February 20, 2015
Technology
Infoblox, Inc.
Ticker: BLOX
Recommendation: Outperform
Current Price: $20.47
Price Target: $23.75
Investment Thesis
Key Statistics
52 Week Price Range

As an appliance-based cyber-security and network infrastructure provider,
Infoblox meets the data storage, network integration, and security needs of
large enterprise clients more effectively than SaaS-based service providers

With large corporations transitioning toward in-house network management
solutions, Infoblox is poised to capitalize on increasing demand for
seamless cloud deployment through utilization of key proprietary
technology and a renewed sales and marketing strategy

An influx in the frequency, duration, and complexity of targeted DDoS
attacks will lead senior management of many reputable global firms to
commit significant resources towards data security. As the market leading
provider of DNS management and network security, Infoblox will
increasingly be the provider of choice for such services

Revenue misses during early 2014 have left shares of Infoblox undervalued
due to reactionary selling by investors
$11.67-$20.50
50-Day M oving Average
Estimated Beta
Dividend Yield
M arket Capitalization ($ millions)
3-Year Revenue CAGR
$19.81
1.12
-
1,170
19.02%
Trading Statistics
Diluted Shares Outstanding (millions)
58.07
Average Volume (3-M onth)
795,515
Institutional Ownership
80.00%
Insider Ownership
EV/EBITDA (LTM )
8.43%
$30.00
(41.42x)
$25.00
Margins and Ratios
Gross M argin (LTM )
One-Year Stock Chart
35,000,000
30,000,000
25,000,000
$20.00
80.68%
20,000,000
$15.00
EBITDA M argin (LTM )
(7.70%)
Net M argin (LTM )
(9.56%)
Debt to Enterprise Value
-
15,000,000
$10.00
10,000,000
$5.00
5,000,000
0
$0.00
Feb-14
Apr-14
Jun-14
Volume
Aug-14
Adj Close
Oct-14
50-Day Avg
Dec-14
200-Day Avg
Covering Analysts:
Michael Lyford - mlyford@uoregon.edu
Matthew Eden - meden@uoregon.edu
1
University of Oregon Investment Group
University of Oregon Investment Group
Business Overview
Figure 1:
Projected Revenue by Segment 2015E
Services
52.84%
Products &
Licenses
48.16%
General Overview
Founded in 1999 by Stuart Bailey, Infoblox is a leader in network control, network
automation, and domain name system security. Serving over 7,700 public and
private entities, the company uses appliance-based physical and virtual solutions
that enable and secure dynamic networks and next-generation data centers. With
a focus on customizing the network infrastructure of its customers, Infoblox uses
its proprietary technology to combine real-time IP address management, device
configuration, automation, security and resiliency into its network services.
Infoblox currently has the largest installed base of DNS, DHCP, and IP address
management (DDI) appliances. In 2010, Infoblox acquired network automation
vendor Netcordia to complement its core network services with technologies for
network task automation. In April 2012, Infoblox completed its initial public
offering at $16 per share.
Business Divisions
Source: UOIG Spreads
Figure 2: Trinzic DDI Appliance
Source: Infoblox
Figure 3: Infrastructure Security Network
Source: Infoblox
Infoblox is segmented into two business divisions: products and licenses, and
services. In 2015, the services segment is projected to comprise 52.50% of total
revenue and products and licenses is projected to represent 47.50% of total
revenue.
Products and Licenses
The Infoblox family of products can be broken down into four product subfamilies
recognized by the firm. These products include Core Network Services,
Infrastructure Security, Cloud Network Automation, and Network Change and
Configuration. These subfamilies serve a wide range of purposes and run on both
physical and virtual appliances. They are further discussed below.
Core Network Services
A large amount of the revenue generated from the products and services segment
comes almost exclusively from sales of the Trinzic DDI family of products which
comprises the entirety of core network services. Trinzic is designed to ensure the
continuous secure operation of critical network services through the use of
proprietary software which is programmed to automate the routine, repetitive and
time consuming manual tasks associated with deploying and managing DNS,
DHCP, and IP address management (DDI). Therefore, Trinzic facilitates
continuous network availability even during malware and DNS attacks.
This product also integrates the Infoblox Grid technology and works with other
appliances in a network. Specifically, it allows users to report on network
utilization, isolate performance problems, and report on malware and other
security threats. It can be combined with Microsoft IPAM for network-wide
management of Infoblox DDI appliances and Microsoft servers from a single
point of access. Finally, all of the data collection and processing in any given
network running on the Infoblox Grid technology is performed on a separate
appliance which eliminates load and performance impact on the protocol serving
DDI appliances.
Infrastructure Security
This product family includes an appliance designed to protect customer networks
from cyberattacks called Advanced DNS Protection. Combined with the Trinzic
family of products, this appliance uses threat intelligence to decipher between
malicious DNS traffic and legitimate DNS traffic, ensuring that none of the
essential DDI functions are compromised. Furthermore, the appliance reports
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University of Oregon Investment Group
real-time information about the attack giving security teams information they can
use to immediately combat the attack.
Figure 4:
Infoblox Cloud Network Automation
DNS Firewall is a product that protects customers from advanced persistent
threats and other malware. This product gives IT personnel a live feed of known
malware domains and automatically blocks all DNS requests from these domains.
Both Advanced DNS Protection and DNS firewall can be managed from the same
DDI interface.
Cloud Network Automation
This sub-family combines Infoblox proprietary software with third party software
to enable the automation of key network provisioning and functions when rolling
out private cloud deployments. This saves customers significant time, money, and
resources when deploying private cloud networks.
Source: Infoblox
The technology used throughout the process of cloud network automation allows
virtual machines to automatically detect new virtual machines and assign IP
addresses to them and automatically create new DNS entries for these machines.
Furthermore, as virtual machines are de-provisioned, this technology
automatically erases their DNS entry effectively saving hours of manual labor.
Figure 5:
IPv6 Capable Devices Projections
2014
2015
Laptops
2016
M2M
2017
2018
Smartphones
Source: Cisco
Figure 6:
Revenue Composition by Segment
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2019
Network Change and Configuration Management
This sub-family includes products which automate the process of complex
network configuration and management. Put simply, these products work together
to discover new network devices, assign IP addresses to these devices, and store
this data in a centralized location. This technology is vital for companies seeking
to reconfigure or change their networks. It is important to note here that Infoblox
places importance on ensuring that all DNS entries are IPv6 capable. This means
that as the finite amount of unique IP addresses in the world begins to dwindle,
Infoblox customers have the luxury of not having to reconfigure their networks.
Tablets
Services
The services segment is expected to grow at a faster rate than the products and
licenses segment. This is a result of management’s strategy to establish key
connections with larger enterprise customers who frequently purchase Infoblox
products along with maintenance and support contracts which are frequently
renewed. This segment includes maintenance and support, as well as consulting
and training. Notably, consulting and training is an increasingly important aspect
of any firm’s total cost of ownership of network infrastructure.
While one of the key value propositions of Infoblox is the Trinzic family of
appliances, management frequently references the expectation that services
revenue will soon surpass revenue generated from products and licenses.
Industry
Overview
Products and Licenses
Services
Source: UOIG Spreads
Infoblox operates in the Information Technology (IT) services and consulting
industry. Firms in this industry help public and private entities design, manage,
support, and maintain their IT software and network infrastructure. The industry
is comprised mostly of small firms and independent contractors since the capital
requirements to enter the industry are so low. That being said, it is possible for
almost anyone with a degree of expertise in the field and software development
skills to enter the industry. Therefore, industry concentration is very low relative
to other capital intensive industries.
UOIG 3
University of Oregon Investment Group
Figure 7: Private Investment in Computers and Software
($ billions)
350
300
250
200
150
100
In addition to private sector customers, 15% of industry demand comes from
federal and state governments. This means that the industry is relatively sensitive
to fluctuations in federal and state discretionary spending. Although government
consumption and investment is expected to increase in 2015, concerns over the
federal budget deficit have led to less spending by government agencies in the
past. Ongoing austerity measures will continue to pose a threat to industry growth.
50
0
Source: IBIS World
Figure 8:
IT Services and Consulting Industry Structure
Life Cycle Stage
Growth
Revenue Volatiltiy
Medium
Capital Intensity
Low
Industry Assistance
None
Concentration Level
Low
Regulation Level
Light
Technology Change
High
Barriers to Entry
Low
Industry Globalization
Competion Level
Medium
High
Source: IBIS World
Figure 9:
Government Consumptions and Investment ($ billions)
3,300
3,200
3,100
3,000
In an increasingly technology driven environment, IT consultants and network
managers are vital to the healthy operation of almost any business. Because of
this, demand for IT services has been strong across a broad range of industries.
Most notably, demand from the finance and insurance industries constitute the
greatest demand for IT services and consulting. This is because most insurance
firms are generally responsible for storing sensitive customer data while financial
institutions require massive computing power in order to constantly execute huge
amounts of algorithmic trades. Demand from these two industries is expected to
increase in 2015.
There are multiple factors that are key to success in the IT services and consulting
industry. First of all, IT companies must be able to tailor their product and service
offerings to the needs of their customers. Since firms in the IT services and
consulting industry provide support to a broad range of industries, successful
companies must be able to adapt to the unique infrastructure and network
requirements of clients in different industries. Furthermore, constant
technological innovation is a key requirement for success in the industry. Clients
expect state of the art equipment, software, and processes. As hackers and other
publishers of malicious software look for new technologies and processes to
penetrate network security, the firms that publish and implement the security
systems themselves must be able to adapt simultaneously. Other keys to success
include hiring highly skilled workers and developing effective cost controls.
External Drivers
As mentioned previously, one of the key external demand drivers for the industry
comes from firms in the finance and insurance industries as well as government
entities. This doesn’t tell us the whole story though. Private investment in
computers and software across all industries is a key metric which needs to be
observed when analyzing external drivers in the industry. As discussed below, an
influx in the amount of cyber-attacks has been a catalyst for increased private
investment in computer hardware and software. This increase in investment has
driven many of these consumers to seek the guidance of experts which supports
the consulting segment of the industry.
Unsurprisingly, corporate profit is also positively correlated with demand for IT
consulting services. Often times, network infrastructure upgrade and
configuration requires large investment from companies undergoing this type of
change. As corporate profit increases, more companies are willing to take on the
risk of significant capital investment in network infrastructure.
2,900
Competition
2,800
As mentioned previously, competition in the industry is characterized by a large
amount of small firms due to low barriers to entry. In 2014, the four largest
companies in the industry accounted for approximately 13.6% of industry
revenue. Because of the large number of products and services offered by industry
players, the industry is becoming increasingly fragmented.
2,700
2,600
2,500
Source: IBIS World
The key points of competition in the IT services and consulting industry are price,
quality of service, expertise, and the breadth of service offerings. Increasingly, IT
UOIG 4
University of Oregon Investment Group
Figure 10:
Private Investment in Computers and Software ($
billions)
consulting firms are focused on meeting all of the needs of their customers by
providing a comprehensive set of products and services. Essentially, firms are
focusing on selling a product, then providing a lifetime of services to support its
design.
900
In order to remain competitive, IT consulting firms must be able to constantly
adapt their product and service offerings. The trend toward cloud computing has
benefited IT consultants who have used their expertise to adapt to this new reality
by developing private cloud computing infrastructure for their clients. Another
industry trend that will be integral to the success of firms that are able to adapt is
the transition from hardware-based to software-based network infrastructure.
Virtualization and cloud computing are key catalysts behind this change.
800
700
600
500
400
300
200
100
Recent Data Breaches
0
Figure 11: Diagram of DDoS Attack
One factor that significantly impacts industry growth is the influx of cyber-attacks
and security breaches launched against prestigious private companies. In 2014
and 2015 alone, hackers used a variety of different methods to breach the security
networks of firms such as Target, Neiman Marcus, EBAY, J.P. Morgan Chase,
The Home Depot, and Anthem. A major issue that has arisen in the industry is
that hackers only need to successfully break into the network once to cause
catastrophic damage. However, IT departments must be successful 100% of the
time to ensure protection of the information. For this reason, security breaches
have, and will continue, to grow technology allows for more comprehensive
intrusions.
There are many methods of cyber-attacks that firms must be prepared to defend
against. However, one of the most common and damaging attacks is called the
Distributed Denial of Service (DDoS) attack. Research shows that as of 2014, the
frequency of recognized DDoS attacks had reached an average rate of 28 per hour.
A DDoS attack involves saturating a target machine with external communication
requests to the extent that it cannot respond to legitimate requests or that it
responds so slowly that it becomes essentially unavailable. Once compromised, it
becomes possible for hackers to gain unauthorized access to a computer system
or its data. In addition, hackers are capable of unleashing malware and other
undetected viruses in the network of the target.
Source: IBIS World
Figure 12:
Number of Broadband Connections ($ Millions)
400
Clearly, defending against cyberattacks is a critical social and business issue with
major strategic implications. Increasingly, top management has become
intimately involved with the day to day operations of data security management
and the cost of undergoing a security breach is staggering. A recent estimate from
McKinsey & Company says that the material effect of the slowing pace of
technology and innovation due to lack of “cyberresiliency” could be as high as $3
trillion in lost benefits across all industries.
350
Network Security
300
Outside of the focus on network infrastructure management and IT consulting,
Infoblox also has significant exposure to the software security publishing
industry. Many of the products and services offered by Infoblox supplement the
core value proposition of automated network infrastructure management and
maintenance. Since the firm itself straddles these two industries and has exposure
to both, it is necessary to explore the contrasting competitive landscape, external
factors, and demand drivers of the security and software publishing industry.
250
200
150
100
50
0
Source: IBIS World
The security software publishing industry is similar to the IT consulting industry
in the sense that it is characterized by steady growth, rapid technology change,
and low capital intensity. With the explosion of data, cloud computing services,
UOIG 5
University of Oregon Investment Group
Figure 13:
Price of Computers and Peripheral Equipment (Index)
140
120
100
80
and an increase in services conducted online, customers are increasingly
encouraged to share their information online. This trend is expected to continue
well into the next decade and will serve as an important growth driver for the
industry. With the burden of responsibility for keeping sensitive customer data
safe, firms are increasingly willing to make significant capital expenditures on
software capable of thwarting high-profile cyber-attacks. The costs of falling
victim to a data breach losing customer data can lead to heavy financial losses and
greatly damaged reputations.
Competition in the industry is characterized by low levels of concentration and
medium barriers to entry which is a result of much of the software systems being
protected by federal patents. Key success factors include constant product
innovation fueled by high levels of research and development spending, the ability
to gain access to a highly skilled work force and the ability to both secure patent
protections and adapt quickly to new technology. Some of the main external
drivers of industry demand include private investment in computers and software,
the constantly increasing number of mobile connections, and the number of
broadband connections.
60
40
20
0
Source: IBIS World
Software as a Service (SaaS)
Figure 14: SaaS Model Diagram
One of the key trends changing the industry is the transition from hardware to
software-based business models. In the SaaS model, customers take advantage of
virtualization by paying a fee to use software installed on a remote server rather
than paying for a physical copy of the software. This allows customers who are
paying for the ability to use the software to take advantage of the free updates and
patches frequently released by the software publisher rather than purchasing a new
version of the software with new upgrades after a few years. Industry demand is
also expected to be driven by the increase in customer data that is frequently
accessed from employee mobile devices.
The shift to the SaaS business model will be driven by the increasing number of
firms moving their data storage and computing operations to the cloud. The ability
of software publishers to release updates and patches to their software products
requires that the software be stored at a remote or at least separate location from
the organization purchasing the service. The idea of cloud computing and its
importance to the SaaS model is further discussed below.
Source: Google Images
Cloud Computing
Figure 15: Cloud Computing Model
Cloud Computing
Private Cloud
Public Cloud
Setup as Virtual Private Data Center
Configured in Public Data Center
Dedicated Servers
Shared container servers
Guaranteed Resources
Non-guaranteed resources
On-Demand Scalability
Variable cost for capacity
Fixed Cost
Insecure shared network
"Cusotm Solutions"
"Do it yourself"
Source gcauble.com
Cloud computing uses servers either stored in house (private) or at a remote
location (public), to provide resources, software and data to computers and other
devices on demand. The advantages offered by cloud computing include cost
efficiency, nearly unlimited data storage, data backup and recovery, and easy
access to information stored in the cloud from mobile devices and other internetcapable devices. As companies make the shift to deploy their cloud computing
infrastructure, they are increasingly exposed to the downside of potential security
breaches and cyber-attacks. This is a problem that is mitigated by software
publishers which will further increase industry demand.
It is important to note the difference between public and private cloud computing
as each represents a set of unique costs and risks for a firm. Using a public cloud
network involves dealing with a provider who works with multiple clients from a
remote location and is accessed over the internet for a low cost relative to the
private cloud alternative. The private cloud involves a network hosted at the
location of the client organization and can be accessed over a private network,
greatly increasing security. Since the first concern of most companies considering
deploying a cloud computing network is security, many firms are opting to take
UOIG 6
University of Oregon Investment Group
cloud computing in-house because of the security concern of transmitting data
over the internet.
Figure 16: Infoblox NetMRI Product
Key Technologies
The Infoblox family of products consists of a handful of proprietary technologies
aimed at automation of network control, change and configuration management
and DNS-based infrastructure security. This technology incorporates proprietary
software that is highly scalable and capable of automating vital network functions.
