Carbonite Inaugural Financial Analyst and Investor Day

Transcription

1 Carbonite Inaugural Financial Analyst and Investor Day September 19, 2017 carbonite.com

2 Jeremiah Sisitsky Vice President of Investor Relations

3 Safe harbor and disclosures Certain matters discussed in these slides and accompanying oral presentation have "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of These forward-looking statements may generally be identified as such because the context of such statements will include words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "will," "would" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Forwardlooking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond the Company's control. The Company's actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including, but not limited to, economic conditions and markets (including current financial conditions), exchange rate fluctuations, risks associated with debt prepayment, stock repurchases or acquisitions in lieu of retaining such cash for future needs, and changes in regulatory conditions or other trends affecting the Internet and the information technology industry. These and other important risk factors are discussed under the heading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the Securities and Exchange Commission (the "SEC"), which is available on and elsewhere in any subsequent periodic or current reports filed by us with the SEC. Except as required by applicable law, we do not undertake any obligation to update our forward-looking statements to reflect future events, new information or circumstances. This presentation contains non-gaap financial measures including, but not limited to, Bookings, non-gaap Revenue, non-gaap Gross Margin, non-gaap Net Income and non-gaap Net Income Per Share, and Adjusted Free Cash Flow. A reconciliation to GAAP can be found in the financial schedules included in our most recent earnings press release located on Carbonite s website, in Carbonite s filings or with the SEC at The presentation of non-gaap financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. This presentation utilizes certain trademarks and service marks for reference purposes. All such trademarks and service marks are and remain the property of their respective owners. Any unreleased services or features referenced in this presentation are not currently available and may not be delivered or released on time or at all. Customers should make their purchase decisions based upon features that are currently available.

4 Agenda Welcome Keynote Mohamad Ali, President and CEO Product Strategy and Roadmap Deepak Mohan, SVP of Products and Engineering Market Evolution and Trends - Fireside Chat with: Lauren Nelson, Principal Analyst Serving Infrastructure and Operations Professionals, Forrester Aligning Go-To-Market Resources for Growth Paul Mellinger, SVP of Sales Partner Perspective Fireside Chat with: Eileen Sweeney, SVP and GM Data Management at Iron Mountain Financial Update Anthony Folger, CFO Final Q&A

5 Mohamad Ali President and Chief Executive Officer

6 The world needs a new approach to data protection

7 Downtime is unavoidable, even with the cloud Examples include airline high availability, hotel data backup, AWS outage, and ransomware Natural disasters Combined with power failures 25% of outages Normal accidents Bad patches, user error and hardware failures Planned downtime Planned outages and maintenance windows Ransomware Combined with malware 22% of outages Source: "Cost of Data Center Outage," Ponemon Institute, 2016

8 Source: $1B Ransom paid in ) 2) Ransomware is not going away $1 Billion It was estimated that $ 1 Billion in potential ransoms would be paid in ,000 Number of computers infected by WannaCry ransomware 1 10,000+ Number of customers Carbonite customer support recovered from ransomware in last 24 months Carbonite is a leader in ransomware recovery Backup is one of the only reliable means of protection

9 Data is increasingly the most valuable asset Explosive growth in data Data sprawl across multiple locations and clouds

10 The Carbonite approach to data protection

11 The world needs complete data protection As new environments emerge, the need for cross-environment data protection continues 1980s 2000s 2010s Next Microsoft Windows Server Linux VMWare Microsoft HyperV Amazon Web Services Microsoft Azure Data Protection NewCo Amazon Amazon and Microsoft are motivated to protect their systems, not others When disaster strikes, businesses call specialists like Carbonite Hyperscale cloud providers have data protection products today, but not successful

12 Carbonite delivers a complete data protection platform Solaris Physical IBMi Azure Virtual VMWare Google Hyper-V Rackspace Gmail SaaS º365 HP UX AWS AIX Cloud Linux Windows

13 Carbonite in 2018

14 Data protection experience for every business >100,000 business customers from small to very large >90% customer satisfaction >160 petabytes of data under management >8,000 partners, VARs and MSPs globally

15 Our transformation to a data protection platform From laptop backup to complete data protection for any IT environment Cloud Virtual Physical Hours Minutes Seconds Backup Disaster recovery High availability

16 Carbonite is building the data protection platform Backup & Archiving DR as a Service (DRaaS ) & High availability Workload portability Computer Carbonite Endpoint Backup Not applicable Carbonite Endpoint Backup Physical server Virtual server Cloud server Carbonite Hybrid Backup Carbonite Cloud Backup Carbonite MailStore Carbonite Availability Carbonite DRaaS Carbonite Move Carbonite Cloud Migration

