SIIA & OPEXEngine: Let the Data Set You Free!

Let the Data Set You Free!Presenters:

Lauren Kelley, CEO & Founder, OPEXEngine

Kelly Battles, CFO, Host Analytics

How to ask questions

Use the chat box

any time during the

webinar!

Later on during the

Q&A, dial 14 on your

dial pad to ask

questions via phone.

All About The CloudMay 24-26, 2011

The Palace Hotel, San Francisco

Join us for our 6th year at the world’s largest ISV cloud computing conference!

For more information, contact Rhianna Collier ([email protected])

Why Apply– Increase Visibility before the Investment and Corporate Development Community – Minority Interest Growth Capital– Strategic Partnerships– Strategic Acquisitions– New Distribution Partners & New Channels– Potential Merger Partners

Deadlines– Companies that submit their application before April 1, 2011 will be notified by

April 15.– Companies that submit their application before May 1, 2011 will be notified by

May 15.

To apply, visit: siia.net/sppec/2011/apply

Upcoming Bay Area Meetings

Marketing as a Revenue Engine w/ Brian Kardon, EloquaMarch 16th, 2011, 9 am - 11 am PT, San Francisco, CARegister here: http://bit.ly/execinsight1

The Venture Capital Fundraising Process w/ Paul Bartlett, Rho Ventures

March 22nd, 2011, 9 am - 11 am PT, Palo Alto, CARegister here: http://bit.ly/execinsight2

What has EITF 08-01 meant for your Revenue Recognition Processes w/ Sujan Jain, NetSuite

March 29th, 2011, 1 pm - 3 pm PT, San Francisco, CARegister here: http://bit.ly/execinsight3

2011 Benchmarking Survey

This year’s survey will begin in March.

To reserve your spot and sign up for your individual report, visit:

http://bit.ly/2011benchmark

Survey Pricing:Free - SIIA Members under $10M in 2010 revenues$999 - SIIA Members over $10M in 2010 revenues

$999 - Non-SIIA Members under $10M in 2010 revenues$1995 - Non-SIIA Members over $10M in 2010 revenues

Performance thru Benchmarking

Lauren KelleyLauren Kelleywww.opexengine.comwww.opexengine.com

Your presenter

Lauren Kelley: [email protected] and CEOOPEXEngine

•Decades of senior management, sales, marketing and operating experience in US and Europe at Compaq Computer, Borland, Art Technology Group, Inc., etc.•Develop comprehensive operating and financial benchmarks – best data available for software industry for over 5 years•Deliver well defined industry comparables and analysis to senior executive teams and boards

Why Benchmark? Research shows the most successful companies use metrics and

benchmarking as a key management process and information tool. Leadership companies compare their performance with detailed

benchmarks to highlight specific areas for improvement and target areas of excellence for continued support.

Benchmarks are used to help set internal targets and provide neutral data to set performance expectations among the executive team.

Benchmarking highlights the latest changes in business models and help companies track to industry leaders.

Benchmarks are also used for positioning in the course of mergers and acquisitions, and in their growth path to or managing in the public markets.

OPEXEngine’s Annual Confidential Benchmarking Covers the small and mid-sized

software industry, both public and private firms

Companies input their data directly into our secure, on-line survey form where data is aggregated and blinded

5 years of software benchmarking, database of 50,000+ datapoints

Hundreds of software companies participate

Individual Company Report and 60+ page Software Industry Benchmarking Report

Software Management Today

It’s All about the Numbers – Especially for SaaS

First Stage – Manage CashNext Stage: Customer Growth

And reducing the cost of acquiring and maintaining each customer

What Benchmarks Matter Most for SaaS?

Cash from operations MRR and CMRR New customer growth rates Cost per customer to acquire new customer Cost per customer to maintain a customer Cost of product/cost of hosting Omniture “Magic Number” Average contract value per customer Average upsell per customer LTV Churn:

Customer renewal rate (as a percent of customers up for renewal)

Dollar renewal rate (as a percent of total $ value up for renewal)

Tracked by OPEXEngine

Customer Profitability Metrics for Private SaaS

$18,790

$1,606

$44,000

$68,700

$11,370

$98,022

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

Customer AcquisitionCosts per NewCustomer(m)

CustomerMaintenance Costs

per ActiveCustomer(m)

Average ContractValue per

Customer(m)

<$10M

$10M-$50M

Revenue Growth Driving Mrkt CapsFINANCIAL DASHBOARD

OPEXEngine

Company CNQR KNXA N RNOW SFSF TLEO ULTI

Fiscal Year 2010 2010 2010 2010 2010 2010 2010

($000s)