A handful of the major proprietary products are further explained below.
Secure DNS
Source: Google Images
Figure 17: Infoblox Advanced DNS Protection
Source: Google Images
As explained previously, DNS attacks are at an all-time high and they represent
one of the most significant threats to network security. These attacks can also be
perpetrated for many reasons including financial motives, political gain, or even
notoriety of the hacker. Many of the shortcomings of DNS networks include
systems with many open/accessible ports, junior users with high-level security
permissions, time-consuming manual updates, and inconsistent or outdated
security procedures. Such shortcomings have led to a number of recent DNS
attacks including attacks on AT&T, Al-Jazeera, and Bank of America.
The secure DNS security system offered by Infoblox combines the Advanced
DNS protection, DNS Firewall, and DNS Firewall with FireEye Adapter
technologies into the patented Grid Technology used by the firm. The advanced
DNS protection is capable of adapting to and mitigating DNS attacks while
responding to only legitimate queries. In addition, it uses the Infoblox Threat
Adapt technology to automatically update itself against evolving threats as they
emerge without the need for patching. Furthermore, the DNS Firewall technology
protects against DNS-based malware by both defending clients from being
affected while simultaneously disrupting the ability of Botnets to communicate
with the client under attack.
These technologies are extremely advanced and provide IT employees with
centralized management capabilities. Most notably, these technologies use a
purpose-built appliance which delivers many key benefits including multi-layer
DDoS protection, protection against man in the middle attacks, precise control
over network permissions, automatic audits to see if any permissions or network
changes have been made internally, and more.
Critical Network Services
Figure 18:
Bluecat Proteus and Adonis IPAM Appliances
Source: Google Images
The Network Services and Management family of products enables companies to
manage DNS, DHCP, and IPAM capabilities. A number of key external factors
will influence demand for these services and the products that comprise this
segment. First of all, the “B.Y.O.D.” or “Bring Your Own Device” movement in
which employees can access company network features from their phones has
taken hold. By 2016, 2.6 billion mobile devices are expected to be online. In
addition, server virtualization and industry migration toward the cloud will play
key roles in ensuring network security.
The Infoblox Trinzic DDI appliance is capable of meeting the requirements and
threats posed by these external factors. As discussed previously, this product
delivers clients with a unified platform for essential network control, and IP
address management. The product is highly scalable making it capable of
protecting networks with increasing amounts of mobile devices. Trinzic is also
capable of easily automating and transferring IP and DNS data throughout the
course of both public and private cloud deployment.
UOIG 7
University of Oregon Investment Group
Figure 19: Efficient IP SolidServer
When compared to competing products including the BlueCat Proteus appliance,
the Efficient IP SolidServer and the SolarWinds IP Address Management
software, Trinzic has consistently outperformed the market in regards to ease of
use, automation capabilities, reporting, availability, and scalability.
Hybrid Cloud and Virtualization
Source: Google Images
Figure 20:
Infoblox Network Automation Diagram
As discussed in the industry overview section, private cloud deployments are
becoming popular as a way for firms to gain access to network services which
offer easy updates, high security, and lower cost. In order to adequately deploy a
private cloud, firms must establish a method of network automation in order to
assign, distribute and de-provision device IP addresses. Without this key feature,
IP address management is a largely manual and extremely laborious task.
Infoblox offers a number of software programs to automate cloud deployment and
IP address management. Notably, this software is capable of operating with other
IP address storage software including VMware which adds significant value to
customers. Once converted, a firm that deploys a private cloud can
comprehensively manage DNS and IP address management functions using
Infoblox products, effectively making Infoblox a one stop shop for private cloud
deployment.
Network Automation
Most network downtime experienced by businesses is not the result of thwarting
or recovering from cyber-attacks. Rather, most downtime is experienced during
network upgrades and changes or configuration release processes. With the
increase in employees using personal mobile devices and constant network
adaptation, the practice of manually tracking changes has become impractical and
can lead to errors.
Source: Infoblox
Network Automation is an entirely complementary, powerful network automation
platform which enables discovery, network change configuration, and other
network management services. The platform used to execute this network
automation is known as NetMRI. This product helps customers avoid out-of-date
spreadsheet and scripts when tracking projects. Again, this reduces the risk of
outages, frees IT employees from performing mundane tasks, and ensures that
network configuration standards are completely under control.
Strategic Positioning
Figure 21:
VMware Logo
Source: Google Images
Switching Costs
Switching costs are the negative costs that customers incur when switching from
one product or service provider to another. Such costs can be monetary or timebased. Switching costs play a very important role in the IT consulting and security
software publishing industries since firms are increasingly committed to software
service contracts as the SaaS model becomes more prominent. For an incumbent
firm, it is beneficial to produce and enhance products which increase switching
costs in order to retain market share. For new entrants, it is necessary to create
disruptive products and services in order to entice customers into switching from
established products.
Infoblox is strategically positioned to both take advantage of this concept and
capture market share from competitors simultaneously. A number of key Infoblox
software programs are designed to specifically complement software products
produced by different firms. For example, Infoblox offers IPAM for Microsoft as
a supplement to Microsoft DNS and DHCP services. This software offers key
UOIG 8
University of Oregon Investment Group
Figure 22:
Cost of Goods Sold by Segment ($ millions)
80
70
60
50
40
features not available from the Microsoft product including scalability and
centralized DNS management. In regards to private cloud automation and
deployment, Infoblox offers an IPAM product that pairs with VMware, which is
a company specializing in cloud and virtualization software and services. Ideally,
as customers use the complementary products offered by Infoblox, they will
become increasingly enticed to return for future purchases. Management is
optimistic about implementation of this strategy and has spoken to the benefits it
has delivered.
Customers and Channel Partners
30
Infoblox sells products to over 7,700 end customers of various sizes ranging from
small business to large enterprises across a broad range of industries. Key
industries include financial services, government, healthcare, manufacturing,
retail, and technology.
20
10
0
Products and Licenses
Services
Source: UOIG Spreads
Although Infoblox designs products, software, and appliances internally, the firm
subcontracts a significant portion of appliance production to a firm called
Flextronics Telecom Systems which purchases components from an approved list
of buyers. This outsourcing activity extends from the production of prototypes to
end products and includes installation of software, final assembly, and final
testing. Once the manufacturing process is complete, products are shipped to
third-party retailers or directly to customers.
Figure 23: Infoblox Grid Technology
While Infoblox has largely outsourced the product manufacturing process, the
employees of the company are intimately involved in product research, product
development, maintenance, support, training, consulting, and the roll out of
network infrastructure development and automation. This strategic approach has
been utilized in part to ensure sustained focus on product research and innovation.
Grid Technology
Source: Google Images
Figure 24: Netcordia Logo
Source: Google Images
The Infoblox Grid works to address the basic problems that can arise when
individual independent servers or appliances are deployed within a single
network. This type of unconsolidated network can lead to problems with
availability, accuracy, timeliness, network outages, and cost since each server is
acting on its own and must be purchased separately from other appliances. The
Infoblox Grid addresses these problems.
The Infoblox Grid allows distributed Infoblox appliances to function as a unified,
centrally managed system. The Grid is implemented by securely combining the
databases embedded within each appliance meaning that any change to data on
one appliance is reflected across the grid. This prevents data loss, eliminates
possible inconsistencies and errors, and ensures that network access decisions are
based on accurate data greatly improving security. Since the configuration and
reporting of data are all consolidated into the Grid, the technology provides
inherent reliability advantages, data integrity, faster and easier disaster recovery,
and easier scalability.
Most importantly, a unified and cohesive Grid significantly improves network
security. All communication is made through authenticated encryption techniques
so that data is both private and consistent. While the Grid does consist of multiple
appliances, the only external access point to the Grid is protected by the Trinzic
DDI appliance as discussed previously.
UOIG 9
University of Oregon Investment Group
Business Growth Strategies
Figure 25:
Sales and Marketing Expense ($ millions)
350
300
250
Although Infoblox acquired network vendor Netcordia in 2010 to complement its
core network services products with task automation technology, it is highly
unlikely that acquisitions will play a key role in the core expansion strategy of
Infoblox. Instead, management has spoken to a number of key organic growth
strategies and initiatives which should help the firm expand market share and
secure customers from a broad range of industries
200
Demand Generation Initiative
150
100
50
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source: UOIG Spreads
Figure 26: Operating Expense Composition
In recent conference calls and transcripts, analysts and management frequently
reference “turning a corner” after a miss in revenue expectations when earnings
were released last January. A large part of being able to increase sales to near
historic levels will be the implementation of the demand generation or “demand
gen” whereby sales and marketing employees are focused on building the pipeline
of people who are interested in buying DDI and automating their network
infrastructure. In addition, management references a renewed and targeted focus
on larger enterprise customers with over 10,000 employees.
Thus far, this initiative has produced positive outcomes as Infoblox outperformed
analyst expectations in regards to sales (3.5%) and EPS (107.9%) after reporting
last quarter. It is likely that the outcomes from the implementation of the demand
gen initiative have not yet gained full traction. Because sales cycles can last up to
9 months and the initiative was implemented in early 2014, the full potential of
this initiative is yet to be seen.
Renewed Sales and Marketing Strategy
Source: UOIG Spreads
Figure 27:
Stock-Based Compensation ($ millions)
A close complement to the demand gen initiative is the renewed sales and
marketing strategy that is currently being implemented by management. In
particular, management has emphasized a change in sales execution. Previously,
sales and marketing employees were paid for every dollar of sales produced
regardless of whether the sale was for a maintenance renewal or for a product sale.
The problem is that once a product sale is made, maintenance renewals will
follow. This calls to mind the idea that growing the business is dependent on
capturing new customers through the sale of new products while simply sustaining
the business is dependent on service renewals. To combat this problem,
management has recently refocused compensation plans to reward sales and
marketing employees for product and license sales rather than for sales of
services.
Management has committed extensive resources to generous commission-based
compensation for the sales and marketing force. In the current quarter,
management has projected to increase the size of the employment base by nearly
5% with a significant amount of these new hires being added to the sales and
marketing force. In addition, financial filings frequently reference financial
compensation and bonuses for marketing and sales managers who are able to meet
sales targets every quarter.
120
100
80
60
40
Employee Compensation
20
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source: UOIG Spreads
Each year, Infoblox recognizes significant stock-based compensation expense
allocated across each operating expense line item. This non-cash expense is an
extremely important tool used to attract top talent for product innovation and
development. Compensating employees is extremely important for competition in
the industry since successful companies are able to quickly adapt their offerings
UOIG 10
University of Oregon Investment Group
to changes in technology and other industry factors. Having highly capable
employees is entirely necessary to ensure for this kind of competition.
Figure 28: Private vs. Public Cloud
As mentioned previously, some of the core value propositions offered by Infoblox
include network infrastructure and automation services in addition to creating
proprietary software products and appliances. Management is confident that
generous compensation for employees will attract top talent. Because Infoblox
has high growth prospects, the upside offered from an equity-based compensation
plan on top of a salary should help Infoblox continue to attract talented IT
professionals.
Public Cloud
Private Cloud Protection and Cloud Automation
One key area of potential high growth that management frequently discusses is
the Infoblox approach to private cloud protection and automation. In short, cloud
computing provides virtual computing on demand. The Infoblox approach to the
cloud is a focus on private cloud deployment and subsequent management and
automation once the cloud has been deployed. Industry trends show that firms are
increasingly opting to deploy cloud computing in house rather than at remote
locations.
Private Cloud
Source: Freeform Dynamics
A large part of deployment involves ensuring that all pieces of the network
infrastructure are in place before applications can be run successfully. Infoblox
focuses on efficient management of such projects and offers customers the
advantage of network scalability and automation. It is important to remember
during this discussion that the industry is currently moving from hardware based
models to software based models. In private cloud deployments, the Infoblox
services team can seamlessly set up both software and/or hardware to run the
cloud.
Reduction in Sales Cycles
Figure 29: Total Revenue Growth ($ millions)
700
600
500
400
300
200
100
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source UOIG Spreads
An important dynamic for Infoblox in regards to revenue generation is the fact
that sales cycles typically last around nine months. This introduces the difficulty
of consistently providing guidance on revenue quarter over quarter. Sales cycles
last a significant amount of time because the implementation or reconfiguration
of network infrastructure is a lengthy and time consuming process which requires
substantial resources and commitment from many different managers and IT
employees in a typical enterprise customer.
Management expresses confidence in that fact that decreasing sales cycle times
will positively benefit revenue generation and discusses factors which have
recently lead to a reduction in sales cycles. Moving forward, the demand gen
initiative will refocus the marketing and sales efforts onto larger enterprise
customers. This will greatly decrease sales cycles since larger enterprises are more
likely to purchase security software and other security products by Infoblox.
Whenever implementation of security is involved in a network configuration job,
it is more likely that senior management will be involved. When this is the case,
the Infoblox IT professionals and consultants are able to more easily and quickly
access key resources, databases, and IT procedures which speeds up the process.
This is an example of how the demand gen initiative will deliver efficiencies to a
key aspect of sales strategy, effectively reducing the amount of resources Infoblox
must expend on each project.
UOIG 11
University of Oregon Investment Group
Management and Employee Relations
Figure 30: Cisco Logo
Jesper Andersen—President, Chief Executive Officer
Jesper Andersen was recently named the new President and CEO of Infoblox after
Robert D. Thomas stepped down from the position earlier in 2014. Andersen is a
seasoned networking and software industry executive with experience building
and leading large businesses. Before Infoblox, Andersen served in a number of
roles at Cisco Systems, including Senior Vice President of network management.
Before Cisco, he held senior management positions at Oracle, PeopleSoft, Pivotal
Software and Computer Resources International. It is also important to note that
Andersen has a clear understanding that network is shifting from a hardwaredefined to a software-defined world.
Source: Google Images
Among the skills he brings to the company are strong product strategy,
management and sales expertise, and industry expertise. It has also been noted
that he possesses the skills to take advantage of opportunities in private cloud and
security, leading Infoblox to the next stage of growth.
Figure 31:
Total Management Compensation vs. Non-GAAP
Net Income ($ millions)
12
Stuart M. Bailey—Chief Technology Officer, Founder
25
10
20
8
15
6
Stuart Bailey is tasked with oversight of the technological vision of the firm.
Before he founded Infoblox in 1999, Bailey was the technical lead for the
Laboratory for Advanced Computing/National Center for Data Mining at the
University of Illinois at Chicago where he developed advanced distributed data
architectures. Bailey has served in various officer capacities since founding
Infoblox. He has also served on the board of directors since the company went
public in 2012.
10
4
5
2
0
0
2011
2012
2013
2014
Source: UOIG Spreads
Figure 32:
Total Management Compensation vs. Total Revenue
($ millions)
12
300
10
250
8
200
6
150
4
100
2
50
0
0
2011
2012
2013
Source: UOIG Spreads
2014
Remo E. Canessa —Chief Financial Officer
“Canessa has served as our chief financial officer since October 2004. Prior to
joining our Company, he served as chief financial officer and corporate secretary
of NetScreen Technologies, Inc. from July 2001 to April 2004, when it was
acquired by Juniper Networks, Inc. From December 1998 to July 2001, Mr.
Canessa served as vice president of finance, chief financial officer and treasurer
of Bell Microproducts, Inc., a computer equipment distribution company, where
he had previously served for five years in various financial capacities.
Canessa holds a B.A. degree in economics from the University of California,
Berkeley and an M.B.A. from the Santa Clara University and is a certified public
accountant. Since September 2013, Mr. Canessa has served as the chairman of the
Audit Committee of the Board of Directors of Aerohive Networks, Inc., a cloudmanaged mobile networking platform provider.”
–Infoblox 10K
Management Guidance
Management gives Non-GAAP guidance with a maximum time horizon of one
quarter because of the significant variation in sales cycles. For the second fiscal
quarter, management projects revenue to be in the range of $66.5 million to $68.5
million. Gross margin is expected to be between 80 and 81%. Operating margin
is expected to be between 4% to % and EPS is expected to be between $0.04 and
$0.05.
Management has explicitly stated multiple times that they expect to hit the high
end of the guidance or beat it every quarter. That being said, it is appropriate to
say that it wouldn’t be unreasonable for Infoblox to post numbers above their
UOIG 12
University of Oregon Investment Group
Figure 33:
Svigals Portfolio Market Capitalization Allocation
quarterly projections for the second quarter of the years. Management guidance
was a key consideration when projecting for the second quarter, however the lack
of meaningful guidance for the year meant that other means were used to project
line items thereafter.
Portfolio Strategy
Source: UOIG Spreads
Figure 34: Tall Firs Portfolio Sector Allocation
In regards to portfolio strategy, Infoblox should be viewed as an attractive growth
play for all portfolios. This reality makes Infoblox an attractive potential holding
for the DADCO portfolio as the focus of this portfolio is growth. However, it
should also be considered that Lifelock is a core holding in the DADCO portfolio
and shares a number of similar characteristics with Infoblox including the fact that
both companies focus significantly on cyber-security. That being said, Lifelock
serves mostly individual consumers and families through software offerings while
Infoblox protects enterprise customers through a combination of appliances,
software, support, and maintenance services. In addition, Lifelock has recently
experienced significant underperformance of industry and market benchmarks.
Outside of the DADCO portfolio, the Tall Firs Portfolio is significantly
underweight technology companies and only slightly overweight small cap
stocks. Because of its growth prospects, Infoblox would be an advantageous
complement to a number of the larger, more stable companies in the portfolio.