17 2018: one solution, easy to consume & world s best support One solution across all systems From physical to virtual, legacy systems and cloud Easy to consume via single API and UX Easy to configure, operate, test, fail over and fail back Exceptional support before, during and after an outage 24x7 support, ensuring tests successful, recovery smooth Stevie Awards golds, 9 silvers

18 $1 Billion in revenue 18

19 Targeting higher growth markets ~12% growth Cloud Backup (BaaS) ~$2 B +20% growth Disaster Recovery as a Service (DRaaS) ~$2 B +20% growth Cloud migration Data Protection + $15 B Market Tomorrow Source: Gartner, IDC, Markets and Markets and Carbonite estimates

20 Leverage partners to sell full platform Value-added resellers Solution providers to small and mid-size businesses Buy through Carbonite s online services or trusted partners Supported by Carbonite s inside sales team Large partners Solution providers to mid-size and large businesses Include managed services providers, global systems integrators, and alliance partners Supported by Carbonite s inside sales and executive team

21 Cross-sell entire data protection platform Significant opportunity to drive higher customer life-time value in an already sticky and stable base Cross-sell End-point customer example Server backup Hybrid server backup Archiving DRaaS & High availability Migration Objective: Renewal and crosssell dollars to existing customers exceed 100% of prior year s dollars. Now possible with data protection platform.

22 Accelerate new customer acquisition 2H 17 and beyond Extend brand to mid-market Thought leadership World-class data protection platform Unified website Unified partner program and portal Objective Firmly establish Carbonite as leading business brand Drive growth in excess of market growth rates

23 M&A creating value Strategic Use Expand data protection platform Enhance routes to market Add adjacent solutions Experience One of the most experienced and successful M&A/integration teams in technology Financial Discipline Quickly accretive deals with long-term potential Not dilutive to Carbonite multiples

24 Summary The market is strong and growing We have a winning approach to data protection We are on a path to $1 billion in revenue We have the strategy, technology, resources and team to be successful for the longer term

25 Deepak Mohan Senior Vice President of Products and Engineering

26 Deliver complete suite of integrated solutions Simple and elegant user experience Integrated management Flexible and extensible platform Cloud based and remotely managed solutions Cross-sell and subscription pricing

27 Relevance to larger organizations Accelerating delivery via acquired technologies More: Advanced analytics, Data security, etc. DR as-a-service (DRaaS) Business endpoint protection High availability and migration Server data protection Data Protection Platform archiving Consumer endpoint file-based backup Beginning Today Future

28 Carbonite is building the data protection platform Backup & Archiving DR as a Service (DRaaS ) & High availability Workload portability Computer Carbonite Endpoint Backup Not applicable Carbonite Endpoint Backup Physical server Virtual server Cloud server Carbonite Hybrid Backup Carbonite Cloud Backup Carbonite MailStore Carbonite Availability Carbonite DRaaS Carbonite Move Carbonite Cloud Migration

29 Cloud backup and hybrid backup (as a service) Carbonite Cloud Backup Direct from server to cloud backup Carbonite Hybrid Backup Local copy on Carbonite appliance and a copy in the cloud Flexible Deployment Branch office, central IT and cloud support Flexible Restore Files, whole systems, VMs & bare metal Robust Security Encrypted in-flight and at-rest Web-based central management Broad Platform Support Support for Windows, Linux, VMware, Hyper-V, Exchange, SQL, AIX, iseries, HPUX and Solaris

30 Carbonite Availability and Carbonite Move Primary System physical, virtual or cloud Target physical, virtual or cloud Carbonite Availability Continuous replication and flexible failover for key systems Changes continuously sent to the target Recover Points in Seconds Carbonite Move Migration across physical, virtual or cloud for Windows and Linux servers Continuous Replication Near-Zero Downtime Physical, virtual and cloud servers Cross-sell Byte-level protection from primary site to secondary target Recovery times in minutes, with shorter recovery points Full AWS / Azure support Provides full data protection in concert with backup solutions

31 Carbonite DR as-a-service (DRaaS) coming soon... Customer Environment Provider s Cloud Based on unique replication technology from DoubleTake Customers can fail-over near instantaneously to the cloud Eliminates need for secondary data center for disaster recovery

32 Carbonite unified data protection architecture Customer Workloads Backup HA DRaaS Analytics Archive Migration Unified Management Portals Customers Partners Billing API Data Engines API API Data Sources Backup Replication Orchestration Analytics Archive Public Cloud (Azure, AWS, GCP) Private Cloud Storage Repositories MSP Cloud API Carbonite Cloud Object Storage Appliance Windows Linux SQL Exchange O365 VMware Hyper-V Oracle

