring determined that developing technology for next generation revenue? guides in-house is the direction they want to take? • How penetrated are you into your existing customer base? • When do you expect to see service providers increasingly Description: ServiceSource is a leader in service revenue wanting to incorporate enhanced data, advertising and other management. next gen components into their interactive guides? Will the Mark Murphy, Sr. Research Analyst, 415 616-1705 opportunity for Rovi in service provider be primarily with small- to medium-sized operators?
34 Technology, Media and Telecommunications Conference March 12–13, 2013
Shapeways, Inc. – Private • Discuss management’s used car strategy as its satellite radi- Description: Shapeways is a leading service bureau for 3D print- os are now installed in more than 50M vehicles and SiriusXM ed products. Shapeway’s mission is to “enable people to make units are now factory installed in close to 70% of all new ve- whatever they can buy” and the company has already produced hicles sold in the U.S. well over 1 million objects in its state-of-the art 3D printing ser- • In mid-January, Liberty Media has taken majority control of vice bureau. The company has targeted the consumer market by SIRI; can you discuss any expected changes over the next 12 developing readily available content on the company’s Web site months? that allows consumers to customize products to their individual • GM announced significant commitment to the connected desires. Shapeways has also partnered with more than 6,000 car; how do you plan to differentiate and grow your market designers and artists to help visualize artistic renderings and de- share in the car? signs. Shapeways recently raised $6.2 million in a series B round Description: Sirius XM Radio Inc. provides satellite radio services of financing with the lead investor being Lux Capital, a New York in the United States and Canada. venture capital firm. James Marsh, CFA, Sr. Research Analyst, 212 284-9304 Key Questions: • When do you believe the consumer 3D printing market will Slacker Radio – private start to drive meaningful revenue growth for the industry? Description: Slacker Radio is an interactive Internet radio service • Can you discuss how Shapeways is helping to grow the con- available in the United States and Canada. Listeners can access sumer market by developing libraries of 3D content? the service on the web through mobile apps on multiple smart- • Can you discuss the go-to-market strategy for working with phones as well as on Slacker Personal Radio Players and other retailers for customized products? devices. It allows users to create and share customized music sta- • What are the barriers from preventing other companies from tions. Slacker works directly with record labels to offer a music offering similar services? library that’s more than 10 million songs deep. Listeners can also personalize the experience with the best in talk, sports, news, and Silver Peak Systems, Inc. – Private entertainment from ABC, ESPN, and others. Additionally, Slacker Description: Founded in 2004, Silver Peak is in the wide area has more than 200 expert-programmed stations covering most networking (WAN) optimization market. Silver Peaks’s products genres. Slacker is available on most platforms from the web to improve backup, replication and recovery between data centers smartphones to cars, smart TVs and game consoles. Slacker also and facilitates branch office server and storage centralization by has relationships with most North American wireless carriers, so improving application performance over the WAN. Silver Peak’s a Slacker subscription can simply be added to a monthly phone products are sold through channels such as Dell, EMC and bill. Slacker accounts also can be connected to Facebook and Hitachi Data Systems and the company has an impressive list of Twitter accounts. customers including VMware, Google, EBay, Autodesk and oth- ers. Silver Peak is also one of the first suppliers of virtual WAN op- Solera Holdings Inc. (SLH) – $56.30 timization products and has won numerous awards for its Virtual Market Cap: $3.88B Acceleration Open Architecture (VXOA). Rating: Neutral Key Questions: 12-mo. Price Target: $57 (20x CY13E cash EPS) • Can you explain why the WAN optimization controller market Thesis: We like Solera’s business model, including relatively pre- has experienced decelerating growth rates? dictable, subscription-based revenues, a strong record of margin • What do you think the short- to mid-term growth rate is for upside, attractive free cash flow conversion and rising ROIC. An this industry? impressive record of execution and leverage from potential M&A • Can you explain the advantages and disadvantages of Silver add to the stock’s appeal. Near-term macro challenges in Europe Peak’s products versus some of your larger competitors? create an earnings headwind, which may keep the stock in a trad- • How is the virtual WAN optimization offering ramping and ing range until we see a reacceleration in organic revenue growth. do you have any competition for this new offering? Key Questions: • Organic revenue growth is a key investor focus. What are the Sirius XM Radio Inc. (SIRI) – $3.11 prospects for improvement over the next several quarters? Market Cap: $20.40B • Competitive pressures in the relatively mature U.S. market Rating: Overweight have also been a headwind. What is the status of the State 12-mo. Price Target: $3.40 (5-Yr DCF using 10.2% WACC and 6.5x Farm contract renewal? terminal EBITDA multiple) • M&A has been a source of upside for Solera. How big is the Thesis: We are bullish on SIRI shares as the company continues opportunity here? to deliver strong subs growth and generate substantial FCF, while Description: Solera is a global provider of software and services to concerns of a potential macro slowdown over the moderate term the auto insurance industry. ease. Auto sales continue to drive subs and we see an upward bias Peter Appert, Sr. Research Analyst, 415 616-1709 throughout 2013. We continue to like the solid growth and lower risk profile of the company and we see upside from here. STEC, Inc. (STEC) – $4.82 Key Questions: Market Cap: $225.22M • Auto sales could move back to pre-2007 levels; can you dis- Description: STEC is a leading global provider of enterprise-class cuss the trends you are seeing and the sustainability of the solid state drives that are designed specifically for systems and strength of U.S. consumer? applications that require high input and output capabilities (I/O)
35 Technology, Media and Telecommunications Conference March 12–13, 2013 with low latencies for fast access to critical user data. The com- Teradyne, Inc. (TER) – $16.76 pany is headquartered in Santa Ana, Calif. and has operations in Market Cap: $3.15B Penang, Malaysia. STEC also has sales and engineering offices in Rating: Overweight the United States, Europe and Asia. 12-mo. Price Target: $20 (12x CY13E PF EPS$1.65) Key Questions: Thesis: We expect Teradyne’s semi test to continue to gain share • Please update your progress transitioning from an OEM at least 200-300 bps this year in its SOC market which could sales model. likely shrink to $2.3B from $2.5B in 2012. We expect a recovery • Are you still expecting enterprise customers to account for in semi test orders after a cyclical bottom in 4Q12. In the system more than half your business in the second half of 2013? test segment, we expect the rollout of new products for HDD to • How far along are you in terms of reaching your hiring plans? drive year-over-year revenue growth of 10% in 2013. New Wi-Fi • Is a 40% gross margin achievable in 2013? standards and growth in mobile devices drive 16% year-over-year growth in cellular test revenues (LitePoint). With $1B in cash on Stratasys, Inc. (SSYS) – $63.11 its balance sheet, we expect a tangible action in terms of use of Market Cap: $1.38B cash for dividends or M&A. Rating: Overweight Key Questions: 12-mo. Price Target: $97 (36x 2014E op income + cash) • What are some inflections in SOC test and memory test that Thesis: We believe the market for 3D printers is in a secular growth you see in the horizon that could drive the overall market phase and the growing adoption of 3D