Market Cap (priced as of the period end date)

$2,624,770 $493,441 $1,594,300 $818,225 $2,141,273 $1,131,300 $1,317,922

Recognized Revenue $292,936 $196,353 $193,149 $185,522 $205,926 $237,275 $227,811

Recognized Revenue (Prior Period)

$247,596 $157,669 $166,540 $152,687 $153,054 $198,412 $196,579

Revenue Growth / Prior Period 18.3% 24.5% 16.0% 21.5% 34.5% 19.6% 15.9%

3 Year Revenue CAGR 31.4% 1.5% 21.2% 18.3% 48.1% 22.8% 14.6%

Short-Term Deferred Revenue (This Period)

$44,358 $76,052 $75,827 $90,350 $219,868 $99,396 $71,808

Deferred Revenue as a % of Recognized Revenue

15.1% 38.7% 39.3% 48.7% 106.8% 41.9% 31.5%

Mean Analyst Revenue Estimate (Current Year)

$429,591 $279,204 $270,501 $262,461 $326,949 $344,766 $322,746

Private/Public Operating ExpenseFINANCIAL DASHBOARD

OPEXEngine

Company CNQR KNXA N RNOW SFSF TLEO ULTI Private SaaS

Fiscal Year 2010 2010 2010 2010 2010 2010 2010 2009

($000s) (ave. in $000s)

Recognized Revenue $292,936 $196,353 $193,149 $185,522 $205,926 $237,275 $227,811 $15,778

Total Cost of Revenue as a % of Recognized Revenue

28.0% 34.9% 31.9% 29.7% 27.4% 33.1% 43.6% 41.8%

S&M Expense as a % of Recognized Revenue

32.8% 24.5% 48.1% 42.8% 48.1% 28.4% 25.6% 62.4%

G&A Expense as a % of Recognized Revenue

13.2% 24.7% 15.1% 10.1% 17.5% 18.5% 8.7% 28.0%

SG&A Expense as a % of Recognized Revenue

46.0% 49.2% 63.2% 52.9% 65.6% 46.9% 34.3% 90.4%

R&D Expense as a % of Recognized Revenue

9.6% 6.1% 18.1% 10.9% 19.4% 18.3% 18.5% 24.9%

Total Operating Expense as % of Recognized Revenue

58.0% 65.3% 81.3% 63.7% 81.1% 69.5% 52.8% 115.3%

Key Insights for 2011

On average, SaaS companies getting to profitability around $25M instead of $50M as a few years ago

Important to compare your company to peers with similar sales model

A number of prominent and varied SaaS companies expected to IPO

Relatively shallow data in public companies filings is useful, but boards and analysts are looking under the covers at key metrics

Participate now in the 2011 software benchmarking survey SIIA Members: free if under $10M revenues;

$999 for companies over $10M Non-SIIA Members: $999 if under $10M

revenues; $1995 for companies over $10M Go to www.opexengine.com to find out more

information“At T2 Systems, we migrated our customers to the SAAS business model in 2005. Since then, we struggled to find key benchmark data that we could use to determine the quality of the Company’s financial metrics. OPEX Engine easily filled that void for our team by providing us with key data points ranging from customer acquisition costs to revenue per employee. OPEX is one of our most important strategic planning tools.”

Jim Zaloudek, CFO, T2 Systems, Inc "The data and benchmarks in OPEXEngine’s Confidential Software Benchmarking Report are not available from any other source and covers both private and public software companies with a variety of business models. The report and data are extremely well put together. I highly recommend OPEXEngine’s operating benchmarks to

any software executive of a large or small company.” Charles Gerlach, Director Business Operations, Oracle

http://www.opexengine.com/

© Host Analytics, Inc. 2010 Company Confidential

Metrics-driven Corporate Performance Management

(CPM)

Kelly Bodnar BattlesCFO, Host Analytics, Inc.


Agenda

• Introduction• Evolution of Financial Roles• Metrics-driven CPM

– Application evolution– SaaS benefits

• Impact of Getting this Right• Wrap up


Background and CPM-Related Beliefs/BiasesBackground

Engineering UndergradJP Morgan Banker

McKinsey Management Consultant

2) The “I finally figured out what I want to be when I grow up” years “Operational Finance…”

IronPort Systems EE #49Cisco EE #198,234Host Analytics EE #51

Beliefs/Biases1) The “Keep Your Options Open” years “The generalist with an expensive education!”