The current portfolio weightings of the Svigals portfolio in regards to market
capitalization and industry also favor the credentials that Infoblox has to offer as
the Svigals portfolio is underweight both small cap and technology stocks.
Recent News
Infoblox to Announce Fiscal Second Quarter Earnings Results
Infoblox Investor Relations—2/9/15
Source: UOIG Spreads
Infoblox announced that it will release its fiscal second quarter 2015 financial
results next Thursday February 26th after market close. Management will host a
conference call to discuss the results at 1:30pm on this day. Over the course of
calendar year 2014, each time Infoblox reported earnings the share price of the
stock reacted significantly to financial results. Considering the upside discussed
in the above sections, there is potential for significant upside in the coming week.
Jesper Andersen named CEO
Figure 35:
Share price since Jesper Andersen named CEO
Infoblox Investor Relations—11/25/14
“Infoblox named Jesper Andersen to the positions of president and chief executive
officer, effective December 8, 2014. He will become a member of the company’s
board of directors as well. Andersen replaces Robert Thomas, who announced in
May 2014 his intention to leave the company. Thomas will remain with Infoblox
for about four months as an executive advisor to assist in an orderly transition.
$22
$21
$20
$19
$18
$17
$16
$15
Source: Yahoo Finance
Former CEO Robert Thomas noted that ‘Jesper Andersen brings a unique set of
skills to Infoblox, with a deep understanding of networking technology,
experience in running and growing complex global businesses, and a clear vision
of how the shift from hardware-defined to software-defined networking
infrastructure will create new market opportunities’” –Infoblox Investor Relations
UOIG 13
University of Oregon Investment Group
Figure 36: Mobile Traffic: Cloud vs. Non-Cloud
Applications
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Infoblox Introduces Scalable Network Control for the Next
Generation of Private Cloud Deployments
Business Wire—1/26/15
Infoblox recently introduced Infoblox Cloud Network Automation, bringing
scalable network control to the next generation of cloud developments. As
enterprises increasingly turn to private clouds in search of cost savings and greater
agility, IT departments typically go through several phases as they integrate their
cloud structure. The phases involve transferring non-essential applications to the
cloud, then increasing the amount of critical material transferred once IT teams
have gained experience.
2013
2014
2015
Mobile Non-cloud traffic
2016
2017
2018
Mobile Cloud Traffic
Source: Cisco
Figure 37: Size of DDoS Attack Increasing Over
Time
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
The recent announcement of the scalable network control includes the network
automation console, platform appliance, and adapters, all of which are key to the
removal of manual processes regardless of size and scope. The article includes
statements from a research analyst who discusses the fact that automating core
network services when deploying the private cloud is essential. He closes his
statement by saying that Infoblox “rock-solid” network services that private cloud
deployments need to succeed.
Catalysts
Upside



First Half - 2013
1 - 500Mbps
Second Half - 2013
500Mbps - 2G
First Half - 2014
2G - 4G

4G +
Source: NSFocus
Massive growth in the size, frequency, and duration of DDoS attacks will
drive revenue growth for Infoblox products and services
The recent hiring of Jesper Andersen as CEO will provide direction and
experience for a well-qualified management team
Transition by larger corporations towards in-house cyber security would
drive sales for central hub-style appliances
The release of the new scalable network control process will allow
Infoblox to more effectively capitalize on demand for private cloud
deployment services
Downside

Figure 38: SaaS Concentration by
Industry

Other
21.5%
Government
35%
Automotive
7%


Finance
9%
Media Health & Science
15%
12.5%
Free, open-source software provided by Infoblox competitors could be
seen as an increasingly viable and low-cost option for Infoblox
customers
Any successful data breach committed against a firm using Infoblox
products or services could significantly harm the reputation and financial
prospects of Infoblox
If the demand generation and renewed sales and marketing initiatives do
not gain traction, the financial outlook of Infoblox could be negatively
impacted
Infoblox relies heavily on generating services and maintenance revenue
from current customers. If current customers seek other means of longterm network management and maintenance, services revenue would be
adversely impacted
Source: BlackDuck
Software
UOIG 14
University of Oregon Investment Group
Comparable Analysis – 50%
Figure 39: Comparable Analysis
Comparable Analysis
Implied Price
Weight
Industry Comparables Analysis
$39.62
0.00%
Quantitative Comparables Analysis
$25.78
100.00%
Price Target
$25.78
Current Price
$20.47
Undervalued
25.94%
Source: UOIG Spreads
Figure 40: Solar Winds Logo
Some of the closest competitors in the industry are private corporations, like
BlueCat Networks. Because of this, finding comparable companies that were
direct competitors was unlikely. For this reason, two sets of comparable
companies models were created. One set was comprised of companies that were
qualitatively similar and competing against Infoblox. The other was comprised of
companies working in similar industries, but offered significant quantitative
similarities. For both models, only revenue multiples were weighted. This is
because Infoblox is focused primarily on increasing topline growth and
developing their customer base. This will allow them to provide ongoing
maintenance and upgrade services for a long time to come. Gross margin could
not be weighted because many of their competitors focus on exclusively SaaS
models, which means that they operate with a higher gross margin. EBITDA
multiples were an unreliable metric because some companies were expecting to
achieve positive EBITDA for the first time this year, meaning that Infoblox would
appear to be extremely undervalued. In the model, NTM means “Next Twelve
Months” and FTM means “Following Twelve Months” which is the 12 month
period succeeding the next twelve month period.
Qualitative Model – 0%
Source: Google Images
Figure 41: Palo Alto Networks Logo
Source: Google Images
Figure 42: Fortinet Logo
Source: Google Images
Most of the companies included in this model are either operating specifically in
network design, automation, and security or database design and security.
Ultimately, this model was not included in the valuation because the companies
were either growing significantly faster than Infoblox or were larger than
Infoblox. Both of these factors means that they should be trading at higher
multiples, and would therefore yield an erroneously high implied price. The
companies selected were still used for the Hamada beta calculation, however.
SolarWinds – 30%
SolarWinds provides infrastructure and network management solutions to
enterprise IT departments. They operate through a SaaS model, supplying
network management, DDI services, and remote monitoring and management
solutions. SolarWinds’ IPAM services compete most directly with Infoblox’s
Trinzic appliance. SolarWinds was weighted highest they are one of Infoblox’s
only publicly traded competitors. Given the fact that they are a similar size, they
have not taken on any debt, and are prioritizing revenue growth for the time-being,
they earned the top weighting in the qualitative model.
Palo Alto Networks – 20%
Palo Alto Networks is a fast-growing security platform provider specializing in
appliance-centric network solutions that provide global control of private
networks and protection against cyber-attacks. Panorama, their centralized
network management service, operates as a virtual or physical appliance. While
many companies have transitioned to a SaaS model, they continue to operate
appliance solutions similar to Infoblox, making their target markets and gross
margins very similar.
Fortinet, Inc. – 20%
Fortinet offers network security and management services and products that
specialize in similar offerings to Infoblox. Specifically, they protect against
dynamic cyber-attacks while automating and simplifying network operations and
tasks. Their FortiGate physical and virtual appliance offering provides real-time
application control, intrusion prevention, wireless controlling, and application
control which is similar to the aforementioned Grid Technology and Secure DNS
offerings by Infoblox.
UOIG 15
University of Oregon Investment Group
Barracuda Networks, Inc. – 15%
Barracuda Networks creates security and storage solutions for enterprise-grade
networks. While they offer solutions for the entire network, including core
network and web application management capabilities, their focus is primarily in
cloud and database storage security. Because of this, they were not weighted as
highly as Palo Alto Networks or SolarWinds. However, in-line revenue growth
and similar market capitalizations allowed them to be weighted 15%.
Figure 43: Barracuda Networks Logo
F5 Networks – 15%
F5 Networks provides a TMOS (Traffic Management Operating System) platform
that provides scalability and operating efficiencies to cloud networks and data
centers. While providing security benefits, its focus is on optimizing applications
and programs within the network by reducing response times and delays. While
operating in the same environment and industry and Infoblox, their emphasis on
application optimization rather than security and automation makes them less
qualitatively similar than other comparable companies in the model. For that
reason, they were only weighted 15%.
Source: Google Images
Figure 44: F5 Networks Logo
Quantitative Model – 100%
Because this model included companies more likely to be traded on similar
multiples, the Quantitative Model was the only one weighted in the final
valuation. In order for companies to be included in this model, they had to be
operating in the IT industry in some capacity. In this model, the distinction
between database solution providers and network solution providers was less
important. Instead, revenue growth and market capitalization were most
important. Only small companies could be included in the model, as larger
companies would be trading at a premium multiple for the insulation from
cyclicality that they provide. Investors can be confident in the sole reliance upon
revenue multiples – the weighted average revenue growth of the comparable
companies was lower than Infoblox. This implies that they should be trading at a
premium, when in fact they are trading at a severe discount.
Source: Google Images
Figure 45: Comparable Analysis-Quantitative Model
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Price Target
Current Price
Undervalued
Implied Price
25.78
27.58
0.69
45.92
36.64
(32.56)
Source: UOIG Spreads
Weight
100.00%
0.00%
0.00%
0.00%
0.00%
0.00%
$25.78
$20.47
25.94%
Barracuda Networks, Inc. – 35%
“Barracuda Networks, Inc. (Barracuda Networks) designs and delivers security
and storage solutions. The Company offers cloud-connected solutions that help
its customers address security threats, improve network performance and protect
and store their data. Its solutions are designed to simplify information technology
(IT) operations for its customers. The Company’s security and storage solutions
are connected to its cloud services, which enable continuous software updates,
offsite redundancy and distributed capacity, and are offered on a subscription
basis.” – Google Finance
Barracuda Networks operates in a very similar field as Infoblox, providing
security services to entire networks and database cloud platforms. As a small-cap
company, with very similar top-line growth and capital structure, they should
trade on similar multiples. On top of that, their similar gross margins showed that
they structure their business very similarly to Infoblox. Because they were the
best qualitative company in the model, and were very similar in most quantitative
aspects, they were weighted highest, at 35%.
Aruba Networks – 25%
“Aruba Networks, Inc., is a provider of next-generation network access solutions
for mobile enterprise networks. The Mobile Virtual Enterprise (MOVE)
architecture unifies wired and wireless infrastructures into one seamless network
UOIG 16
University of Oregon Investment Group
Figure 46: Aruba Networks Logo
Source: Google Images
Figure 47: Descartes Systems Group Logo
access solution for traveling business professionals, remote workers, corporate
headquarters employees and guests. Aruba’s MOVE architecture provides
context-aware networking for the post-desktop personal computer (PC) era.
Mobility network services are delivered centrally from the data center across thin
network access devices or on-ramps. It addresses the secured mobility problem
using a user-centric architecture that assigns network access policies to users
instead of to data ports or other infrastructure.” –Google Finance
In addition to their emphasis on network adaptability and security, Aruba
Networks has in-line revenue growth and operates with a zero-debt capital
structure. Infoblox and Aruba Networks both offer exposure to the rise of the
BYOD movement and automated device management. As another small-cap
player in the industry, and significant cash reserves, they offered a strong
comparison to Infoblox. However, because they were focused on the mobile
industry specifically, they could not be weighted as highly as Barracuda. For this
reason, they were given 25%.
Descartes Systems Group Inc – 15%
“The Descartes Systems Group Inc. (Descartes) is a global provider of federated
network and global logistics technology solutions that help its customers make
and receive shipments and manage related resources. The Company’s networkbased solutions, which primarily consist of services and software, connect people
to their trading partners and enable business document exchange (bookings, bills
of lading and status messages); regulatory compliance and customs filing; route
and resource planning, execution, monitoring and reporting; inventory and asset
visibility; rate and transportation management, and warehouse operations.” –
Google Finance
Source: Google Images
DSGX offered in-line revenue growth and identical market cap. Additionally,
with no debt and a network-focused product line, they were comparable to
Infoblox. However, because of their specialization on enterprise management and
logistics, rather than security management, they are exposed to slightly different
external forces. Given the fact that they offer both appliance-based and softwarebased products and services, they were still given a 15% weighting.
Figure 48: Interactive Intelligence Logo
Source: Google Images
Interactive Intelligence Group, Inc. – 15%
“The Company is a provider of software applications. Its principal product
consists of a range of applications, which provides pre-integrated inbound,
outbound communications functionality and also solutions for unified
communications and business process automation. The Company is engaged in
the global contact center market, where its software applications provide a range
of pre-integrated functionality. Its solutions are delivered both on-premise and
through cloud-based models hosted in its data centers. Its solutions are broadly
applicable, and are used by businesses and organizations in industries particularly
including teleservices, insurance, banking, accounts receivable management,
utilities, healthcare, retail, technology, government and business services.” –
Google Finance
While they specialize in logistics rather than network management, they are still
exposed to similar industry risks. That being said, they could not be rated too
highly because of their dissimilar gross margin and industry focus. Regardless,
with similar (if not slightly lower) revenue growth over the next two years, as well
as an identical enterprise value, they offered similar future prospects. Because
they too focus on insurance, banking, and government clients with an emphasis
on larger organizations, they were weighted 15%.
UOIG 17
University of Oregon Investment Group
Figure 49: Vasco Data Security Logo
Source: Google Images
Figure 50: Qlik Technologies Logo
Source: Google Images
VASCO Data Security International – 5%
“VASCO Data Security International, Inc., through its operating subsidiaries,
designs, develops, markets and supports hardware and software security systems
that manage and secure access to information assets. The Company also designs,
develops, markets and supports patented user authentication products and services
for e-business and e-commerce. Its products enable secure financial transactions
over private enterprise networks and public networks, such as the Internet. The
Company’s user authentication is delivered through its hardware and software
DIGIPASS security products, many of which incorporate an electronic and digital
signature capability, which further protects the integrity of electronic transactions
and data transmissions.” – Google Finance
VASCO Data Security International is very similar in size and is projected to grow
similarly in terms of revenue for next year. While they don’t work in network
management, they do provide applications and products that facilitate secure
networks and data protection. Additionally, they have taken on no debt. However,
because there were not estimates available for 2016 revenue growth, it was only
weighted 5%.
Qlik Technologies Inc. – 5%
“Qlik Technologies Inc. provides user-driven business intelligence (BI) solutions.
The Company is engaged in the development, commercialization and
implementation of software products and related services. The QlikView Business
Discovery platform (QlikView) enables creating and sharing insights and analysis
in groups and across organizations. It has a distribution model that consists of a
direct sales force, a partner network of solution providers, original equipment
manufacturers (OEM) relationships and system integrators. Its QlikView
Expressor provides a graphical studio for designing and managing data integration
for QlikView apps and allows designers and developers to define and manage data
definitions, transformations and other design artifacts in business terms.” –
Google Finance
Qlik Technologies facilitates intra-network communication and information
management for data-driven enterprises. They offer services for IT departments
to manage and manipulate databases. While not focused on network
infrastructure, their database management offerings pair well with database
design and automation features that Infoblox offers. They have in-line revenue
growth and a similar capital structure and gross margin. Because the companies
are operating in slightly different segments, and Qlik is larger than $BLOX, it was
only weighted 5%.
Figure 51: Non-GAAP Net Income Growth ($ Millions)
Discounted Cash Flow Analysis – 50%
100
90
80
Three Statement
70
As a supplement to the discounted cash flows analysis, a three statement model
was incorporated into the valuation of the firm. DCF and working capital line
items were pulled directly from the income statement, balance sheet, and
statement of cash flow projections.
60
50
40
30
20
10
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source: UOIG Spreads
Income Statement
Revenue and cost of goods sold flow into the income statement from the
projections in the revenue model. Expenses on the income statement were
projected as a percentage of revenue. In order to arrive at a more realistic
understanding of earnings, non-GAAP net income was derived by adding stockbased compensation expense and amortization of intangibles back to GAAP net
UOIG 18
University of Oregon Investment Group
income. This is the same methodology employed by management and most
analysts when valuing Infoblox or discussing earnings.
Figure 52: Growth in Total Assets ($ millions)
Balance Sheet
The balance sheet line items were projected using both the days outstanding and
percentage of total revenue methods. For example, total inventory and prepaid
expenses were projected using the days outstanding method while accounts
receivable and deferred income tax were projected using percentage of total
revenue. Some items, such as goodwill, were straight-lined into the terminal
year as there was no foreseeable reason to project a change in goodwill.
1,400
1,200
1,000
800
600
400
200
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Statement of Cash Flows
For the most part, line items on the statement of cash flows were derived from
either the income statement or balance sheet. Capital Expenditures, sale/maturity
of investment, and purchase of investments were also projected as a percentage
of revenue.
Source: UOIG Spreads
Revenue Model
Figure 53: One Year Stock Chart
One-Year Stock Chart
35000000
$30.00
30000000
$25.00
Revenue was broken out by business segment and projected into the terminal year
based on analyst expectations, historical patterns, industry trends, and
management guidance. Due to the fact that management provided little guidance
for the full year, and 2014 revenue grew at a much slower rate than during
previous years, conservative growth estimates were incorporated in both revenue
segments.