CAD usage coupled with this year? price elasticity and increased awareness will continue to drive im- • How should we think of order seasonality in 2013? Can mem- pressive 3D printer unit growth for the industry. This ultimately ory test ever bounce back despite NAND demand strong? will create a growing annuity of high-margin consumable sales What is Teradyne’s strategy for testing in the fast growing into this captive audience of 3D printing users. Stratasys has had SSD market? great success with the higher-end Fortus systems and anticipates • How do you see the LitePoint market shaping up this year demand will remain robust throughout 2013. Moreover, we be- and what kind of share gains are we looking at? Can the sea- lieve the recent merger with Objet will be a successful combina- sonality trend be bucked this year? tion and allow the combined companies to leverage channels and • Use of cash: will buybacks accelerate or are dividends being drive earnings accretion throughout the year. We are bullish on the given serious thought? long-term growth prospects of the 3D printing space and recom- Description: Teradyne supplies automatic test equipment for wa- mend investors have exposure prior to a market inflection. fer and device level testing. Key Questions: Jagadish Iyer, Sr. Research Analyst, 212 284-5038 • Why have Fortus sales outperformed the market over the past year and is this sustainable in 2013 and beyond? Tessera Technologies Inc. (TSRA) – $17.84 • Can you discuss the benefits of the Stratasys/Objet merger Market Cap: $931.71M and the risks of this combination? Description: Tessera Technologies develops and licenses min- • Why did the Hewlett Packard OEM relationship fail? iaturization technologies and products for next-generation • Any estimate regarding how much of your system sales are electronic devices. The company’s micro-electronics solutions going into direct digital manufacturing applications? enable smaller devices with higher functionality through chip- • How is Stratasys/Objet protecting the material sales from scale and wafer-level packaging, silicon-level interconnect and third-party suppliers? 3D packaging, as well as silent air cooling technology. Tessera’s Description: Stratasys is a leading provider of rapid prototyping imaging and optics solutions provide cost-effective, high-quality systems and 3D printers. camera functionality in consumer electronic products through Troy Jensen, CFA, Sr. Research Analyst, 612 303-6291 technologies that include extended depth of field (EDOF), zoom and MEMS-based auto-focus. Through the acquisition of Digital SugarCRM, Inc. – Private Optics, the company also offers custom micro-optics for semi- Description: SugarCRM provides open source customer relation- conductor lithography, communications, medical, industrial and ship management (CRM) software for SMBs, large enterprises other applications. and government organizations. The company offers solutions Key Questions: that enable customers to organize and share customer informa- • The company is in the process of renegotiating licenses with tion, measure and report, analyze and collaborate with customers some customers. How are these negotiations going? and employees, and develop applications and collaborate with the • Some of your patents are starting to expire—is this affecting community. SugarCRM provides its products in various deploy- your ability to renew contracts? ment options, including on-demand, on-site and public cloud, and • How is the litigation at Amkor going? Do you expect to see is used by more than 7,000 customers and half a million users. catch-up revenue this year? Key Questions: • Where are you in commercialization of the MEMS autofocus • How have large wins, such as with IBM last year, elevated product? your ability to land increasingly large customers with com- • Are you gaining any traction with customers? plex requirements? • Are camera modules something Tessera is going to build • How does providing both a hosted and on-premise offering itself or license? help your competitive position? Don’t customers want to • XLNX has just started to commercialize interposer technol- move to a vendor-hosted model? ogy. Do you see any high-volume customers adopting the technology?
36 Technology, Media and Telecommunications Conference March 12–13, 2013
• How do you see adoption of 3D packaging going? When do creasingly being ‘on demand’? Should content owners be you think it will hit the mass market? What are the impedi- nervous that investors are skipping ads or encouraged that ments to adoption? advertising can be more targeted than ever? • Will TV operators increasingly outsource creation of next The McGraw-Hill Companies, Inc. (MHP) – $46.55 generation guide technologies to third parties or attempt to Market Cap: $12.94B build in-house? Rating: Overweight • Does the increasing availability of content via mobile devices 12-mo. Price Target: $58(18.3x 2013 EPS) change TiVo’s business and how should advertisers think Thesis: With the pending sale of its education unit, MHP be- about a shift in traditional video consumption to mobile? comes a “pure-play” information services firm with the potential for mid-teens sustainable EPS growth, impressive free cash flow TripAdvisor, Inc. (TRIP) – $45.54 and 25%+ ROIC. While litigation risk creates a near-term over- Market Cap: $6.51B hang, we like the risk/reward. Rating: Overweight Key Questions: 12-mo. Price Target: $45 (26x CY13E EPS) • While numerous suits related to the 2007-2008 financial cri- Thesis: TripAdvisor is well positioned as a leader in the early stages sis have been favorably resolved, a recent suit by the Dept. of the transition of travel advertising spend from offline to online. of Justice has refocused investor attention on legal risk. What will have proven to be recently controversial is a significant How do you quantify this risk? What are the prospects for effort the company will make in 2H13 to extend the footprint of settlement? the TripAdvisor brand. Specifically, TripAdvisor will begin an of- • Debt issuance has been exceptionally robust in the past year. fline brand campaign that is expected to impact EBITDA growth How sustainable is this strength? by more than 1,000 bps (2013 EBITDA growth outlook with offline • How much further room is there for cost reduction? What spend is high single digits, without offline spend would be low are realistic long-term margin targets? 20s). We are confident given our belief that the company is well- Description: McGraw-Hill provides benchmarks, data and analyt- positioned to benefit from the ongoing shift of travel advertising ics to the financial and business information markets. spend toward online channels and believe management is making Peter Appert, Sr. Research Analyst, 415 616-1709 the appropriate investments to grow the footprint and maintain a differentiated offering. The Trade Desk, Inc. – Private Key Questions: Description: The Trade Desk is an advertising technology compa- • When will the impact on monetization from the transition to ny utilizing data-driven analytics to understand and target digital a metasearch interface subside and is it possible monetiza- ad space across mediums. Combining strengths in algorithmic tion could ultimately stabilize at a higher level? functions, dynamic data analytics and an innate understanding of • Why is now the right time to invest heavily in an offline mar- social media, Trade Desk drives statistically maximized buy-side keting campaign? Do you expect a fairly immediate impact decisions for advertisers. Founded by Jeff Green and Dave Pickles on revenue growth? in October 2009, The Trade Desk is headquartered in Ventura, • How do recent acquisitions of Trivago and KAYAK impact Calif. TripAdvisor’s competitive position? Key Questions: Michael Olson, Sr. Research Analyst, 612 303-6419 • What are the primary drivers behind the shift in online/mo- bile/video display to exchanges (real-time bidding) and how Turn Inc. – Private will ad networks, agencies, publishers and private exchanges Description: Turn is an advertising technology company offering be impacted? client insight into cross-channel marketing initiatives, leveraging • How will Facebook’s exchange (FBX) impact supply/demand an