HP Corporate Development/Strategy

MBA2 – Importance of rigorous fact based decision-making

1 – Trained to be a data hound

1 – Let the data set you free

2 – Finance is in a unique role as “keeper of the data”

3 – Our challenge is to evolve our role


The Evolving Role of Finance

SaaS and CPM can be key

enablers


Successful CFO’s

The most successful CFOs will enable decision making not only through the

delivery of timely and accurate information in context,

but also with an appreciation of the type and level of decision risk associated with each alternative scenario under

consideration.

- Bill McNee, Founder & CEO, Saugatuck Technology, Inc.

Today’s CFOs must balance ”traditional responsibilities with the ability to provide analytical truths and

points of view that shape overall strategy.”

- Brad Richmond, SVP & CFO, Darden Restaurants, Inc.CFO Magazine, December 2010


Corporate Profit Improvements

Cross-Functional Process

Improvements

Evolution of Financial Applications

Dashboards and variance reports

Financial Consolidation and

Iterations

Budgets, Aggregation and version control

Tailored Excel Applications

or Finance

Applications 2.0

- > Improved Integration, Multi

Dimensional, Finance Only

1st generation 2nd generation Today - 3rd generation

Basic Excel or

Early Finance Applications

- > Basic and Discrete Process Improvements


The SaaS Model - Context Setting

• Economic model (renewals) provides economic incentive for SaaS vendors to invest in customer satisfaction over the life of the relationship

• Delivery Model allows customers to be customers and vendors to be vendors over the life of the relationship as well

Creating, Distributing, Upgrading, Installing, Patching SoftwareCustomer Support, Business Systems staff

Disaster Recovery, Back up, Power, Hardware, Data Center, IT staff

Learning, Configuring and

Using the Application

ResponsibilitiesVendor

Customer


How SaaS Makes a Difference

Performance

Right features

Driven

by

vend

or,

Tech

no

log

y ag

no

stic

Customization

EaseOf Use

Low initial costs

Low ongoing costs Fast, free access to latest

functionality/upgrade

Driven

by

vend

or,

enh

anced

by

clou

d

Real time customer monitoring enables continual and immediate customer support by vendor

Real time, integrated external content - Benchmarks, Drivers

Best people on the right problems

Integration of efforts and avoid silos

En

abled

by clo

ud

d

elivery


Metrics-driven CPM at Host Analytics The ecosystem approach

CorporateMetrics

Weekly Monthly Quarterly

FunctionalMetrics

vs. Bu

dg

et

vs. Ben

chm

arks

Bookings, MRRPipelineCustomer CountCash, CF, AR, APHeadcount

Tren

ds/T

ime

ResponsesOpportunitiesWebsite hitsCustomer Portal ActivitySupport ticketsCustomer usage

Summary GAAP FinancialsCustomer ChurnDSO

Detailed GAAP FinancialsNPSPartner Count

Time to ActivateEmployee RetentionWin/Loss RatesProduct Mix

UptimePM UtilizationTicket resolution timeBug count

Wh

at are the key d

rivers for yo

ur

bu

siness?

Wh

at do

you

r stakeho

lders care ab

ou

t?

How frequently is helpful, practical?

Wh

at is the rig

ht

con

text?

Dashboards -> Ad Hoc Reports -> Financial Reports -> Report BooksWhat is the right format?


Base Case Versus Benchmarks – HAI Example

How to choose?- Right companies, metrics, timeframe for comparison

Average Performance Across CRM, SFSF, N OpEx Engine Host Analytics BudgetSaaS Private

Financial Data 2 1 0 2010 Survey Financial Data 2010 2011 2012Total Revenue 16,770$ 33,458$ 65,265$ 20,399$ Total Revenue 3,534$ 10,482$ 21,419$ Total COGS 6,170$ 11,202$ 18,222$ 8,749$ Total COGS 2,766$ 4,619$ 7,060$ Gross Profit 10,600$ 22,256$ 47,043$ 11,650$ Gross Profit 768$ 5,863$ 14,359$ Gross Margin 63.2% 66.5% 72.1% 57.1% Gross Margin 21.7% 55.9% 67.0%

Research and development 5,611$ 11,849$ 12,758$ 4,396$ Research and development 1,814$ 3,332$ 4,571$ Marketing and sales 19,117$ 29,747$ 43,603$ 6,595$ Marketing and sales 7,002$ 13,600$ 18,754$ General and administrative 4,406$ 10,089$ 13,006$ 4,059$ General and administrative 1,815$ 2,545$ 2,923$ Other 2,552$ -$ (1,148)$ -$ Other -$ -$ -$ Total Operating Expenses 31,686$ 51,685$ 68,219$ 15,050$ Total Operating Expenses 10,631$ 19,477$ 26,248$