33 Summary Delivering a full suite of solutions via a unified platform Enterprise-class with ease-of-use Enable cross-sell Leveraging acquisitions to accelerate product delivery

34 Q&A Session: Mohamad Ali and Deepak Mohan

35 Fireside chat with: Lauren Nelson Principal Analyst Serving Infrastructure and Operations Professionals, Forrester

36 Intermission Webcast to Resume Shortly

37 Paul Mellinger Senior Vice President of Sales

38 Guiding principles Drive cross-sell Lead with channel partners Selective geographic expansion Further automate transactional business

39 Customers and routes to market Target Market Strategic Plan Route to Market Larger businesses Invest to win Channel Consumers and smaller businesses Leverage strong technology & consumer ease-of-use Drive improvements to CLTV Automation and ecommerce

40 Carbonite s target business customer Server Count <5 Target 1,000 s IT Dept. <5 Target 1,000 s Downtime Tolerance days Minutes to hours seconds Data Loss Tolerance days Minutes to hours seconds

41 Our transformation to a data protection platform From laptop backup to complete data protection for any IT environment Cloud Virtual Physical Hours Minutes Seconds Backup Disaster recovery High availability

42 Customer example hybrid appliance Senderex Cargo Partner: TechnoKOZ, Gilbert, AZ Transportation and distribution company, ~20 employees, based in California Business needs Prevent downtime and data loss Shorten time for backup and restores Reasons for win With the E2 appliance the completion time was cut in half With no permanent IT person on staff, it was critical the solution would be easy and simple to implement Deal size: $2,200/year

43 Customer example successful cross-sell Academy of Our Lady Private High School, 600 employees/students based in Louisiana Business needs Needed local as well as remote backups of their data Wanted to work with a single provider Wanted longer retention policy and fast local failover Reasons for win Easy to implement integrated solution Our solution 1TB HWaaS cross-sold with high availability Deal Size: $11,000/year

44 Customer example distributed organization Leading global hotel chain and franchise Partner: Iron Mountain Business needs Bare metal restore, virtualization support, remote site backup, site billing and reporting Hybrid local backup appliance speeds cloud backup and recovery Our solution On site appliances replicating to EVault Cloud storage Deal size: $500K/year and growing Leased backup appliances planned at multiple satellite locations Reasons for win Award winning global support Deployment flexibility

45 One team enabling cross-sell and driving automation Transactional Increase automation Data protection for larger businesses Grow capacity with sales, both inside sales and channel coverage

46 Recruit and engage partners Recruit Enable Activate Scale Delivered compelling partner benefits Launched partner advisory council Created executive sponsor program Launched unified partner portal Further developed monthly newsletter and webinars

47 Evolving go-to-market model One size fits all sales model Differentiated for businesses and consumers Multiple product focused websites Single, integrated website to serve all customers ARPU growth driven by data increases Platform enables cross-sell to drive further ARPU gains Award-winning consumer support World-class support across all customers & partners From To

48 Momentum in Europe and Rest of World: United States 88% International 12% Carbonite Cloud Backup and Carbonite Hybrid MSP base growing substantially Early gains cross-selling Carbonite Availability GSIs well positioned for growth Carbonite MailStore continues strong and predictable growth *Revenue by geography

49 Guiding principles Drive cross-sell Lead with channel partners Selective geographic expansion Further automate transactional business

50 Q&A Session: Paul Mellinger

51 Fireside chat with: Eileen Sweeney Senior Vice President and General Manager Data Management Iron Mountain

52 Anthony Folger Chief Financial Officer

53 Key elements of growth strategy Targeting higher growth markets Carbonite is uniquely solving this problem ~12% growth Cloud Backup (BaaS) ~$2 B +20% growth Disaster Recovery as a Service (DRaaS) Data Protection + $15 B Market ~$2 B +20% growth Cloud migration Tomorrow Solaris Physical IBMi Azure Virtual VMWare Google Hyper-V Rackspace Gmail SaaS º365 HP UX AWS AIX Cloud Linux Windows Source: Gartner, IDC, Markets and Markets and Carbonite estimates Expand TAM / Growth Markets Large and growing market opportunity Increasing focus on even faster growth segments: DRaaS and Cloud Migration Platform Strategy Support complex IT environments Drive cross-sell, and dollar renewal rates greater than 100% Unified website, partner program and portal to enable frictionless experience Disciplined Financial Management Strategic and accretive M&A with a focus on integration Disciplined cost management driving profitable growth Strategic allocation of capital