incredibly scalable analytics platform making 30 billion+ adver- dynamics in the exchange marketplace? How much demand tising decisions daily via analysis of some 1.5 trillion+ customer can Facebook ultimately capture and who are the winners/ attributes. Its ad solutions help maximize brand engagement, losers in the ad ecosystem? multi-channel targeting, retargeting, audience discovery and man- • Given the abundance of “big data,” how do participants in agement and loyalty development. Turn Inc. was co-founded in the rapidly evolving digital advertising landscape differenti- 2004 by Jim Barnett and is headquartered in Redwood City, Calif. ate in delivering performance for advertisers? Key Questions: • What are the primary drivers behind the shift in online/mo- TiVo Inc. (TIVO) – $12.38 bile/video display to exchanges (real-time bidding) and how Market Cap: $1.56B will ad networks, agencies, publishers and private exchanges Description: TiVo allows its users to aggregate, search and play be impacted? broadband, cable and broadcast content. The company has also • How will Facebook’s exchange (FBX) impact supply/demand recently begun offering interactive advertising solutions and audi- dynamics in the exchange marketplace? How much demand ence research and measurement ratings services. TiVo offers its can Facebook ultimately capture and who are the winners/ services and its DVRs directly to consumers as well as through losers in the ad ecosystem? third-party retailers. The company also provides its services and • Given the abundance of “big data,” how do participants in licenses its technology through solutions catered toward cable, the rapidly evolving digital advertising landscape differenti- satellite and broadcasting companies. ate in delivering performance for advertisers? Key Questions: • How is advertising changing with content consumption in-
37 Technology, Media and Telecommunications Conference March 12–13, 2013
Ultimate Software Group, Inc. (The) (ULTI) – $98.27 ValueVision Media, Inc. (VVTV) – $2.62 Market Cap: $2.67B Market Cap: $128.62M Rating: Neutral Rating: Overweight 12-mo. Price Target: $90 (6.1x EV/CY13E Rev + net cash) 12-mo. Price Target: $3 (15x FY16E EPS, disc. 20%) Thesis: Based on our research, the ability to reduce costs while Thesis: As brands and retailers seek to better engage with their improving employee efficiency leads to a relatively quick payback customers beyond the four walls of their stores, content-driven and significant ROI for most Ultimate deployments. According digi-tailers like ValueVision Media will increasingly become a part- to our customer conversations, if you include headcount reduc- ner of choice. tions, elimination of service bureau fees and efficiency gains, a Key Questions: significant ROI can be obtained within 1-2 years. Lastly, we believe • Merchandising Strategy. Over the course of the past two the company enjoys reasonably high barriers to entry, as there are years, VVTV has embarked on a journey to elevate its product more than 14,000 local tax jurisdictions in the U.S. that change assortment through both private and exclusive label goods frequently, and the Fair Labor Standards Act (FLSA) regulates as well as becoming a partner to such brands and retailers minimum wage, overtime, equitable pay, recordkeeping and other as Macy’s, Brooks Brothers, Sur La Table and Calvin Klein. labor laws for employees. We are optimistic about ULTI’s outlook Discuss the quality and content of the pipeline of brands and as it is exposed to the attractive SaaS HR market, but believe ULTI goods as 2013 unfolds. Similarly, discuss your partnership shares are fairly valued for now. with these brands and why more brands are seeking out your Key Questions: business. • How frequently do you see Workday in competitive situa- • Distribution Costs. Distribution and selling expenses can tions, and how much could that change over time? amount to nearly 34% of sales. Given the fee structure of dis- • Last year you closed a 70,000-seat deal with a restaurant tribution expenses and the recent expiration of cumbersome chain. Do you see closing deals that large as a trend or an contracts, we anticipate this line item to ease, providing anomaly? more opportunity for profitability. Discuss your prospects for • What does your target operating model look like and when this line item this year and in the years to come. Comment on could you get there? the returns you see when deploying to better channel posi- Description: Ultimate Software is a software provider of SaaS- tions on the “dial” or even the investments in HD cameras based payroll and workforce management solutions. and broadcasting. Mark Murphy, Sr. Research Analyst, 415 616-1705 Description: ValueVision Media is a multi-channel retailer of dis- cretionary goods. Merchandise is featured on its 24/7 television Ultra Clean Holdings, Inc. (UCTT) – $5.90 network, ShopNBC, which is broadcast to 81 million homes in Market Cap: $164.34M the U.S. Approximately 45% of VVTV’s sales are transacted via Rating: Neutral eCommerce. 12-mo. Price Target: $5.50 (11x CY13E EPS0.50) Neely Tamminga, Sr. Research Analyst, 612 303-1537 Thesis: We remain in a “wait and see” mode as the company has yet to demonstrate meaningful margin improvement to attain its Verifone Systems, Inc. (PAY) – $18.97 target gross margin level of 15%. We view the company’s recent Market Cap: $2.05B closure of the AIT acquisition as a long-term positive. AIT grew Rating: Overweight its revenues from $50M in 2009 to $170M in 2011 with 1H12 12-mo. Price Target: $42 (13x FY13E non-GAAP EPS) revenues of $66M. Gross margins for AIT have averaged 18-20% Thesis: While we believe VeriFone Systems survives disintermedi- for the past three years which is better than UCTT’s standalone ation threats over the long term, the litany of reasons that caused performance of under 15%. As synergies from the AIT acquisition a weak pre-announced January quarter. These issues included an unfold in 2013, and given minimal customer overlap, we expect over-emphasis on services to the detriment of systems, which cre- overall GMs for UCTT to be accretive and rise in YE13 while execu- ated a sales air pocket. Due to the magnitude of PAY’s challenges, tion remains key. Given that Lam, AMAT and ASMI are three 10% we are on the sidelines until the dust settles. customers and likely contribute more than 75-80% of revenues, Key Questions: we see the company exposed to typical semi cyclicality. • What are your top priorities for 2013? Key Questions: • Is PAY losing its edge and/or market share? • As customer consolidation happens, how does it affect pric- • How would you handicap the Hypercom and Point acquisi- ing with their core customers i.e. AMAT and LRCX who con- tions at this time? tribute more than 70% of quarterly revenues as these end • What are you seeing in end markets and on the competitive customers have indicated savings from supply chain? front right now? • When can we see meaningful savings from the AIT closure in Description: VeriFone provides secure electronic payment tech- terms of synergies? Is there anything next year? nologies and services in over 110 countries. • What are some growth opportunities for the non semi busi- Michael Grondahl, Sr. Research Analyst, 612 303-6788 ness? Where is the biggest opportunity? Where is the biggest risk for 2013? Verizon Communications Inc. (VZ) – $46.53 Description: Ultra Clean is a supplier of critical subsystems and Market Cap: $133.03B process modules to semiconductor equipment suppliers. Rating: Overweight Jagadish Iyer, Sr. Research Analyst, 212 284-5038 12-mo. Price Target: $50 (DCF Analysis, NT cost of capital of 9.2%, term cost of capital of 8.2% and term growth rate of 2.25%)
38 Technology, Media and Telecommunications Conference March 12–13, 2013