25000000
$20.00
20000000
$15.00
15000000
$10.00
10000000
$5.00
$0.00
Feb-14
5000000
0
Apr-14
Jun-14
Volume
Aug-14
Adj Close
Oct-14
50-Day Avg
Dec-14
200-Day Avg
Products and Licenses
As discussed previously, almost all products and licenses revenue comes from
sales of the Trinzic DDI-related software and appliances. Trinzic DDI uses
security, automation, and consolidation to deliver optimal value to BLOX
customers. Combined with the demand gen initiative, a renewed focus on sales
and marketing tactics, and compatibility in private cloud deployments, Trinzic
should outpace competitors in winning over enterprise clients.
Source: UOIG Spreads
Figure 54: Infoblox MSP Customer Networks
Products and licenses revenue has historically comprised a larger percentage of
total revenue than the services segment. However, this reality is projected to
change as services revenue is expected to overtake products revenue during FY
2015.
Services
For each product, appliance or software that is sold, there is likely to be demand
for maintenance and service on that product. Management frequently references
creating a customer account then subsequently making future services sales.
This is where those sales are coming from: BLOX personnel delivering
additional services such as network infrastructure design, maintenance, etc.
Source: Google Images
This segment includes Maintenance and support, consulting, and training. While
one of the key value propositions of Infoblox is the product offering. The firm
will be drawing significantly more revenue from services, therefore services
revenue is projected to represent over 65% of the total firm revenue by the
terminal year. Conceptually, the sale of products and licenses represents market
penetration and growth while services represents the firm sustaining itself
through product maintenance and professional training.
UOIG 19
University of Oregon Investment Group
Cost of Goods Sold
Figure 55:
Composition of Operating Expenses ($ millions)
600
500
400
300
Cost of Goods sold were also broken out by business segment and projected into
the terminal year. Management guidance served as the key indicator for future
gross margin expectations, predicting a gross margin between 80-81%. This
roughly falls in line with historicals. As Infoblox is increasingly able to leverage
suppliers and gain value chain efficiencies, COGS was conservatively trended
downward over the duration of the projection period.
Amortization of Intangible Assets
200
100
0
2015
2016
2017
2018
Depreciation
Research and Development
General and Administrative
2019
2020
2021
2022
2023
2024
Amortization of Intangible Assets
Sales and Marketing
This line item was treated much like depreciation in the sense that it is a fairly
significant non-cash expense and was projected based of historical percentage
PP&E into perpetuity. It is important to note that it was separated from
depreciation because it overstated the value that was reducing spending on capital
assets as stated in the balance sheet.
Research and Development
Source: UOIG Spreads
Figure 56:
Research and Development Expense ($ millions)
120
100
Research and development is a crucial business activity to remain competitive in
the high growth industries in which Infoblox operates. That being the case,
research and development expense was projected based off of historicals. Keeping
research and development at this rate over the course of the projection period
although Infoblox will continue to spend a significant portion of revenue on
research and development activities, this expense was down-trended as revenue
growth is expected to slow into perpetuity.
Sales and Marketing
As discussed in the business growth strategies section, management sees
expenditures on sales and marketing activities as massively important for both
short term and long term growth. In the same way that research and development
expense was projected, sales and marketing was projected at near historic rates
during the early projection period to indicate the importance of this expense.
Additionally, it was down-trended into perpetuity.
80
60
40
20
Tax Rate
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source: UOIG Spreads
Beta
Figure 57: Estimated Beta
Beta
SE
Weighting
BLOX 1 YEAR
1.81
0.27
0.00%
BLOX 2 YEAR
1.34
0.25
Comps Hamada 1 Year
1.14
40.00%
Comps Hamada 2 Year
1.07
30.00%
Comps Hamada 3 Year
1.15
30.00%
ETF Hamada 3 Year
0.96
0.00%
Infoblox Beta
1.12
Source: UOIG Spreads
Management has provided guidance on the expected tax rate in recent conference
calls of 19-20%. Since this tax rate is based off of earnings before taxation and
this number is negative for the projection period, the tax rate was projected as a
negative value, but the provision for income tax remains a positive number. The
negative tax rate will not have an impact in the calculation for weighted average
cost of capital considering the capital structure of Infoblox includes no debt.
0.00%
Infoblox underwent its initial public offering just over two years ago, meaning
that there is relatively little data on its market risk exposure. Additionally, in
November of 2013, January 2014, and May 2014 Infoblox’s stock price endured
significant depreciations after announcing top-line misses during their earnings
announcements. This has caused their regressed correlation with the market to
be an inaccurate estimate of their true market risk exposure because of a very
high standard error. For this reason, their top-down betas were not weighted in
the final beta calculation. Instead, a Hamada beta was calculated using
comparable companies. It was then unlevered and re-levered using Infoblox’s
capital structure. Both sets of comparable companies were included in the
Hamada calculation. Because two of the comparable companies, Palo Alto
Networks and Barracuda Networks had their initial public offerings in the last
few years, they were only included for the years in which they were public. In
UOIG 20
University of Oregon Investment Group
order to try and get a better estimate of Beta, a networking ETF (PXQ) was
regressed against the market as well, however it wasn’t included in the final
Beta calculation because our comparable companies were a better reflection of
Infoblox’s market exposure than an ETF with a diverse group of networking
companies.
Figure 58:
Composition of Working Capital
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Cost of Equity
The capital asset pricing model (CAPM) was used to calculate the cost of equity.
A market risk premium of 6.45% was used for the valuation and the 10-year U.S.
treasury STRIPS bill was used as the risk free rate. The STRIPS bill is a more
accurate indication of the risk free rate since it does not include the reinvestment
risk affiliated with a risk-free asset which pays coupons to lenders.
Terminal Considerations
Current Assets
A terminal WACC was used as a means to derive an appropriate terminal value
for the firm. Although the three statement model reflects no change in the capital
structure in regards to the firm’s composition of debt and equity, calculating a
terminal WACC incorporating the 30-year STRIPS bill allows for a more accurate
terminal discount rate to be derived. A terminal growth rate of 3.00% was used as
the terminal growth rate in accordance with group standards.
Current Liabilities
Source: UOIG Spreads
Net Working Capital
Figure 59:
Final Valuation
Final Valuation
Implied Price
Weight
Comparable Analysis
$25.78
50.00%
DCF Analysis
$21.73
50.00%
Price Target
$23.75
Current Price
$20.47
Undervalued
16.04%
Source: UOIG Spreads
Line items in the net working capital were pulled directly from the projections in
the three statement model. These line items were projected using both
percentage of total revenue and days outstanding. Notably, Infoblox holds a
significant portion of current assets and other short term investments. These
holdings were not including in the calculation of working capital because they
earn a fair return on capital below that of other current assets including
inventory and accounts receivable which earn a return on capital higher than
cash.
Recommendation
As the industry leader in DNS management and network security, Infoblox will
be able to leverage its core product offering in order to capitalize on favorable
industry trends. Through the employment of the patented Grid Technology,
Infoblox offers clients a cohesive and comprehensive means to save on time and
cost by increasing automation, reducing downtime, and ensuring data integrity
and security. As the complexity of cyber-attacks drives corporations to bring
network security in-house, Infoblox is poised to capture the new market through
their stand-alone appliance offering. With an undervaluation from both DCF and
relative valuations, Infoblox is rated outperform with a recommendation to
purchase for the Tall Firs, Svigals, and DADCO portfolios. Additionally, we
recommend a buy for the OSIG Domestic, DADCO, and Russell 2K Synthetic
portfolios.
UOIG 21
February 20, 2015
University of Oregon Investment Group
Appendix 1 – Relative Valuation (Qualitative)
Industry Comparables Analysis
($ in millions)
Stock Characteristics
Current Price
Beta
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
Growth Expectations
% Revenue Growth NTM
% Revenue Growth FTM
% Gross Income Growth NTM
% EBITDA Growth NTM
% EBITDA Growth FTM
% EPS Growth NTM
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
Credit Metrics
Interest Expense
Debt/EV
Leverage Ratio
Interest Coverage Ratio
Operating Results
Revenue
Gross Profit
EBIT
EBITDA
Net Income
Capital Expenditures
Multiples
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Max
$133.01
1.63
Min
$32.98
1.34
Median
$49.76
1.35
Weight Avg.
$70.94
1.41
BLOX
SWI
Infoblox
SolarWinds
$20.59
1.12
30.00%
$49.76
1.35
PANW
Palo Alto
Networks
FTNT
Fortinet, Inc.
20.00%
$133.01
1.63
20.00%
$32.98
1.34
CUDA
Baracuda
Networks, Inc.
15.00%
$36.82
1.37
FFIV
F5 Networks
15.00%
$115.27
1.35
0.25
4.45
772.50
164.87
11,290.92
10,518.42
171.40
54.75
1,992.06
1,825.36
645.40
77.11
5,437.20
4,717.20
0.04
0.67
496.11
92.52
6,067.38
5,571.97
282.00
58.07
1,169.57
887.57
250.30
77.11
3,809.84
3,559.54
772.50
85.46
11,290.92
10,518.42
720.00
164.87
5,437.20
4,717.20
0.25
4.45
171.40
54.75
1,992.06
1,825.36
645.40
74.08
8,533.27
7,887.87
37.42%
31.92%
43.97%
1228.94%
80.41%
71.75%
11.51%
11.93%
13.40%
37.06%
(82.51%)
14.39%
20.21%
17.41%
21.60%
81.64%
18.65%
34.62%
22.29%
20.35%
26.37%
352.08%
10.65%
39.74%
16.22%
14.83%
21.23%
94.12%
34.12%
(14.00%)
21.87%
20.71%
27.67%
81.64%
18.65%
16.61%
37.42%
31.92%
43.97%
74.25%
80.41%
71.75%
20.21%
16.75%
21.60%
1228.94%
(82.51%)
65.28%
16.50%
17.41%
19.65%
409.27%
24.18%
34.62%
11.51%
11.93%
13.40%
37.06%
12.35%
14.39%
93.92%
40.86%
48.30%
18.84%
70.82%
8.62%
10.00%
(7.17%)
80.98%
13.81%
16.44%
4.53%
82.33%
24.48%
28.34%
8.17%
80.32%
(4.38%)
18.57%
(5.22%)
93.92%
40.86%
48.30%
18.67%
76.42%
13.37%
16.21%
(7.17%)
70.82%
13.81%
16.44%
4.53%
80.98%
8.62%
10.00%
1.78%
83.71%
36.60%
38.82%
18.84%
0.31
0.15
99.83
-
-
0.05
0.02
14.97
-
-
-
-
0.31
0.15
99.83
-
910.10
655.84
127.89
152.22
41.92
41.91
869.51
705.46
227.45
256.41
81.79
31.92
0
6.85x
8.44x
41.55x
35.06x
51.07x
60.80x
294.62
236.65
(12.92)
54.71
(15.39)
9.43
522.47
490.70
213.50
252.36
97.54
12.63
910.10
695.51
121.70
147.54
(65.26)
51.56
926.02
655.84
127.89
152.22
41.92
41.91
309.43
250.59
26.69
30.95
5.50
12.08
5.09x
7.19x
36.89x
30.99x
42.76x
129.70x
5.90x
7.28x
68.40x
58.98x
96.72x
362.23x
1,994.18
1,669.28
729.84
774.05
375.79
51.56
0
11.56x
15.12x
86.43x
71.29x
109.59x
362.23x
309.43
250.59
26.69
30.95
(65.26)
12.08
0
3.96x
4.73x
10.81x
10.19x
10.91x
(173.02x)
5.90x
7.25x
36.89x
30.99x
42.76x
39.06x
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Price Target
Current Price
Undervalued
3.01x
3.75x
(68.72x)
16.22x
19.60x
(75.98x)
Implied Price
39.62
39.26
(4.39)
37.89
44.68
(16.12)
6.81x
7.25x
16.67x
14.11x
14.85x
39.06x
Weight
100.00%
0.00%
0.00%
0.00%
0.00%
0.00%
39.62
20.47
93.58%
11.56x
15.12x
86.43x
71.29x
109.59x
(173.02x)
1,994.18
1,669.28
729.84
774.05
375.79
50.85
3.96x
4.73x
10.81x
10.19x
10.91x
22.71x
UOIG 22
February 20, 2015
University of Oregon Investment Group
Appendix 2 – Relative Valuation (Quantitative)
Infoblox
($ in millions)
Stock Characteristics
Current Price
Beta
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
Growth Expectations
% Revenue Growth NTM
% Revenue Growth FTM
% Gross Income Growth NTM
% EBITDA Growth NTM
% EBITDA Growth FTM
% EPS Growth NTM
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
Credit Metrics
Interest Expense
Debt/EV
Leverage Ratio
Interest Coverage Ratio
Operating Results
Revenue
Gross Profit
EBIT
EBITDA
Net Income
Capital Expenditures
Multiples
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
CUDA
Baracuda
Networks, Inc.
BLOX
Quantitative Comparables Analysis
Min
Max
$42.85
1.77
$15.37
0.55
Median
$27.63
1.42
Weight Avg.
$28.81
1.27
$20.59
1.12
35.00%
$36.82
1.37
ARUN
Aruba Networks
Inc.
25.00%
$17.71
1.46
DSGX
Descartes
Systems Group
Inc.
15.00%
$15.37
0.55
ININ
Interactive
Intelligence
Group, Inc.
15.00%
$42.85
1.22
VDSI
VASCO
International
5.00%
$25.17
1.47
Qlik
QLIK
Technologies
Inc.