54 Shift to business market well underway 2012 Q Significant increase in business bookings as a percentage of total bookings Business 19% Consumer 33% Consumer 81% Business 67%

55 Focus continues to be on growing subscription bookings Strategic focus on platform will result in higher subscription mix Q Q Of $43.0 million in business bookings majority are subscription Consumer $20.9 Business $43.0 Business bookings Subscription 68% non- Subscription 32% 100% of $20.9 million in consumer bookings are subscription

56 Recurring bookings greater than subscription bookings Subscription (1) vs Recurring (2) Business Bookings Total Bookings 85% 90% 68% 79% Q2 17 % Subscription % Recurring Q2 17 % Subscription % Recurring (1) Subscription bookings include SaaS and term software licenses (2) Recurring bookings are subscription bookings plus maintenance and support contracts on software and hardware

57 Aligning on simplified subscription-based pricing models From EVault Cloud Backup + Appliances Perpetual license or annual subscription Upfront appliance purchase To Carbonite Hybrid Backup Subscription includes appliance DoubleTake Availability Perpetual License with multiple variations Carbonite Availability Simplified license DRaaS Subscription DataCastle Red Monthly Per Seat on annual contract Carbonite Endpoint Backup Subscription

58 Business bookings trending up $45 $40 $35 $12.8 $13.7 $30 $7.8 $25 $5.4 $20 $15 $23.4 $26.1 $27.3 $29.3 $10 Q Q Q Q Subscription non-subscription *Bookings in $ millions

59 Driven by transforming unit economics Contract Term months Deal Size $1K - $5K Annual Contract Value Customer Retention Dollar renewal ~ 95% - 100%

60 Consumer continues to be stable Subscriber Renewal Rate - Consumer Bookings Growth Rate - Consumer 79% 82% 84% 85% 4% 2% (5%) (2%) FY 14 FY 15 FY 16 Q2 '17 FY 14 FY 15 FY 16 Q2 '17 Product improvements World class customer service Fundamentals neutral to improving 570 bps improvement

61 Longer-term bookings growth scenarios Moderate Growth Accelerated Growth Consumer Bookings -10% - flat -5% to 5% Business Subscription 12% - 18% 18% - 24% Business non-subscription flat 5% flat 5% Business Bookings 10% - 15% 15% - 20% Total Bookings 6% - 12% 11% - 17%

62 606 - Modified retrospective approach 1/1/2018 Revenue Stream Current Treatment Under ASC 606 Software as a Service Ratable Ratable Perpetual License Upfront Upfront Term License Ratable Upfront Royalty As utilized As utilized Maintenance and Support Ratable Ratable Professional Services As performed As performed Costs to Obtain a contract Current Treatment Under ASC 606 Commissions Expense Expensed in period Expensed ratably over multiple years Third party referral fees Expensed in period Expensed ratably over multiple years *The Company continues to assess the potential impact of these standards on its consolidated financial statements and disclosures. This information is preliminary and subject to change.

63 Cost of goods efficiency and operational discipline Data Centers Customer Care Highly scalable, >160 PB of customer data Proprietary file system Low overhead Leveraging the best of the public cloud Consolidate Space / Increase Storage Efficiency / Automation Exceptional support before, during and after an outage 24x7 support, ensuring tests successful, recovery smooth Stevie Awards golds, 9 silvers CSAT scores consistently +90% Improving renewal rates

64 Driving gross margin and operating margin leverage % of non-gaap revenue Gross margin 74% Sales and marketing Advertising Sales and marketing 50% 36% Research and development 22% 17% 29% 7% 2012 Q2 ' Q2 '17 66% General and administrative Total Op Ex 13% 80% 8% 2012 Q2 '17 67% 2012 Q2 ' Q2 '17

65 Additional modeling items Taxes Net deferred tax assets (NOLs) fully reserved / will be for foreseeable future Effective rate (GAAP) 28%-32% after reserve is released Cash rate 10-15% while NOL s are being utilized Interest Expense $900k per quarter in cash interest expense $1.5 million per quarter in GAAP interest expense associated with the convertible debt (non-cash) Convertible security Optional with intent to net share settle $25.84 conversion per share, issue 770k shares if converted

66 Capital allocation and capital spending FY14 FY15 FY16 Q2 17 YTD M&A (1) $17.9 $2.7 $21.6 $64.1 Cap Ex $14.5 $9.7 $8.0 $10.0 Share Repurchase $0.0 $5.3 $4.5 $15.0 Total $32.4 $17.8 $34.1 $89.1 (1) Includes cash purchase price and one time fees and expenses. M&A 61% Cap Ex 25% Share repurchase 14% *Chart reflects cumulative percentage

