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- 1. Q32016 SEG Capital Advisors, L.L.C. 12220 El Camino Real Suite 320 San Diego, CA 92130 info@softwareequity.com (858) 509-2800 The Software Industry Financial Report
- 2. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 2 About Software Equity Group About SEG 5 SEG’s 2016 Transaction Announcements 6 Leaders in Software M&A 7 Public SaaS Company Financial and Valuation Performance The SEG SaaS Index 9 The SEG SaaS Index: Financial Performance 10-12 The SEG SaaS Index: Public Market Multiples 13-15 The SEG SaaS Index by Product Category: Financial Performance 16 Public Software Financial and Valuation Performance The SEG Software Index 18 The SEG Software Index: Financial Performance 19-21 The SEG Software Index: Public Market Multiples 22-23 The SEG Software Index by Product Category 24 The SEG Software Index by Product Category: Financial Performance 25-26 Public Internet Company Financial and Valuation Performance The SEG Internet Index 28 The SEG Internet Index: Financial Performance 29-31 The SEG Internet Index: Public Market Multiples 32-33 The SEG Internet Index by Product Category 34 The SEG Internet Index by Product Category: Financial Performance 35-36 SOFTWARE INDUSTRY FINANCIAL REPORT CONTENTS
- 3. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 3 SOFTWARE INDUSTRY FINANCIAL REPORT CONTENTS SaaS/Software Industry M&A Market Update Software/SaaS M&A Deal Volume and Spending 38 SaaS M&A Deal Volume and Exit Multiples 39-41 SaaS M&A by Product Category 42 SaaS M&A 3Q16 Transactions 43-47 Software M&A Exit Multiples 48 Software M&A by Ownership Structure and Size 49 Software M&A by Vertical and Horizontal Markets 50 Software M&A Deal Volume by Product Category 51 Software M&A Exit Multiples by Product Category 52 About Software Equity Group 53 Appendix The SEG SaaS Index: Public Market Multiples (Annual) 55 The SEG SaaS Index: Financial Performance (Annual) 56 The SEG Software Index: Public Market Multiples (Annual) 57 The SEG Software Index: Financial Performance (Annual) 58 The SEG Internet Index: Public Market Multiples (Annual) 59 The SEG Internet Index: Financial Performance (Annual) 60 SEG SaaS Index Key Metrics 61-62 SEG SaaS Index Key Metrics by Product Category 63 SEG Software Index Key Metrics 64-67 SEG Software Index Key Metrics by Product Category 68-69 SEG Internet Index Key Metrics 70-72 SEG Internet Index Key Metrics by Product Category 73 3Q16 Select Public Sellers 74 3Q16 Mega Deals 75 3Q16 Most Active Buyers 76
- 4. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved ABOUT SOFTWARE EQUITY GROUP
- 5. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 5 About SEG Focus on Advice Multi-service Multi- Industry Focus on Software Advisory Boutiques Bulge Bracket Firms IB Boutiques Billions of dollars of lower market software deals, endless buyer and seller references, industry leading close rates, upper decile valuation results. • Twenty-four year, exclusive focus on advisory services to B2B enterprise software companies in the lower middle market • Advisory services encompass: • Strategic exit • Growth capital • Buyout • Inorganic growth via acquisition • Fairness opinions and valuations • Board advisory services • Clients span virtually every technology, product category, delivery model and financial profile • Global presence providing advice and guidance to more than 2,000 private and public companies throughout US, Canada, Europe, Asia-Pacific, Africa and Israel • Strong and highly collaborative cross-functional team leveraging transaction, operating, legal and engineering experience • Unparalleled software industry reputation, track record and industry research • Highly referenceable base of past clients and buyers / investors
- 6. SOFTWARE EQUITY GROUP | CONFIDENTIAL SEG: Highly Active with History of B2B Strategic Transactions 6 Jun 2016 Jun 2016 May 2016 Feb 2016Oct 2016 2016 Transaction YTD: Very Active Market
- 7. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 7 SEG: Leading Software Industry M&A Advisor
- 8. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved THE SEG SOFTWARE INDUSTRY FINANCIAL REPORT PUBLIC SaaS COMPANY FINANCIAL PERFORMANCE AND MARKET MULTIPLE TRENDS
- 9. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved THE SEG SaaS INDEX * See appendix for complete list of companies in the SEG SaaS Index 9 SEG - SaaS: Median Metrics Measure 3Q15 4Q15 1Q16 2Q16 3Q16 EV/TTM Revenue 6.2x 5.8x 3.9x 4.3x 5.1x EV/NTM Revenue 4.4x 4.6x 3.4x 3.8x 4.2x EV/TTM EBITDA 44.0x 34.6x 30.3x 38.9x 41.2x EV/TTM CFO 39.6x 42.7x 25.5x 33.6x 35.6x Gross Profit Margin 64.6% 65.8% 66.3% 66.0% 66.2% EBITDA Margin -9.1% -7.9% -6.0% -6.7% -5.4% Net Income Margin -17.0% -14.9% -16.8% -15.1% -13.2% TTM Revenue Growth 29.0% 27.2% 28.9% 29.2% 29.0% TTM Total Revenue ($M) $159.8 $171.0 $187.7 $199.8 $212.4 TTM EBITDA Growth 18.5% 29.9% 22.4% 24.2% 24.4% TTM Total EBITDA ($M) -$8.6 -$8.6 -$11.5 -$9.8 -$8.4 Cash & Eq ($M) $103.1 $110.0 $104.6 $100.6 $95.6 • The SEG SaaS Index tracks public companies that primarily offer hosted, on-demand software under a subscription and/or transaction based pricing model. It is currently comprised of 66 publicly traded pure-play SaaS companies. • Three companies in SEG’s SaaS Index announced an intent to be acquired during the third quarter, while five new companies entered our index due to IPO. • See appendix for SEG SaaS Index public market multiples and financial performance on an annual basis.
- 10. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 2% 8% 17% 25% 17% 10% 20% 3% 14% 12% 24% 18% 12% 17% <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% > 30% <= 40% > 40% <= 50% > 50% %ofCompanies TTM Revenue Growth 3Q15 3Q16 THE SEG SaaS INDEX: FINANCIAL PERFORMANCE 10 TTM Revenue Growth Rate DistributionMedian Revenue Performance - Quarterly $159.8 $171.0 $187.7 $199.8 $212.4 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% $0 $50 $100 $150 $200 $250 3Q15 4Q15 1Q16 2Q16 3Q16 TTMRevenueGrowth TTMTotalRevenue TTM Total Revenue ($M) TTM Revenue Growth • The median TTM revenue growth rate of public SaaS companies in 3Q16 was 29.0%, on par with 3Q15, and roughly equivalent to the past two quarters. Median TTM revenue of public SaaS companies was $212.4 million in 3Q16, a 32.9% YOY increase when compared to 3Q15’s $159.8 million median TTM revenue figure. • Median growth rates alone do not capture the standout performances of the most successful SaaS companies. In 3Q16, 29.0% of public SaaS companies grew TTM revenue by 40% or more year over year, compared with only 10% percent of public on-premise software providers achieving growth of 40% or greater. As further testament to the widespread and ramping adoption of SaaS, these outperformers come from a variety of product categories including eCommerce, Business Intelligence / Analytics, Customer Support / Helpdesk and Human Capital Management.
- 11. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 61% 14% 12% 9% 4% 53% 22% 14% 5% 5% <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% > 30% %ofCompanies TTM EBITDA Margin 3Q15 3Q16 THE SEG SaaS INDEX: FINANCIAL PERFORMANCE 11 TTM EBITDA Margin DistributionMedian EBITDA Margin Performance - Quarterly (9.1%) (7.9%) (6.0%) (6.7%) (5.4%) 3Q15 4Q15 1Q16 2Q16 3Q16 EBITDAMargin • The median EBITDA margin for public SaaS companies was -5.4% in 3Q16 and has been generally trending toward positive territory since 4Q14. • While the majority of public SaaS companies continue to post GAAP losses (53% of our index in Q3) due to significant levels of deferred revenue, more than two thirds of public SaaS companies generated positive cash flow from operations in Q3. • Select Public SaaS companies posting negative EBITDA Margin while generating positive cash flow from operations during Q3 include: Hubspot (-18.1% EBITDA Margin, $10.6M CFO); Tableau (-11.3% EBITDA Margin, $142.2M CFO); Shopify (-7.4% EBITDA Margin, $11.3M CFO); Workday (-15.5% EBITDA Margin, $318.9M CFO); Zendesk (-29.8% EBITDA Margin, $14.7M CFO).
- 12. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved THE SEG SaaS INDEX: FINANCIAL PERFORMANCE 12 Median Margin PerformanceMedian Operating Ratios 64.6% 65.8% 66.3% 66.0% 66.2% -9.1% -7.9% -6.0% -6.7% -5.4% -17.0% -14.9% -16.8% -15.1% -13.2% 3Q15 4Q15 1Q16 2Q16 3Q16 %Margin Gross Profit Margin EBITDA Margin Net Income Margin 39.4% 37.7% 38.4% 37.8% 36.9% 18.4% 18.3% 18.7% 18.7% 18.6%18.0% 18.6% 17.9% 17.9% 16.9% 3Q15 4Q15 1Q16 2Q16 3Q16 %ofRevenue S&M (% of Revenue) R&D (% of Revenue) G&A (% of Revenue) • Public SaaS companies continue to spend heavily on sales & marketing in order to drive revenue growth and capture market share. In 3Q16, public SaaS companies invested a median 36.9% of total revenue on sales & marketing, almost double their on-premise counterparts. Sales and marketing spend as a percent of revenue has remained in the high 30% range since dipping below 40% in 3Q15. R&D spend as a percent of revenue held relatively flat year over year (18.6% in 3Q16 vs. 18.4% in 3Q15). • Median EBITDA and Net Income margins have generally trended toward positive territory over the past year, along with a slight rise in median gross profit margin (66.2% in 3Q16).
- 13. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 5% 12% 12% 5% 12% 6% 12% 5% 6% 25.0% 6% 9% 8% 13% 9% 11% 11% 5% 8% 20% <= 1.0x > 1.0x <= 2.0x > 2.0x <= 3.0x > 3.0x <= 4.0x > 4.0x <= 5.0x > 5.0x <= 6.0x > 6.0x <= 7.0x > 7.0x <= 8.0x > 8.0x <= 9.0x > 9.0x %ofCompanies EV/Revenue 3Q15 3Q16 THE SEG SaaS INDEX: PUBLIC MARKET MULTIPLES 13 EV/Revenue Multiple DistributionMedian EV/Revenue and EV/EBITDA - Quarterly 6.2x 5.8x 3.9x 4.3x 5.1x 44.0x 34.6x 30.3x 38.9x 41.2x 3Q15 4Q15 1Q16 2Q16 3Q16 EV/TTM Revenue EV/EBITDA • At the close of 3Q16, the median market multiple of public SaaS companies was 5.1x EV/Revenue, a healthy uptick from the prior two quarters, but down 17% when compared to 3Q15’s 6.2x median EV/Revenue. • In 3Q16, 20% of public SaaS companies achieved a median EV/Revenue multiple of 9x or higher, down from 25% YoY, but significantly higher than 2Q16 and 1Q16, when only 11% and 5% of the public SaaS index was valued at 9.0x or higher, respectively. Investor sentiment towards these public SaaS company “high fliers” has clearly turned more bullish as the markets have rebounded from 1Q16’s precipitous drop. • Investors and larger strategic buyers have taken note of softer public SaaS valuations when compared to recent years past. Following Q2’s record seven public SaaS companies announcing an intent to be acquired by either strategic buyers or private equity firms, another four public SaaS companies were the targets of acquisition during Q3. The list includes: Netsuite’s intended purchase by Oracle; Apigee’s purchase by Google; Fleetmatic’s purchase by Verizon; and QHR’s purchase by Loblaw. Please reference slides 39-42 for additional SaaS M&A transaction detail.
- 14. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved THE SEG SaaS INDEX: PUBLIC MARKET MULTIPLES 14 EV/Revenue Multiples vs. TTM EBITDA Margins 0.0x 2.2x 2.2x 5.2x 6.5x 10.2x 11.1x 0.6x 1.5x 3.3x 5.3x 6.3x 5.8x 9.9x <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% > 30% <= 40% > 40% <= 50% > 50% MedianEV/Revenue TTM Revenue Growth 3Q15 3Q16 6.2x 3.0x 4.4x 8.2x 5.0x 5.5x 4.1x 4.5x 7.0x 7.0x <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% > 30% MedianEV/Revenue TTM EBITDA Margin 3Q15 3Q16 EV/Revenue Multiples vs. TTM Revenue Growth • The highest growth SaaS companies received a median 9.9x EV/Revenue multiple in 3Q16, a healthy increase over 2Q16’s 7.2x median multiple, but still down when compared to 3Q15’s 11.1x median EV/Revenue multiples. • The YoY decline in median EV/Revenue for this high growth cohort can be attributed to: • 1) A general decline in public SaaS valuations year over year as macro economic concerns and an election year have some investors fleeing high growth small cap SaaS stocks. This trend has abated somewhat in the third quarter as SaaS valuations overall have improved. • 2) Those companies posting significant growth at any cost have fallen out of favor with investors. As an example, Hortonworks posted a median 11.9x TTM revenue multiple in 3Q15 on the back of 106.4% revenue growth, but negative 266.4% EBITDA margin and negative $108.6 million CFO. During 3Q16, the company grew revenue 99%, generated negative 140.9% EBITDA margin and negative $98.4 million CFO, and posted median 2.7x EV/Revenue. • 3) 50%+ growth SaaS businesses from 3Q15 that have seen revenue growth fall under 50% in 3Q16 were due, predominantly, to either size or increased competitive pressure. Tableau has seen its revenue growth and multiple fall from 71.4% and 12.4x EV/Revenue in 3Q15, respectively, to 41.0% and 4.4x EV/Revenue, in 3Q16 respectively, as competitive pressures across business intelligence, analytics, and big data heat up. • The most profitable SaaS companies posted a median 7.0x EV/Revenue multiple during 3Q16, a roughly 40% premium over the Index median 5.1x EV/Revenue. In comparison, the same cohort received a 5.0x EV/Revenue multiple in 3Q15, which equated to a ten percent discount to that quarters 6.2x Index median.