Thesis: We recently upgraded Verizon to Overweight on February Walter Investment Management Corp. (WAC) – $45.92 1 based on a number of factors that bode well for 2013 results: Market Cap: $1.64B Verizon’s best-in-class wireless network continues to help the Rating: Overweight company win share even with a price premium; the weaker 4Q 12-mo. Price Target: $58 (9x 2013E cash EPS) print could set the company up well to beat reset 2013 expecta- Thesis: We believe Walter Investment Corp. continues to benefit tions; we expect the company to have financial flexibility (read: from banks looking to exit servicing. This paradigm shift is the returning cash to shareholders) in 2013; and wireline margins major driver for WAC. In addition, it has invested in its mortgage could improve. Because of these factors, we expect Verizon to origination and reverse mortgage businesses. outperform over the next 12 months. Key Questions: Key Questions: • What will 2013 be about for WAC; what are you most excited • What is Verizon’s view on cloud and hosting? What are the about for 2013 and what are your top priorities for 2013? merits of the merger of Terremark with Verizon? • What will WAC look like in a few years and just how big is • How does Verizon corporate position its data center/host- your pipeline? ing/cloud business? Do they see it as a loss leader/necessary • Talk about your progress on your origination strategy and the offering to bring in more wireline business contracts, an add- Harp II opportunity? on to existing customers to bring in extra revenue, a separate Description: Walter Investment provides third-party residential side business or something else? mortgage servicing. It utilizes a high-touch servicing methodol- • What types of customers are coming to Verizon cloud and ogy which improves the performance of high-risk mortgage as- what services are they purchasing? sets. Furthermore, WAC is creating a meaningful presence in the • As an independent, Terremark highlighted its network neu- mortgage origination space. trality. How has this changed under Verizon? Michael Grondahl, Sr. Research Analyst, 612 303-6788 • Now that Terremark has greater access to capital, has any- thing changed—pace of builds, areas of investment? Web.com, Inc. (WWWW) – $17.08 Description: Verizon is one of the world’s leading telecommunica- Market Cap: $803.92M tion companies. Its comprehensive list of services include video, Rating: Overweight voice, broadband and other wireline and wireless services, as well 12-mo. Price Target: $25 (13x FY13E PF EPS) as data center and hosting services. Thesis: Web.com focuses on providing small businesses with Christopher Larsen, Sr. Research Analyst, 212 284-9339 easy-to-use products to create an online presence. Last year, the company acquired Network Solutions, which added 2 million Volterra Semiconductor (VLTR) – $15.35 customers to its sub-million customer base. The company is fol- Market Cap: $385.45M lowing a strategy with Network Solutions that it had previously Rating: Overweight used with success to convert a previous acquisition’s customers 12-mo. Price Target: $25 (18x CY14E proforma EPS) (Register.com) into higher paying subscribers through attractive Thesis: Volterra Semiconductor is navigating a tough environment online value-added services. with recent server weakness driving down its outlook. We expect Key Questions: the next few quarters to be choppy as the first half of the year is • How will Web be able to continue to drive growth in ARPU? typically a seasonally soft period. However, we remain buyers at • What have you seen as far as customer acquisition rates from current levels as we expect to see some revenue momentum in television advertisements? 2H13 as designs for next generation notebooks pick up, Brickland • How do you think about competition from Google longer ramps and the company starts to recognize revenue from its solar term? products. Description: Web.com, Inc. develops websites and other online Key Questions: marketing communications primarily for small businesses. • Servers turned out to be a weak last year; what is your outlook Gene Munster, Sr. Research Analyst, 612 303-6452 for this market? Do you expect pent-up demand to provide a snap-back or stabilization? WEX Inc. (WXS) – $75.01 • Solar is a new area for the company; what is the update in Market Cap: $2.91B terms of design wins and product launches? Rating: Neutral • The company is re-allocating resources from notebooks to 12-mo. Price Target: $74 (16.5x 2013E adjusted EPS) microservers. Are you too late at this point? Thesis: WEX is making solid progress in its OPS business seg- • VLTR is investing in products for communication infrastruc- ment. While the core business only grows modestly, 2013 is clearly ture. Revenue from this market has been in the low double a year of investment to drive long-term growth. digits for awhile. Do you expect growth to accelerate? What Key Questions: sorts of products are you getting designed into? • What are your top priorities for 2013? Description: Volterra is a leading fabless supplier of high perfor- • What strategies do you have to drive the core business and mance power management ICs for servers, storage, communica- highlight the investments you are making to drive growth tion, graphics and notebook markets. overall? Gus Richard, Sr. Research Analyst, 415 616-1711 • With the OPS division, update investors on priorities for 2013. Description: WEX operates a proprietary fuel payment processing network for commercial fleet vehicles. The WXS fuel card is ac- cepted at more than 90% of U.S. gas stations. Michael Grondahl, Sr. Research Analyst, 612 303-6788
39 Technology, Media and Telecommunications Conference March 12–13, 2013
WhipTail Technologies, Inc. – Private more than 30M cumulative reviews ranging from restaurants to Description: Whiptail was founded in 2008 and is based in plumbers. The company has roughly 78M unique visitors and has Whippany, N.J. The company provides all-flash storage arrays impressive traction in mobile with 7.2M unique mobile devices. designed for big data, virtualization and cloud computing en- We expect Yelp to continue its strong growth as it begins to ex- vironments. Whiptail software was purpose-built to leverage pand internationally. flash, enabling it to deliver higher performance at a lower price Key Questions: than systems that rely on hard disk drives. Typical use cases in- • While early, what are the key takeaways from the Apple Maps volve VDI deployments and other applications that require high partnership? performance. • How will the acquisition change the revenue and earnings Key Questions: profile? • Why does Whiptail win and who are you winning against the • How do you view mobile monetization? most? Description: Yelp is the leading online service for local business • How do you effectively compete against hybrid arrays, which customer reviews. leverage both flash and hard disk drives? Gene Munster, Sr. Research Analyst, 612 303-6452
WildTangent, Inc. – Private Zayo Group Inc. – Private Description: WildTangent provides a cross-device platform for the Description: Zayo Group, through its subsidiaries, provides distribution and monetization of mobile, social and online games. fiber-based bandwidth, voice and managed services to carrier, Through the company’s platform users can access thousands of enterprise, SME and government customers in the U.S. It offers premium games through various methods including ad-support- private line, Ethernet, wavelength, Internet connectivity, SS7, long ed free play, game rental using micro-currency and digital pur- distance, tandem switching, operator, TDM voice, VoIP, videocon- chase. The company’s studio, WildTangent Studios, also develops ferencing and Web hosting services; solutions for carrier, wireless, original mobile-focused games. multisystem operator, healthcare, education, content, disaster Key Questions: recovery and local exchange carrier customers; voice and private • What are the strategic differences between your service ver- data network services; consulting services, such as IP telephony, sus just publishing a game on an OS-based storefront (i.e. wireless network design and deployment, wireless applications, Apple’s App Store and Google Play)? network maintenance and cabling; equipment installation ser- • What are the monetization benefits for publishers that dis- vices; managed security services, including firewall reporting, and tribute through your games portal? monitoring and management; Web content filtering; anti-spam • What form of game monetization do you expect to come out and anti-virus services; intrusion prevention services; and coloca- on top as users increasingly shift to mobile? Specifically, do tion facilities. you expect ad-supported free-to-play to become a larger part Key Questions: of the mobile gaming market versus being dominated by • How do you compete versus the incumbents? What chal- games focusing on micro-transactions currently? lenges do the local incumbents pose? • Where do you see demand coming from? What types of ver- Wisdom Tree Investments, Inc. (WETF) – $9.10 ticals? Ethernet? Fiber to the tower? Waves? Market Cap: $1.14B • How do you decide where you’ll expand next? How does that Rating: Overweight factor into your go to market strategy? 