5.00%
$30.08
1.77
0.25
4.45
315.30
116.23
2,797.88
2,555.88
56.21
22.36
927.28
871.07
160.84
65.45
1,581.32
1,356.64
0.09
1.56
186.82
70.00
1,703.84
1,518.66
282.00
58.07
1,169.57
887.57
0.25
4.45
171.40
54.75
1,992.06
1,825.36
315.30
116.23
2,008.29
1,692.99
150.28
76.16
1,170.58
1,020.30
56.21
22.36
927.28
871.07
98.61
39.71
999.44
900.83
242.00
100.38
2,797.88
2,555.88
16.79%
17.41%
36.80%
1947.01%
85.81%
233.99%
11.36%
12.22%
10.66%
17.22%
15.53%
27.88%
13.46%
14.83%
18.14%
464.40%
24.18%
49.40%
14.37%
14.60%
21.27%
610.07%
29.02%
89.59%
16.22%
14.83%
21.23%
94.12%
34.12%
(14.00%)
16.50%
17.41%
19.65%
409.27%
24.18%
34.62%
14.20%
14.48%
22.88%
464.40%
15.66%
233.99%
12.44%
14.83%
36.80%
17.22%
15.53%
27.88%
11.36%
12.22%
10.66%
1947.01%
85.81%
66.62%
16.79%
16.63%
31.75%
12.71%
16.63%
14.35%
1121.79%
28.87%
64.18%
86.73%
21.73%
30.34%
15.45%
59.21%
(1.92%)
2.31%
(4.60%)
69.79%
12.23%
16.64%
2.40%
72.85%
11.69%
16.06%
2.84%
80.32%
(4.38%)
18.57%
(5.22%)
80.98%
8.62%
10.00%
1.78%
71.85%
21.73%
24.28%
3.02%
67.72%
15.83%
30.34%
10.31%
59.21%
(1.92%)
2.31%
(4.60%)
63.38%
18.03%
23.29%
15.45%
86.73%
5.10%
8.48%
(3.31%)
0.31
0.15
99.83
-
-
0.11
0.05
34.94
-
0.31
0.15
99.83
-
-
-
-
-
886.03
636.62
192.53
215.13
32.90
25.33
188.04
127.34
(7.31)
8.78
(19.94)
1.75
344.74
237.81
30.26
50.35
12.44
13.85
455.80
332.60
64.30
79.52
9.56
15.47
294.62
236.65
(12.92)
54.71
(15.39)
9.43
0
3.01x
3.75x
(68.72x)
16.22x
19.60x
(75.98x)
309.43
250.59
26.69
30.95
5.50
12.08
886.03
636.62
192.53
215.13
26.80
25.33
188.04
127.34
29.76
57.05
19.38
3.60
380.05
225.02
(7.31)
8.78
(17.49)
23.36
213.00
135.00
38.40
49.60
32.90
1.75
602.65
522.68
30.76
51.10
(19.94)
15.63
5.90x
8.01x
83.09x
99.19x
96.72x
362.23x
1.91x
2.66x
(119.11x)
7.87x
(59.74x)
(140.31x)
4.24x
5.78x
28.87x
34.09x
18.96x
45.39x
4.12x
5.57x
18.74x
43.58x
34.53x
141.13x
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Price Target
Current Price
Undervalued
Implied Price
25.78
27.58
0.69
45.92
36.64
(32.56)
1.91x
2.66x
8.79x
7.87x
8.92x
74.94x
5.90x
7.28x
68.40x
58.98x
96.72x
362.23x
Weight
100.00%
0.00%
0.00%
0.00%
0.00%
0.00%
$25.78
$20.47
25.94%
5.43x
8.01x
34.28x
17.89x
19.09x
60.40x
2.29x
3.87x
(119.11x)
99.19x
(59.74x)
(53.01x)
4.23x
6.67x
23.46x
18.16x
18.83x
30.38x
4.24x
4.89x
83.09x
50.02x
72.06x
(140.31x)
UOIG 23
February 20, 2015
University of Oregon Investment Group
Appendix 3 – Revenue & Cost of Goods Sold Models
Revenue Model
($ in millions)
Products and Licenses
2010A
$65.85
% Growth
% of Total Revenue
Services
64.45%
36.32
% of Total Revenue
2012A
2013A
2014A
Revenue
% Gross Margin
Depreciation Allocation
Services
Revenue
% Gross Margin
Depreciation Allocation
Total COGS
% Revenue
Q3
Q4
4/30/2015E
7/31/2015E
Gross Margin
Q1
Q2
Q3
Q4
10/31/2015E
1/31/2016E
4/30/2016E
7/31/2016E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
$95.01
$128.20
$130.35
$31.51
$31.65
$34.15
$37.25
$134.56
$34.59
$35.92
$39.49
$41.21
$151.22
$165.96
$179.65
$193.58
$207.13
$220.59
$232.17
$242.04
21.91%
18.36%
34.93%
1.67%
(12.39%)
2.38%
10.88%
3.58%
3.23%
9.79%
13.48%
15.65%
10.64%
11.02%
9.75%
8.25%
7.75%
7.00%
6.50%
5.25%
4.25%
4.15%
60.43%
56.14%
56.97%
52.07%
47.22%
46.20%
46.71%
48.38%
47.16%
45.51%
45.16%
46.22%
46.95%
45.99%
44.30%
42.71%
41.28%
40.02%
39.25%
38.31%
37.26%
36.26%
$252.08
74.23
96.84
119.99
35.21
36.85
38.96
39.74
150.76
41.43
43.61
45.96
46.57
177.56
208.64
240.97
275.31
310.42
341.46
373.90
407.55
443.21
41.23%
30.45%
23.91%
27.77%
25.69%
28.91%
44.20%
25.64%
17.65%
18.34%
17.96%
17.19%
17.78%
17.50%
15.50%
14.25%
12.75%
10.00%
9.50%
9.00%
8.75%
35.55%
39.57%
43.86%
43.03%
47.93%
52.78%
53.80%
53.29%
51.62%
52.84%
54.49%
54.84%
53.78%
53.05%
54.01%
55.70%
57.29%
58.72%
59.98%
60.75%
61.69%
62.74%
63.74%
102.17
132.84
169.25
225.04
250.34
66.72
68.50
73.11
76.99
285.32
76.02
79.52
85.45
87.78
328.78
374.60
420.63
468.89
517.54
562.05
606.07
649.58
695.29
30.02%
27.41%
32.97%
11.24%
5.03%
12.51%
19.81%
21.20%
12.26%
13.94%
16.09%
16.88%
14.02%
15.23%
13.94%
12.29%
11.47%
10.38%
8.60%
7.83%
7.18%
7.04%
79.81%
79.91%
80.01%
80.11%
80.21%
80.32%
80.42%
80.52%
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
2010A
2011A
2012A
2013A
2014A
10/31/2014A
1/31/2015E
4/30/2015E
7/31/2015E
2015E
10/31/2015E
1/31/2016E
4/30/2016E
7/31/2016E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
$12.92
$15.01
$19.35
$25.98
$25.43
$6.52
$6.47
$6.88
$7.49
$27.37
$7.02
$7.28
$8.01
$8.37
$30.69
$33.42
$35.97
$38.62
$41.11
$43.46
$45.51
$47.27
$49.11
65.85
80.27
95.01
128.20
130.35
31.51
31.65
34.15
37.25
134.56
34.59
35.92
39.49
41.21
151.22
165.96
179.65
193.58
207.13
220.59
232.17
242.04
252.08
80.39%
81.31%
79.64%
79.74%
80.49%
79.29%
79.56%
79.85%
79.89%
79.66%
79.70%
79.74%
79.71%
79.68%
79.71%
79.86%
79.98%
80.05%
80.15%
80.30%
80.40%
80.47%
80.52%
0.58
1.03
1.67
2.63
3.32
1.18
7.67
10.98
13.63
16.91
22.95
6.52
7.20
7.38
7.59
28.69
7.94
8.30
8.54
8.53
33.31
38.49
44.10
50.00
56.00
61.26
66.70
72.54
78.76
36.32
52.56
74.23
96.84
119.99
35.21
36.85
38.96
39.74
150.76
41.43
43.61
45.96
46.57
177.56
208.64
240.97
275.31
310.42
341.46
373.90
407.55
443.21
78.87%
79.10%
81.64%
82.54%
80.88%
81.47%
80.45%
81.06%
80.91%
80.97%
80.84%
80.96%
81.41%
81.69%
81.24%
81.55%
81.70%
81.84%
81.96%
82.06%
82.16%
82.20%
82.23%
0.35
0.76
1.17
1.72
3.00
1.18
20.59
25.99
32.98
42.89
48.37
13.05
13.67
14.26
15.08
56.06
14.96
15.58
16.56
16.90
64.00
71.92
80.06
88.62
97.11
104.71
112.21
119.81
127.86
20.15%
19.57%
19.49%
19.06%
19.32%
19.56%
19.96%
19.51%
19.58%
19.65%
19.68%
19.59%
19.38%
19.25%
19.47%
19.20%
19.03%
18.90%
18.76%
18.63%
18.51%
18.44%
18.39%
Appendix 4 – Working Capital Model
Gross Profit
2015E
$80.27
Cost of Goods Sold Model
Products and Licenses
Q2
1/31/2015E
52.56
% Growth
($ in millions)
Q1
10/31/2014A
44.72%
% Growth
Total Revenue
2011A
81.58
106.85
136.27
182.15
201.97
53.67
54.83
58.85
61.91
229.26
61.06
63.95
68.89
70.88
264.78
302.68
340.56
380.27
420.43
457.33
493.86
529.77
567.43
79.85%
80.43%
80.51%
80.94%
80.68%
80.44%
80.04%
80.49%
80.42%
80.35%
80.32%
80.41%
80.62%
80.75%
80.53%
80.80%
80.97%
81.10%
81.24%
81.37%
81.49%
81.56%
81.61%
UOIG 24
February 20, 2015
University of Oregon Investment Group
Appendix 4 – Working Capital Model
Working Capital Model
Q1
Q2
Q3
Q4
10/31/2014A
1/31/2015E
4/30/2015E
7/31/2015E
Q1
Q2
Q3
Q4
1/31/2016E
4/30/2016E
7/31/2016E
2010A
2011A
2012A
2013A
2014A
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
Total Revenue
$102.17
$132.84
$169.25
$225.04
$250.34
$66.72
$68.50
$73.11
$76.99
$285.32
$76.02
$79.52
$85.45
$87.78
$328.78
$374.60
$420.63
$468.89
$517.54
$562.05
$606.07
$649.58
$695.29
12.87
45.98
12.60%
1.58
28.01
1.55%
2.00
35.45
1.96%
0.82
5.56
.80%
0.27
.26%
17.54
17.17%
20.68
56.82
15.57%
1.51
21.21
1.14%
2.34
32.86
1.76%
1.61
7.51
1.21%
1.49
1.12%
27.63
20.80%
26.82
58.00
15.85%
2.56
28.41
1.51%
3.09
34.29
1.83%
1.58
5.67
.93%
1.07
.63%
35.12
20.75%
38.73
62.82
17.21%
4.48
38.13
1.99%
4.63
39.40
2.06%
1.35
3.60
.60%
1.40
.62%
50.59
22.48%
36.42
53.10
14.55%
6.35
47.92
2.54%
6.00
45.28
2.40%
0.29
0.63
.12%
1.22
.49%
50.28
20.08%
36.32
48.99
54.44%
7.33
50.56
10.99%
7.18
49.52
10.76%
0.29
0.56
.43%
0.00%
51.12
76.62%
37.78
50.75
55.16%
7.19
48.39
10.50%
7.28
48.95
10.62%
0.27
0.60
.40%
0.74
1.08%
53.27
77.76%
40.93
50.94
55.98%
7.75
49.45
10.60%
7.69
49.05
10.51%
0.26
0.52
.35%
1.14
1.56%
57.76
79.00%
43.62
52.13
56.66%
8.35
50.97
10.85%
7.72
47.12
10.03%
0.35
0.67
.45%
1.44
1.87%
61.48
79.86%
43.62
55.80
15.29%
8.35
54.39
2.93%
7.72
50.28
2.71%
0.35
0.70
.12%
1.44
.50%
61.48
21.55%
42.56
50.94
55.98%
8.10
49.25
10.65%
7.97
48.50
10.49%
0.33
0.64
.43%
1.16
1.52%
60.11
79.07%
44.10
51.02
55.46%
8.55
50.48
10.75%
8.30
49.00
10.43%
0.41
0.77
.52%
1.49
1.87%
62.85
79.03%
47.05
50.10
55.06%
9.27
50.96
10.85%
9.01
49.50
10.54%
0.26
0.43
.31%
1.24
1.45%
66.83
78.21%
50.65
53.08
57.70%
9.88
53.76
11.25%
9.09
49.50
10.36%
0.43
0.73
.49%
1.72
1.96%
71.77
81.76%
50.65
56.39
15.41%
9.88
56.48
3.00%
9.09
52.01
2.77%
0.43
0.77
.13%
1.72
.52%
71.77
21.83%
59.00
57.49
15.75%
11.22
56.93
2.99%
10.32
52.40
2.76%
2.85
4.51
.76%
2.14
.57%
85.52
22.83%
67.30
58.40
16.00%
12.32
56.15
2.93%
11.57
52.75
2.75%
2.99
4.25
.71%
2.44
.58%
96.61
22.97%
76.66
59.68
16.35%
13.49
55.56
2.88%
12.89
53.10
2.75%
3.28
4.24
.70%
2.77
.59%
109.09
23.27%
86.17
60.94
16.65%
14.60
55.04
2.82%
14.18
53.45
2.74%
3.67
4.45
.71%
3.11
.60%
121.74
23.52%
95.55
62.05
17.00%
16.07
56.02
2.86%
15.43
53.80
2.75%
3.88
4.38
.69%
3.43
.61%
134.36
23.91%
106.06
63.88
17.50%
17.45
56.78
2.88%
16.60
54.00
2.74%
4.12
4.39
.68%
3.70
.61%
147.93
24.41%
116.93
65.70
18.00%
18.78
57.21
2.89%
17.73
54.00
2.73%
4.42
4.46
.68%
4.03
.62%
161.87
24.92%
132.45
69.72
19.05%
20.80
59.53
2.99%
18.87
54.00
2.71%
4.73
4.53
.68%
4.38
.63%
181.22
26.06%
1.55
0.93
2.06
19.60
19.18%
2.06
5.79
1.97
1.79
5.09
32.72
24.63%
5.09
3.96
2.84
6.50
41.62
24.59%
6.50
16.52
4.35
18.37
68.96
30.64%
18.37
6.35
1.00
6.32
18.78
69.06
27.59%
18.78
1.75
2.35
18.78
69.90
104.77%
18.78
1.91
1.67
20.77
74.04
108.08%
20.77
2.16
2.14
20.79
78.55
107.44%
20.79
3.04
2.11
21.72
83.20
108.07%
18.78
8.86
8.27
21.72
83.20
29.16%
21.72
2.32
2.06
21.97
82.08
107.97%
21.97
2.34
2.53
21.79
84.64
106.43%
21.79
3.14
2.76
22.17
89.00
104.16%
22.17
3.32
2.85
22.64
94.41
107.55%
21.72
11.12
10.20
22.64
94.41
28.72%
22.64
14.23
12.72
24.15
109.68
29.28%
24.15
17.04
15.70
25.49
122.10
29.03%
25.49
21.15
19.38
27.26
136.35
29.08%
27.26
26.96
24.05
30.18
151.91
29.35%
30.18
33.44
29.77
33.85
168.21
29.93%
33.85
40.55
36.64
37.76
185.70
30.64%
37.76
48.72
44.72
41.76
203.63
31.35%
41.76
55.83
54.04
43.55
224.77
32.33%
0.95
16.84
.93%
8.82
59.85
2.42%
31.01
30.35%
40.78
39.91%
4.37
61.37
3.29%
12.12
56.56
3.32%
44.09
33.19%
60.58
45.61%
5.85
64.92
3.46%
16.05
57.58
4.39%
56.18
33.19%
78.08
46.13%
6.30
53.61
2.80%
18.56
49.49
5.08%
68.48
30.43%
93.34
41.48%
8.06
60.82
3.22%
20.78
45.08
5.69%
81.96
32.74%
110.80
44.26%
16.27
31.54
24.39%
15.24
29.55
16.93%
86.13
129.09%
117.64
176.32%
6.53
43.97
9.54%
17.49
38.49
19.02%
90.34
131.89%
114.37
166.97%
6.93
44.23
9.48%
18.99
38.71
20.87%
96.90
132.54%
122.82
168.00%
7.66
46.74
9.95%
23.78
45.89
25.85%
99.29
128.97%
130.74
169.81%
7.66
49.88
2.68%
23.78
48.07
6.52%
99.29
34.80%
130.74
45.82%
7.50
45.64
9.87%
16.83
33.07
18.50%
100.03
131.59%
124.37
163.60%
8.47
50.01
10.65%
20.02
37.20
21.77%
105.75
132.98%
134.25
168.81%
8.43
46.36
9.87%
24.33
39.94
26.73%
108.94
127.49%
141.70
165.83%
9.34
50.84
10.64%
27.64
46.76
30.05%
111.47
126.98%
148.45
169.11%
9.34
53.42
2.84%
27.64
49.20
7.55%
111.47
33.90%
148.45
45.15%
11.28
57.23
3.01%
31.05
49.18
8.51%
110.34
29.46%
152.67
40.76%
12.53
57.14
2.98%
34.79
49.54
9.53%
125.41
29.82%
172.74
41.07%
14.30
58.91
3.05%
38.50
49.78
10.55%
142.09
30.30%
194.88
41.56%
15.99
60.27
3.09%
42.13
50.96
11.51%
158.06
30.54%
216.18
41.77%
17.54
61.12
3.12%
45.36
51.20
12.43%
175.29
31.19%
238.18
42.38%
19.15
62.30
3.16%
48.36
51.53
13.25%
190.48
31.43%
257.99
42.57%
19.81
60.36
3.05%
51.45
51.92
14.10%
206.06
31.72%
277.32
42.69%
21.28
60.90
3.06%
54.23
52.00
14.82%
221.12
31.80%
296.63
42.66%
Current Assets
Total Receivables, net
Days Sales Outstanding A/R
% of Revenue
Total Inventory
Days Inventory Outstanding
% of Revenue
Prepaid Expenses
Days Prepaid Expense Outstanding
% of Revenue
Deferred Income Tax
Days Deferred Income Tax Outstanding
% of Revenue
Other Current Assets