- 15. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved Company Ticker EV (Median) TTM Revenue TTM Revenue Growth EV/ Revenue TTM EBITDA EBITDA Margin EV/ EBITDA Twilio, Inc. TWLO $4,258.4 $219.5 79.1% 19.4x -$30.5 -13.9% - NantHealth, Inc. NH $1,565.5 $85.8 97.8% 18.3x -$123.3 -143.8% - Atlassian Corp TEAM $5,636.2 $457.1 43.0% 12.3x $8.6 1.9% 652.3x Nutanix, Inc NTNX $5,255.0 $444.9 84.3% 11.8x -$138.6 -31.2% - Shopify SHOP $3,146.9 $282.3 95.0% 11.1x -$20.8 -7.4% - Workday WDAY $14,798.8 $1,351.8 38.7% 10.9x -$208.9 -15.5% - Ellie Mae ELLI $3,110.1 $297.5 42.0% 10.5x $53.7 18.1% 57.9x Netsuite N $8,682.4 $846.4 31.5% 10.3x -$59.1 -7.0% - Paycom Software PAYC $2,904.4 $284.5 53.9% 10.2x $67.1 23.6% 43.3x Veeva Systems VEEV $4,776.1 $472.3 31.6% 10.1x $91.4 19.4% 52.2x Zendesk ZEN $2,587.2 $261.0 60.2% 9.9x -$77.8 -29.8% - Service-now.com NOW $11,789.7 $1,194.0 42.9% 9.9x -$91.5 -7.7% - Paylocity Holding PCTY $2,190.0 $230.7 51.1% 9.5x $4.9 2.1% 449.0x The Ultimate Software Group ULTI $6,006.6 $699.7 26.1% 8.6x $66.3 9.5% 90.5x 2U TWOU $1,452.8 $176.9 37.1% 8.2x -$21.5 -12.2% - The Trade Desk TTD $1,223.3 $149.0 - 8.2x $47.1 31.6% 26.0x HubSpot HUBS $1,844.5 $224.8 54.3% 8.2x -$40.8 -18.1% - Zix ZIXI $195.0 $57.6 10.9% 3.4x $10.6 18.5% 18.3x HealthStream HSTM $689.0 $218.6 15.5% 3.2x $24.5 11.2% 28.1x HortonWorks HDP $413.1 $154.7 99.0% 2.7x -$218.0 -140.9% - TrueCar TRUE $698.2 $264.3 12.0% 2.6x -$34.1 -12.9% - DealerTrack TRAK $91.9 $36.9 43.7% 2.5x $5.9 16.1% 15.5x ChannelAdvisors ECOM $266.7 $107.3 17.1% 2.5x -$7.4 -6.9% - Upland Software UPLD $174.1 $70.9 4.3% 2.5x $3.3 4.6% 53.0x IntraLinks Holdings IL $562.6 $284.5 6.1% 2.0x $14.4 5.1% 39.1x Halogen Software TSX:HGN $120.6 $69.4 12.8% 1.7x $0.3 0.5% 361.0x LivePerson LPSN $387.7 $232.1 0.8% 1.7x $15.5 6.7% 25.0x Bazaarvoice BV $293.3 $201.0 3.6% 1.5x -$9.8 -4.9% - Tangoe TNGO $297.5 $219.4 5.7% 1.4x $9.6 4.4% 30.9x Jive Software JIVE $212.6 $201.7 6.2% 1.1x -$13.7 -6.8% - Covisint COVS $47.9 $75.0 -12.2% 0.6x -$9.8 -13.0% - Medical Transcript MTBC $12.2 $21.3 -15.6% 0.6x -$1.1 -5.4% - Marin Software MRIN $61.1 $108.3 2.3% 0.6x -$8.4 -7.7% - THE SEG SaaS INDEX: PUBLIC MARKET MULTIPLES Top 25% Bottom 25% 15 • When the SEG SaaS Index is segmented on the basis of median EV/Revenue multiple, the top 25% boasted an impressive median 10.2x in 3Q16, up from 2Q16’s 8.8x multiple, yet down slightly from 3Q15’s 11.5x mark. • These SaaS high flyers are market leaders in a wide array of SaaS categories including Healthcare (NantHealth); Communications (Twilio); Development Tools (Atlassian); ERP (Workday); Service Management (ServiceNow); Human Capital Management (Paycom); Marketing Automation (Hubspot); eCommerce (Shopify); and CRM & Marketing (HubSpot). • The median TTM revenue growth rate of those in the top 25% percentile was 47.1%. Additionally, while only seven companies in the top rank generated positive EBITDA margin in 3Q16, 14 of the 17 companies generated positive cash flow from operations. Only NantHealth. 2U, and Twilio posted negative CFO. • In contrast, the median TTM revenue growth rate of those comprising the bottom 25% of EV/Revenue multiples was 6.2%. In addition to lagging revenue growth, the bottom quartile posted median EBITDA margin of .5% and only 11 of 17 companies generated positive CFO. Median EV/Revenue for the group was 3.4x in 3Q16.
- 16. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved THE SEG SaaS INDEX BY PRODUCT CATEGORY: FINANCIAL PERFORMANCE (YOY COMPARISON) 16 Median TTM EBITDA MarginMedian TTM Revenue Growth Median EV/Revenue Multiples Median EV/EBITDA Multiples 5.7x5.6x 6.6x 6.0x 5.4x 6.4x 7.4x 6.6x CRM & MarketingERP & Supply Chain Vertically FocusedHuman Capital Management 25.1% 22.2% 36.4% 29.5% 25.3% 27.0% 35.9% 33.6% CRM & MarketingERP & Supply Chain Vertically FocusedHuman Capital Management (4.9%) (7.0%) 9.7% 0.2% (10.5%) (9.1%) 8.0% (9.6%) CRM & MarketingERP & Supply Chain Vertically FocusedHuman Capital Management 96.2x 32.7x34.2x 90.5x 149.4x 24.3x 40.8x 52.6x CRM & MarketingERP & Supply Chain Vertically FocusedHuman Capital Management
- 17. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved THE SEG SOFTWARE INDEX PUBLIC SOFTWARE COMPANY FINANCIAL PERFORMANCE AND MARKET MULTIPLE TRENDS
- 18. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved SEG - Software: Median Metrics Measure 3Q15 4Q15 1Q16 2Q16 3Q16 EV/TTM Revenue 3.3x 2.9x 2.5x 2.7x 3.0x EV/NTM Revenue 2.6x 2.7x 2.7x 2.5x 2.9x EV/TTM EBITDA 15.8x 15.0x 14.2x 15.5x 16.1x EV/TTM CFO 15.6x 15.9x 15.6x 16.4x 17.8x Gross Profit Margin 65.5% 65.2% 64.8% 64.4% 64.3% EBITDA Margin 17.8% 17.5% 17.9% 16.9% 16.5% Net Income Margin 7.7% 6.8% 8.2% 6.9% 7.6% TTM Revenue Growth 8.0% 6.6% 7.6% 7.7% 7.8% TTM Total Revenue ($M) $597.3 $609.5 $668.4 $680.1 $682.5 TTM EBITDA Growth 6.2% 7.3% 5.3% 4.4% 4.6% TTM Total EBITDA ($M) $89.3 $80.1 $93.4 $93.5 $103.3 Cash & Eq ($M) $231.3 $244.5 $246.2 $227.0 $251.3 18 THE SEG SOFTWARE INDEX * A number of on-premise software companies are transitioning to subscription based delivery and pricing models; however their SaaS revenue contribution is insufficient for them to be deemed primarily SaaS. ** See appendix for a complete list of companies in The SEG Software Index and detailed financial and trading metrics • The SEG Software Index tracks public software companies that primarily offer on-premise software under a perpetual license with annual M&S. • The SEG Software Index is currently comprised of 126 public software companies*, down from 218 in 1Q08 (the quarter in which we began publishing individual Software, SaaS and Internet indices). • The number of public companies comprising the SEG Software Index has declined steadily over the past ten years, as many on premise providers have been acquired, taken private or migrated to a SaaS business model. • See appendix for SEG Software Index public market multiples and financial performance on an annual basis
- 19. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 24% 35% 21% 9% 4% 7% 27% 27% 22% 7% 6% 10% <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% >30% <=40% >40% %ofCompanies TTM Revenue Growth 3Q15 3Q16 THE SEG SOFTWARE INDEX: FINANCIAL PERFORMANCE 19 TTM Revenue Growth Rate DistributionMedian Revenue Performance - Quarterly $597.3 $609.5 $668.4 $680.1 $682.5 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% $0 $100 $200 $300 $400 $500 $600 $700 $800 3Q15 4Q15 1Q16 2Q16 3Q16 TTMRevenueGrowth TTMTotalRevenue TTM Total Revenue ($M) TTM Revenue Growth • The median TTM revenue growth rate of public on-premise software companies was 7.8% in 3Q16 and is approaching 3Q15’s 8.0% mark, after falling to 6.6% in the fourth quarter of last year. With 54% of public on-premise software providers posting revenue growth of less than 10% in 3Q16, SEG’s Software Index has now experienced single digit median TTM revenue growth since 3Q13. • The few public on-premise software companies growing revenue at 30%+ were focused on two of IT’s hottest product categories: security (Palo Alto Networks, 48.5% and Rapid7, 45.4%) and data management (Splunk, 47.6%). • Median TTM revenue for the publicly traded on-premise software providers was $682.5 million in 3Q16, an increase of 14.2% from 3Q15’s $597.3 million. In comparison, median TTM revenue for our SaaS Index grew 32.9% over the same period ($212.4 million in 3Q16 vs. 159.8 million in 3Q15).
- 20. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 16% 13% 23% 29% 13% 5% 20% 13% 24% 26% 13% 5% <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% > 30% <= 40% > 40% %ofCompanies TTM EBITDA Margin 3Q15 3Q16 THE SEG SOFTWARE INDEX: FINANCIAL PERFORMANCE 20 TTM EBITDA Margin DistributionMedian EBITDA Performance - Quarterly 17.8% 17.5% 17.9% 16.9% 16.5% 3Q15 4Q15 1Q16 2Q16 3Q16 EBITDAMargin • Median TTM EBITDA margin for the SEG Software Index has hovered around 17% for the past five quarters. Buoyed by high margin maintenance and support streams from long tenured customers, many on- premise providers have been able to maintain healthy profits while attempting to fend off cloud competition. • For example, Microstrategy, a provider of on-premise business intelligence software, posted negative 7.5% revenue growth in 3Q16 while maintaining 25.0% EBITDA margin, as it counts over 50% of its revenue from highly profitable maintenance and support contracts. Over its three most recent fiscal years, Microstrategy has seen net revenue from license sales decline by $28 million to reach $119 million, net revenue from subscription sales increase by $16 million to reach $28 million, net revenue from services decrease $37 million to reach $101 million and net revenue from maintenance contracts increase $4 million to reach $282 million. Microstrategy has a tough road ahead as the market has been flooded with new cloud BI and analytics vendors in recent years.
- 21. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved THE SEG SOFTWARE INDEX: FINANCIAL PERFORMANCE 21 Median Margin PerformanceMedian Operating Ratios 23.5% 23.9% 23.8% 24.0% 24.4% 15.8% 15.8% 15.8% 16.0% 16.1% 10.9% 10.7% 10.9% 10.7% 10.9% 3Q15 4Q15 1Q16 2Q16 3Q16 %ofRevenue S&M (% of Revenue) R&D (% of Revenue) G&A (% of Revenue) 65.5% 65.2% 64.8% 64.4% 64.3% 17.8% 17.5% 17.9% 16.9% 16.5% 7.7% 6.8% 8.2% 6.9% 7.6% 3Q15 4Q15 1Q16 2Q16 3Q16 %Margin Gross Profit Margin EBITDA Margin Net Income Margin • As a percent of revenue, on-premise software companies spent a median 24.4% of revenue on sales and marketing activities, 16.1% on research and development and 10.9% on general and administrative functions in 3Q16. Expense contributions for on-premise software providers have remained virtually unchanged each of the past five quarters. • In aggregate, median operating expenses totaled 51.4% of revenue during 3Q16 for publicly traded on-premise software providers. In comparison, publicly traded SaaS companies spent 75.8% of revenue on operations during the quarter.
- 22. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved THE SEG SOFTWARE INDEX: PUBLIC MARKET MULTIPLES 22 EV/Revenue Multiples by Size (TTM Revenue) - QuarterlyMedian EV/Revenue and EV/EBITDA Multiples- Quarterly 3.3x 2.9x 2.5x 2.7x 3.0x 15.8x 15.0x 14.2x 15.5x 16.1x 3Q15 4Q15 1Q16 2Q16 3Q16 MedianMultipe EV/TTM Revenue EV/EBITDA 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 3Q15 4Q15 1Q16 2Q16 3Q16 MedianEV/Revenue Revenue Greater Than $1 billion Revenue Between $500 million & $1 billion Revenue Between $100 million & $500 million Revenue Less Than $100 million • During 3Q16, the median EV/Revenue multiple for on-premise software providers increased across most size cohorts as the software industry continued to rebound from Q1’s stock market turmoil. As in quarters past, however, scale and profitability played a significant role in ascribing value to slower growth software companies: • $1 billion+ TTM revenue companies received a median 3.7x TTM revenue and posted median 23.5% EBITDA margin; • $500-$1 billion revenue companies were valued at median 3.0x TTM revenue and posted median 18.5% EBITDA margin; • $100-$500 million revenue companies were valued at median 2.7x TTM revenue and posted median 10.2% EBITDA margin; • Companies generating revenue of less than $100 million were valued at median 1.7x TTM revenue and posted median negative 0.5% EBITDA margin. • The median EV/Revenue market multiple for public on-premise software providers was 3.0x in 3Q16. • The 2.5-3.5x median EV/Revenue multiple that’s prevailed over the past five quarters, despite lackluster growth, reflects the importance of stability and profitability to investors in the current market. • For the remainder of 2016, we believe investors will continue to find comfort in the many profitable and large companies comprising SEG’s Software Index as a hedge against global economic concerns, slower projected IT spend and an election year. • Over 80% of companies in SEG’s Software Index generated positive EBITDA margin in Q3, along with nearly half of companies in the index generating revenue greater than one billion dollars.
- 23. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 1.0x 1.6x 2.0x 3.5x 3.9x 7.2x 1.9x 1.6x 2.6x 3.5x 4.6x 7.2x <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% > 30% <= 40% > 40% MedianEV/Revenue TTM EBITDA Margin 3Q15 3Q16 2.2x 2.5x 4.1x 3.1x 9.4x 2.2x 3.2x 2.9x 4.3x 4.8x <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% >30+ MedianEV/Revenue TTM Revenue Growth 3Q15 3Q16 THE SEG SOFTWARE INDEX: PUBLIC MARKET MULTIPLES 23 EV/Revenue Multiples vs. TTM EBITDA MarginsEV/Revenue Multiples vs. TTM Revenue Growth • The market performance of on-premise public software companies remains closely correlated with their ability to sustainably drive profits, as a select group of companies able to generate significant revenue growth in Q3 were only modestly rewarded (4.8x EV/Revenue) when compared with the same cohort in 3Q15 (9.4x EV/Revenue. • Members of Q3’s 30%+ growth club that rewarded investors handsomely during the quarter came from a number of product categories, including Business Intelligence, Security and Network Performance Management: Splunk (47.6% TTM revenue growth, 9.7x EV/Revenue), Palo Alto Networks (48.5% TTM revenue growth, 10.5x EV/Revenue), and Proofpoint (37.5% TTM revenue growth, 7.5x EV/Revenue). • As in past quarters, the median market multiples of on-premise software companies generally reflected their median operating margins. The most profitable companies posted a 7.2x EV/Revenue multiple in 3Q16, on par with 3Q15 and 140% above Q3’s 3.0x median EV/Revenue multiple for all on-premise software vendors. • On-premise providers with EBITDA margins greater than 40% can be found in product categories requiring high technical barriers to entry or provide products difficult to deploy via the cloud. • As an example, engineering simulation and optimization solutions developed by Aspen Technology are highly technical and not easily deployed through a browser. The company has consistently maintained double digit revenue growth and 40%+ EBITDA margin each of the last 5 quarters, posting 20.5% growth and 47.0% EBITDA margin in 3Q16.