67 Capital spending trends and outlook FY14 FY15 FY16 Q2 '17 YTD Data Centers 7,511 4,930 4,826 2,570 DC Cons ,608 Corp HQ 3,872 1, Other 3,116 3,490 3,141 1,861 Cap Ex 14,498 9,729 7,968 10,039 $7.5 $4.9 $ % 3.6% $ % 2.1% FY14 FY15 FY16 Q2 '17 YTD Efficient data centers and declining storage prices One time investments; consolidate data centers and new HQ * Data centers as a percentage of non-gaap revenue

68 Profitability, cash flow trends and outlook Adjusted Free Cash Flow Adjusted EBITDA Non-GAAP EPS $4.5 $13.3 $0.23 ($4.1) 2012 Q2 '17 YTD ($1.2) 2012 Q2 '17 YTD ($0.46) 2012 Q2 '17 YTD *See Appendix for non-gaap measure definitions and reconciliations to the most directly comparable GAAP measures.

69 *Longer-term financial goals exclude the impact of purchase accounting adjustments for significant acquisitions, amortization expense on intangible assets, stock-based compensation expense, litigation-related expense, restructuring-related expense, acquisition-related expense, non-cash convertible debt interest expense, and the income tax effect of non-gaap adjustments. Longer-term financial goals Opportunity to drive meaningful operating margin expansion Q2 17 YTD LT Range Bookings Growth 11% 12% 45% 19% 6-12% 11-17% Revenue Growth 14% 11% 53% 17% 6-12% 11-17% Gross margin 69% 73% 73% 74% 80-83% 80-84% Research & development 19% 19% 15% 17% 14-16% 13-16% General & administrative 11% 12% 14% 13% 9-11% 8-10% Sales & marketing 40% 38% 34% 37% 31-34% 31-34% Operating Margin 1% 3% 9% 6% 22%-26% 23-27%

70 Q&A Session: Anthony Folger

71 Final Q&A Session: Mohamad, Anthony, Deepak, Paul

72 Mohamad Ali President and Chief Executive Officer

73 Targeting higher growth markets ~12% growth Cloud Backup (BaaS) ~$2 B +20% growth Disaster recovery as a Service (DRaaS) ~$2 B +20% growth Cloud migration Data Protection + $15 B Market Tomorrow Source: Gartner, IDC, Markets and Markets and Carbonite estimates

74 Summary The market for data protection is strong and growing Platform strategy proven strategy for expansion We are on a path to $1 billion in revenue: Growth through cross-sell opportunities Continued opportunities to leverage M&A Compelling financial model: driving earnings and free cash flow

75 Non-GAAP measures and reconciliations

76 Definitions of Non-GAAP measures Bookings: Bookings represent the aggregate dollar value of customer subscriptions and software arrangements, which may include multiple revenue elements, such as software licenses, hardware, professional services and post-contractual support, received during a period and are calculated as revenue recognized during a particular period plus the change in total deferred revenue, excluding deferred revenue recorded in connection with acquisitions and divestitures, net of foreign exchange during the same period. Non-GAAP revenue: Excludes the impact of purchase accounting adjustments in connection with acquisitions. Non-GAAP gross margin: Excludes the impact of purchase accounting adjustments for significant acquisitions, amortization expense on intangible assets, stock-based compensation expense, and acquisition-related expense. Non-GAAP net income (loss) and non-gaap net income (loss) per share: Non-GAAP net income and non-gaap net income per share excludes the impact of purchase accounting adjustments for significant acquisitions, amortization expense on intangible assets, stock-based compensation expense, litigation-related expense, lease exit charges, acquisition-related expense, non-cash convertible debt interest expense, and the income tax effect of non-gaap adjustments. Adjusted free cash flow: Adjusted free cash flow is calculated by subtracting the cash paid for the purchase of property and equipment and adding the payments related to acquisition-related payments, litigation-related payments, and the cash portion of the lease exit charge from net cash provided by operating activities. Non-GAAP operating income: Non-GAAP operating income excludes the impact of purchase accounting adjustments for significant acquisitions, amortization expense on intangible assets, stock-based compensation expense, litigation-related expense, restructuring-related expense, hostile takeover-related, CEO transition expense, and acquisition-related expense. Non-GAAP operating margin: Non-GAAP operating margin is calculated by dividing non-gaap operating income by non-gaap revenue. Adjusted EBITDA: Adjusted EBITDA is calculated by excluding depreciation expense from non-gaap operating income.

77 Non-GAAP reconciliations

78 Non-GAAP reconciliations

79 Non-GAAP reconciliations

80 Non-GAAP reconciliations

81 Non-GAAP reconciliations