Operating Profit (21,086)$ (29,429)$ (21,176)$ (3,400)$ Operating Profit (9,863)$ (13,614)$ (11,889)$ Operating Margin -126% -88% -32% -17% Operating Margin -279% -130% -56%

OCF (9,986)$ (7,277)$ 3,579$ 1,855$ OCF (6,028)$ (6,981)$ (282)$ Cash 7,298$ 8,453$ 23,965$ 5,611$ Cash 12,213$ 5,232$ 4,950$

COGS % Revenue 36.8% 33.5% 27.9% 42.9% COGS % Revenue 78.3% 44.1% 33.0%R&D % Revenue 33.5% 35.4% 19.5% 21.6% R&D % Revenue 51.3% 31.8% 21.3%M&S % Revenue 114.0% 88.9% 66.8% 32.3% M&S % Revenue 198.1% 129.7% 87.6%G&A % Revenue 26.3% 30.2% 19.9% 19.9% G&A % Revenue 51.4% 24.3% 13.6%Other % Revenue 15.2% 0.0% -1.8% 0.0% Other % Revenue 0.0% 0.0% 0.0%

COGS % Total Spend 16.3% 17.8% 21.1% 36.8% COGS % Total Spend 20.6% 19.2% 21.2%R&D % Total Spend 14.8% 18.8% 14.8% 18.5% R&D % Total Spend 13.5% 13.8% 13.7%M&S % Total Spend 50.5% 47.3% 50.4% 27.7% M&S % Total Spend 52.3% 56.4% 56.3%G&A % Total Spend 11.6% 16.0% 15.0% 17.1% G&A % Total Spend 13.5% 10.6% 8.8%Other % Total Spend 6.7% 0.0% -1.3% 0.0% Other % Total Spend 0.0% 0.0% 0.0%

FY "T-N years to IPO" HAI Budgeting Period


Other Examples

• Business case for every material decision– What is the right threshold?– Advanced tools can help find the most

profitable path• discretionary initiative modeling

– Don’t forget the qualitative factors and the human element as well

• Smart data– Linked benchmarks– Macro economic indicators linked directly as

drivers into budget process– Process best practices

• Currency rate upload/automation, spread codes etc


Things to Consider• The KISS Principal

– “Keep it simple stupid” especially when just getting started– You don’t need a PhD in Statistics to make this work

• Just do it– It doesn’t have to be perfect – Launch, iterate, learn, adjust

• Automate, link when possible– Scalability– Data integrity

• Single source of truth (SSoT) is key– Less thrashing, more time spent on problem solving

• SSoT needs to be accessible broadly– Virtual feedback loop– Builds trust

• “2 heads are better than 1” – don’t forget to collaborate– This is a X-functional discipline lead by finance, not a siloed

finance effort


Host Analytics at a Glance

• Integrated CPM Suite– Budgeting– Consolidations– Reporting– SEC Compliance

• SaaS Delivery Model– Low TCO– Fast ROI– Rapid low cost

implementation– Access to latest

functionality

• World class support and services

Our CustomersOur Solution


Recent Aberdeen Survey ResultsWhat can happen if you get this right…

• Survey of 200 CPM users• 30 Host Analytics customers participated• HAI customers were the ONLY respondents who

equaled or surpassed best in class in CPM benefits/results


Challenges Late and inconsistent excel data Long, long meetings Adjustments mid-year very hard Sales forecasting accuracy

Solution A single source of consistent data Budgeting now takes half the time What-if scenarios and ad-hoc reporting 12 month rolling forecasts

Results Confidence in their data Meetings are dedicated to decision-making Self service reporting Finance understands the model behind the

numbers No involvement from in-house IT staff $1M in inventory reduction

through better forecasting

“Before, we were lucky just to get the numbers. With Host Analytics we get the numbers and the whole story.”

“Budget meetings are now about the business, not about the integrity of information.”

- Mark Cohen, Vice President of Finance and IT, Thule Vehicle Accessories North America

Thule – Specific Customer Case StudySound familiar?

See recent Computer World article featuring Thule and HAI entitled, “Why some companies are ditching their spreadsheets” for more detail


Conclusion

• Promoting fact-based decisions throughout the corporation is critical in our evolving role

• The Cloud and CPM tools will help you realize the value– Turn data into information, benchmarks– Elevate the role of finance quickly– Add rigor and trust into financial

processes without increased overhead– Expand collaboration across the

corporation without increasing associated infrastructure


Thank You

Q&A

Dial 14 to ask a question or use the Chat Box

Thanks for attending!

The recording link will be distributed via email.

SIIA & OPEXEngine: Let the Data Set You Free!

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Transcript of SIIA & OPEXEngine: Let the Data Set You Free!