- 24. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 24 THE SOFTWARE INDEX BY PRODUCT CATEGORY *The SEG Software Index is segmented into 16 product categories. *Among these product categories, market multiples, TTM growth rates and EBITDA margins fluctuate considerably from quarter to quarter due to public market conditions and investor sentiment. *See Appendix for the complete list of companies within each product category. SEG Software Index Category EV/Revenue EV/EBITDA TTM Revenue Growth EBITDA Margin 3Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16 Billing & Service Management 1.9x 1.7x 2.0x 2.0x 1.9x 9.2x 9.8x 8.8x 10.9x 9.7x 3.1% -0.4% 0.2% 0.6% 1.8% 27.2% 23.9% 21.2% 22.1% 21.8% Business Intelligence 3.5x 3.0x 2.8x 3.0x 3.5x 18.2x 15.5x 13.5x 12.3x 14.4x 10.3% 7.0% 13.6% 13.1% 10.4% 18.5% 17.2% 14.9% 15.2% 15.3% Development Platforms 2.4x 2.3x 2.7x 2.8x 2.3x 8.9x 8.4x 9.1x 9.1x 12.8x 10.6% 11.5% 11.1% 10.2% 10.4% 19.0% 18.6% 18.0% 17.5% 17.1% Engineering & PLM 3.4x 3.5x 3.3x 3.9x 3.2x 17.1x 16.9x 15.6x 17.0x 16.8x 8.4% 7.5% 0.7% 1.3% 2.1% 22.9% 22.4% 19.3% 17.6% 17.6% Enterprise Resource Planning 4.1x 4.0x 3.9x 4.1x 3.8x 15.1x 15.1x 16.0x 14.8x 15.5x 4.8% 6.1% 4.8% 3.6% 3.6% 26.7% 27.1% 26.9% 26.7% 26.7% Financial & Accounting 4.1x 3.9x 3.3x 3.0x 3.8x 15.3x 15.9x 15.9x 16.6x 15.6x 5.4% 4.7% 4.8% 4.1% 6.1% 22.3% 22.6% 24.9% 24.2% 24.2% Gaming 1.5x 2.5x 2.3x 2.4x 1.3x 14.7x 16.4x 14.3x 18.2x 13.3x 8.4% 4.0% 5.8% 5.8% 12.4% 14.8% 15.6% 21.7% 21.5% 22.5% Healthcare 2.4x 2.2x 2.0x 2.3x 2.1x 18.5x 14.9x 15.4x 17.2x 15.5x 4.6% 3.8% 2.0% 10.9% 18.9% 12.3% 12.7% 12.5% 14.6% 13.5% IT Conglomerates 3.2x 4.0x 3.9x 4.0x 3.5x 8.8x 9.8x 9.6x 10.5x 10.8x -1.1% -3.5% -4.3% -3.1% -2.3% 31.1% 31.0% 27.5% 27.7% 28.2% Mobile Solutions/Content 1.8x 1.6x 1.5x 1.8x 1.8x 15.8x 18.2x 25.2x 19.7x 20.8x 25.5% 19.4% 17.3% 13.1% 13.3% -3.5% 0.4% -0.2% -1.5% -0.8% Networking & Network Performance Management 2.2x 2.5x 1.9x 1.8x 2.1x 13.1x 11.7x 9.8x 10.9x 13.3x 4.3% 4.9% 5.0% 6.4% 4.6% 19.6% 18.0% 14.2% 9.3% 10.2% Security 4.2x 3.5x 3.3x 3.0x 3.7x 15.8x 12.4x 12.4x 13.3x 15.3x 8.8% 16.2% 29.5% 17.4% 21.2% 1.6% 1.1% 2.6% 5.0% 4.7% Storage, Data Management & Integration 2.2x 2.3x 2.1x 2.4x 2.1x 8.0x 8.4x 8.1x 7.1x 7.8x 1.5% 3.8% 3.1% -0.9% 0.9% 4.7% 2.3% 1.4% 2.2% 2.7% Systems Management 4.7x 3.8x 2.9x 3.1x 3.4x 19.1x 17.1x 13.2x 13.9x 16.1x 5.6% 11.5% 10.1% 8.7% 7.8% 23.8% 22.1% 25.9% 26.1% 26.9% Vertical - Finance 4.4x 4.8x 5.0x 5.0x 4.1x 13.3x 13.7x 14.5x 16.0x 13.6x 7.1% 6.6% 7.4% 7.6% 7.8% 34.2% 32.7% 32.9% 32.7% 31.7% Vertical - Other 4.9x 5.1x 4.5x 4.5x 4.3x 30.5x 29.3x 19.3x 19.4x 19.7x 14.1% 12.5% 13.9% 18.2% 17.5% 13.8% 14.9% 16.4% 15.2% 16.6% Median 3.3x 2.8x 2.5x 2.7x 3.0x 15.8x 15.0x 14.2x 15.3x 15.9x 8.0% 6.6% 7.6% 7.7% 7.8% 17.8% 17.5% 17.9% 16.9% 16.5%
- 25. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 25 THE SEG SOFTWARE INDEX BY PRODUCT CATEGORY: FINANCIAL PERFORMANCE (YoY COMPARISON) Median TTM Revenue Growth 1.9x 3.5x 2.4x 3.4x 4.1x 4.1x 1.5x 2.4x 3.2x 1.8x 2.2x 4.2x 2.2x 4.7x 4.4x 4.9x 1.9x 3.5x 2.3x 3.2x 3.8x 3.8x 1.3x 2.1x 3.5x 1.8x 2.1x 3.7x 2.1x 3.4x 4.1x 4.3x Billing & Service Management Business Intelligence Development Platforms Engineering & PLM Enterprise Resource Planning Financial & Accounting Gaming Healthcare IT Conglomerates Mobile Solutions/Content Networking & Network Performance Management Security Storage, Data Management & Integration Systems Management Vertical - Finance Vertical - Other 3Q15 3Q16 3.1% 10.3% 10.6% 8.4% 4.8% 5.4% 8.4% 4.6% -1.1% 25.5% 4.3% 8.8% 1.5% 5.6% 7.1% 14.1% 1.8% 10.4% 10.4% 2.1% 3.6% 6.1% 12.4% 18.9% -2.3% 13.3% 4.6% 21.2% 0.9% 7.8% 7.8% 17.5% Billing & Service Management Business Intelligence Development Platforms Engineering & PLM Enterprise Resource Planning Financial & Accounting Gaming Healthcare IT Conglomerates Mobile Solutions/Content Networking & Network Performance Management Security Storage, Data Management & Integration Systems Management Vertical - Finance Vertical - Other 3Q15 3Q16
- 26. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 26 THE SEG SOFTWARE INDEX BY PRODUCT CATEGORY: FINANCIAL PERFORMANCE (YoY COMPARISON) Median EV/EBITDA Median TTM EBITDA Margin 27.2% 18.5% 19.0% 22.9% 26.7% 22.3% 14.8% 12.3% 31.1% -3.5% 19.6% 1.6% 4.7% 23.8% 34.2% 13.8% 21.8% 15.3% 17.1% 17.6% 26.7% 24.2% 22.5% 13.5% 28.2% -0.8% 10.2% 4.7% 2.7% 26.9% 31.7% 16.6% Billing & Service Management Business Intelligence Development Platforms Engineering & PLM Enterprise Resource Planning Financial & Accounting Gaming Healthcare IT Conglomerates Mobile Solutions/Content Networking & Network Performance Management Security Storage, Data Management & Integration Systems Management Vertical - Finance Vertical - Other 3Q15 3Q16 9.2x 18.2x 8.9x 17.1x 15.1x 15.3x 14.7x 18.5x 8.8x 15.8x 13.1x 15.8x 8.0x 19.1x 13.3x 30.5x 9.7x 14.4x 12.8x 16.8x 15.5x 15.6x 13.3x 15.5x 10.8x 20.8x 13.3x 15.3x 7.8x 16.1x 13.6x 19.7x Billing & Service Management Business Intelligence Development Platforms Engineering & PLM Enterprise Resource Planning Financial & Accounting Gaming Healthcare IT Conglomerates Mobile Solutions/Content Networking & Network Performance Management Security Storage, Data Management & Integration Systems Management Vertical - Finance Vertical - Other 3Q15 3Q16
- 27. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved THE SEG INTERNET INDEX PUBLIC INTERNET COMPANY FINANCIAL PERFORMANCE AND MARKET MULTIPLE TRENDS
- 28. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved SEG - Internet: Median Metrics Measure 3Q15 4Q15 1Q16 2Q16 3Q16 EV/TTM Revenue 2.1x 2.0x 2.0x 2.0x 2.3x EV/NTM Revenue 1.7x 1.8x 1.7x 1.8x 2.1x EV/TTM EBITDA 18.2x 20.8x 18.4x 19.0x 19.8x EV/TTM CFO 17.8x 18.9x 17.0x 17.0x 18.4x Gross Profit Margin 62.4% 62.6% 61.9% 62.1% 62.0% EBITDA Margin 6.7% 6.9% 7.3% 7.5% 9.1% Net Income Margin 0.5% 0.2% 0.1% 0.8% -1.3% TTM Revenue Growth 17.2% 15.9% 14.5% 14.5% 13.4% TTM Total Revenue ($M) $466.0 $505.9 $527.1 $570.0 $604.2 TTM EBITDA Growth 12.3% 8.9% 6.7% 11.6% 13.7% TTM Total EBITDA ($M) $27.9 $28.4 $31.6 $31.5 $36.3 Cash & Eq ($M) $169.0 $162.0 $207.0 $174.2 $167.1 THE SEG INTERNET INDEX * See appendix for complete list of companies in the SEG Internet Index 28 • The SEG Internet Index tracks public companies that primarily offer B2C services or predominantly generate revenue via advertising over the internet. • The SEG Internet Index is currently comprised of 99 public Internet companies*. • See appendix for SEG Internet Index public market multiples and financial performance on an annual basis
- 29. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 20% 16% 24% 12% 6% 22% 17% 24% 18% 16% 8% 17% <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% > 30% <= 40% > 40% %ofCompanies TTM Revenue Growth 3Q15 3Q16 THE SEG INTERNET INDEX: FINANCIAL PERFORMANCE 29 TTM Revenue Growth Rate DistributionMedian Revenue Performance - Quarterly $466.0 $505.9 $527.1 $570.0 $604.2 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% $0 $100 $200 $300 $400 $500 $600 $700 3Q15 4Q15 1Q16 2Q16 3Q16 TTMRevenueGrowth TTMTotalRevenue TTM Total Revenue ($M) TTM Revenue Growth • Median TTM revenue for public companies in the SEG Internet Index was $604.2 million in 3Q16, a 29% YoY increase from 3Q15’s $466 million figure. Conversely, this median TTM revenue growth for this cohort has seen median TTM revenue growth slow to 13.4% in 3Q16 from 17.2% one year prior as law of large numbers comes in to effect. • Once again demonstrating the Internet is an ecosystem of unequals, 17% of public Internet providers far outpaced the pack, posting TTM revenue growth greater than 40% in 3Q16. These high flyers included 58.com (150.1%), Netease (112.3%), and The Rubicon Project (81.5%). • Conversely, 41% of public Internet companies struggled to advance, reporting TTM revenue growth of 10% or less in 3Q16. The slow growers included TripAdvisor (4.0%), Yahoo! (0.5%), Limelight Networks (2.4%), Zynga (-0.3%), and 1-800-FLOWERS (4.6%).
- 30. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved THE SEG INTERNET INDEX: FINANCIAL PERFORMANCE 30 TTM EBITDA Margin DistributionMedian EBITDA Performance - Quarterly 6.7% 6.9% 7.3% 7.5% 9.1% 3Q15 4Q15 1Q16 2Q16 3Q16 EBITDAMargin 29% 30% 18% 7% 11% 4% 28% 27% 21% 9% 12% 3% <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% > 30% <= 40% > 40% %ofCompanies TTM EBITDA Margin 3Q15 3Q16 • Median EBITDA margin rose considerably in 3Q16, following three consecutive quarters of modest improvement. However, 28% of the companies were unprofitable during the quarter, compared to 53% and 20% of publicly traded SaaS and on-premise software vendors, respectively. • At the other end of the spectrum, 15% of public Internet companies, mostly those with significant transaction or advertising revenue, achieved EBITDA margins above 30%, led by VeriSign (64.6%), Facebook (50.0%) and Tencent Holdings (43.1%). • With few exceptions, many of the most profitable public Internet companies reported stellar TTM revenue growth. Among them were Netease (33.9% EBITDA margin, 112.3% TTM revenue growth); Stamps.com (34.7% EBITDA margin, 67.0% TTM revenue growth) and Alibaba (36.1% EBITDA margin, 40.1% TTM revenue growth).
- 31. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved THE SEG INTERNET INDEX: FINANCIAL PERFORMANCE 31 Median Margin PerformanceMedian Operating Ratios 62.4% 62.6% 61.9% 62.1% 62.0% 6.7% 6.9% 7.3% 7.5% 9.1% 0.5% 0.2% 0.1% 0.8% -1.3% 3Q15 4Q15 1Q16 2Q16 3Q16 %Margin Gross Profit Margin EBITDA Margin Net Income Margin 24.8% 24.6% 25.1% 24.8% 24.3% 12.6% 12.6% 12.5% 12.3% 12.7%12.7% 12.3% 12.7% 12.8% 12.5% 3Q15 4Q15 1Q16 2Q16 3Q16 %ofRevenue S&M (% of Revenue) R&D (% of Revenue) G&A (% of Revenue) • Median spending on operations by public Internet companies in 3Q16 was consistent with historic norms: 24.3% for sales & marketing, 12.7% for research & development, and 12.5% for general & administrative. In aggregate, the median operational expenditures for the Internet Index totaled 49.5% of revenue in 3Q16, versus 51.4% and 75.8% for our on-premise and SaaS indices, respectively. • Over the past year, S&M, R&D and G&A expenses as a percent of revenue have remained relatively flat. • Median Gross profit margin and R&D spend as a percent of total revenue has on average been the lowest among our three tracking indices, as Internet companies are comparatively less technical than pure-play SaaS and on-premise software vendors.
- 32. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 35% 22% 14% 6% 4% 4% 3% 3% 2% 6% 26% 16% 18% 7% 8% 8% 6% 6% 1% 7% <= 1.0x > 1.0x <= 2.0x > 2.0x <= 3.0x > 3.0x <= 4.0x > 4.0x <= 5.0x > 5.0x <= 6.0x > 6.0x <= 7.0x > 7.0x <= 8.0x > 8.0x <= 9.0x >= 9.0x %ofCompanies EV/Revenue 3Q15 3Q16 THE SEG INTERNET INDEX: PUBLIC MARKET MULTIPLES 32 EV/Revenue Multiple DistributionMedian EV/Revenue and EV/EBITDA Multiples- Quarterly 2.1x 2.0x 2.0x 2.0x 2.3x 18.2x 20.8x 18.4x 19.0x 19.8x 3Q15 4Q15 1Q16 2Q16 3Q16 EV/TTM Revenue EV/EBITDA • The median EV/Revenue multiple for SEG’s Internet Index rose to 2.3x in 3Q16, from 2.0x the prior three quarters, following the positive trend in our SaaS and on-premise indices as the markets have generally rebounded from a dismal first quarter. • That said, investors in Q3 continued to richly reward the most rapidly growing and most promising Internet providers, especially those that generated significant revenue from online advertising and ecommerce. Seven percent of companies closed the quarter with a market multiple of 9.0x EV/Revenue or higher, including Alibaba (14.1x EV/Rev), Facebook (15.1x EV/Rev), Ctrip (10.7x EV/Rev) and RenRen (13.7x EV/Rev).