% of Revenue
Total Current Assets
% of Revenue
Long Term Assets
Net PP&E Beginning
Capital Expenditures
Acquisitions
Depreciation and Amortization
Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
Accounts Payable
Days Payable Outstanding
% of Revenue
Payable/Accrued
Days Charges Outstanding
% of Revenue
Accrued Expenses
Accrued Expenses Outstanding
% of Revenue
Notes Payable/ Short Term Debt
% of Revenue
Customer Advances
% of Revenue
Total Current Liabilities
% of Revenue
2015E
10/31/2015E
($ in millions)
UOIG 25
February 20, 2015
University of Oregon Investment Group
Appendix 5 – Discounted Cash Flows Valuation
Discounted Cash Flow Analysis
($ in millions)
Total Revenue
2010A
$102.17
% YoY Growth
Cost of Goods Sold
2011A
2012A
2013A
2014A
Q1
Q2
Q3
Q4
10/31/2014A
1/31/2015E
4/30/2015E
7/31/2015E
2015E
Q1
Q2
Q3
Q4
10/31/2015E
1/31/2016E
4/30/2016E
7/31/2016E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
$132.84
$169.25
$225.04
$250.34
$66.72
$68.50
$73.11
$76.99
$285.32
$76.02
$79.52
$85.45
$87.78
$328.78
$374.60
$420.63
$468.89
$517.54
$562.05
$606.07
$649.58
30.02%
27.41%
32.97%
11.24%
5.03%
12.51%
19.81%
21.20%
12.26%
13.94%
16.09%
16.88%
14.02%
15.23%
13.94%
12.29%
11.47%
10.38%
8.60%
7.83%
7.18%
2024E
$695.29
7.04%
20.59
25.99
32.98
42.89
48.37
13.05
13.67
14.26
15.08
56.06
14.96
15.58
16.56
16.90
64.00
71.92
80.06
88.62
97.11
104.71
112.21
119.81
127.86
20.15%
19.57%
19.49%
19.06%
19.32%
19.56%
19.96%
19.51%
19.58%
19.65%
19.68%
19.59%
19.38%
19.25%
19.47%
19.20%
19.03%
18.90%
18.76%
18.63%
18.51%
18.44%
18.39%
Gross Profit
81.58
106.85
136.27
182.15
201.97
53.67
54.83
58.85
61.91
229.26
61.06
63.95
68.89
70.88
264.78
302.68
340.56
380.27
420.43
457.33
493.86
529.77
567.43
Gross Margin
79.85%
80.43%
80.51%
80.94%
80.68%
80.44%
80.04%
80.49%
80.42%
80.35%
80.32%
80.41%
80.62%
80.75%
80.53%
80.80%
80.97%
81.10%
81.24%
81.37%
81.49%
81.56%
81.61%
% Revenue
Depreciation & Amortization
% of PP&E
Amortization of Intagibles
% of PP&E
Research and Development
% Revenue
Sales and Marketing
% Revenue
General and Administrative
% Revenue
Earnings Before Interest & Taxes
% Revenue
Other Income, Net
% Revenue
Earnings Before Taxes
% Revenue
Less Taxes (Benefits)
Tax Rate
Net Income
Net Margin
0.93
1.79
2.84
4.35
6.32
2.35
1.67
2.14
2.11
8.27
2.06
2.53
2.76
2.85
10.20
12.72
15.70
19.38
24.05
29.77
36.64
44.72
54.04
11.65%
14.82%
17.39%
15.16%
18.13%
6.03%
4.09%
4.97%
4.59%
17.96%
4.26%
4.98%
5.12%
4.99%
17.83%
17.81%
17.75%
17.68%
17.61%
17.51%
17.40%
17.25%
17.15%
0.99
3.30
2.86
2.32
2.42
0.62
0.69
1.16
0.83
3.30
0.81
0.95
0.80
0.89
3.46
4.25
5.22
6.41
7.99
9.86
12.21
15.04
18.12
12.41%
27.32%
17.51%
8.08%
6.94%
1.58%
1.01%
1.59%
1.08%
7.17%
1.68%
1.87%
1.49%
1.56%
6.04%
5.95%
5.90%
5.85%
5.85%
5.80%
5.80%
5.80%
5.75%
18.07
29.61
36.62
43.06
49.29
14.57
13.11
14.30
14.67
56.65
15.55
15.65
16.82
17.18
65.19
73.72
81.64
89.65
97.04
103.53
109.09
114.33
118.89
17.69%
22.29%
21.64%
19.13%
19.69%
21.84%
19.14%
19.56%
19.05%
19.85%
20.45%
19.68%
19.68%
19.57%
19.83%
19.68%
19.41%
19.12%
18.75%
18.42%
18.00%
17.60%
17.10%
45.41
67.39
86.47
112.39
138.61
38.46
35.04
38.16
40.14
151.80
38.86
41.89
46.86
45.63
173.25
194.79
217.25
240.31
257.48
275.68
292.43
310.18
329.57
44.45%
50.73%
51.09%
49.94%
55.37%
57.64%
51.15%
52.20%
52.14%
53.20%
51.12%
52.68%
54.84%
51.98%
52.69%
52.00%
51.65%
51.25%
49.75%
49.05%
48.25%
47.75%
47.40%
8.38
10.83
15.55
24.49
29.62
7.96
6.78
6.48
7.54
28.76
7.45
7.63
8.56
8.76
32.41
35.66
39.03
41.97
45.08
47.66
50.16
51.51
52.15
8.20%
8.15%
9.19%
10.88%
11.83%
11.93%
9.90%
8.87%
9.79%
10.08%
9.80%
9.60%
10.02%
9.98%
9.86%
9.52%
9.28%
8.95%
8.71%
8.48%
8.28%
7.93%
7.50%
7.80
(6.08)
(8.08)
(4.45)
(24.30)
(10.29)
(2.47)
(3.40)
(3.38)
(19.53)
(3.67)
(4.71)
(6.91)
(4.43)
(19.72)
(18.46)
(18.29)
(17.44)
(11.20)
(9.17)
(6.67)
(6.01)
(5.34)
7.63%
(4.57%)
(4.77%)
(1.98%)
(9.71%)
(15.42%)
(3.60%)
(4.65%)
(4.39%)
(6.85%)
(4.83%)
(5.92%)
(8.08%)
(5.05%)
(6.00%)
(4.93%)
(4.35%)
(3.72%)
(2.16%)
(1.63%)
(1.10%)
(.92%)
(.77%)
0.20
1.55
0.61
0.69
1.29
0.14
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
.20%
1.17%
.36%
.31%
.52%
.21%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8.00
(4.53)
(7.47)
(3.76)
(23.01)
(10.15)
(2.47)
(3.40)
(3.38)
(19.53)
(3.67)
(4.71)
(6.91)
(4.43)
(19.72)
(18.46)
(18.29)
(17.44)
(11.20)
(9.17)
(6.67)
7.83%
(3.41%)
(4.41%)
(1.67%)
(9.19%)
(15.21%)
(3.60%)
(4.65%)
(4.39%)
(6.85%)
(4.83%)
(5.92%)
(8.08%)
(5.05%)
(6.00%)
(4.93%)
(4.35%)
(3.72%)
(2.16%)
(1.63%)
(1.10%)
(6.01)
(.92%)
(5.34)
(.77%)
1.01
0.80
0.74
0.65
0.92
0.82
0.49
0.67
0.63
2.61
0.68
0.92
1.32
0.88
3.81
3.59
3.57
3.40
2.15
1.76
1.27
1.14
1.01
12.63%
(17.68%)
(9.97%)
(17.29%)
(3.99%)
(8.08%)
(20.05%)
(19.71%)
(18.56%)
(13.37%)
(18.65%)
(19.64%)
(19.15%)
(19.84%)
(19.33%)
(19.45%)
(19.50%)
(19.50%)
(19.23%)
(19.20%)
(19.10%)
(19.05%)
(19.00%)
6.99
(5.33)
(8.21)
(4.41)
(23.93)
(10.97)
(2.96)
(4.07)
(4.01)
(22.14)
(4.36)
(5.63)
(8.23)
(5.31)
(23.53)
(22.05)
(21.85)
(20.84)
(13.36)
(10.93)
(7.94)
(7.15)
(6.35)
6.84%
(4.01%)
(4.85%)
(1.96%)
(9.56%)
(16.44%)
(4.32%)
(5.57%)
(5.20%)
(7.76%)
(5.73%)
(7.08%)
(9.63%)
(6.05%)
(7.16%)
(5.89%)
(5.20%)
(4.44%)
(2.58%)
(1.94%)
(1.31%)
(1.10%)
(.91%)
Add Back: Depreciation and Amortization
1.92
5.09
5.70
6.67
8.74
2.97
2.36
3.30
2.95
11.58
2.87
3.47
3.56
3.75
13.65
16.97
20.92
25.79
32.04
39.63
48.85
59.76
72.16
Add Back: Interest Expense*(1-Tax Rate)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2.69
5.13
10.65
22.06
40.97
12.22
12.57
13.85
15.44
54.08
14.28
15.16
17.24
17.95
64.64
74.36
83.92
89.89
95.18
98.98
102.00
104.26
107.77
11.59
4.90
8.14
24.33
25.78
4.22
11.97
13.09
14.38
43.52
12.80
13.00
12.58
16.38
54.76
69.27
82.98
94.84
113.86
127.67
142.90
156.87
173.57
4.81%
10.81%
10.30%
6.33%
17.48%
17.90%
18.67%
15.25%
16.84%
16.35%
14.72%
18.66%
16.66%
18.49%
19.73%
20.23%
22.00%
22.72%
23.58%
24.15%
24.96%
Add: Stock-based compensation expense, net of tax
Operating Cash Flow
% Revenue
Current Assets
% Revenue
Current Liabilities
% Revenue
Net Working Capital
% Revenue
11.35%
17.54
27.63
35.12
50.59
50.28
51.12
53.27
57.76
61.48
61.48
60.11
62.85
66.83
71.77
71.77
85.52
96.61
109.09
121.74
134.36
147.93
161.87
181.22
17.17%
20.80%
20.75%
22.48%
20.08%
76.62%
77.76%
79.00%
79.86%
21.55%
79.07%
79.03%
78.21%
81.76%
21.83%
22.83%
22.97%
23.27%
23.52%
23.91%
24.41%
24.92%
26.06%
40.78
60.58
78.08
93.34
110.80
117.64
114.37
122.82
130.74
130.74
124.37
134.25
141.70
148.45
148.45
152.67
172.74
194.88
216.18
238.18
257.99
277.32
39.91%
45.61%
46.13%
41.48%
44.26%
176.32%
166.97%
168.00%
169.81%
45.82%
163.60%
168.81%
165.83%
169.11%
45.15%
40.76%
41.07%
41.56%
41.77%
42.38%
42.57%
42.69%
42.66%
(23.24)
(32.95)
(42.96)
(42.75)
(60.52)
(66.52)
(61.11)
(65.07)
(69.25)
(69.25)
(64.26)
(71.39)
(74.87)
(76.68)
(76.68)
(67.14)
(76.12)
(85.79)
(94.45)
(103.82)
(110.06)
(115.45)
(115.40)
(22.75%)
(24.81%)
(25.38%)
(23.32%)
(17.92%)
(18.10%)
(18.30%)
(18.25%)
(18.47%)
(18.16%)
(17.77%)
(16.60%)
% Revenue
Acquisitions
% Revenue
Unlevered Free Cash Flow
Discounted Free Cash Flow
296.63
(19.00%)
(24.18%)
(99.70%)
(89.21%)
(89.00%)
(89.95%)
(24.27%)
(84.53%)
(89.78%)
(87.62%)
(87.35%)
(9.71)
(10.01)
0.21
(17.77)
(6.00)
5.41
(3.96)
(4.19)
(8.73)
4.99
(7.13)
(3.48)
(1.81)
(7.43)
9.54
(8.98)
(9.67)
(8.66)
(9.38)
(6.24)
(5.39)
1.55
5.79
3.96
16.52
6.35
1.75
1.91
2.16
3.04
8.86
2.32
2.34
3.14
3.32
11.12
14.23
17.04
21.15
26.96
33.44
40.55
48.72
55.83
1.52%
4.36%
2.34%
7.34%
2.54%
2.62%
2.79%
2.95%
3.95%
3.10%
3.05%
2.94%
3.68%
3.78%
3.38%
3.80%
4.05%
4.51%
5.21%
5.95%
6.69%
7.50%
8.03%
Change in Working Capital
Capital Expenditures
3.69%
-
-
1.97
-
1.48%
-
10.04
6.85
14.19
-
7.60
1.00
.40%
36.20
8.47
4.65
-
-
-
-
-
-
14.89
15.52
43.39
14.56
14.85
-
-
-
-
-
-
-
-
-
-
-
-
0.04
-
-
-
-
-
-
-
-
-
-
-
-
-
5.49
17.80
12.91
14.87
51.07
45.50
74.92
83.36
95.55
103.61
108.59
113.54
117.70
5.14
16.29
11.56
13.03
36.48
54.99
56.01
58.77
58.34
55.97
53.57
50.84
UOIG 26
February 20, 2015
University of Oregon Investment Group
Appendix 6 – Discounted Cash Flows Assumptions and Final Valuation
Discounted Free Cash Flow Assumptions
Tax Rate
Risk Free Rate
35.00% Terminal Growth Rate
2.02% Terminal Value
Beta
Market Risk Premium
% Equity
3.00%
1,762
1.12 PV of Terminal Value
761
6.45% Sum of PV Free Cash Flows
100.00% Firm Value
500
1,262
% Debt
-
Total Debt
-
Cost of Debt
-
Cash & Cash Equivalents
282
CAPM
9.24% Market Capitalization
WACC
9.24% Fully Diluted Shares
Terminal Risk Free Rate
2.66% Implied Price
$21.73
Terminal CAPM
9.88% Current Price
$20.47
Terminal WACC
9.88% Undervalued
6.14%
Comparable Analysis
1,262
58
Implied Price
Weight
Industry Comparables Analysis
$39.62
0.00%
Quantitative Comparables Analysis
$25.78
100.00%
Price Target
$25.78
Current Price
$20.47
Undervalued
25.94%
Final Valuation
Implied Price
Weight
Comparable Analysis
$25.78
50.00%
DCF Analysis
$21.73
50.00%
Price Target
$23.75
Current Price
$20.47
Undervalued
16.04%
UOIG 27
February 20, 2015
University of Oregon Investment Group
Appendix 7 – Estimated Beta
ETF Hamada 3 Year
Company
PXQ
Beta
D/E
Tax Rate
Unlevered Beta
Cash as % of FV
Unlevered Beta - Cash Adjusted
SE
Variance
1.14
2.1%
7.0%
1.11
11.7%
1.26
0.0420
0.0018
-
-
BLOX
24.1%
Industry
PXQ Beta
1.26
Hamada Beta
0.96
Hamada Beta 1 Year
Company
Ticker
Beta
Weighting
Hamada Beta 2 Year ETF Hamada 3 Year
D/E
Tax Rate
Cash as % of FV
Unlevered Beta
Cash as % of FV
Unlevered Beta
F5 Networks
FFIV
1.179
10.00%
-
-
7.56%
1.28
F5 Networks
FFIV
1.232
11.11%
-
-
7.56%
1.33
SolarWinds
SWI
1.076
10.00%
-
-
6.57%
1.15
SolarWinds
SWI
1.274
11.11%
-
-
6.57%
1.36
Fortinet
FTNT
1.360
10.00%
-
-
13.24%
1.57
Fortinet
FTNT
1.267
11.11%
-
-
13.24%
Baracuda Networks
CUDA
1.370
10.00%
-
-
8.58%
1.50
Baracuda Networks
CUDA
-
-
-
-
Palo Alto Networks
PANW
1.630
10.00%
-
-
6.84%
1.75
Palo Alto Networks
PANW
1.441
11.11%
-
-
6.84%
1.55
Aruba Networks Inc.
ARUN
1.262
10.00%
-
-
15.70%
1.50
Aruba Networks Inc.
ARUN
1.285
11.11%
-
-
15.70%
1.52
Descartes Systems Group Inc.
DSGX
0.660
10.00%
-
-
12.84%
0.76
Descartes Systems Group Inc.
DSGX
0.547
11.11%
-
-
12.84%
0.63
Intelligence Group Inc.
ININ
1.188
10.00%
-
-
6.06%
1.26
Intelligence Group Inc.
ININ
1.215
11.11%
-
-
6.06%
1.29
Qlick Technologies Inc.
QLIK
1.814
10.00%
-
-
8.65%
1.99
Qlick Technologies Inc.
QLIK
1.716
11.11%
-
-
8.65%
1.88
Vasco International
VDSI
2.047
10.00%
-
-
9.87%
2.27
Vasco International
VDSI
1.465
11.11%
-
-
9.87%
1.63
-
-
9.59%
1.50
-
-
9.70%
1.41
-
-
24.11%
-
-
24.11%
Weighted Average Unlevered Beta
1.359
Infoblox
Levered Infoblox Beta
Company
Weighted Average Unlevered Beta
Beta
Weighting
D/E
Tax Rate
Weighting
1.272
Levered Infoblox Beta
Hamada Beta 3 Year
Ticker
Beta
Infoblox
1.14
Company
Ticker
Cash as % of FV
Unlevered Beta
Beta
SE
Weighting
0.00%
FFIV
1.353
12.50%
-
-
7.56%
1.46
BLOX 1 YEAR
1.81
0.27
SolarWinds
SWI
1.352
12.50%
-
-
6.57%
1.45
BLOX 2 YEAR
1.34
0.25
Fortinet
FTNT
1.335
12.50%
-
-
13.24%
1.54
Comps Hamada 1 Year
1.14
40.00%
Baracuda Networks
CUDA
-
-
-
-
-
-
Palo Alto Networks
PANW
-
-
-
-
-
-
Comps Hamada 2 Year
1.07
30.00%
Aruba Networks Inc.
ARUN
1.634
12.50%
-
-
15.70%
1.94
Descartes Systems Group Inc.
DSGX
0.552
12.50%
-
-
12.84%
0.63
Comps Hamada 3 Year
ETF Hamada 3 Year
1.15
0.96
30.00%
0.00%
Intelligence Group Inc.
ININ
1.457
12.50%
-
-
6.06%
1.55
Infoblox Beta
1.12
Qlick Technologies Inc.