12-mo. Price Target: $9.50 (5.8% 2013E avg. AUM) • How do you enter a new market? What are the challenges of Thesis: We continue to believe Wisdom Tree Investments is well- expanding your footprint? Do you require anchor tenants for positioned in the growing ETF market. new markets? Key Questions: • How long does it take to convert bookings to sales? Are cus- • What are your top priorities for 2013? tomers understanding of waiting several weeks or months • What are you seeing on the competitive front and can you for fiber service? highlight what differentiates WETF for others? • Recently, inflows have been very strong, obviously driven by Sources: Piper Jaffray, company reports and Web sites, and FactSet DXJ’s success and seasonality. What are your thoughts be- Research Systems, Inc. hind the strength of inflows? Description: Wisdom Tree Investments is an ETF sponsor using Price and market capitalizations reflect closing prices on February its proprietary, fundamentally weighted index methodology. 28, 2013. Michael Grondahl, Sr. Research Analyst, 612 303-6788
Yelp, Inc. (YELP) – $22.19 Market Cap: $1.40B Rating: Neutral 12-mo. Price Target: $25 (7x FY13E EV/revenue) Thesis: Yelp is a leading participant in the local commerce oppor- tunity with ~80M monthly unique users and a strong mobile pres- ence. Its platform features user-generated reviews, which helps to connect customers with local businesses. At present, Yelp has
40 Technology, Media and Telecommunications Conference March 12–13, 2013
PIPER JAFFRAY TECHNOLOGY, MEDIA & TELECOMMUNICATIONS INVESTMENT RESEARCH TEAM
BUSINESS & FINANCIAL SERVICES AND BUSINESS & LEARNING SERVICES Peter Appert John Crowther George Tong Sr. Research Analyst Research Analyst Research Analyst Piper Jaffray & Co. Piper Jaffray & Co. Piper Jaffray & Co. 415 616-1709 612 303-8273 415 616-1714 [email protected] [email protected] [email protected]
Peter Appert is a managing director and senior research analyst at Piper Jaffray specializing in the business and information services sectors. Prior to joining Piper Jaffray in 2009, Appert spent six years at Goldman Sachs covering the publishing and information services sectors. He previously was affiliated with Alex. Brown, where he was among the first analysts to cover the education industry. Appert began his career at C.J. Lawrence as a media analyst, also serving as the firm’s director of research for five years. Appert has received wide recognition in the investment and business communities, including 22 designations in the annual Institutional Investor “All-America Research Team” survey. He received a Master of Business Administration degree from Stanford, a master’s degree from New York University, and a bachelor’s degree from Lafayette College. Appert is a member of Media and Entertainment Analysts of New York and holds a Chartered Financial Analyst designation.
DIVERSIFIED FINANCIAL SERVICES & TECHNOLOGY Michael Grondahl Adam Letson Sr. Research Analyst Research Analyst Piper Jaffray & Co. Piper Jaffray & Co. 612 303-6788 612 303-6497 [email protected] [email protected]
Mike Grondahl is a managing director and senior research analyst at Piper Jaffray covering financial and business services companies. Grondahl had worked as a senior research analyst at Piper Jaffray from 1997 to 2002 covering financial services companies. Prior to re-joining Piper Jaffray in 2011, Grondahl was director of equity research at Northland Securities where he also covered financial and business services companies. Prior to Northland, Grondahl worked on the buy-side for Key Colony Fund and Redsky Partners. Previously, Grondahl worked for Ernst & Young and for Deloitte & Touche. Grondahl graduated summa cum laude from the University of St. Thomas.
41 Technology, Media and Telecommunications Conference March 12–13, 2013
SEMI EQUIPMENT AND INDUSTRIALS, SEMICONDUCTOR CAPITAL EQUIPTMENT - MEMORY AND DISPLAY Jagadish Iyer Shawn Lockman Sr. Research Analyst Research Analyst Piper Jaffray & Co. Piper Jaffray & Co. 212 284-5038 212 284-9330 [email protected] [email protected]
Jagadish Iyer is a principal and senior research analyst at Piper Jaffray covering the semi equipment, display, material, memory and industrial technology segments. Prior to joining Piper Jaffray in 2011, he was at Arete, a technology research boutique covering the semicap, LED and materials companies. Iyer began his Wall Street career at UBS in 2005 covering the semiconductor equipment and alternate energy sectors. He worked in the industry for more than 10 years at leading companies such as Applied Materials, in various roles including engineering, product management and marketing. Iyer has a master’s degree in material science and engineering from the University of Texas and a Master of Business Administration degree from California State University.
TECHNOLOGY, MEDIA & TELECOM: NETWORKING STORAGE TECHNOLOGIES Troy Jensen Joshua Kozberg Sr. Research Analyst Research Analyst Piper Jaffray & Co. Piper Jaffray & Co. 612 303-6291 612 303-6946 [email protected] [email protected]
Troy Jensen is a managing director and senior research analyst at Piper Jaffray, specializing in networking technologies including application traffic management, networking equipment, 3D printing and video conferencing sectors. Prior to joining Piper Jaffray in 2005, Jensen spent seven years in equity research at ThinkEquity Partners and RBC Capital Markets. Jensen received a bachelor’s degree in management science and mathematics with an emphasis in finance from the University of Minnesota. He holds the Chartered Financial Analyst designation.
42 Technology, Media and Telecommunications Conference March 12–13, 2013
TECHNICAL RESEARCH Craig Johnson Leah Williams Sr. Technical Analyst Research Analyst Piper Jaffray & Co. Piper Jaffray & Co. 612 303-6428 312 267-5080 [email protected] [email protected]
Craig Johnson is a managing director and senior technical research analyst at Piper Jaffray. He joined the Piper Jaffray private client research group in 1995 as associate analyst. Johnson offers frequent technical commentary on the broader market and individual stocks. Prior to joining the firm, Johnson worked as a consultant for the Drake Small Business Development Center in Des Moines, Iowa. Johnson earned a bachelor’s degree with an emphasis in finance and marketing and a Master of Business Administration degree from Drake University. He holds the Chartered Financial Analyst and Chartered Market Technician designations, is an active member of the Twin Cities Society of Securities Analysts, and is a co-chapter chair of the Market Technicians Association Minnesota Chapter. He is also on the board of directors for the Market Technicians Association.
TECHNOLOGY, MEDIA & TELECOM: TELECOMMUNICATIONS SERVICES Chris Larsen Bradley Korch Joseph Mastrogiovanni Sr. Research Analyst Research Analyst Research Analyst Piper Jaffray & Co. Piper Jaffray & Co. Piper Jaffray & Co. 212 284-9339 212 284-9402 212 284-9317 [email protected] [email protected] [email protected]
Chris Larsen is a managing director and senior research analyst following telecommunication services. Larsen has followed the telecommunication services sector for more than 18 years, most recently at Credit Suisse and prior to that at Prudential Securities and NatWest Securities. Larsen was named on the Institutional Investor All-Star team for five years and has been ranked inThe Wall Street Journal “Best On The Street” survey and the NASDAQ/Starmine survey for both stock picking and estimate accuracy. Larsen earned a bachelor’s degree in business from Cornell University and holds the Chartered Financial Analyst designation.