- 33. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 1.2x 1.7x 1.7x 4.9x 3.5x 6.8x 1.9x 1.4x 2.2x 4.8x 5.5x 12.4x <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% > 30% <= 40% > 40% MedianEV/Revenue TTM EBITDA Margin 3Q15 3Q16 1.2x 1.8x 1.8x 3.1x 6.0x 0.6x 1.5x 2.6x 3.4x 4.6x <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% >30% MedianEV/Revenue TTM Revenue Growth 3Q15 3Q16 THE SEG INTERNET INDEX: PUBLIC MARKET MULTIPLES 33 EV/Revenue Multiples vs. TTM EBITDA MarginsEV/Revenue Multiples vs. TTM Revenue Growth • Here, too, investors favored growth, albeit not to the extent of software and SaaS vendors. Public Internet companies with TTM revenue growth of 30% or higher received a median EV/Revenue multiple of 4.6x in Q3. The outperformers included Stamps.com (67.0%, 5.4x EV/Revenue); Zillow (54.4%, 8.3x EV/Revenue); Facebook (51.4%, 15.1x EV/Revenue) and Alibaba (40.1%, 14.1x EV/Revenue). • Investors in public Internet companies kept a keen eye on margins, and rewarded more profitable performers with significantly higher public market multiples. Public Internet companies with EBITDA margins above 40% posted a median EV/Revenue multiple of 12.4x in 3Q16, over 10.1x higher than the overall Index median.
- 34. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved • The SEG Internet Index is segmented into nine product categories. • Representative companies in each Internet category are referenced below. • See the appendix for the complete list of companies within each product category. THE SEG INTERNET INDEX BY PRODUCT CATEGORY 34 Ad Tech Commerce Content and Media Gaming Infrastructure Search Services TravelSocial
- 35. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved THE SEG INTERNET INDEX BY PRODUCT CATEGORY: FINANCIAL PERFORMANCE (YoY COMPARISON) 35 Median TTM Revenue Growth Median EV/Revenue Multiples 22.2% 17.2% 8.4% 16.3% 7.6% 16.7% 20.5% 46.2% 16.2% 10.4% 10.7% 3.9% 3.5% 9.0% 21.3% 23.6% 34.8% 16.6% Ad Tech Commerce Content & Media Gaming Infrastructure Search Services Social Travel 3Q15 3Q16 2.1x 1.5x 2.1x 2.8x 1.5x 4.5x 2.0x 9.1x 4.8x 0.9x 2.1x 2.8x 3.6x 1.8x 5.4x 2.2x 5.5x 4.1x Ad Tech Commerce Content & Media Gaming Infrastructure Search Services Social Travel 3Q15 3Q16
- 36. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved THE SEG INTERNET INDEX BY PRODUCT CATEGORY: FINANCIAL PERFORMANCE (YoY COMPARISON) 36 Median TTM EBITDA Margin Median EV/EBITDA Multiples 1.2% 6.2% 11.1% 31.9% 6.4% 31.3% 5.6% 15.8% 7.8% 3.1% 5.1% 4.1% 33.1% 4.3% 27.3% 9.5% 17.3% 9.5% Ad Tech Commerce Content & Media Gaming Infrastructure Search Services Social Travel 3Q15 3Q16 18.7x 17.8x 16.4x 10.3x 18.3x 15.8x 18.5x 39.1x 21.4x 17.4x 27.0x 36.6x 14.7x 21.7x 18.7x 20.2x 19.0x 21.1x Ad Tech Commerce Content & Media Gaming Infrastructure Search Services Social Travel 3Q15 3Q16
- 37. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved SOFTWARE INDUSTRY M&A MARKET UPDATE
- 38. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved • There were 539 reported software M&A transactions in 3Q16, a modest decline from 2Q16’s 584, However, we expect that the third quarter tally will likely increase by approximately 15 – 20 transactions as unpublicized deals are added. 3Q16 marks the eighth consecutive quarter in which transaction volume has surpassed 500 deals. • On a TTM basis, average quarterly deal volume reached 574 transactions in 3Q16, representing an 18% increase in transaction activity over this past decade’s pre-recession high in 2Q08 (487 TTM quarterly average). Even more impressive, TTM average quarterly deal volume has posted quarter over quarter increases in 21 of 27 quarters since bottoming out in 4Q09 (326 TTM quarterly average). • Software M&A spending in 3Q16 totaled $50.1 billion, down from Q2’s $67.3 billion aggregate price tag, which included Microsoft’s acquisition of LinkedIn ($26.1 billion EV, 8.2x TTM revenue). Led by Oracle’s pending acquisition of NetSuite for $8.7 billion (10.3x TTM revenue) and Micro Focus’ purchase of Hewlett Packard’s enterprise software division for $8.7 billion (2.8x TTM revenue), there were 16 mega deals (EV > $500 million) announced during the quarter, a positive sign for continued M&A activity in the quarters ahead. 3Q16 SOFTWARE INDUSTRY M&A DEAL VOLUME AND SPENDING 38 TTM Average Quarterly Deal VolumeU.S. Software Mergers & Acquisitions Activity 574 0 100 200 300 400 500 600 1Q07 4Q07 3Q08 2Q09 1Q10 4Q10 3Q11 2Q12 1Q13 4Q13 3Q14 2Q15 1Q16 NumberofDeals 444 455 460 517 488 505 513 587 578 565 570 584 539 $20.2 $22.8 $31.4 $26.6 $43.5 $17.7 $17.7 $34.8 $46.1 $34.4 $45.2 $67.3 $50.1 $0 $10 $20 $30 $40 $50 $60 $70 $80 0 100 200 300 400 500 600 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Value(BIllions) NumberofDeals Deals Value
- 39. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved • 3Q16’s 195 SaaS M&A transactions marks the 12th consecutive quarter of ramping deal volume and 24% year over year increase when compared to 3Q15’s 157 transactions. • On an annual basis, SEG is projecting 753 SaaS M&A transactions during 2016, a 25% increase over 2015’s 601 deals and nearly double the 390 transactions announced just three years ago. • Multiple tailwinds continue to drive strong SaaS deal volume growth: • A secular shift toward cloud computing applications and a need for legacy on-premise vendors to acquire cloud computing expertise. • An extremely active private equity market that continues to be attracted to high growth subscription-based software business models. • Cheap credit available for transaction financing. SaaS M&A: DEAL VOLUME AND MEDIAN EXIT MULTIPLES 39 Annual SaaS M&A VolumeQuarterly SaaS M&A Volume 97 103 104 108 118 132 134 150 157 160 180190 195 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 0 50 100 150 200 250 SaaSM&ADealsasa%ofTotal SoftwareM&ADeals #ofSaaSM&ADeals SaaS M&A Deals SaaS as % of Software 105 200 312 390 462 601 753 0 100 200 300 400 500 600 700 800 2010 2011 2012 2013 2014 2015 2016 #ofSaaSM&ADeals
- 40. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved SaaS M&A: MEDIAN EXIT MULTIPLES 40 Median TTM SaaS EV/ Revenue Exit Multiples • For the 12 months ending September 2016, SaaS companies were purchased for a median 4.5x TTM revenue, on par with recent quarters. After dipping below 4.0x TTM revenue from 4Q14 through 3Q15, the median exit multiple for SaaS businesses has held firmly above 4.0x for the past four quarters. • Select 3Q TTM SaaS transactions posting exit multiples well above the median included Verizon’s 3Q16 acquisition of Fleetmatics ($2.4 billion, 7.0x TTM revenue); Wolters Kluwer’s 2Q16 acquisition of Enablon ($364 million, 5.6x TTM revenue); Visma’s 1Q16 acquisition of Fortnox ($163 million, 9.4x TTM revenue) and PTC’s 4Q15 acquisition of Kepware Technologies ($118 million, 5.9x TTM revenue) • In addition, four publicly traded SaaS companies announced an intent to be acquired during Q3, with a couple of those receiving offers materially higher than our median exit multiple. Q3 Public SaaS Sellers • Led by Oracle’s intended acquisition of SaaS ERP vendor, Netsuite ($8.7 billion EV, 10.3x TTM Revenue), four publicly traded SaaS companies announced an intent to be acquired during the third quarter. This follows the 2Q16 in which seven publicly traded SaaS providers were acquired. • Size and scale was a key determinant to each target’s revenue multiple: • Netsuite’s ($846.4 million revenue) purchase by Oracle; Fleetmatics’ $310.7 million revenue) purchase by Verizon; Apigee’s ($92.0 million revenue) purchase by Google; and QHR’s ($23.5 million revenue) purchase by Loblaw. EV/Revenue EV/Revenue 10.3x 7.0x 5.3x 5.1x NetSuite Inc. (NYSE:N) Fleetmatics Group PLC (NYSE:FLTX) Apigee Corporation (NasdaqGS:APIC) QHR Corporation (TSXV:QHR) 3.7x 4.2x 4.6x 4.5x 4.5x 3Q15 4Q15 1Q16 2Q16 3Q16
- 41. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved SaaS M&A: MEDIAN EXIT MULTIPLES 41 • Over the past three years, over one third of all SaaS targets were acquired for 5.0x TTM or greater. o Many of these targets were growing quickly, served large markets and attracted deep pocketed buyers (ie. Zillow’s acquisition of real estate software provider, Dotloop, which was rumored to growing revenue north of 100% at the time of sale and sold for approximately 7.2x TTM revenue). • Conversely, approximately 30% of all SaaS targets were acquired for 3.0x revenue or less. o Many of these targets showed modest growth and operated in commoditized markets with little product differentiation (ie. Endurance International Group’s purchase of SaaS email marketing provider Constant Contact for 2.6x TTM revenue (10.8% TTM revenue growth) Median EV/Revenue Exit Multiple Distribution (Last 3 Years) Seller Revenue ($) EV/Revenue • To calculate exit multiples by seller size, we analyzed the past three years worth of SaaS deals to drive a meaningful data set. • Buyers continue to reward those SaaS businesses exhibiting significant scale. Sellers with revenue between $20-50 million have achieved a median 5.0x TTM revenue over the time period, while those with revenue greater than $50 million received a slight discount. This is due to the prevalence of private equity buyers seeking larger assets. Approximately 25% of the deals in our $100M+ seller revenue bucket included a private equity sponsor compared to 13% and 0% for our $50-100M and $20-50M seller revenue buckets, respectively. • Those generating revenues of less than $5M received a median 2.9x TTM revenue multiple. EV/Revenue by Seller Size (Last 3 Years) 5.6% 6.3% 19.0% 19.0% 14.3% 11.1% 24.6% <= 1.0x > 1.0x & <= 2.0x > 2.0x & <= 3.0x > 3.0x & <= 4.0x > 4.0x & <= 5.0x > 5.0x & <= 6.0x > 6.0x TTM Revenue Exit Multiple Bins %ofDeals-Last3Years 2.9x 3.6x 3.7x 5.0x 4.4x 4.3x <5M 5M-10M 10M-20M 20M-50M 50M-100M 100M+
- 42. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 42 SaaS M&A BY PRODUCT CATEGORY – 3Q16 Vertical Product Categories Horizontal Product Categories 7.0% 3.2% 6.4% 5.7% 1.3% 4.5% 6.4% 1.9% 4.6% 4.6% 4.6% 1.5% 1.5% 10.3% 3.1% 2.6% Education Financial Services Healthcare Hospitality Insurance Other Verticals Real Estate Retail 3Q15 3Q16 4.5% 3.8% 15.3% 1.3% 1.3% 2.5% 9.6% 6.4% 2.5% 3.2% 3.8% 1.9% 0.6% 1.9% 2.5% 4.1% 2.6% 8.2% 4.1% 1.5% 1.5% 9.2% 7.2% 2.6% 4.6% 4.6% 5.1% 1.0% 4.1% 1.5% BI, Risk & Compliance Content & Document Mgmt CRM, Marketing & Sales Dev. Tools & IT Asset Mgmt eCommerce Engineering & PLM HR & Workforce Mgmt Messaging, Conferencing & Communications Multimedia, Graphics & Communications Security Systems Mgmt Supply Chain Mgmt & Logistics Accounting & Finance Asset Management Billing & Service Provisioning 3Q15 3Q16