QLIK
1.765
12.50%
-
-
8.65%
1.93
Vasco International
VDSI
1.471
12.50%
-
-
9.87%
1.63
-
-
10.06%
1.52
-
-
24.11%
1.365
Infoblox
Levered Infoblox Beta
Tax Rate
1.46
-
-
1.07
F5 Networks
Weighted Average Unlevered Beta
D/E
0.00%
1.15
UOIG 28
February 20, 2015
University of Oregon Investment Group
Appendix 8 – Three Statement Model – Income Statement
Income Statement
($ in millions)
Operating Revenue
Products and Licenses
Services
Total Operating Revenue
2010A
2011A
2012A
2013A
2014A
Q1
Q2
10/31/2014A 1/31/2015E
Q3
4/30/2015E
Q4
7/31/2015E
2015E
Q1
Q2
10/31/2015E 1/31/2016E
Q3
4/30/2016E
Q4
7/31/2016E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
$65.85
36.32
102.17
$80.27
52.56
132.84
$95.01
74.23
169.25
$128.20
96.84
225.04
$130.35
119.99
250.34
$31.51
35.21
66.72
$31.65
36.85
68.50
$34.15
38.96
73.11
$37.25
39.74
76.99
$134.56
150.76
285.32
$34.59
41.43
76.02
$35.92
43.61
79.52
$39.49
45.96
85.45
$41.21
46.57
87.78
$151.22
177.56
328.78
$165.96
208.64
374.60
$179.65
240.97
420.63
$193.58
275.31
468.89
$207.13
310.42
517.54
$220.59
341.46
562.05
$232.17
373.90
606.07
$242.04
407.55
649.58
$252.08
443.21
695.29
Cost of Revenue
Products and licenses
% of Revenue
% Total COGS
Services
% of Revenue
% Total COGS
Total Cost of Revenue
12.92
12.64%
62.72%
7.67
7.51%
37.28%
20.59
15.01
11.30%
57.74%
10.98
8.27%
42.26%
25.99
19.35
11.43%
58.67%
13.63
8.05%
41.33%
32.98
25.98
11.54%
60.57%
16.91
7.51%
39.43%
42.89
25.43
10.16%
52.57%
22.95
9.17%
47.44%
48.37
6.52
9.78%
50.00%
6.52
9.78%
50.00%
13.05
6.47
9.44%
47.31%
7.20
10.52%
52.69%
13.67
6.88
9.41%
48.25%
7.38
10.09%
51.75%
14.26
7.49
9.73%
49.68%
7.59
9.85%
50.32%
15.08
27.37
9.59%
48.82%
28.69
10.06%
51.18%
56.06
7.02
9.24%
46.94%
7.94
10.44%
53.06%
14.96
7.28
9.15%
46.71%
8.30
10.44%
53.29%
15.58
8.01
9.38%
48.40%
8.54
10.00%
51.60%
16.56
8.37
9.54%
49.55%
8.53
9.71%
50.45%
16.90
30.69
9.33%
47.95%
33.31
10.13%
52.05%
64.00
33.42
8.92%
46.48%
38.49
10.28%
53.52%
71.92
35.97
8.55%
44.92%
44.10
10.48%
55.08%
80.06
38.62
8.24%
43.58%
50.00
10.66%
56.42%
88.62
41.11
7.94%
42.34%
56.00
10.82%
57.66%
97.11
43.46
7.73%
41.50%
61.26
10.90%
58.50%
104.71
45.51
7.51%
40.55%
66.70
11.01%
59.45%
112.21
47.27
7.28%
39.45%
72.54
11.17%
60.55%
119.81
49.11
7.06%
38.40%
78.76
11.33%
61.60%
127.86
Gross Profit
% of Revenue
81.58
79.85%
106.85
80.43%
136.27
80.51%
182.15
80.94%
201.97
80.68%
53.67
80.44%
54.83
80.04%
58.85
80.49%
61.91
80.42%
229.26
80.35%
61.06
80.32%
63.95
80.41%
68.89
80.62%
70.88
80.75%
264.78
80.53%
302.68
80.80%
340.56
80.97%
380.27
81.10%
420.43
81.24%
457.33
81.37%
493.86
81.49%
529.77
81.56%
567.43
81.61%
Operating Expenses
Depreciation
% of PP&E
Amortization of Intangible Assets
% of PP&E
Research and Development
% of Revenue
Sales and Marketing
% of Revenue
General and Administrative
% of Revenue
Total Operating Expenses
Income (Loss) from Operations
Other income, net
0.93
11.65%
0.99
12.41%
18.07
17.69%
45.41
44.45%
8.38
8.20%
73.78
7.80
0.20
1.79
14.82%
3.30
27.32%
29.61
22.29%
67.39
50.73%
10.83
8.15%
112.92
(6.08)
1.55
2.84
17.39%
2.86
17.51%
36.62
21.64%
86.47
51.09%
15.55
9.19%
144.34
(8.08)
0.61
4.35
15.16%
2.32
8.08%
43.06
19.13%
112.39
49.94%
24.49
10.88%
186.60
(4.45)
0.69
6.32
18.13%
2.42
6.94%
49.29
19.69%
138.61
55.37%
29.62
11.83%
226.26
(24.29)
1.29
2.35
6.03%
0.62
1.58%
14.57
21.84%
38.46
57.64%
7.96
11.93%
63.96
(10.29)
0.14
1.67
4.09%
0.69
1.01%
13.11
19.14%
35.04
51.15%
6.78
9.90%
57.29
(2.47)
-
2.14
4.97%
1.16
1.59%
14.30
19.56%
38.16
52.20%
6.48
8.87%
62.25
(3.40)
-
2.11
4.59%
0.83
1.08%
14.67
19.05%
40.14
52.14%
7.54
9.79%
65.29
(3.38)
-
8.27
17.96%
3.30
7.17%
56.65
19.85%
151.80
53.20%
28.76
10.08%
248.79
(19.53)
-
2.06
4.26%
0.81
1.68%
15.55
20.45%
38.86
51.12%
7.45
9.80%
64.73
(3.67)
-
2.53
4.98%
0.95
1.87%
15.65
19.68%
41.89
52.68%
7.63
9.60%
68.65
(4.71)
-
2.76
5.12%
0.80
1.49%
16.82
19.68%
46.86
54.84%
8.56
10.02%
75.80
(6.91)
-
2.85
4.99%
0.89
1.56%
17.18
19.57%
45.63
51.98%
8.76
9.98%
75.32
(4.43)
-
10.20
17.83%
3.46
6.04%
65.19
19.83%
173.25
52.69%
32.41
9.86%
284.50
(19.72)
-
12.72
17.81%
4.25
5.95%
73.72
19.68%
194.79
52.00%
35.66
9.52%
321.14
(18.46)
-
15.70
17.75%
5.22
5.90%
81.64
19.41%
217.25
51.65%
39.03
9.28%
358.85
(18.29)
-
19.38
17.68%
6.41
5.85%
89.65
19.12%
240.31
51.25%
41.97
8.95%
397.71
(17.44)
-
24.05
17.61%
7.99
5.85%
97.04
18.75%
257.48
49.75%
45.08
8.71%
431.63
(11.20)
-
29.77
17.51%
9.86
5.80%
103.53
18.42%
275.68
49.05%
47.66
8.48%
466.50
(9.17)
-
36.64
17.40%
12.21
5.80%
109.09
18.00%
292.43
48.25%
50.16
8.28%
500.53
(6.67)
-
44.72
17.25%
15.04
5.80%
114.33
17.60%
310.18
47.75%
51.51
7.93%
535.78
(6.01)
-
54.04
17.15%
18.12
5.75%
118.89
17.10%
329.57
47.40%
52.15
7.50%
572.76
(5.34)
-
Income (Loss) Before Income Taxes
8.00
(4.53)
(7.47)
(3.76)
(23.00)
(10.15)
(2.47)
(3.40)
(3.38)
(19.53)
(3.67)
(4.71)
(6.91)
(4.43)
(19.72)
(18.46)
(18.29)
(17.44)
(11.20)
(9.17)
(6.67)
(6.01)
(5.34)
Provision for Income taxes
1.01
0.80
0.74
0.65
0.92
0.82
0.49
0.67
0.63
2.61
0.68
0.92
1.32
0.88
3.81
3.59
3.57
3.40
2.15
1.76
1.27
1.14
1.01
(9.97%) (17.29%)
(4.00%)
(8.08%)
(20.05%)
(19.71%)
(18.56%)
(13.37%)
(18.65%)
(19.64%)
(19.15%)
(23.92)
40.97
16.37%
2.42
19.63
(10.97)
12.22
18.32%
0.62
1.87
(2.96)
12.57
18.35%
0.69
10.30
(4.07)
13.85
18.95%
1.16
10.95
(4.01)
15.44
20.05%
0.83
12.26
(22.14)
54.08
18.96%
3.30
35.24
(4.36)
14.28
18.79%
0.81
10.74
(5.63)
15.16
19.06%
0.95
10.47
(8.23)
17.24
20.18%
0.80
9.82
Tax Rate
GAAP Net Income (Loss)
Add: Stock-based compensation expense, net of tax
% of Revenue
Add: Amortization of intangibles
Non-GAAP Net Income
12.63% (17.68%)
6.99
2.69
2.63%
0.99
10.69
(5.33)
5.13
3.86%
3.30
3.15
(8.21)
10.65
6.29%
2.86
5.36
(4.41)
22.06
9.80%
2.32
20.07
(19.84%) (19.33%) (19.45%) (19.50%) (19.50%) (19.23%) (19.20%) (19.10%) (19.05%) (19.00%)
(5.31)
17.95
20.45%
0.89
13.53
(23.53)
64.64
19.66%
3.46
44.56
(22.05)
74.36
19.85%
4.25
56.55
(21.85)
83.92
19.95%
5.22
67.28
(20.84)
89.89
19.17%
6.41
75.46
(13.36)
95.18
18.39%
7.99
89.81
(10.93)
98.98
17.61%
9.86
97.91
(7.94)
102.00
16.83%
12.21
106.27
(7.15)
104.26
16.05%
15.04
112.15
UOIG 29
(6.35)
107.77
15.50%
18.12
119.53
February 20, 2015
University of Oregon Investment Group
Appendix 9 – Statement of Cash Flows
Statement of Cash Flows
($ in millions)
Operating Activities
Net Income
Adjustments to Net Income
Depreciation
Non-Cash Items
Accounts Receivable
Inventories
Prepaid Expenses and other current assets
Other Current Assets
Accrued Expenses
Payable / Accrued
Other Liabilities
Cash from Operating Activities
2010A
2011A
2012A
2013A
2014A
Q2
Q1
10/31/2014A 1/31/2015E
Q3
4/30/2015E
Q4
7/31/2015E
2015E
Q2
Q1
10/31/2015E 1/31/2016E
Q3
4/30/2016E
Q4
7/31/2016E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
6.99
(5.32)
(8.21)
(4.41)
(23.92)
(10.97)
(2.96)
(4.07)
(4.01)
(22.14)
(4.36)
(5.63)
(8.23)
(5.31)
(23.53)
(22.05)
(21.85)
(20.84)
(13.36)
(10.93)
(7.94)
(7.15)
(6.35)
1.92
2.69
(2.04)
(0.53)
(0.76)
(0.02)
1.06
0.67
5.30
15.28
5.09
5.18
(7.51)
0.08
(1.56)
(0.70)
2.10
4.37
19.78
21.51
5.70
11.00
(6.14)
(1.05)
0.55
3.31
1.84
14.39
21.39
6.67
22.00
(11.91)
(1.92)
(2.17)
2.18
1.76
27.41
39.61
8.74
41.63
2.31
(1.87)
(1.50)
0.73
3.06
17.14
46.32
2.21
12.22
0.10
(0.98)
0.60
2.04
1.38
4.93
11.53
1.67
13.26
(1.46)
0.14
0.63
2.25
(9.74)
4.21
8.01
2.14
15.02
(3.14)
(0.56)
(0.03)
1.50
0.40
6.56
17.81
2.11
16.27
(2.70)
(0.60)
0.35
4.79
0.73
2.39
19.34
8.27
56.77
(7.20)
(2.00)
1.55
10.58
(7.23)
18.09
56.69
2.06
15.10
1.07
0.26
(0.55)
(6.95)
(0.16)
0.74
7.20
2.53
16.11
(1.55)
(0.45)
0.09
3.19
0.97
5.72
20.97
2.76
18.05
(2.95)
(0.72)
(1.11)
4.30
(0.04)
3.19
15.26
2.85
18.84
(3.60)
(0.60)
0.56
3.32
0.91
2.53
19.49
10.20
68.09
(7.03)
(1.52)
(1.01)
3.86
1.68
12.18
62.92
12.72
78.61
(8.35)
(1.34)
1.60
3.41
1.94
(1.13)
65.40
15.70
89.13
(8.30)
(1.10)
(0.80)
3.73
1.26
15.08
92.84
19.38
96.30
(9.36)
(1.17)
(0.70)
3.71
1.77
16.67
105.75
24.05
103.16
(9.51)
(1.11)
(0.56)
3.63
1.69
15.97
123.97
29.77
108.84
(9.38)
(1.47)
(0.73)
3.23
1.54
17.23
138.10
36.64
114.21
(10.51)
(1.38)
(0.65)
3.01
1.62
15.19
150.16
44.72
119.30
(10.86)
(1.32)
(0.50)
3.08
0.66
15.58
163.51
54.04
125.89
(15.53)
(2.02)
(0.48)
2.79
1.46
15.06
174.86
(1.55)
1.52%
1.27
0.00%
0.00%
(0.57)
(0.85)
(1.00)
(5.79)
4.36%
(1.97)
0.00%
0.00%
(0.03)
(8.79)
(3.96)
2.34%
0.00%
0.00%
(3.40)
(7.36)
(16.52)
7.34%
34.57
15.36%
(174.48)
77.53%
0.63
(155.80)
(6.35)
2.54%
(1.00)
133.91
53.49%
(186.32)
74.43%
(59.76)
(1.75)
2.62%
21.34
31.98%
(32.58)
48.83%
(12.99)
(1.91)
2.79%
20.55
30.00%
(31.27)
45.65%
(12.63)
(2.16)
2.95%
18.28
25.00%
(28.92)
39.56%
(12.80)
(3.04)
3.95%
15.40
20.00%
(26.93)
34.98%
(14.57)
(8.86)
3.10%
75.57
26.48%
(119.70)
41.95%
(53.00)
(2.32)
3.05%
18.67
24.56%
(23.30)
30.65%
(6.95)
(2.34)
2.94%
16.63
20.91%
(20.55)
25.84%
(6.26)
(3.14)
3.68%
16.74
19.59%
(17.47)
20.45%
(3.88)
(3.32)
3.78%
16.64
18.95%
(13.77)
15.69%
(0.46)
(11.12)
3.38%
68.67
20.89%
(75.10)
22.84%
(17.54)
(14.23)
3.80%
74.73
19.95%
(82.22)
21.95%
(21.73)
(17.04)
4.05%
82.02
19.50%
(89.80)
21.35%
(24.82)
(21.15)
4.51%
90.26
19.25%
(98.75)
21.06%
(29.63)
(26.96)
5.21%
98.33
19.00%
(100.92)
19.50%
(29.55)
(33.44)
5.95%
106.56
18.96%
(109.60)
19.50%
(36.48)
(40.55)
6.69%
113.82
18.78%
(116.67)
19.25%
(43.39)
(48.72)
7.50%
120.56
18.56%
(125.04)
19.25%
(53.20)
(55.83)
8.03%
128.63
18.50%
(132.10)
19.00%
(59.31)
0.71
0.71
0.08
1.02
1.10
0.05
100.34
100.39
0.17
29.22
29.39
0.17
21.99
22.16
0.60
1.54
2.14
1.54
1.54
1.54
1.54
1.54
1.54
0.60
6.16
6.76
0.60
1.54
2.14
1.54
1.54
1.54
1.54
1.54
1.54
0.60
6.16
6.76
0.60
6.16
6.76
0.60
6.16
6.76
0.60
6.16
6.76
0.60
6.16
6.76
0.60
6.16
6.76
0.60
6.16
6.76
0.60
6.16
6.76
0.60
6.16
6.76
15.14
12.25
27.39
1.29
14.82
27.39
42.21
1.02
114.41
42.21
156.61
0.12
(86.79)
156.61
69.83
1.12
8.71
69.83
78.54
0.49
0.68
78.54
79.22
0.17
(3.08)
79.22
76.14
0.17
6.55
76.14
82.69
0.17
6.31
82.69
88.99
0.17
10.45
78.54
88.99
0.68
2.39
88.99
91.39
0.17
16.25
91.39
107.64
0.17
12.92
107.64
120.56
0.17
20.57
120.56
141.13
0.17
52.14
88.99
141.13
0.68
50.43
141.13
191.56
0.68
74.79
191.56
266.35
0.68
82.88
266.35
349.23
0.68
101.18
349.23
450.41
0.68
108.39
450.41
558.80
0.68
113.53
558.80
672.33
0.68
117.07
672.33
789.40
0.68
122.31
789.40
911.71
0.68
Investing Activities
Purchase / Acquisition of Intangibles
Capital Expenditures
% of Revenue
Acquisition of Business
Sale of Business
Sale / Maturity of Investment
% of Revenue
Purchase of Investments
% of Revenue
Other Investing Cash Flow
Cash from Investing Activities
Financing Activities
Other Financing Cash Flow
Sale / Issuance of Common
Cash from Financing Activities
Net Change in Cash
Net Cash - Beginning Balance
Net Cash - Ending Balance
Cash Taxes Paid
UOIG 30
February 20, 2015
University of Oregon Investment Group
Appendix 10 – Three Statement Model – Balance Sheet Assets
Balance Sheet
($ in millions)
Assets
Currrent Assets:
Cash & Equivalents
Short Term Investments
Cash and Short Term Investments
Total Receivables, Net
% of Revenue
Days Sales Outstanding A/R
Total Inventory
% of Revenue
Days Inventory Outstanding
Prepaid Expenses
% of Revenue
Days Prepaid Expense Outstanding
Deferred Income Tax - Current Asset
% of Revenue
Days Deferred Income Tax Outstanding
Other Current Assets
% of Revenue
Total Current Assets
Property / Plant / Equipment, Total - Gross
Less: Accumulated Depreciation, Total
Property / Plant / Equipment, Total - Net
Other Long Term Assets
Goodwill, Net