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TECHNOLOGY, MEDIA & TELECOM: MEDIA & ENTERTAINMENT James Marsh Stan Meyers Sr. Research Analyst Research Analyst Piper Jaffray & Co. Piper Jaffray & Co. 212 284-9304 212 284-5037 [email protected] [email protected]
James Marsh is a managing director and senior research analyst at Piper Jaffray, following entertainment, radio and television broadcasting, outdoor advertising and publishing companies. Before joining Piper Jaffray, Marsh co-founded Hanover Square Capital Management, LLC., a hedge fund focused on the consumer and media sectors. Prior to that, he covered the radio and television broadcasting, publishing and outdoor advertising sectors at Cowen & Co., Robertson Stephens and Prudential Securities. In 2004, Marsh ranked third in stock picking for the broadcasting and entertainment sector in The Wall Street Journal’s “Best on the Street” analyst survey, also ranking in the survey for forecasting in 2001 and for publishing in 2000. Marsh has a Master of Business Administration degree in finance and international business from New York University and a bachelor of business administration degree in accounting from John Carroll University. He holds the Chartered Financial Analyst designation and is a Certified Public Accountant.
TECHNOLOGY, MEDIA & TELECOM: INTERNET Gene Munster Douglas Clinton Matthew Lebo Sr. Research Analyst Research Analyst Research Analyst Piper Jaffray & Co. Piper Jaffray & Co. Piper Jaffray & Co. 612 303-6452 212 284-9488 212 284-5042 [email protected] [email protected] [email protected]
Gene Munster is a managing director and senior research analyst at Piper Jaffray, specializing in Internet. He joined Piper Jaffray in 1995. Munster’s Internet focus includes the U.S., Europe, China and Latin America. His coverage includes Google, Yahoo!, Amazon, Baidu, and MercadoLibre. In addition, Munster has covered the digital media space since 1995, including Apple. He has authored several key industry reports on technology and is quoted frequently in key financial and technical news journals. Munster holds a bachelor’s degree in financial management and new venture strategies from the University of St. Thomas.
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TECHNOLOGY, MEDIA & TELECOM: ENTERPRISE SOFTWARE Mark Murphy Pinjalim Bora Matthew Coss Sr. Research Analyst Research Analyst Research Analyst Piper Jaffray & Co. Piper Jaffray & Co. Piper Jaffray & Co. 415 616-1705 415 616-1703 415 616-1706 [email protected] [email protected] [email protected]
Mark Murphy is a managing director and senior research analyst at Piper Jaffray, focusing on the enterprise software sector. Prior to joining Piper Jaffray, Murphy covered enterprise software for First Albany, and before that he worked in equity research at B.T. Alex Brown and Bankers Trust. Murphy has written software applications in various programming languages including BASIC, Pascal and COBOL. Murphy has also been recognized in The Wall Street Journal’s “Best on the Street” survey and was recently recognized by Forbes Magazine as the No. 1 sell-side stock picker in the software industry for the prior five years, with returns of 115% versus 26% for the software industry. Murphy graduated from Cornell University with a degree in business management and economics.
IT STORAGE AND NETWORKING SECTORS Andrew Nowinski Daniel Garofalo Sr. Research Analyst Research Analyst Piper Jaffray & Co. Piper Jaffray & Co. 612 303-6933 [email protected]
Andrew Nowinski, vice president and senior research analyst, returned to Piper Jaffray in 2011 to cover the IT storage and networking sectors. Nowinski was previously a senior research associate at Raymond James and authored an extensive industry report on the IT storage sector. Prior to Raymond James, he spent more than three years at Piper Jaffray covering the storage and networking sectors. Before joining the sell-side, Nowinski spent 10 years in the industry doing software development for various companies, including Accenture and IBM (formerly PriceWaterhouseCoopers). Nowinski earned an Master of Business Administration degree from the University of Minnesota.
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TECHNOLOGY, MEDIA & TELECOM: ONLINE CONTENT Mike Olson Andrew Connor Ryan Wright Sr. Research Analyst Research Analyst Research Analyst Piper Jaffray & Co. Piper Jaffray & Co. Piper Jaffray & Co. 612 303-6419 415 616-1712 612 303-6498 [email protected] [email protected] [email protected]
Mike Olson is a managing director and senior research analyst at Piper Jaffray covering online media, online travel and video games. Olson has been with Piper Jaffray covering companies in these industries since 2001 and has authored numerous industry reports, including “Internet Video: Field of Dreams or Nightmare on Elm Street,” “The Next Leg of Online Travel,” and “Pwned: How Casual Games Changed The Gaming Landscape.” Olson was recognized as the No. 2 stock picker and earnings estimator in the 2011 Financial Times/StarMine Internet & catalog retail category and was ranked in the Wall Street Journal‘s 2010 “Best On The Street” survey for the leisure goods & services category. Olson has a bachelor’s degree in finance, investment and banking from the University of Wisconsin–Madison.
SPECIALTY RETAIL: WOMEN’S APPAREL & ACCESSORIES; PERSONAL PRODUCTS Neely Tamminga Alex Fuhrman Senior Research Analyst Research Analyst Piper Jaffray & Co. Piper Jaffray & Co. 612 303-1537 212 284-9315 [email protected] [email protected]
Neely Tamminga is a managing director and senior research analyst at Piper Jaffray, focusing on specialty retailing: women’s apparel & accessories, and personal products. Tamminga ranked as a top sell-side analyst in The Wall Street Journal’s “Best on the Street” analyst survey in 2006 and 2011 for her coverage in broadline and apparel retailers. In 2010, FT/Starmine ranked Tamminga No. 2 in Stock Picking for her 2009 coverage in Specialty Retail. In 2009, FT/Starmine ranked Tamminga No. 2 Industry Estimator for her 2008 coverage in Personal Products. Tamminga has also received recognition by Institutional Investor magazine for her coverage in the apparel & footwear, department stores and hardlines retailing sectors. Prior to joining Piper Jaffray in 2002, Tamminga worked at A.G. Edwards & Sons, Inc. in St. Louis, where she covered specialty apparel retailing companies. Tamminga holds a bachelor’s degree in economics from Calvin College in Grand Rapids, Mich. and a Master of Business Administration degree from Saint Louis University.
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SEMICONDUCTORS AND ENABLING TECHNOLOGIES Gus Richard Jennifer Baxter Sr. Research Analyst Research Analyst Piper Jaffray & Co. Piper Jaffray & Co. 415 616-1711 212 284-9308 [email protected] [email protected]
Gus Richard is a managing director and senior research analyst at Piper Jaffray, focusing on the semiconductor sector. Prior to joining Piper Jaffray in 2007, Richard worked in equity research at First Albany Capital, Hambrecht & Quist, Alex Brown, and Robertson Stephenson & Company. Richard also spent several years on the buyside as a technology analyst/portfolio manager at EGM Capital. Richard’s semiconductor industry experience includes work experience in R&D, manufacturing and marketing at Intel and PMC Sierra. Richard holds a bachelor’s degree in physics from the Rochester Institute of Technology and a master’s degree in physics from Purdue University.
