Stifel Nov 8th / Procera: Highlights from Midwest 1x1 Conference
We hosted Procera CFO Charles Constanti and VP of Product Management Cam
Cullen at Stifel’s Midwest 1x1 conference. Key highlights include:
The company has been able to gain market share over Allot (Procera will likely
grow 30% this year, versus flat performance by Allot) by putting more sales
resources in markets where Allot traditionally had a strong presence – Latin
America and Europe.
The deal that impacted gross margins in 3Q – with British Telecom – has
surprised the company on the upside in terms of how much hardware the carrier
has deployed. Consequently, we expect meaningful software contribution from
this customer in 2014, which should help gross margins.
British Telecom is using Procera equipment to monitor the service quality of its
Premier League broadcast. Because the carrier is paying around $380 million a
year to broadcast 38 Premier League matches in a market that has so far been
dominated by BSkyB, it wants to ensure that quality and experience for
customers are excellent. If the Procera equipment shows that quality is
degrading for certain subscribers, British Telecom has the ability to move them
around the network. Procera equipment also allows British Telecom to monitor
the viewing habits of its subscribers.
With British Telecom contributing $7 million in sales in 3Q (33% of revenues)
and likely another $2 million in 4Q, in order to make the company’s implied 4Q
guide, other carrier customers (outside of British Telecom) will have to grow
around 40%-50% sequentially. According to management, that is not unusual as
it had numerous similar situations in the past when Shaw or Cox were large
customers. The company believes the funnel is stronger versus a quarter ago
and there are numerous ways to get to the fourth quarter guide of 14%
sequential growth. Additionally, we believe that the company entered 4Q with
around 35%-40% of revenues booked.
Tata Communications, a partner, is using Procera to offer cloud-based services
to carriers. In essence, instead of buying the equipment, a carrier would use
Tata’s cloud, which houses equipment from companies such as Procera and
Openet to turn on a new service. This allows carriers in emerging markets like
Africa, where the ARPU is very low, to turn on a new service without the
corresponding capital outlay.
Procera management believes that NFV, or Network Function Virtualization, will
be an important catalyst for large tier-1 carriers, such as Verizon, to deploy DPI.
Procera has already announced and demoed a NFV-capable product.