Intangibles, Net
Other Long Term Assets
Total Other Long Term Assets
Total Assets
Q1
Q2
10/31/2014A 1/31/2015E
Q3
4/30/2015E
Q4
7/31/2015E
76.14
213.16
289.30
37.78
55.16%
50.75
7.19
10.50%
102.29
7.28
10.62%
48.95
0.27
.40%
50.97
0.74
1.08%
342.57
82.69
223.81
306.49
40.93
55.98%
50.94
7.75
10.60%
102.48
7.69
10.51%
49.05
0.26
.35%
34.75
1.14
1.56%
364.25
88.99
235.34
324.33
43.62
56.66%
52.13
8.35
10.85%
102.59
7.72
10.03%
47.12
0.35
.45%
50.82
1.44
1.87%
385.82
88.99
235.34
324.33
43.62
15.29%
55.80
8.35
2.93%
111.42
7.72
2.71%
50.28
0.35
.12%
48.42
1.44
.50%
385.82
91.39
239.97
331.36
42.56
55.98%
50.94
8.10
10.65%
104.91
7.97
10.49%
48.50
0.33
.43%
43.45
1.16
1.52%
391.46
38.95
(18.42)
18.78
40.86
(20.09)
20.77
43.02
(22.23)
20.79
46.06
(24.34)
21.72
46.06
(24.34)
21.72
33.29
3.81
4.22
41.32
392.88
33.29
3.81
3.50
40.60
403.94
33.29
3.81
2.00
39.10
424.14
33.29
3.81
1.00
38.10
445.63
33.29
3.81
1.00
38.10
445.63
2010A
2011A
2012A
2013A
2014A
27.39
27.39
12.87
12.60%
45.98
1.58
1.55%
44.65
2.00
1.96%
35.45
0.82
.80%
296.34
0.27
.26%
44.93
42.21
42.21
20.68
15.57%
56.82
1.51
1.14%
36.73
2.34
1.76%
32.86
1.61
1.21%
734.56
1.49
1.12%
69.84
156.61
156.61
26.82
15.85%
58.00
2.56
1.51%
48.42
3.09
1.83%
34.29
1.58
.93%
777.26
1.07
.63%
191.73
69.83
139.51
209.34
38.73
17.21%
62.82
4.48
1.99%
62.94
4.63
2.06%
39.40
1.35
.60%
758.08
1.40
.62%
259.93
78.54
191.32
269.86
36.42
14.55%
53.10
6.35
2.54%
91.15
6.00
2.40%
45.28
0.29
.12%
115.18
1.22
.49%
320.14
79.22
202.44
281.66
36.32
54.44%
48.99
7.33
10.99%
101.12
7.18
10.76%
49.52
0.29
.43%
31.83
0.00%
332.78
7.98
(5.92)
2.06
12.08
(6.99)
5.09
16.33
(9.83)
6.50
28.70
(10.33)
18.37
34.85
(16.07)
18.78
32.24
11.16
0.81
44.21
91.20
32.73
10.68
1.69
45.10
120.03
32.73
7.82
4.21
44.76
242.99
32.73
5.49
3.95
42.17
320.47
33.29
4.10
4.27
41.66
380.58
2015E
Q1
Q2
10/31/2015E 1/31/2016E
Q3
4/30/2016E
Q4
7/31/2016E
107.64
243.89
351.53
44.10
55.46%
51.02
8.55
10.75%
108.09
8.30
10.43%
49.00
0.41
.52%
41.15
1.49
1.87%
414.38
120.56
244.62
365.18
47.05
55.06%
50.10
9.27
10.85%
105.29
9.01
10.54%
49.50
0.26
.31%
18.23
1.24
1.45%
432.02
48.38
(26.40)
21.97
50.72
(28.93)
21.79
33.29
3.50
36.79
450.23
33.29
3.50
36.79
472.96
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
141.13
241.76
382.89
50.65
57.70%
53.08
9.88
11.25%
108.49
9.09
10.36%
49.50
0.43
.49%
44.99
1.72
1.96%
454.66
141.13
241.76
382.89
50.65
15.41%
56.39
9.88
3.00%
117.79
9.09
2.77%
52.01
0.43
.13%
41.31
1.72
.52%
454.66
191.56
249.25
440.82
59.00
15.75%
57.49
11.22
2.99%
122.50
10.32
2.76%
52.40
2.85
.76%
289.39
2.14
.57%
526.34
266.35
257.03
523.39
67.30
16.00%
58.40
12.32
2.93%
125.00
11.57
2.75%
52.75
2.99
.71%
305.67
2.44
.58%
620.00
349.23
265.52
614.75
76.66
16.35%
59.68
13.49
2.88%
127.50
12.89
2.75%
53.10
3.28
.70%
352.34
2.77
.59%
723.84
450.41
268.11
718.52
86.17
16.65%
60.94
14.60
2.82%
130.00
14.18
2.74%
53.45
3.67
.71%
624.29
3.11
.60%
840.26
53.86
(31.69)
22.17
57.18
(34.54)
22.64
57.18
(34.54)
22.64
71.41
(47.26)
24.15
88.45
(62.96)
25.49
109.60
(82.34)
27.26
33.29
3.25
36.54
490.73
33.29
3.25
36.54
513.84
33.29
3.25
36.54
513.84
33.29
3.25
36.54
587.03
33.29
3.24
36.53
682.02
33.29
3.01
36.30
787.40
2024E
558.80
271.14
829.94
95.55
17.00%
62.05
16.07
2.86%
135.00
15.43
2.75%
53.80
3.88
.69%
804.10
3.43
.61%
964.30
672.33
273.99
946.32
106.06
17.50%
63.88
17.45
2.88%
140.00
16.60
2.74%
54.00
4.12
.68%
1,180.70
3.70
.61%
1,094.25
789.40
278.48
1,067.87
116.93
18.00%
65.70
18.78
2.89%
145.00
17.73
2.73%
54.00
4.42
.68%
1,409.35
4.03
.62%
1,229.75
911.71
281.95
1,193.66
132.45
19.05%
69.72
20.80
2.99%
155.00
18.87
2.71%
54.00
4.73
.68%
1,705.57
4.38
.63%
1,374.88
136.56
(106.38)
30.18
170.00
(136.15)
33.85
210.55
(172.79)
37.76
259.27
(217.51)
41.76
315.10
(271.55)
43.55
33.29
2.97
36.26
906.69
33.29
2.94
36.23
1,034.38
33.29
2.97
36.26
1,168.28
33.29
2.90
36.19
1,307.69
33.29
2.86
36.15
1,454.58
UOIG 31
February 20, 2015
University of Oregon Investment Group
Appendix 11 – Three Statement Model – Balance Sheet Liabilities & Shareholder’s Equity
Balance Sheet
($ in millions)
Liabilities
Current Liabilities:
Accounts Payable
Days Payable Outstanding
% of Revenue
Payable/Accrued
Days Charges Outstanding
% of Revenue
Accrued Expenses
Accrued Expenses Outstanding
% of Revenue
Notes Payable / Short Term Debt
% of Revenue
Customer Advances
% of Revenue
Total Current Liabilities
Q1
Q2
10/31/2014A 1/31/2015E
Q3
4/30/2015E
Q4
7/31/2015E
6.53
43.97
9.54%
17.49
38.49
25.54%
90.34
131.89%
114.37
6.93
44.23
9.48%
18.99
38.71
25.98%
96.90
132.54%
122.82
7.66
46.74
9.95%
23.78
45.89
30.89%
99.29
128.97%
130.74
7.66
49.88
2.68%
23.78
48.07
8.34%
99.29
34.80%
130.74
7.50
45.64
9.87%
16.83
33.07
22.14%
100.03
131.59%
124.37
0.34
.51%
40.95
61.38%
41.29
158.93
0.38
.56%
42.05
61.38%
42.43
156.80
0.41
.56%
44.87
61.38%
45.28
168.11
0.46
.60%
47.26
61.38%
47.72
178.46
0.46
.16%
47.26
16.56%
47.72
178.46
0.01
380.70
570.60%
(146.67)
(0.09)
233.95
0.01
396.76
579.21%
(149.63)
247.14
0.01
409.72
560.42%
(153.70)
256.03
0.01
424.87
551.85%
(157.71)
267.17
392.88
403.94
424.14
445.63
2010A
2011A
2012A
2013A
2014A
0.95
16.84
.93%
8.82
59.85
8.63%
31.01
30.35%
40.78
4.37
61.37
3.29%
12.12
56.56
9.12%
44.09
33.19%
60.58
5.85
64.92
3.46%
16.05
57.58
9.48%
56.18
33.19%
78.08
6.30
53.61
2.80%
18.56
49.49
8.25%
68.48
30.43%
93.34
8.06
60.82
3.22%
20.78
45.08
8.30%
81.96
32.74%
110.80
16.27
31.54
24.39%
15.24
29.55
24.89%
86.13
129.09%
117.64
Long Term Debt
Total Long Term Debt
Total Debt
Deferred Income Tax
% of Revenue
Other Long Term Liabilities
% of Revenue
Total Long-Term Liabilities
Total Liabilities
0.82
.80%
12.10
11.84%
12.92
53.70
1.54
1.16%
19.43
14.63%
20.97
81.55
1.49
.88%
21.33
12.60%
22.82
100.90
1.06
.47%
36.51
16.22%
37.57
130.91
0.29
.12%
40.18
16.05%
40.47
151.27
Stockholders' Equity
Redeemable Preferred Stock, Total
Common Stock at $0.0001 par, Total
Additional Paid-In Capital
% of Revenue
Retained Earnings (Accumulated Deficit)
Other Equity, Total
Total Equity
107.51
24.60
24.08%
(94.61)
37.50
107.51
0.01
0.01
0.01
30.89
250.21
302.10
365.83
23.25% 147.84% 134.24% 146.13%
(99.92)
(108.13)
(112.54)
(136.45)
(0.01)
(0.08)
38.48
142.09
189.56
229.31
Total Liabilities & Shareholders' Equity
91.20
120.03
242.99
320.47
380.58
Q3
4/30/2016E
Q4
7/31/2016E
8.47
50.01
10.65%
20.02
37.20
25.18%
105.75
132.98%
134.25
8.43
46.36
9.87%
24.33
39.94
28.47%
108.94
127.49%
141.70
1.25
1.65%
47.17
62.05%
48.42
172.79
0.84
1.06%
48.98
61.59%
49.82
184.07
1.26
1.48%
53.36
62.45%
54.63
196.33
0.01
424.87
148.91%
(157.71)
267.17
0.01
439.49
578.14%
(162.06)
277.44
0.01
456.58
574.14%
(167.69)
288.90
0.01
470.31
550.38%
(175.92)
294.39
445.63
450.23
472.96
490.73
2015E
Q1
Q2
10/31/2015E 1/31/2016E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
9.34
50.84
10.64%
27.64
46.76
31.49%
111.47
126.98%
148.45
9.34
53.42
2.84%
27.64
49.20
8.41%
111.47
33.90%
148.45
11.28
57.23
3.01%
31.05
49.18
8.29%
110.34
33.56%
152.67
12.53
57.14
2.98%
34.79
49.54
8.27%
125.41
33.48%
172.74
14.30
58.91
3.05%
38.50
49.78
8.21%
142.09
33.78%
194.88
15.99
60.27
3.09%
42.13
50.96
8.14%
158.06
33.71%
216.18
17.54
61.12
3.12%
45.36
51.20
8.07%
175.29
33.87%
238.18
19.15
62.30
3.16%
48.36
51.53
7.98%
190.48
33.89%
257.99
19.81
60.36
3.05%
51.45
51.92
7.92%
206.06
34.00%
277.32
21.28
60.90
3.06%
54.23
52.00
7.80%
221.12
34.04%
296.63
1.23
1.40%
54.42
61.99%
55.65
204.10
1.23
.37%
54.42
16.55%
55.65
204.10
1.72
.46%
63.49
16.95%
65.22
217.89
2.15
.51%
72.73
17.29%
74.87
247.61
2.53
.54%
82.01
17.49%
84.54
279.43
2.85
.55%
92.07
17.79%
94.92
311.10
3.26
.58%
101.22
18.01%
104.48
342.67
3.58
.59%
110.61
18.25%
114.18
372.18
3.64
.56%
120.50
18.55%
124.14
401.46
4.73
.68%
130.37
18.75%
135.09
431.72
0.01
0.01
0.01
0.01
0.01
0.01
0.01
490.97
490.97
573.90
661.22
756.64
865.09
974.57
559.29% 149.33% 153.87% 159.32% 161.37% 167.15% 173.40%
(181.24)
(181.24)
(204.76)
(226.82)
(248.67)
(269.51)
(282.86)
309.74
309.74
369.15
434.41
507.98
595.59
691.72
0.01
1,089.88
179.83%
(293.79)
796.10
0.01
1,207.96
185.96%
(301.74)
906.24
0.01
1,331.74
191.54%
(308.89)
1,022.86
1,168.28
1,307.69
1,454.58
513.84
513.84
587.03
682.02
787.40
906.69
1,034.39
2024E
UOIG 32
February 20, 2015
University of Oregon Investment Group
Appendix 12 – Sensitivity Analysis
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
22
2.0%
2.5%
3.0%
3.5%
4.0%
0
2.0%
2.5%
3.0%
3.5%
4.0%
0.92
24.36
25.68
27.25
29.12
31.39
0.92
18.89%
25.36%
32.98%
42.10%
53.20%
1.02
21.95
22.99
24.20
25.61
27.30
1.02
7.17%
12.23%
18.11%
25.00%
33.22%
1.12
19.95
20.78
21.73
22.82
24.10
1.12
(2.53%)
1.51%
6.14%
11.49%
17.75%
1.22
18.26
18.93
19.69
20.55
21.55
1.22
(10.80%)
(7.53%)
(3.83%)
.40%
5.27%
1.32
16.81
17.36
17.97
18.67
19.46
1.32
(17.87%)
(15.20%)
(12.19%)
(8.80%)
(4.93%)
Adjusted Beta
Adjusted Beta
Terminal Growth Rate
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
22
2.0%
2.5%
3.0%
3.5%
4.0%
0
2.0%
2.5%
3.0%
3.5%
4.0%
9.04%
20.23
21.08
22.04
23.15
24.46
9.04%
(1.15%)
2.96%
7.67%
13.12%
19.49%
9.14%
20.09
20.93
21.88
22.99
24.28
9.14%
(1.85%)
2.23%
6.90%
12.30%
18.62%
9.24%
19.95
20.78
21.73
22.82
24.10
9.24%
(2.53%)
1.51%
6.14%
11.49%
17.75%
9.34%
19.81
20.63
21.57
22.66
23.93
9.34%
(3.22%)
.78%
5.37%
10.68%
16.89%
9.44%
19.67
20.48
21.42
22.49
23.75
9.44%
(3.90%)
.07%
4.62%
9.88%
16.04%
WACC
WACC
Terminal Growth Rate
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
22
2.0%
2.5%
3.0%
3.5%
4.0%
0
2.0%
2.5%
3.0%
3.5%
4.0%
15.10%
21.67
22.61
23.69
24.94
26.40
15.10%
5.85%
10.46%
15.74%
21.85%
28.99%
16.10%
20.81
21.69
22.71
23.88
25.25
16.10%
1.66%
5.98%
10.94%
16.67%
23.37%
17.10%
19.95
20.78
21.73
22.82
24.10
17.10%
(2.53%)
1.51%
6.14%
11.49%
17.75%
18.10%
19.09
19.86
20.74
21.76
22.95
18.10%
(6.73%)
(2.97%)
1.33%
6.31%
12.14%
19.10%
18.23
18.95
19.76
20.70
21.80
19.10%
(10.92%)
(7.45%)
(3.47%)
1.13%
6.52%
Terminal Year
R&D
Terminal Year
R&D
Terminal Growth Rate
Implied Price
Undervalued/(Overvalued)
Risk Free Rate
22
1.62%
1.82%
2.02%
2.22%
2.42%
0
1.62%
1.82%
2.02%
2.22%
2.42%
2.26%
23.20
22.86
22.54
22.21
21.89
2.26%
13.33%
11.70%
10.09%
8.51%
6.96%
2.46%
22.77
22.44
22.12
21.80
21.49
2.46%
11.22%
9.62%
8.05%
6.51%
4.99%
2.66%
22.36
22.04
21.73
21.42
21.11
2.66%
9.24%
7.67%
6.14%
4.63%
3.14%
2.86%
21.98
21.66
21.36
21.05
20.76
2.86%
7.37%
5.83%
4.33%
2.85%
1.39%
3.06%
21.62
21.31
21.01
20.71
20.42
3.06%
5.59%
4.09%
2.62%
1.17%
(.26%)
Terminal Risk
Free Rate
Terminal Risk
Free Rate
Risk Free Rate
Implied Price
Undervalued/(Overvalued)
Market Risk Premium
22
5.55%
6.00%
6.45%
6.90%
7.35%
0
5.55%
6.00%
6.45%
6.90%
7.35%
45.40%
28.32
25.82
23.69
21.86
20.27
45.40%
38.34%
26.13%
15.74%
6.81%
(.95%)
46.40%
27.07
24.71
22.71
20.98
19.48
46.40%
32.25%
20.74%
10.94%
2.50%
(4.83%)
47.40%
25.83
23.61
21.73
20.10
18.69
47.40%
26.16%
15.35%
6.14%
(1.80%)
(8.70%)
48.40%
24.58
22.51
20.74
19.22
17.90
48.40%
20.08%
9.96%
1.33%
(6.10%)
(12.58%)
49.40%
23.33
21.41
19.76
18.34
17.10
49.40%
13.99%
4.57%
(3.47%)
(10.40%)
(16.45%)
Sales Expense
Sales Expense
Market Risk Premium
UOIG 33
University of Oregon Investment Group
February 20, 2015
Appendix 13 – Sources
Cisco
Factset
Google Images
IBIS World
Infoblox 10K
Infoblox Investor Presentations
Infoblox Investor Relations
Infoblox Whitepaper Reports
Infoblox.com
Investopedia
November 25, 2014 Earnings Call
September 8, 2014 Earnings Call
Techrepublic.com
TheWindowsClub.com
Yahoo Finance
UOIG 34