- 43. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 3Q16 SaaS M&A TRANSACTIONS 43 Date Buyer Seller Enterprise Value (mm) TTM Revenue EV/Rev 09/30/16 The Ultimate Software Group, Inc. (NasdaqGS:ULTI) Kanjoya, Inc. - - - 09/29/16 VelocityEHS e3 Solutions Inc. - - - 09/29/16 Falfurrias Capital Partners Marquis Software Solutions, Inc. - - - 09/29/16 Thoma Bravo, LLC T2 Systems, Inc. - - - 09/28/16 SAP SE (DB:SAP) PLAT.ONE INC. - - - 09/27/16 Cengage Learning Holdings II, Inc. (OTCPK:CNGO) Advanced Instructional Systems, Inc. - - - 09/26/16 - BlindSpot $28.0 - - 09/26/16 Xingmin Intelligent Transportation Systems (Group) Co., Ltd. Yes Way $63.4 - - 09/22/16 Accruent, LLC VERISAE, INC. - - - 09/22/16 Emakina Group SA (ENXTBR:ALEMK) k.section business solutions gmbh - - - 09/22/16 Airware, Inc Redbird SAS - - - 09/22/16 Welcome Italia spa Qboxmail S.r.l. - - - 09/22/16 PTV Planung Transport Verkehr AG DPS International Ltd. - - - 09/21/16 Evatic AS Cranbox Limited - - - 09/21/16 Newgen KnowledgeWorks (P) Ltd Exult InfoSolutions Pvt. Ltd. - - - 09/21/16 Liaison Financial Services Limited Activ8 Intelligence Limited - - - 09/20/16 Vista Equity Partners III LLC GovDelivery, Inc. $153.0 - - 09/20/16 Secunet Security Networks AG (XTRA:YSN) HJP Consulting GmbH, eID Testing Business Unit - - - 09/20/16 CA, Inc. (NasdaqGS:CA) BlazeMeter LLC - - - 09/20/16 JPMorgan Chase & Co. (NYSE:JPM) InvestCloud, LLC - - - 09/19/16 - P&I Personal & Informatik Aktiengesellschaft - - - 09/18/16 Oracle Corporation (NYSE:ORCL) Palerra, Inc. - - - 09/16/16 Dentsu Aegis Network Ltd. Avid Media Ltd - - - 09/16/16 CashFlows iCheque Network Limited - - - 09/15/16 Grey Cloak Tech Inc. (OTCPK:GRCK) ShareRails - - - 09/15/16 Mirantis, Inc. tcp cloud, a.s. - - - 09/15/16 Event Farm, Inc. Attend, Inc. - - - 09/14/16 General Electric Company (NYSE:GE) Meridium, Inc. - - - 09/14/16 Amdocs Limited (NasdaqGS:DOX) Pontis, Inc. and Vindicia, Inc. - - - 09/14/16 LogoMix Inc. LogoMaker Inc. - - - 09/14/16 Generix SA (ENXTPA:GENX) Sologlobe Logistique, Inc. - - - 09/13/16 Stripe, Inc. Runkit - - - 09/12/16 Accel-KKR LLC Smart Communications - - - 09/12/16 Quad Analytix, LLC Wise Commerce, Inc. - - - 09/09/16 Argyle Executive Forum, LLC Proformative, Inc. - - - 09/08/16 Bridge Growth Partners, LLC Active Internet Technologies, LLC - - - 09/08/16 Citrix Systems, Inc. (NasdaqGS:CTXS) VirtuAll Solutions Ltd. - - - 09/08/16 Dealer Product Services Inc. TimeHighway.com, Inc. - - - 09/08/16 IVR Technology Group, LLC DemandVoice, LLC - - - 09/07/16 Alphabet Inc. (NasdaqGS:GOOGL) Apigee Corporation (NasdaqGS:APIC) $516.3 $92.0 5.6x
- 44. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 3Q16 SaaS M&A TRANSACTIONS (CON’T) 44 Date Buyer Seller Enterprise Value (mm) TTM Revenue EV/Rev 09/07/16 Sodexo Benefits and Rewards Services Inspirus, LLC - - - 09/07/16 Arkadin SAS Applicable Limited - - - 09/07/16 salesforce.com, inc. (NYSE:CRM) HeyWire, Inc. - - - 09/06/16 McKinsey & Company, Inc. PriceMetrix, Inc. - - - 09/06/16 HCA Holdings, Inc. (NYSE:HCA) Mobile Heartbeat, LLC - - - 09/06/16 Grote Molen, Inc. BlackRidge Technology Holdings, Inc. - - - 09/06/16 GI Partners, LLC DAXKO LLC - - - 09/06/16 MINDBODY, Inc. (NasdaqGM:MB) HealCode, LLC - - - 09/06/16 iZettle AB Intelligent Point Of Sale (Sales) Limited - - - 09/05/16 IT2 Solutions AG LBU Systemhaus AG - - - 09/05/16 Telestream, Inc. Vidcheck Ltd - - - 09/02/16 Navent Group Ltd. Hiring Room - - - 09/01/16 Fleetmatics Group PLC (NYSE:FLTX) Inosat - Consultoria Informatica, S.A. - - - 09/01/16 Tieto Oyj (HLSE:TIE1V) Emric AB - - - 09/01/16 ALA Services LLC Adaptive Computing Enterprises, Inc. - - - 08/31/16 Tradeos Limited Webcargo, SL - - - 08/30/16 LG Informática S.A. E-Guru Serviços de Informática Ltda. - - - 08/30/16 One More Co Inc. KWAGA SAS - - - 08/30/16 Cisco Systems, Inc. (NasdaqGS:CSCO) ContainerX, Inc. - - - 08/30/16 GE Transportation ShipXpress, A GE Transportation Company - - - 08/29/16 Wood Mackenzie Ltd Quest Offshore Resources, Inc., Data and Subscriptions Business - - - 08/26/16 KKR & Co. L.P. (NYSE:KKR) Calabrio, Inc. - - - 08/25/16 Clavister Holding AB (publ) (OM:CLAV) PhenixID AB $11.5 $1.1 10.4x 08/24/16 Proofpoint, Inc. (NasdaqGM:PFPT) Return Path, Inc., Email Fraud Protection Division $18.0 - - 08/24/16 gamigo AG HoneyTracks GmbH - - - 08/24/16 GBT III B.V. Klee Data System SA - - - 08/24/16 - Cardlay A/S - - - 08/22/16 iGAMBIT, Inc. (OTCPK:IGMB) HubCentrix Inc. $0.5 - - 08/21/16 Loblaw Companies Limited (TSX:L) QHR Corporation (TSXV:QHR) $119.8 $23.6 5.1x 08/18/16 John Wiley & Sons Inc. (NYSE:JW.A) Atypon Systems Incorporated $120.0 $31.0 3.9x 08/18/16 Rakuten, Inc. (TSE:4755) Bitnet Technologies Ltd. - - - 08/18/16 REAN Cloud LLC Opex Software LLP. - - - 08/18/16 Vista Equity Partners Granicus Inc. - - - 08/17/16 SAI Global Limited (ASX:SAI) Modulo Security, LLC $5.2 - - 08/17/16 ASRC Federal Holding Company, LLC Vistronix Intelligence & Technology Solutions, LLC - - - 08/17/16 FullContact Inc. Aireum Inc. - - - 08/17/16 Institutional Shareholder Services Inc. iiWisdom, LLC - - - 08/17/16 Speridian Technologies, LLC Sesame Software Solutions Pvt. Ltd. - - - 08/15/16 Briggs Medical Service Company SimpleLTC, Inc. - - - 08/15/16 MediSolution Ltd. Artemis, Inc. - - -
- 45. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 3Q16 SaaS M&A TRANSACTIONS (CON’T) 45 Date Buyer Seller Enterprise Value (mm) TTM Revenue EV/Rev 08/15/16 salesforce.com, inc. (NYSE:CRM) BeyondCore, Inc. - - - 08/15/16 Blue Star Sports SDI Camps & Races, LLC - - - 08/12/16 Monterro Holdings AB Outpost24 AB - - - 08/11/16 Breezeworks Corporation Prompt.ly, Inc. - - - 08/11/16 CMLS Financial Ltd. Delta 360, Inc. - - - 08/10/16 boomtrain, Inc. Nudgespot Technologies Pvt. Ltd. - - - 08/10/16 Rodan Energy Solutions Inc. Sygration Inc. - - - 08/09/16 Plex Systems, Inc. Cadent Resources, Inc. - - - 08/09/16 Bidpath Ltd. Pacts Auction Systems Limited - - - 08/08/16 BrandMuscle Inc. Saepio Technologies, Inc. - - - 08/05/16 LDC (Managers) Limited ByBox Holdings Limited $137.3 $95.3 1.4x 08/05/16 Google Inc. Orbitera Inc. - - - 08/05/16 Apple Inc. (NasdaqGS:AAPL) Turi Inc. - - - 08/04/16 - TeleMessage Ltd. $0.7 - - 08/04/16 Cuddle Clones LLC Cartoonize My Pet LLC - - - 08/04/16 Benefit Express Services, LLC Transcend Technologies Group, Inc. - - - 08/04/16 Virtus Nutrition, LLC FARMERON d.o.o. - - - 08/03/16 Beijing Shiji Information Technology, Co., Ltd. (SZSE:002153) hetras Deutschland GmbH - - - 08/03/16 Renovate America, Inc. CakeSystems, Inc. - - - 08/02/16 Defenx Plc (AIM:DFX) Memopal s.r.l. $2.7 $0.9 2.9x 08/02/16 Truno Retail Technology Solutions, Inc. Resolution Systems, Inc. - - - 08/02/16 Zillow Group, Inc. (NasdaqGS:ZG) Bridge Interactive Group, LLC - - - 08/01/16 MYOB Group Limited (ASX:MYO) Greentree International Limited $20.5 - - 08/01/16 whiteclouds inc. Sandboxr, Inc. - - - 08/01/16 Manalto Limited (ASX:MTL) Marketing Technologies Group Pty Ltd - - - 08/01/16 Magento, Inc. RJMetrics Inc. - - - 08/01/16 Edgenuity, Inc. CompassLearning, Inc. - - - 08/01/16 Planview, Inc. Innotas, Inc. - - - 08/01/16 Neverfail Neverfail Workspaces - - - 08/01/16 Dominion Payroll Services Tennessee, LLC Avintus Employer Services - - - 08/01/16 Specialist Computer Services Limited Pyramid Human Resources Limited - - - 08/01/16 Emergency Communications Network, LLC MIR3, Inc. - - - 08/01/16 - Market6, Inc. - - - 07/31/16 Jobookit Holdings Ltd. (TASE:JBKT) Homeez Ltd. - - - 07/30/16 Verizon Communications Inc. (NYSE:VZ) Fleetmatics Group PLC (NYSE:FLTX) $2,183.5 $310.6 7.0x 07/30/16 salesforce.com, inc. (NYSE:CRM) Quip, Inc. $582.0 - - 07/29/16 H.I.G. Capital, LLC Symplicity Corporation - - - 07/28/16 CYBERLINKS co.,LTD. (TSE:3683) Cloud Land Ltd. $1.0 $3.6 0.3x 07/28/16 Oracle Corporation (NYSE:ORCL) NetSuite Inc. (NYSE:N) $8,698.9 $846.2 10.3x 07/28/16 AVL LIST GmbH Dacolt International BV - - -
- 46. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 3Q16 SaaS M&A TRANSACTIONS (CON’T) 46 Date Buyer Seller Enterprise Value (mm) TTM Revenue EV/Rev 07/28/16 Riverbed Technology, Inc. Aternity, Inc. - - - 07/28/16 viihealth inc. Argolife SAS And Argonautes Tunisia, SARL - - - 07/27/16 Endurance International Group Holdings, Inc. (NasdaqGS:EIGI) AppMachine B.V. $26.2 - - 07/27/16 Main Capital Partners B.V. Substantial Stake In Obi4wan And Obilytics - - - 07/27/16 Pepperjam, LLC Pepperjam Performance Marketing - - - 07/26/16 IDOX plc (AIM:IDOX) Open Objects Software Ltd. $6.9 $3.8 1.8x 07/26/16 A10 Networks, Inc. (NYSE:ATEN) Appcito, Inc. $6.5 - - 07/26/16 LinkedIn Corporation (NYSE:LNKD) PointDrive LLC - - - 07/26/16 Yahoo Japan Corporation (TSE:4689) Commerce21 Corporation - - - 07/26/16 - Talent On View Limited - - - 07/26/16 Fidelity National Financial, Inc. (NYSE:FNF) Commissions Inc. - - - 07/25/16 Sandler Partners Inc. X4 Solutions Inc. - - - 07/25/16 Falcon Acquisitions Limited (LSE:FAL) Quiptel Hong Kong Limited - - - 07/25/16 A Plus Finance SA; Edmond de Rothschild Investment Partners Travelsoft SAS - - - 07/25/16 SportsEngine Beyond the Scores, LLC - - - 07/25/16 Dynamis, Inc. Emergency & Security Management Solutions - - - 07/25/16 Nayax Ltd. VendSys - - - 07/24/16 HyperGrid Inc DCHQ Inc. - - - 07/21/16 Net Element, Inc. (NasdaqCM:NETE) 51% Stake in PayStar, Inc. and Nexcharge, Inc. $3.4 - - 07/21/16 Workday, Inc. (NYSE:WDAY) Platfora, Inc. - - - 07/21/16 GoHealth, LLC 1SourceAdmin LLC - - - 07/21/16 salesforce.com, inc. (NYSE:CRM) Coolan, Inc. - - - 07/21/16 REZ-1, Inc. International Asset Systems USA Limited - - - 07/21/16 SportsEngine Sioux Falls Swim Team, Inc. - - - 07/20/16 Eckoh Plc (AIM:ECK) Klick2Contact EU LTD $8.8 $1.0 9.1x 07/20/16 Nuance Communications, Inc. (NasdaqGS:NUAN) TouchCommerce, Inc. $215.1 - - 07/20/16 AFN, LLC HA Advantage, Inc. - - - 07/20/16 Marlin Equity Partners, LLC Revenew, Inc. - - - 07/20/16 GreatSchools, Inc. Schoolie, Inc. - - - 07/20/16 3PL Central, LLC TS Traker Systems Inc. - - - 07/19/16 Volaris Group Inc. The Alpha School System PTY LTD - - - 07/19/16 Utility Telephone, Inc. Prestige Voice Mail Service, Inc. - - - 07/19/16 Virtual Hold Technology, LLC CallPromise, LLC - - - 07/19/16 Carbon Black, Inc. Confer Technologies, Inc. - - - 07/19/16 Apax Partners LLP Dominion Marine Media, LLC - - - 07/19/16 SportsEngine Trackwrestling.com, LLC - - - 07/18/16 Solera Holdings Inc. Enservio, Inc. - - - 07/15/16 Harris School Solutions Media-X Systems Inc. - - - 07/14/16 Amazon Web Services, Inc. Cloud9 IDE, Inc. - - - 07/14/16 Mobvista International Technology Limited Game Analytics ApS - - -