HEALTHCARE SERVICES: INFORMATION TECHNOLOGY, CONTRACT RESEARCH Sean Wieland Mohan Naidu Senior Research Analyst Research Analyst Piper Jaffray & Co. Piper Jaffray & Co. 415 616-1710 312 267-5083 [email protected] [email protected]
Sean Wieland is a managing director and a senior research analyst at Piper Jaffray, focusing on healthcare information technology and health care services. Wieland has 20 years’ experience in healthcare information technology, including direct industry experience and more than 12 years on the sell-side. He is a three-time Wall Street Journal “Best on the Street” winner and StarMine award winner for earnings accuracy. Prior to joining Piper Jaffray in 2005, Wieland was a senior research analyst at WR Hambrecht and Prudential Securities. Before joining the sell-side, he spent seven years in the industry, working in multiple roles at IDX Systems Corporation, most recently as a senior sales executive, where he learned firsthand about the need for technology in the healthcare setting. Wieland earned his Master of Business Administration degree and his bachelor’s degree in electrical engineering from the University of Vermont.
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TECHNICAL CHARTS FOR PARTICIPATING PUBLIC COMPANIES (charts are alphabetical by ticker)
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Report fooRteepr o(rbte fgoiontneirn (gb oefg cinonnifn bgo oofk c)o: nf book):
Piper Jaffray doesPiper and Jaffray seeks does to doand business seeks to with do business companies with covere companiesd in its covereresearchd in reports. its research As a result,reports. investors As a result, should investors be aw areshould that bethe aw are that the firm may havefirm a conflict may have of interest a conflict that of could interest affect that the could obje affectctivity the of thisobje report.ctivity of Investors this report. should Investors consider should this considerreport as thisonly report a single as only a single factor in makingfactor their in investmentmaking their decisions. investment This decisions. report should This report be read should in conjuncti be readon in with conjuncti importanton with disclosure important information, disclosure iinformation,ncluding an including an attestation underattestation Regulation under Analyst Regulation Certification, Analyst foundCertification, at the end found of thisat the report end ofor thisat the report following or at thesite: following site: http://www.piperjaffray.chttp://www.piperjaffray.com/researchdisclosuresom/researchdisclosures. .
Technology, Media and Telecommunications Conference March 12–13, 2013 DisclosureDisclosure pages at end pages of book: at end of book:
ImportantIMPORTANTImportant Research RESEARCH ResearchDisclosures DISCLOSURES Disclosures
Distributions Dofis Rtraitbiuntgiso/nIsB oSfe Rrvaitciensg s/IB Services Piper Jaffray Piper Jaffray IB . Serv./P a s tI B12. SMeorvs../ Past 12 Mos. Rating Ratin g Coun t Cou nt Perce nt Perc ent Coun t CouPnet rce nt Percent Buy (OW) Buy (OW) 320 320 55.75 55.75 62 62 19.38 19.38 Hold (N) Hold (N) 227 227 39.55 39.55 10 10 4.41 4.41 Sell (UW) Sell (UW) 27 27 4.70 4.70 0 0 0.00 0.00
Note: DistributionNote :of Distribution Ratings/IB ofServices Ratings/IB shows Services the number shows of the companie numbers of currently companie in seach currently rating in cate eachgory rating from cate whichgory Piper from Jaffray which a Pipernd its Jaffray and its affiliatesNote: received Distribution compensation of Ratings/IB for Services investme showsnt the banking number of services companies within currently the in past each rating12 mo categorynths. FINRA from which rules Piper require Jaffray and disclosure its affiliates of received which compensationaffiliates for receivedinvestment compensation banking services withinfor investme the past nt12 months.banking FINRA services rules withinrequire disclosurethe past 12of whichmonths. ratings FINRA most closely rules correspondrequire disclosure with of which ratings most closely correspond with “buy,” “hold,” and “sell” recommendations. Piper Jaffray ratings are not the equivalent of buy, hold or “buy,” “hold,”ratings and most “sell” closely recommendations. correspond Piper with Jaffray “buy,” ratings “hold,” are not and the “sell”equivalent recommendations. of buy, hold or sell butPiper instead Jaffray represent ratings recommended are not the relative equivalent of buy, hold or sell but instead represent recommended relative weightings. Nevertheless, Overweight corresponds most closely with buy, Neutral with weightings.sell Nevertheless,but instead Overweightrepresent corresponds recommended most closely relative with weightings. buy, Neutral with Nevertheless, hold and Underweight Overweight with sell. corre Seesponds Stock Rating most definitions closely withbelow. buy, Neutral with hold and Underweight with sell. See Stock Rating definitions below. Figures above are from February 28, 2013. Figureshold above and are fromUnderweight February 28, with 2013. sell. See Stock Rating definitions below. Figures above are from February 28, 2013.
Analyst CertifiAcnatailoynst –C e Prteiftiecra Atiopnp e–r t , PMeitcehr aAepl pGerrot,n Mdaichhl,a Jealg Gadroisnhd Iayhelr,, J Tagroayd iJsehn sIeyenr,, CTrraoiyg JJeonhsnesno, nC, rCahigr iJso Lhanrssoenn,, CJahmrise sL aMrsaersnh, ,J aGmenese Marsh, Gene Munster, MarMk uMnusrtpehr,y M, Aanrkd rMewu rNphoyw, iAnnskdir, eMwi kNeo Owlisnosnki,, GMuisk eR Oichlsaornd,, GSeuasn R Wicihealardn,d S, eNaene Wly iTealamnmd, inNgeae,l yS eTnaimorm Riensgeaa, rScehn Aionra Rlyesstse arch Analysts The viewsANALYST expressedThe views CERTIFICATION in thisexpressed report inaccura this telyreport reflect accura mytely personal reflect viewsmy personal about the views subject about company the subject and company the subject and security. the subject In addition, security. no In addition, no part of my compensationpart of my compensation was, is, or will was, be directly is, or will or beindi directlyrectly related or indi torectly the relatedspecific to recommendations the specific recommendations or views contained or views in thiscontained report. i n this report. — Peter Appert, Michael Grondahl, Jagadish Iyer, Troy Jensen, Craig Johnson, Chris Larsen, James Marsh, Gene Munster, Piper Jaffray Mark researchPiper Murphy, Jaffray analysts Andrewresearch receive Nowinski, analysts compensation Mike receive Olson, compensation that Gus is Richard, based, that inSean part, is Wieland, ba onsed, overall inNeely part, firm Tamminga, on revenues, overall Senior firm which revenues,Research include Analysts which investment include banking investment banking revenues. revenues. The views expressed in this report accurately reflect my personal views about the subject company and the subject security. In addition, no part of my Complecompensationte discClomsupr elwas,e itnef dis,oirs morcl awillotsiou benre, directlypinrifcoer mc orha atindirectlyirotsn ,a pnrdi crelatedrea tcinhga torst sdthe iasn tspecificrdib ruatiion ngrecommendationss odnis tcroibmuptiaonnis e orso ncviewso cvoem rcontainedepda bnyie Psi pincoe thisrv eJar efreport.fdra byy E Pqiupietry JRaeffsreaayr Echq uciatyn Rbees earch can be found on the fPoiupnerd J oafnf rtahye w Peipbseirt eJa: fhfrtatpy :w//epbipsietrej:a hfftrtapy:./c/opmip/errejaseffararcyh.cdoimsc/loressueraersc ohrd bisyc lworsiutirnegs toor Pbiyp werr iJtainffgra tyo, EPqipueitry J aRfefrsaeya,r Echq uDiteyp Raertsmeaerncth, Department, 800 NicPiperollet Jaffray M80a0ll ,researchN Micionlnlee tanalystsa Mpoallils, , receive MMiNnn 5 ecompensation5a4p0o2l is, MN that554 0is2 based, in part, on overall firm revenues, which include investment banking revenues.