- 47. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 3Q16 SaaS M&A TRANSACTIONS (CON’T) 47 Date Buyer Seller Enterprise Value (mm) TTM Revenue EV/Rev 07/14/16 Matterport, Inc. Inspired Labs Ltd - - - 07/13/16 Thoma Bravo, LLC Imprivata, Inc. $488.5 $131.3 3.7x 07/13/16 Catapult Group International Ltd. (ASX:CAT) XOS Digital, Inc. $60.0 - - 07/13/16 Independent Publishers Group INscribe Digital - - - 07/12/16 INTCAS (UK) Ltd. FundsV.com, LLC - - - 07/12/16 Five Pack Creative, Inc. Hours, LLC - - - 07/12/16 Casio Computer Co., Ltd. (TSE:6952) Ripplex Inc. - - - 07/12/16 Foxit Software Incorporated Sumilux Technologies, Inc. - - - 07/12/16 Fort Point Capital WolfePak Software, LLC - - - 07/11/16 MI9 Business Intelligence Systems, Inc. Upshot Commerce - - - 07/11/16 Blackbaud Inc. (NasdaqGS:BLKB) Good + Geek Inc. - - - 07/11/16 eBay Inc. (NasdaqGS:EBAY) SalesPredict Ltd. - - - 07/11/16 Myntra Designs Private Limited Grid Ant Technologies Private Limited - - - 07/11/16 DABERO Service Group GmbH Wassermann AG - - - 07/11/16 Infor, Inc. Starmount Inc. - - - 07/08/16 IP-Only AB Arkena Nordics - - - 07/08/16 Integral Ad Science, Inc. Swarm Enterprises Inc. - - - 07/08/16 Caretta Partners, LLC cSuite Technologies Inc. - - - 07/08/16 Nordstrom Inc. (NYSE:JWN) DS Co. - - - 07/08/16 TrustYou GmbH Checkmate, Inc. - - - 07/07/16 Avenue 81, Inc. Drip, Inc. - - - 07/07/16 Develus Systems Inc. Suncoast Solutions, Inc. - - - 07/07/16 Alphabet Inc. (NasdaqGS:GOOGL) Anvato Inc. - - - 07/07/16 PRA Group, Inc. (NasdaqGS:PRAA) RamWare LLC - - - 07/07/16 Acuity Brands, Inc. (NYSE:AYI) DGlogik, Inc. - - - 07/06/16 AVAST Software s.r.o. AVG Technologies N.V. (NYSE:AVG) $1,463.0 $430.3 3.4x 07/06/16 Exlservice Holdings, Inc. (NasdaqGS:EXLS) Liss Systems Ltd. - - - 07/05/16 Point of Rental Software, Inc. Higher Concept Software Limited - - - 07/05/16 gamigo AG highdigit GmbH - - - 07/04/16 DIMO Software S.A.S. CashOnTime Inc. - - - 07/04/16 Rision Limited (ASX:RNL) Online Rostering Pty Ltd - - - 07/01/16 BigAir Group Limited (ASX:BGL) CyberHound Pty Ltd. $5.3 - - 07/01/16 Telstra Corporation Limited (ASX:TLS) Readify Limited - - - 07/01/16 NBC Sports, Inc. SportsEngine - - - 07/01/16 Northshore Management Company, LLC Fiveworx, Inc. - - -
- 48. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved • In 3Q16, on-premise software providers posted a median 2.0x TTM revenue multiple, less than half the median 4.5x TTM multiple posted by SaaS sellers in 3Q16. • With the exception of 4Q15’s 2.6x TTM revenue, median exit multiples have floated between 2.0x and 2.5x TTM revenue since 3Q13 for on- premise software providers. • The median EV/EBITDA exit multiple for public on-premise software companies was 14.6x TTM EBITDA in 3Q16, roughly in line with the prior quarter. • The multiple for on-premise vendors has begun to soften in 2016 and is at its lowest point since 2Q13’s median 1.8x TTM revenue. ON-PREMISE SOFTWARE M&A EXIT MULTIPLES • On a TTM basis, approximately 51% of all on-premise software targets in 3Q16 were acquired for 2.0x TTM or less, and 65% for 3.0x or less. In comparison, 52% were acquired for 2.0x TTM revenue or less and 72% for 3.0x or less in 2Q16. • Notable on-premise software transactions significantly exceeding median exit multiples include EQT Partners’ acquisition of health care software provider, Press Ganey, for $2.4 billion (6.9x TTM revenue) and Mastercard’s acquisition of payments technology provider, VocaLink, for $1.2 billion (5.0x TTM revenue). 48 *Note - EV/EBITDA multiples comprised public sellers only Median EV/Revenue Exit Multiple DistributionMedian Exit Multiples 2.5x 2.6x 2.2x 2.1x 2.0x 18.1x 24.7x 23.2x 15.0x 14.6x 0.0x 5.0x 10.0x 15.0x 20.0x 25.0x 30.0x 3Q15 4Q15 1Q16 2Q16 3Q16 EV/Revenue EV/EBITDA 27.6% 23.8% 14.3% 13.3% 6.7% 3.8% 10.5% <= 1.0x > 1.0x & <= 2.0x > 2.0x & <= 3.0x > 3.0x & <= 4.0x > 4.0x & <= 5.0x > 5.0x & <= 6.0x > 6.0x TTM Revenue Exit Multiple Bins %ofDeals–3Q16TTM
- 49. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved ON-PREMISE SOFTWARE M&A: BY OWNERSHIP STRUCTURE AND SIZE • Of the TTM deals announced with an ascertainable EV/Rev exit multiple, approximately 80% of software M&A transactions featured privately-held targets. • The median TTM exit multiple was significantly higher for public on- premise software sellers (3.0x TTM revenue) than for their private counterparts (1.8x TTM revenue). • Over the last 12 months, public buyers paid a median 1.8x TTM revenue for their targets, compared to a median of 2.4x paid by private buyers. • Buyers with revenue greater than $200 million paid a median 2.6x TTM revenue for their targets, compared to a median 1.6x TTM revenue paid by sub-$200 million revenue buyers. • While the highest exit multiples have historically featured a large public or private buyer (greater than $200 million in revenue) acquiring a small target (less than $20 million), this was not the case in 3Q16. For the last 12 months, large buyers paid a median 2.6x TTM revenue for acquisition targets small and large. 49 Seller Less Than $20 million: 2.4x Seller Less Than $20 million: 2.6x Seller Greater Than $20 million: 1.5x Seller Greater Than $20 million: 0.8x Seller Less Than $20 million: 1.6x Seller Less Seller Greater Than $20 million: 1.7x Seller Greater Than $20 million: 2.6x Buyer Less Than $200 million 1.6x Median Multiple Buyer Greater Than $200 million 2.6x Median Multiple Large vs. Smaller BuyerPublic vs. Private Target 52%48%
- 50. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved ON-PREMISE SOFTWARE M&A: BY VERTICAL AND HORIZONTAL MARKETS • The median exit valuation of horizontal software companies was 2.1x TTM revenue in 3Q16, on par with recent quarters. Representative Q3 horizontal transactions included EQT Partners’ acquisition of healthcare service provider, Press Ganey, for $2.4 billion (6.9x TTM revenue); MasterCard’s acquisition of payments provider, VocaLink, for $1.1 billion (5x TTM revenue); DTI’s acquisition of legal software company, Epiq Systems, for $1.0 billion (1.9x TTM revenue). • The median exit valuation of vertical software companies was 2.4x TTM revenue in 3Q16, also on par with recent quarters. Vertical software targets have fetched a higher median EV/Revenue exit multiple than their horizontal software counterparts for the past eight quarters. That represents a marked turnaround for vertical software median exit valuations after a dismal 2012 and 2013 (1.5x). The vertical exit recovery began in 2014 when the median multiple advanced to 2.2x. • Q3’s more noteworthy vertical on-premise software deals included Micro Focus’ acquisition of Hewlett Packards enterprise software division for $8.7 billion (2.7x TTM revenue); LogMeIn’s acquisition of Citrix’s GoTo family of products for $1.8 billion; Genesys Telecom’s acquisition of Interactive Intelligence for $1.5 billion (3.4x TTM revenue); and Open Text’s acquisition of Dell’s enterprise content management business for $1.6 billion (2.7x TTM revenue). 50 Horizontal & Vertical M&A Median EV/Revenue Exit MultiplesHorizontal & Vertical M&A Volume 2.4x 2.4x 2.5x 2.3x 2.4x 2.1x 2.1x 2.1x 2.2x 2.1x 3Q15 4Q15 1Q16 2Q16 3Q16 Vertical Horizontal 34% 36% 31% 35% 35% 66% 64% 69% 65% 65% 3Q15 4Q15 1Q16 2Q16 3Q16 Vertical Horizontal
- 51. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 51 ON-PREMISE SOFTWARE M&A ACTIVITY BY PRODUCT CATEGORY Vertical Product Categories Horizontal Product Categories 4.7% 4.1% 5.2% 0.6% 0.8% 1.7% 1.1% 2.8% 1.4% 0.8% 0.0% 2.2% 2.2% 0.8% 5.2% 1.4% 7.4% 2.1% 1.1% 1.8% 1.1% 1.8% 0.7% 1.8% 1.4% 2.1% 1.4% 1.8% 6.0% 1.1% 4.9% 0.4% BI, Risk & Compliance Content & Document Mgmt CRM, Marketing & Sales Data Mgmt/Integration Dev. Tools & IT Asset Mgmt eCommerce EDA Engineering & PLM ERP Entertainment HR & Workforce Mgmt Messaging, Conferencing & Communications Multimedia, Graphics & Communications Network Performance Mgmt Security Billing & Service Provisioning 3Q15 3Q16 5.5% 8.0% 5.0% 1.4% 8.0% 1.7% 0.8% 2.2% 0.8% 1.7% 2.8% 3.9% 2.1% 1.1% 13.1% 2.5% 1.4% 5.3% 1.1% 1.8% Education Financial Services Healthcare Insurance Other Verticals Public Sector Retail Real Estate Legal Automotive 3Q15 3Q16
- 52. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved ON-PREMISE SOFTWARE M&A EXIT VALUATIONS BY PRODUCT CATEGORY • Among the 36 on-premise software product categories we track, eleven had both sufficient deal activity and deal data to ascertain a category TTM revenue multiple in 3Q16. • On a TTM basis, the Financial Services category was rewarded with the highest median exit multiple (4.2x TTM revenue), followed by Healthcare with a median exit multiple of 3.8x TTM revenue. • Notable Healthcare transactions include IBM’s 1Q16 acquisition of healthcare analytics provider, Truven Holding ($3.6 billion, 5.8x TTM revenue); Echo’s 3Q16 acquisition of Morrisey ($48 million, 3.8x TTM revenue) and Progenics Pharmaceuticals’ 4Q15 acquisition of EXINI Diagnostics AB ($7.1 million, 6.3x TTM revenue). • Notable Financial Services software transactions included Mastercard’s 3Q16 acquisition of VocaLink ($1.1 billion, 5.1x TTM revenue); Intercontinental Exchange’s 4Q15 acquisition of Trayport ($860 million, 11.0x TTM revenue); and Broadridge Financial Solutions’ 2Q16 acquisition of 4Sight Financial Software Limited ($40 million, 3.3x TTM revenue). • On-premise CRM & Marketing and Human Capital Management exit multiples lagged far behind all other product categories on a TTM basis – posting a meager 1.0x and 0.8x median TTM revenue multiple in 3Q16, respectively. 52 Median EV/Revenue Exit Multiples by Software Product Category 4.2x 3.8x 3.2x 2.4x 1.8x 1.7x 1.7x 1.2x 1.2x 1.0x 0.8x FinancialServices Healthcare Mobile Education OtherVerticals BI,Risk& Compliance Entertainment Messaging, Conferencing& Communications Security CRM&Marketing HumanCapital Mgmt
- 53. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved Software Equity Group (SEG) is a boutique investment bank and M&A advisory serving emerging and middle market software companies. For more than twenty years, SEG has worked alongside its software industry clients to drive extraordinary outcomes for the client's shareholders, employees and customers. Over this time period, SEG has managed hundreds of sell-side M&A transactions, representing billions of dollars of aggregate transaction value. SEG's unwavering commitment to the software industry equates to unmatched expertise across software industry product categories, delivery models, technology and end market verticals; and unrivaled access to key decision makers among strategic and private equity buyers. Our value proposition is unique and compelling. We are skilled and accomplished investment bankers with extraordinary software, internet and technology domain expertise. Our industry knowledge and experience span virtually every software product category, technology, market and delivery model, including Software-as-a-Service (Saas), software on-demand and perpetual license. We have profound understanding of software company finances, operations and valuation. We monitor and analyze every publicly disclosed software M&A transaction, as well as the market, economy and technology trends that impact these deals. We're formidable negotiators and savvy dealmakers who facilitate strategic combinations that enhance shareholder value. Perhaps most important are the relationships we've built and the industry reputation we enjoy. Software Equity Group is known and respected by publicly traded and privately owned software and technology companies worldwide, and we speak with them often. Our Quarterly and Annual Software Industry Equity Reports are read and relied upon by more than thousands of industry executives, entrepreneurs and equity investors in sixty-one countries, and we have been quoted widely in such leading publications as The Wall Street Journal, Barrons, Information Week, The Daily Deal, The Street.com, U.S. News & World Report, Reuters, Mergers & Acquisitions, USA Today, Arizona Republic, Detroit Free Press, Entrepreneur Magazine, Softletter, Software Success, Software CEO Online and Software Business Magazine. To keep your finger on the pulse of the software equity markets, subscribe to our Annual and Quarterly Research Reports. Software Equity Group is an investment bank and M&A advisory serving the software and technology sectors. For a confidential consultation without obligation, please contact Kris Beible, Vice President (858) 509-2800, kbeible@softwareequity.com . CONTACT INFORMATION: SEG Capital Advisors, L.L.C. 12220 El Camino Real, Suite 320 San Diego, CA 92130 www.softwareequity.com p: (858) 509-2800 The information contained in this Report is obtained from sources that SEG Capital Advisors LLC (“SEG”) believes to be reliable. However, SEG makes no representations or warranties, express or implied, about the accuracy, completeness or fairness of such information, or the opinions expressed herein. Nothing in this Report is intended to be a recommendation of a specific security or company or intended to constitute an offer to buy or sell, or the solicitation of an offer to buy or sell, any security. Any person or entity reviewing this report (a) should conduct its own diligence and reach its own conclusions regarding its business transactions, (b) should not rely upon any conclusions reached by SEG, and (c) should consult its own advisors regarding its tax, accounting, financial and/or business decisions. SEG or its affiliates may have an interest in one or more of the securities or companies discussed herein. Financial data was provided by Capital IQ. This Report may not be reproduced in whole or in part without the expressed prior written authorization of SEG. SEG or one of its affiliate Software Equity Group registers each Report with the U.S. Copyright Office and vigorously enforces its intellectual property rights. ABOUT SOFTWARE EQUITY GROUP 53
- 54. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved APPENDIX
- 55. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved THE SEG SaaS INDEX: PUBLIC MARKET MULTIPLES (ANNUAL) 55 31.4x 32.2x 35.2x 35.2x 42.4x 56.8x 33.9x 2009 2010 2011 2012 2013 2014 2015 MedianEV/EBITDAMultiple 2.6x 3.6x 4.5x 5.0x 6.7x 5.7x 5.8x 2009 2010 2011 2012 2013 2014 2015 MedianEV/RevenueMultiple Median EV/EBITDA – AnnualMedian EV/Revenue – Annual
- 56. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 56 $123.7 $104.7 $155.4 $169.0 $163.5 $128.7 $164.1 2009 2010 2011 2012 2013 2014 2015 TTMTotalRevenue 68.3% 68.6% 63.4% 70.9% 70.0% 66.1% 66.0% 2009 2010 2011 2012 2013 2014 2015 GrossProfitMargin THE SEG SaaS INDEX: FINANCIAL PERFORMANCE (ANNUAL) 26.0% 14.2% 26.9% 25.5% 26.0% 28.4% 27.1% 2009 2010 2011 2012 2013 2014 2015 TTMRevenueGrowth 6.7% 9.6% 8.8% 8.1% 1.0% -8.9% -9.4% 2009 2010 2011 2012 2013 2014 2015 EBITDAMargin Median TTM Total Revenue ($M) - AnnualMedian Revenue Growth - Annual Median EBITDA Margin - AnnualMedian Gross Profit Margin - Annual
- 57. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 57 THE SEG SOFTWARE INDEX: PUBLIC MARKET MULTIPLES (ANNUAL) 1.5x 2.3x 2.7x 2.7x 3.0x 3.0x 2.8x 2009 2010 2011 2012 2013 2014 2015 EV/RevenueMultiple 10.0x 12.4x 12.3x 11.9x 14.0x 15.0x 14.0x 2009 2010 2011 2012 2013 2014 2015 EV/EBITDAMultiple Median EV/EBITDA – AnnualMedian EV/Revenue – Annual
- 58. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 58 THE SEG SOFTWARE INDEX: FINANCIAL PERFORMANCE (ANNUAL) $239.80 $387.90 $381.40 $470.50 $535.80 $743.10 2010 2011 2012 2013 2014 2015 TTMTotalRevenue 4.2% 4.5% 16.1% 13.3% 9.3% 8.0% 7.5% 2009 2010 2011 2012 2013 2014 2015 TTMRevenueGrowth 66.6% 68.6% 65.8% 66.1% 66.5% 66.0% 65.7% 2009 2010 2011 2012 2013 2014 2015 GrossProfitMargin 15.3% 17.4% 18.9% 17.9% 17.5% 17.6% 18.5% 2009 2010 2011 2012 2013 2014 2015 EBITDAMargin Median TTM Total Revenue ($M) - AnnualMedian Revenue Growth - Annual Median EBITDA Margin - AnnualMedian Gross Profit Margin - Annual
- 59. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 59 THE SEG INTERNET INDEX: PUBLIC MARKET MULTIPLES (ANNUAL) 1.2x 1.6x 2.9x 2.1x 2.6x 2.5x 1.8x 2009 2010 2011 2012 2013 2014 2015 MedianEV/REvenueMultiple 10.0x 11.8x 15.2x 13.9x 20.8x 24.6x 17.0x 2009 2010 2011 2012 2013 2014 2015 MedianEV/EBITDAMultiple Median EV/EBITDA – AnnualMedian EV/Revenue – Annual
- 60. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved 60 THE SEG INTERNET INDEX: FINANCIAL PERFORMANCE (ANNUAL) $216.2 $278.1 $333.0 $392.8 $440.2 $411.2 $492.9 2009 2010 2011 2012 2013 2014 2015 TTMTotalRevenue 2.9% 3.4% 26.4% 23.9% 18.7% 20.6% 17.5% 2009 2010 2011 2012 2013 2014 2015 TTMRevenueGrowth 60.1% 60.9% 66.2% 65.0% 64.7% 63.8% 63.2% 2009 2010 2011 2012 2013 2014 2015 GrossProfitMargin 10.2% 12.2% 13.1% 10.6% 8.9% 8.3% 7.3% 2009 2010 2011 2012 2013 2014 2015 EBITDAMargin Median TTM Total Revenue ($M) - AnnualMedian Revenue Growth - Annual Median EBITDA Margin - AnnualMedian Gross Profit Margin - Annual
- 61. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved THE SEG SaaS INDEX COMPANIES – KEY METRICS 61 SEG SaaS Index Company EV/Revenue EV/EBITDA TTM Revenue Growth EBITDA Margin 3Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16 2U 10.5x 7.1x 4.7x 6.7x 8.2x - - - - - 33.9% 32.0% 36.2% 37.6% 37.1% -20.0% -18.6% -16.6% -14.0% -12.2% Alarm.com 4.4x 3.6x 3.3x 4.0x 4.9x 30.0x 22.6x 22.9x 27.3x 30.8x 25.4% 26.1% 24.8% 25.8% 25.8% 14.5% 15.9% 14.4% 14.8% 15.9% Amber Road 1.9x 1.8x 10.4x 2.1x 3.7x - - - - - 11.4% 7.5% 3.5% 5.9% 4.6% -19.8% -27.6% -33.6% -30.0% -24.9% Apigee Corporation 2.4x 2.4x 9.1x 2.9x 3.9x - - - - - 30.2% 26.6% 28.3% 32.1% 34.1% -68.6% -60.6% -53.3% -48.8% -41.8% AppFolio 8.3x 7.5x 9.8x 5.1x 6.6x - - - - - - - 57.3% 53.4% 48.9% -17.1% -19.3% -16.1% -14.4% -11.9% Appito, Inc - - 5.9x - 6.4x - - - - - - - 21.2% 21.2% 20.5% -24.7% -26.5% -25.9% -22.7% -21.0% Athenahealth 6.5x 7.2x 0.8x 5.5x 5.0x 76.9x 92.5x 12.6x 67.5x 59.2x 24.2% 23.8% 22.9% 22.4% 21.2% 8.4% 7.8% 6.6% 8.1% 8.4% Atlassian Corp - 16.0x 1.9x 10.3x 12.3x - 381.7x 46.9x 313.6x 652.3x 48.5% - - - 43.0% 3.4% 4.2% 4.1% 3.3% 1.9% Bazaarvoice 2.0x 1.6x 3.6x 1.2x 1.5x - - - - - 11.7% 9.3% 6.1% 4.5% 3.6% -10.5% -9.1% -9.1% -7.5% -4.9% Benefitfocus 6.5x 6.0x 4.0x 5.3x 5.7x - - - - - 33.6% 34.1% 34.7% 32.0% 33.0% -31.6% -27.5% -24.4% -22.3% -17.1% Box 5.8x 4.9x 2.4x 4.1x 4.3x - - - - - - 45.5% 39.9% 38.2% 35.1% -58.1% -56.3% -54.3% -47.6% -41.0% Callidus Software 5.2x 5.9x 4.0x 5.0x 5.5x - - 1889.4x - - 24.2% 27.8% 26.7% 25.0% 22.9% -3.3% -3.1% 0.2% 0.0% -0.1% Castlight Health 6.8x 3.6x 9.3x 3.1x 3.4x - - - - - 121.2% 88.9% 65.1% 54.3% 42.5% -125.5% -115.4% -103.8% -93.6% -82.4% ChannelAdvisors 2.4x 2.9x 7.2x 2.5x 2.5x - - - - - 18.6% 16.5% 18.5% 18.4% 17.1% -25.4% -19.6% -11.5% -6.7% -6.9% Cornerstone OnDemand 6.5x 6.0x 2.2x 5.4x 6.3x - - - - - 35.7% 32.3% 28.9% 30.3% 29.3% -17.5% -18.5% -17.8% -16.1% -13.9% Covisint 0.7x 0.5x 9.1x 0.5x 0.6x - - - - - -9.7% -10.6% -11.2% -14.1% -12.2% -26.8% -25.8% -24.9% -14.9% -13.0% Cvent 7.0x 7.1x 4.0x 6.7x 5.7x 1950.4x 640.8x 657.1x 212.4x 144.7x 31.7% 31.8% 32.0% 30.9% 27.9% 0.4% 1.1% 0.6% 3.2% 3.9% DealerTrack 2.6x 3.9x 21.6x 3.5x 2.5x 20.0x 28.2x 143.9x 21.5x 15.5x 60.3% 39.7% 41.8% 43.7% 43.7% 12.9% 13.7% 15.0% 16.1% 16.1% Ebix 4.8x 4.9x 3.2x 6.2x 7.0x 13.5x 13.9x 8.6x 16.6x 18.6x 17.6% 25.1% 23.9% 20.3% 17.0% 35.5% 35.1% 36.8% 37.3% 37.4% Ellie Mae 9.9x 7.8x 2.9x 9.1x 10.5x 45.2x 37.5x 15.5x 52.4x 57.9x 54.6% 62.2% 57.2% 48.9% 42.0% 21.9% 20.7% 18.9% 17.3% 18.1% Everbridge, Inc - - 12.1x - 6.8x - - - - - - - 38.4% 35.5% 33.4% -3.0% -9.4% -14.0% -15.4% -16.1% FireEye 12.0x 5.6x 1.1x 3.7x 3.4x - - - - - 97.4% 71.0% 46.4% 39.5% 30.9% -74.8% -67.1% -63.5% -61.7% -57.9% Fleetmatics 6.5x 7.2x 2.4x 4.6x 7.0x 24.8x 28.9x 10.0x 20.2x 32.7x 27.0% 24.7% 23.0% 21.7% 20.2% 26.3% 24.9% 24.0% 22.8% 21.4% Halogen Software 2.0x 1.4x 9.5x 1.6x 1.7x - - - - 361.0x 18.0% 17.4% 15.9% 14.2% 12.8% -13.9% -9.7% -6.0% -4.4% 0.5% HealthStream 3.6x 3.0x 3.3x 2.7x 3.2x 25.3x 18.3x 26.9x 24.0x 28.1x 24.8% 22.2% 22.4% 20.3% 15.5% 14.1% 16.3% 12.1% 11.1% 11.2% HortonWorks 11.9x 7.9x 5.8x 3.8x 2.7x - - - - - 106.4% 121.4% 164.8% 135.6% 99.0% -266.4% -221.4% -143.3% -140.1% -140.9% HubSpot 10.4x 10.4x 4.1x 7.2x 8.2x - - - - - 55.3% 56.6% 57.0% 56.1% 54.3% -35.5% -33.2% -24.0% -20.6% -18.1% inContact 2.3x 2.7x 3.2x 2.6x 3.5x - - - 403.9x 207.1x 36.1% 33.3% 29.2% 25.2% 23.1% -4.2% -2.5% -0.7% 0.6% 1.7% Instructure - 8.6x 10.1x 5.2x 6.6x - - - - - - - 65.0% 62.5% 62.1% -92.5% -85.3% -67.9% -56.8% -51.7% IntraLinks Holdings 2.5x 2.0x 3.0x 1.7x 2.0x 54.4x 51.3x 100.6x 43.7x 39.1x 9.7% 8.5% 7.9% 6.7% 6.1% 4.5% 3.9% 3.0% 4.0% 5.1% J2 Global 5.3x 5.9x 1.3x 4.4x 4.4x 12.9x 14.2x 3.3x 10.8x 10.5x 20.7% 19.9% 20.3% 21.4% 21.0% 40.8% 41.4% 40.6% 41.1% 41.7% Jive Software 1.3x 1.3x 4.3x 1.0x 1.1x - - - - - 18.0% 13.5% 9.6% 7.9% 6.2% -13.8% -11.8% -10.7% -9.6% -6.8% LivePerson 2.1x 1.7x 4.0x 1.3x 1.7x 59.4x 26.8x 56.3x 18.9x 25.0x 20.5% 19.9% 13.9% 5.8% 0.8% 3.6% 6.2% 7.1% 7.0% 6.7% Marin Software 1.0x 1.0x 9.6x 0.5x 0.6x - - - - - 19.5% 13.1% 9.2% 6.2% 2.3% -27.3% -25.2% -19.4% -14.4% -7.7% Medical Transcript 1.0x 0.8x 50.2x 0.5x 0.6x - - - - - 126.9% 75.0% 26.1% 0.8% -15.6% -13.5% -7.0% -6.5% -5.9% -5.4% Medidata Solutions 7.8x 6.3x 3.2x 6.0x 7.2x 76.2x 59.7x 31.0x 55.3x 59.1x 19.8% 19.5% 17.1% 15.2% 15.1% 10.2% 10.5% 10.2% 10.9% 12.2% Mimecast - 4.5x 8.5x 2.6x 4.7x - 31.1x 84.4x 46.3x 225.8x - - - 22.2% 22.5% 10.9% 14.4% 10.1% 5.6% 2.1%