RatingsComplete andRatings disclosure Other information,and Definitions Other price chartsDefinitions and ratings distributions on companies covered by Piper Jaffray Equity Research can be found on the Piper Jaffray website: http://piperjaffray.com/researchdisclosures or by writing to Piper Jaffray, Equity Research Department, 800 Nicollet Mall, Minneapolis, MN 55402 Stock RatingsS: tPiperock R Jaffrayatings :ratings Piper Jaffray are indicators ratings are of expectedindicators total of expected return (pri totalce appreciationreturn (price plusappreciation dividend) plus within dividend) the next wi 12thin months. the next A12t months. At times analyststimes may analystsspecify a maydifferent specify investment a different horizon investment or may horizon include or additional may include investment additional time investment horizons time for specific horizons stock for specifics. Stock stocks. Stock performance isperformance measured relativeis measured to the relative group ofto stocksthe grou coveredp of stocks by each covered analyst. by eachLists analyst.of the stocks Lists coveredof the stocks by each covered are availa by eachble atare available at www.piperjaffray.comRATINGSwww.piperjaffray.com AND/researchdisclosures OTHER/researchdisclosures DEFINITIONS. Stock ratings. Stockand/or ratings stock coveand/orrage stock may cove be suspendedrage may be from suspended time to timefrom intime the to event time that in the event that there is no activethere analyst is no activeopinion analyst or analyst opinion coverage, or analyst but coverage,the opinion but or the coverage opinion is or expected coverage to is resume. expected Research to resume. reports Research and ratings reports and ratings should notStock be Ratings:should relied Piper uponnot Jaffraybe as relied individual ratings upon are indicators inasvestment individual of expected advice. investment total As return always, advice. (price an appreciation Asinvestor’s always, plus andecision dividend)investor’s to within buy decision or the sell next toa 12 security buy months. or sell must At atimes security de pendanalysts muston depend on individualmay circumstances, specifyindividual a different circumstances, investmentincluding horizonexisting including or holdings,may include existing timeadditional holdings, horizons investment time and timehorizonsrisk horizonstolera andnce. for risk specific Piper tolera Jaffray stocks.nce. sales StockPiper performanceand Jaffray trading sales is person measuredand tradingnel relative may person nel may provideto written the groupprovide or oforal stocks written commentary, covered or oralby each commentary,trade analyst. ideas, Lists or oftrade theother stocks ideas, inform covered oration other by each about inform are aavailable ationparticular about at www.piperjaffray.com/researchdisclosures. stock a particular to clients stock or internal to clients trading or internal Stock desks ratings tradingreflecting desks reflecting differentand/or opinions differentstock thancoverage opinions those may expressed be than suspended those by fromexpressedthe researchtime to timeby analyst.the in theresearch event In addition, that analyst. there isPipe Inno addition,activer Jaffray analyst technical Pipe opinionr Jaffray research or analyst technical productscoverage, research but are the baproducts opinionsed on or are based on differentcoverage methodologiesdifferent is expected methodologies toand resume. may contradictResearch and reportsmay the contradict andopinio ratingsns shouldcontainedthe opinio not be nsin relied fundamentalcontained upon as individual in researchfundamental investment reports. research advice. As reports. always, an investor’s decision to buy or sell a security must depend on individual circumstances, including existing holdings, time horizons and risk tolerance. Piper Jaffray sales and Overwetradingight (O OpersonnelWve)r:w Anticipatedeig mayht ( OprovideW) :to Anticipatedwritten outperform or oral tocommentary, relative outperform to tradethe relative median ideas, or to ofother the the informationmedian group ofof about stocksthe groupa particular covered of stocks stock by the to covered clientsanalyst. or by internal the analyst. trading desks Neutralreflecting (N): NAnticipatede udifferenttral (N opinions) :to Anticipated perform than those in toline expressedperform relative byin tothe line the research relative median analyst. to of the the In me groupaddition,dian ofof Piper stocksthe Jaffray group covered technical of stocks by research the covered analyst. products by theare basedanalyst. on different Underwmethodologieseight U(UnWde)r: wand Anticipatedeig mayht ( contradictUW) :to Anticipated underperform the opinions to contained underperform relative in fundamentalto the relative median research to of the the reports. median group ofof stocksthe group covered of stocks by the covered analyst. by the analyst.
OtherOverweight ImportantOther (OW): Important AnticipatedInformation to outperform Information relative to the median of the group of stocks covered by the analyst. The materialNeutral regarding(N): Anticipated the tosubject perform company in line relative is basedto the median on data of the obtained group of stocksfrom coveredsources by thedeemed analyst. to be reliable; it is not guaranteed as to UnderweightThe material(UW): Anticipated regarding to underperform the subject relative company to the medianis based of theon group data of obtained stocks covered from by sourcesthe analyst. deemed to be reliable; it is not guaranteed as to accuracy and accuracydoes not and purport does tonot be purport complete. to beThis complete. report is This solely report for informatiis solely onalfor informati purposesonal and purposes is not intended and is notto beintended used a sto the be used as the primary basisprimary of investment basis of decisions. investment Pipe decisions.r Jaffray hasPipe notr Jaffray assessed has notthe assessedsuitability the of thesuitability subject of company the subject for companyany person. for anyBecause person. of Because of
70 Technology, Media and Telecommunications Conference March 12–13, 2013
OTHER IMPORTANT INFORMATION
The material regarding the subject company is based on data obtained from sources deemed to be reliable; it is not guaranteed as to accuracy and does not purport to be complete. This report is solely for informational purposes and is not intended to be used as the primary basis of investment decisions. Piper Jaffray has not assessed the suitability of the subject company for any person. Because of individual client requirements, it is not, and it should not be construed as, advice designed to meet the particular investment needs of any investor. This report is not an offer or the solicitation of an offer to sell or buy any security. Unless otherwise noted, the price of a security mentioned in this report is the market closing price as of the end of the prior business day. Piper Jaffray does not maintain a predetermined schedule for publication of research and will not necessarily update this report. Piper Jaffray policy generally prohibits research analysts from sending draft research reports to subject companies; however, it should be presumed that the analyst(s) who authored this report has had discussions with the subject company to ensure factual accuracy prior to publication, and has had assistance from the company in conducting diligence, including visits to company sites and meetings with company management and other representatives.
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