- 62. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved THE SEG SaaS INDEX COMPANIES – KEY METRICS 62 SEG SaaS Index Company EV/Revenue EV/EBITDA TTM Revenue Growth EBITDA Margin 3Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16 MINDBODY 6.2x 5.8x 12.2x 4.3x 5.1x - - - - - - - 44.8% 45.0% 41.4% -29.8% -27.4% -28.3% -24.1% -20.0% NantHealth, Inc. - - 23.0x 27.6x 18.3x - - - - - - - 71.9% 70.9% 97.8% -145.7% -133.5% -109.1% -120.3% -143.8% Netsuite 11.0x 9.6x 1.8x 7.7x 10.3x - - - - - 35.0% 34.9% 33.2% 32.6% 31.5% -9.1% -8.4% -8.3% -7.9% -7.0% New Relic 11.7x 11.3x 7.6x 6.1x 8.0x - - - - - 73.2% 68.8% 67.5% 64.2% 60.2% -38.3% -36.2% -32.5% -32.4% -30.1% Nutanix, Inc - - 4.0x - 11.8x - - - - - 89.9% - - 83.7% 84.3% -42.3% -39.1% -35.8% -33.7% -31.2% Paycom Software 11.4x 11.3x 5.9x 9.0x 10.2x 55.4x 56.4x 31.3x 38.2x 43.3x 46.2% 48.4% 48.8% 53.4% 53.9% 20.6% 20.1% 18.7% 23.5% 23.6% Paylocity Holding 10.8x 11.9x 6.2x 8.7x 9.5x - - - 374.4x 449.0x 40.5% 42.0% 46.7% 49.2% 51.1% -5.2% -3.6% -0.2% 2.3% 2.1% Q2 Holdings 9.7x 9.0x 8.8x 7.2x 8.0x - - - - - 41.8% 38.5% 37.6% 37.0% 37.0% -15.1% -14.9% -14.8% -15.7% -16.4% Qualys 6.5x 6.6x 7.1x 4.3x 5.2x 31.5x 29.8x 29.7x 17.6x 21.4x 24.1% 24.1% 23.0% 23.0% 22.5% 20.7% 22.3% 23.8% 24.6% 24.3% RealPage 3.5x 3.7x 2.9x 3.7x 4.1x 44.0x 39.2x 25.6x 29.4x 30.5x 11.6% 14.1% 15.8% 17.4% 18.5% 7.9% 9.4% 11.3% 12.5% 13.3% RingCentral 4.5x 5.2x 3.9x 3.9x 4.5x - - - - - 35.3% 35.1% 34.7% 34.0% 32.9% -10.6% -7.9% -5.5% -4.0% -2.7% Salesforce.com 8.0x 8.3x 0.2x 7.5x 7.2x 150.8x 130.8x 2.2x 101.4x 96.2x 25.3% 24.2% 24.1% 25.0% 25.1% 5.3% 6.3% 7.0% 7.4% 7.5% Service-now.com 13.6x 14.3x 1.0x 10.0x 9.9x - - - - - 54.0% 50.5% 47.3% 45.5% 42.9% -14.9% -12.5% -10.5% -9.3% -7.7% Shopify 16.5x 11.6x 3.0x 9.2x 11.1x - - - - - - - 95.4% 94.7% 95.0% -7.2% -5.9% -5.9% -6.9% -7.4% SPS Commerce 7.2x 7.2x 3.6x 4.6x 5.6x 72.9x 70.8x 34.3x 44.0x 55.9x 25.0% 25.8% 23.9% 22.9% 22.2% 9.8% 10.1% 10.5% 10.4% 10.1% Tableau Software 12.4x 9.8x 0.7x 4.1x 4.4x - - - - - 71.4% 69.1% 58.4% 48.5% 41.0% -0.3% -1.4% -4.3% -8.4% -11.3% Tabula Rasa Healthcare - - 6.1x - 3.7x - - 60.2x - 34.0x - - 44.6% 40.7% 35.9% 8.1% 9.1% 10.1% 10.6% 11.0% Tangoe 1.3x 1.3x 1.9x 1.3x 1.4x 19.2x 30.5x 44.0x 29.0x 30.9x 8.3% 5.7% 5.7% 5.7% 5.7% 6.7% 4.4% 4.4% 4.4% 4.4% The Trade Desk - - 4.3x - 8.2x - - 12.6x - 26.0x - - 155.5% - - 2.1% 2.1% 33.8% 30.7% 31.6% The Ultimate Software Group 9.0x 9.4x 0.8x 8.4x 8.6x 74.2x 83.5x 7.6x 86.5x 90.5x 21.1% 20.8% 22.2% 24.7% 26.1% 12.2% 11.3% 10.3% 9.7% 9.5% TrueCar 1.7x 2.0x 1.6x 1.8x 2.6x - - - - - 37.2% 31.6% 25.7% 18.9% 12.0% -16.1% -13.7% -14.3% -14.4% -12.9% Twilio, Inc. - - 2.6x 13.2x 19.4x - - - - - - - 87.9% 86.6% 79.1% -24.8% -23.2% -19.9% -15.8% -13.9% Upland Software 1.8x 1.7x 6.3x 2.0x 2.5x 556.4x 359.1x 643.0x 81.8x 53.0x 25.0% 14.2% 8.3% 5.2% 4.3% 0.3% 0.5% 1.0% 2.4% 4.6% Veeva Systems 8.3x 8.2x 2.0x 7.7x 10.1x 34.2x 34.6x 9.3x 38.9x 52.2x 37.9% 32.2% 30.6% 30.5% 31.6% 24.4% 23.8% 21.6% 19.9% 19.4% Workday 13.6x 13.2x 0.4x 10.8x 10.9x - - - - - 58.2% 51.4% 47.5% 43.0% 38.7% -15.8% -15.6% -15.6% -15.5% -15.5% Workiva 4.1x 4.8x 2.2x 3.0x 4.0x - - - - - 27.8% 27.7% 28.9% 29.2% 28.7% -29.3% -28.8% -27.0% -28.8% -27.8% Xactly 3.1x 3.2x 2.7x 2.6x 4.3x - - - - - - 20.9% 24.3% 27.9% 29.7% -19.8% -20.2% -21.5% -21.0% -18.4%
- 63. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved CRM & Marketing 3Q15 4Q15 1Q16 2Q16 3Q16 EV/TTM Revenue 5.4x 6.6x 6.7x 3.7x 5.7x EV/NTM Revenue 6.0x 6.0x 3.3x 5.2x 4.5x EV/TTM EBITDA 149.4x 119.1x 112.3x 91.4x 96.2x EV/TTM CFO 31.3x 43.5x 32.4x 19.8x 25.8x Gross Profit Margin 67.9% 67.9% 68.2% 70.0% 70.1% EBITDA Margin -10.5% -9.1% -9.1% -7.5% -4.9% Net Income Margin -17.1% -14.3% -13.7% -12.7% -12.7% TTM Revenue Growth (YoY) 25.3% 24.2% 24.1% 25.0% 25.1% TTM EBITDA Growth(YoY) -10.5% 0.3% 22.3% 50.5% 71.1% TTM Earnings Growth (YoY) 26.9% 14.3% -4.5% -8.6% -14.6% Cash as Percent of Market Cap 12.6% 12.3% 14.2% 12.6% 11.9% Enterprise Value Growth (YoY) -3.5% 11.9% -12.3% 7.3% 10.6% ERP & Supply Chain 3Q15 4Q15 1Q16 2Q16 3Q16 EV/TTM Revenue 6.4x 6.2x 6.9x 3.7x 5.6x EV/NTM Revenue 5.5x 5.5x 3.0x 4.2x 5.3x EV/TTM EBITDA 24.3x 25.0x 28.7x 21.0x 32.7x EV/TTM CFO 78.9x 70.5x 65.6x 37.1x 46.4x Gross Profit Margin 67.7% 67.1% 67.8% 67.8% 67.6% EBITDA Margin -9.1% -8.4% -8.3% -7.9% -7.0% Net Income Margin -17.0% -17.0% -16.8% -16.6% -16.2% TTM Revenue Growth (YoY) 27.0% 25.8% 23.9% 22.9% 22.2% TTM EBITDA Growth(YoY) 16.9% 16.2% 7.6% -0.1% -1.0% TTM Earnings Growth (YoY) 31.7% 22.7% 41.2% 61.7% 63.8% Cash as Percent of Market Cap 12.4% 10.4% 14.4% 12.5% 9.1% Enterprise Value Growth (YoY) 20.1% 16.4% -21.1% -15.7% 17.8% Vertically Focused 3Q15 4Q15 1Q16 2Q16 3Q16 EV/TTM Revenue 7.4x 6.1x 6.3x 4.8x 6.6x EV/NTM Revenue 5.1x 4.7x 4.5x 4.8x 5.2x EV/TTM EBITDA 40.8x 34.1x 33.6x 29.9x 34.0x EV/TTM CFO 31.6x 26.3x 26.0x 20.7x 32.3x Gross Profit Margin 60.2% 60.1% 59.4% 59.0% 59.2% EBITDA Margin 8.0% 8.4% 8.3% 9.4% 9.7% Net Income Margin -2.3% -5.2% -3.0% -1.8% -1.3% TTM Revenue Growth (YoY) 35.9% 32.1% 36.9% 37.3% 36.4% TTM EBITDA Growth(YoY) 6.1% 12.3% 12.3% 15.3% 19.6% TTM Earnings Growth (YoY) 82.9% 70.1% 42.5% 22.8% 21.4% Cash as Percent of Market Cap 7.5% 11.3% 12.9% 9.8% 7.5% Enterprise Value Growth (YoY) 15.5% 26.3% 6.2% 14.0% 13.2% Human Capital Management 3Q15 4Q15 1Q16 2Q16 3Q16 EV/TTM Revenue 6.6x 6.1x 5.6x 4.5x 6.0x EV/NTM Revenue 4.6x 4.9x 4.1x 4.5x 5.0x EV/TTM EBITDA 52.6x 51.6x 70.2x 53.4x 90.5x EV/TTM CFO 56.9x 54.6x 49.5x 37.1x 48.3x Gross Profit Margin 60.3% 60.9% 61.5% 61.9% 62.1% EBITDA Margin -9.6% -6.7% -3.1% -2.2% 0.2% Net Income Margin -18.7% -16.9% -14.1% -10.3% -8.3% TTM Revenue Growth (YoY) 33.6% 30.0% 27.8% 29.1% 29.5% TTM EBITDA Growth(YoY) -15.6% -24.6% 12.9% 12.9% 13.0% TTM Earnings Growth (YoY) 28.4% -0.5% -17.1% -33.7% -28.7% Cash as Percent of Market Cap 10.7% 7.8% 10.3% 11.0% 9.6% Enterprise Value Growth (YoY) 22.3% 36.8% 4.7% 8.1% 20.8% Other SaaS 3Q15 4Q15 1Q16 2Q16 3Q16 EV/TTM Revenue 5.2x 4.7x 4.8x 3.5x 4.4x EV/NTM Revenue 3.7x 4.1x 2.8x 2.9x 3.3x EV/TTM EBITDA 35.2x 28.3x 36.2x 43.8x 35.0x EV/TTM CFO 31.1x 37.0x 42.2x 28.7x 33.8x Gross Profit Margin 68.3% 68.4% 68.9% 69.3% 69.8% EBITDA Margin -12.2% -10.6% -10.6% -8.8% -7.5% Net Income Margin -19.5% -18.2% -19.0% -17.2% -16.8% TTM Revenue Growth (YoY) 31.6% 27.7% 29.2% 27.2% 28.7% TTM EBITDA Growth(YoY) -4.8% -3.6% 4.1% 0.1% 4.8% TTM Earnings Growth (YoY) -49.5% 15.5% 14.4% 19.6% -12.0% Cash as Percent of Market Cap 12.2% 12.1% 15.1% 13.8% 10.9% Enterprise Value Growth (YoY) 30.8% -0.3% -26.7% -20.1% 0.6% THE SEG SaaS INDEX METRICS BY PRODUCT CATEGORY 63
- 64. SOFTWARE EQUITY GROUP | Q3 2016 SOFTWARE INDUSTRY FINANCIAL REPORT Copyright © SEG Capital Advisors, LLC, All Rights Reserved SEG Software Index Company EV/Revenue EV/EBITDA TTM Revenue Growth EBITDA Margin 3Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16 A10 Networks 1.7x 1.7x 1.4x 1.4x 2.1x - - - - - 4.2% 6.2% 10.8% 17.4% 21.2% -19.7% -18.0% -13.8% -10.8% -9.2% Accretive Health - - - - - - - - - - -1.7% -60.9% -44.2% 120.3% 159.9% -17.9% -154.3% -100.9% 46.1% 44.7% ACI Worldwide 3.3x 3.4x 2.9x 3.0x 2.9x 16.4x 17.5x 17.2x 20.5x 28.0x 6.7% 1.8% 2.9% 1.1% -4.3% 20.2% 19.3% 16.7% 14.6% 10.5% Activision Blizzard 4.3x 5.4x 5.4x 6.3x 6.2x 14.1x 16.4x 17.9x 19.3x 22.1x 8.4% 12.3% 5.8% 5.8% 15.4% 30.7% 32.8% 30.4% 32.9% 28.3% Allot Communications 0.5x 0.6x 0.4x 0.5x 0.5x - - - - - 3.9% -7.6% -14.7% -21.2% -15.3% -0.8% -3.3% -4.3% -9.6% -4.9% Allscripts Healthcare Solutions 2.3x 2.4x 2.1x 2.2x 2.7x 37.1x 35.2x 26.3x 24.1x 29.1x 0.0% -0.5% 0.6% 1.8% 4.3% 6.2% 6.9% 8.1% 8.9% 9.3% Amdocs Limited 2.1x 2.1x 2.0x 2.0x 2.1x 10.6x 10.7x 10.6x 10.9x 10.5x 3.1% 2.2% 1.5% 2.0% 2.4% 19.4% 19.3% 18.9% 18.6% 19.5% American Software 1.9x 2.1x 1.8x 1.7x 2.2x 15.1x 15.1x 13.5x 13.1x 18.9x 4.6% 11.6% 11.3% 10.7% 5.2% 12.5% 13.7% 13.5% 13.4% 11.6% ANSYS 7.9x 7.9x 7.3x 7.3x 7.5x 17.3x 17.3x 15.9x 15.9x 16.4x 5.1% 3.0% 0.7% 1.3% 2.1% 46.0% 45.6% 45.8% 45.7% 45.8% Aspen Technology 7.2x 7.2x 5.7x 6.6x 7.3x 17.2x 16.6x 12.8x 14.2x 15.6x 12.5% 10.4% 10.7% 10.5% 7.3% 41.9% 43.1% 44.4% 46.4% 47.0% Autodesk 4.1x 5.1x 4.4x 5.2x 5.8x 52.2x 75.7x 74.7x 442.0x - 7.1% 3.5% -0.3% -7.7% -9.0% 7.9% 6.8% 5.9% 1.2% -1.2% AVG Technologies 3.6x 2.8x 2.6x 2.5x 3.2x 11.8x 9.7x 8.6x 8.5x 11.0x 5.1% 11.5% 14.5% 13.1% 6.8% 30.1% 29.0% 30.4% 29.6% 29.0% Bango PLC 17.3x 19.7x 11.0x 5.8x 12.9x - - - - - -63.3% -61.4% -37.2% -14.6% 28.5% -182.0% -196.9% -142.1% -143.6% -144.9% Barracuda Networks 4.2x 2.5x 1.6x 2.1x 3.0x 256.7x 222.6x 60.3x 41.8x 60.1x 17.4% 16.2% 15.4% 13.7% 13.7% 1.6% 1.1% 2.6% 5.0% 5.0% Blackbaud 4.9x 5.1x 4.7x 5.0x 5.2x 30.1x 31.7x 28.8x 30.0x 31.0x 13.4% 12.5% 13.0% 13.1% 13.9% 16.3% 16.0% 16.4% 16.7% 16.6% Bottomline Technologies 3.2x 3.3x 3.3x 3.0x 2.6x 26.1x 27.0x 27.3x 23.9x 22.6x 10.1% 5.6% 3.9% 4.1% 3.7% 12.1% 12.4% 12.1% 12.7% 11.6% Broadridge Financial 2.5x 2.6x 2.5x 2.7x 2.9x 11.7x 12.1x 11.9x 12.8x 13.8x 5.3% 6.4% 6.7% 7.6% 7.5% 21.3% 21.2% 21.2% 21.3% 21.1% Brocade Communications Systems 1.7x 1.6x 1.4x 1.5x 1.7x 6.4x 6.3x 5.5x 6.1x 8.0x 1.5% 2.4% 1.7% 0.3% 1.7% 26.2% 25.7% 25.0% 24.1% 21.5% BSQUARE 0.5x 0.5x 0.4x 0.4x 0.3x 7.8x 8.4x 5.5x 7.0x 9.0x 10.6% 11.5% 11.1% 6.4% -5.3% 6.0% 6.6% 6.6% 5.5% 3.9% CA 2.7x 2.8x 2.9x 3.1x 3.4x 8.5x 8.9x 9.5x 9.9x 10.9x -4.9% -6.1% -6.6% -5.6% -2.9% 32.0% 30.9% 30.5% 31.2% 30.6% Cadence Design Systems 3.4x 3.6x 3.4x 4.0x 4.1x 14.4x 15.0x 14.4x 16.1x 17.3x 10.0% 9.7% 7.7% 7.7% 7.6% 23.6% 23.7% 24.0% 24.7% 23.8% Cerner 5.8x 5.1x 4.3x 4.2x 4.6x 20.2x 18.1x 15.4x 15.0x 16.6x 24.0% 29.0% 31.4% 27.4% 20.1% 28.5% 28.0% 27.7% 27.9% 27.7% Check Point Software Tech 8.5x 8.6x 8.2x 7.9x 7.0x 15.8x 16.2x 15.8x 15.3x 13.7x 8.6% 8.9% 9.0% 8.9% 8.3% 53.5% 52.9% 52.3% 51.6% 51.0% Cisco Systems 2.1x 2.1x 2.0x 2.1x 2.4x 7.5x 7.4x 6.6x 7.1x 8.1x 4.3% 4.9% 3.1% 1.6% 0.2% 28.6% 28.6% 29.9% 30.2% 30.1% Citrix Systems 3.7x 3.8x 3.4x 3.9x 3.9x 16.3x 17.1x 13.2x 13.9x 13.8x 4.0% 4.2% 4.2% 6.0% 6.9% 22.6% 22.1% 25.9% 27.9% 28.5% CommVault Systems 2.2x 2.4x 2.2x 2.6x 3.1x 46.1x 104.4x 154.7x 121.7x 115.4x -1.7% -4.9% -4.5% -2.0% 2.4% 4.7% 2.3% 1.4% 2.2% 2.7% Computer Programs and Sys 2.5x 2.5x 3.3x 3.3x 2.2x 11.1x 13.1x 18.2x 19.3x 14.7x -5.1% -12.2% -11.0% 3.4% 17.6% 22.5% 19.1% 18.3% 17.2% 15.2% Constellation 5.3x 5.2x 4.5x 4.5x 4.5x 31.0x 29.3x 19.3x 19.4x 19.3x 17.6% 12.5% 10.1% 12.1% 15.2% 17.2% 17.7% 23.2% 23.2% 23.5% CSG Systems International 1.5x 1.6x 1.7x 2.0x 2.0x 9.2x 9.3x 8.7x 9.7x 9.2x -0.8% -0.4% 0.2% 0.6% 1.8% 16.3% 17.5% 19.4% 20.8% 21.6% Cyberark Software 11.7x 8.1x 6.5x 6.7x 8.2x 48.8x 35.9x 29.7x 33.3x 40.3x 76.5% 67.9% 56.1% 47.5% 41.4% 24.0% 22.7% 21.8% 20.1% 20.3% Cyren 2.2x 2.2x 1.7x 2.2x 2.7x - - - - - -10.2% -11.9% -13.0% -8.6% -1.0% -7.3% -10.4% -5.9% -5.5% -6.3% Dassault Systèmes 6.0x 6.2x 5.8x 5.6x 6.0x 23.2x 23.4x 21.4x 20.4x 23.3x 22.9% 24.2% 23.8% 17.8% 12.1% 25.8% 26.5% 27.2% 27.3% 26.0% DST Systems 2.0x 2.2x 1.5x 1.6x 1.6x 11.3x 13.3x 10.2x 11.5x 11.2x -21.5% -21.4% 2.8% 17.7% 36.7% 17.8% 16.7% 14.3% 14.0% 14.4% Electronic Arts 4.4x 4.5x 4.0x 4.5x 4.9x 15.3x 17.2x 18.2x 18.2x 19.3x 17.3% 4.7% -4.0% -2.6% -0.9% 28.5% 26.3% 22.0% 24.5% 25.2% EPIQ Systems 2.0x 1.9x 1.7x 1.8x 1.9x 15.1x 14.6x 11.0x 11.8x 11.5x -2.5% 4.7% 13.9% 21.6% 17.5% 13.2% 12.9% 15.5% 14.9% 16.5% Evertec 5.7x 5.2x 4.5x 4.5x 4.9x 13.6x 12.5x 11.3x 11.5x 13.0x 2.1% 2.8% 3.2% 3.2% 3.8% 41.8% 41.5% 39.7% 39.1% 38.1% Evolving Systems 2.3x 2.4x 2.4x 2.6x 2.0x 8.4x 10.2x 11.5x 11.8x 7.9x 2.7% -8.9% -13.8% -14.7% -8.9% 27.2% 23.9% 21.2% 22.1% 25.6% THE SEG SOFTWARE INDEX COMPANIES – KEY METRICS 64

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