SaaS: Interview With President and CEO of E2open

Transcription

1 September 8, 2010 Michael Huang SaaS: Interview With President and CEO of E2open Enterprise Software We had the opportunity to interview Mark Woodward, the President and CEO of E2open, a leading provider of SaaS-based supply chain execution and collaboration solutions for tier 1 manufacturers, OEMs and their respective trading partners. By enabling collaboration across the extended supply chain network (both demand and supply side) and then layering apps on top of the platform and rich data set generated throughout the network, E2open (N/R) can provide the breadth of supply chain participants with a true, dynamic picture of the end-to-end supply chain, including real-time information on forecasts, purchase orders, inventory locations, and changing customer demand. E2open grew bookings last year 30% despite the tough economy and appears optimistic that trends could be strengthening. We had the opportunity to interview Mark Woodward, the President and CEO of E2open, a leading provider of SaaS-based supply chain execution and collaboration solutions for tier 1 manufacturers, OEMs and their respective trading partners across a variety of different industries. The typical customer is a tier-one manufacturer and brand manager like Dell, Research in Motion, Vodafone (N/R), Xerox (N/R), Avon (N/R), or Motorola (N/R). The shift to outsourced manufacturing from vertically-stacked manufacturing has created a completely different dynamic when it comes to effectively managing supply chain operations. Instead of focusing exclusively on internal resources and processes, today s OEMs have to manage complex business processes that span hundreds to thousands of external trading partners across the globe. The outsourced model along with its associated supply chain complexity is well-suited for SaaS, which supports rapid electronic connectivity and business process integrations across partners and geographies, reduces upfront capital costs and IT requirements, and democratizes access to the rich data, sophisticated apps and supply chain expertise across the broader ecosystem. A typical E2open customer will see ROI within a year of going live according to Mr. Woodward. One large handset customer, for example, was able to reduce inventory by five days during the first year, which translated to $10 million in annual savings. By comparison, the cost of the application was less than $1 million. E2open s value proposition (time to value, inventory reduction, supply chain agility, low upfront costs) has enabled solid customer acquisition and revenue growth in the face of a tough macro environment. According to Mr. Woodward, bookings last year were up 30% y/y despite the tough economy; trends could be strengthening, given that manufacturers are performing better than last year and given greater demand in the customer base.

2 Interview with President and CEO of E2open Mike Huang (MH): Could you please explain the main problem that E2open solves, and why customers should care? Mark Woodward (MW): There are a couple primary things we do. First, we provide the electronic connectivity between manufacturers, OEMs and all of their trading partners so that they are able to collaborate and exchange information in real time. We enable this connectivity across multiple tiers and geographies from the supply side all the way to customer fulfillment. This means that all parties are provided with a true, dynamic picture of the end-to-end supply chain, including real-time information on forecasts, purchase orders, inventory locations, and changing customer demand. We also provide the applications to make sense out of this tremendous amount of data, creating a variety of exception reports and providing dashboards that companies can use to manage their supply chains in real time. Sorry to be a skeptic, but we ve all heard about business marketplaces and supply chain management for a while now. Could you help us understand if you re doing something that has been done before or if it s something that s game changing? Well, there are a couple reasons why E2open is unique. When you think about supply chain software of the past like i2 and Manugistics they were usually around planning and forecasting, MRP, and things of that nature. What we re doing is actually focused on supply chain execution and collaboration. First, we provide the connectivity to trading partners, either through XML-based Internet connections or through a Web UI. Then, by collecting information from all relevant parties in the supply chain which is something that the classic supply chain vendors have not done we can offer applications that not only process the data, but also require access to data throughout the entire supplier network. These applications help forecast demand, manage orders and inventory, support vendor-managed inventory, and things of this nature. We do some of the things that classic enterprise software vendors do, but we do it on an on-demand basis, meaning that the customer does not have to implement any software whatsoever or use any IT resources. Additionally, we can get our customers up-and-running in as little as six to eight weeks in stark contrast to the multi-year implementations often required by large enterprise applications. So, what we re doing is actually quite unique. You had mentioned things like exchanges that were in place before. We take it far beyond that original idea. Can you help me understand what the market need is right now and could you identify the two or three secular trends that are driving adoption here? Up until the last four or five years, the supply chain world was largely dominated by manufacturers executing vertically-integrated, vertically-stacked manufacturing, meaning that the whole supply chain could be managed inside the firewall. Within this framework, manufacturers had a direct line of sight into their raw materials and manufacturing operations. They were able to send goods out to their customers and maintain control of the entire operation essentially a sort of ERP-centric view where everything is an asset or a liability. Today s manufacturing has shifted dramatically to an outsourced model. For example, if you look at some of our customers, including Research in Motion, Dell, Xerox or Avon, they re all doing outsourced manufacturing, and this creates a completely different dynamic when it comes to effectively managing supply 2 An Investment Analysis by Needham & Company, LLC

3 chain operations. Today, instead of focusing exclusively on internal resources and processes, these companies have to manage complex business processes that involve hundreds to thousands of external trading partners across the globe. This means that business processes are more complex, involve many more external parties, and are much more difficult to control effectively. After all, these companies now have an EMS or an ODM outsourced manufacturer making their products. These outsourced manufacturers then have their own set of external suppliers, and those suppliers in turn have their own suppliers. You can therefore understand why it is so difficult for the central enterprises (our customers) to maintain control of these external processes and why end-to-end visibility is so critical to effective supply chain management. Without visibility across suppliers and manufacturers, for example, enterprises have no way of ensuring that the correct quantity of parts is available to build the required number of units. On the demand side, visibility is equally as important allowing the enterprise to make sure that demand is being met and customer satisfaction remains high. So, this move towards outsourced manufacturing has drastically changed the way that companies need to manage their supply chains; it s simply no longer enough to focus on internal operations the focus has to shift to outside the four walls, and to intelligent management of external business processes. Obviously, another secular trend is the rising preference for Software as a Service (SaaS). Oh, absolutely. I just take that as a given because of what we do, but yes, you re absolutely right. There are certain applications that just lend themselves to being outsourced. Certainly the market understands very well things like CRM or human capital management. Supply chain is another area that is perfectly suited to outsourcing especially when solutions are implemented on-demand and in the cloud, as is the case with E2open. After all, if you consider the electronic connectivity required between trading partners, the different business processes that are involved, and the need for rapid and seamless integrations and deployments, it makes sense to leave it to true supply chain experts. I think the market now understands that supply chain is a great application for a SaaS model. Could you help us understand the secret sauce? Is it the network or is it something having to do with specific technology? One of the biggest things is the network we ve created over the last ten years. Currently, we have a network of nearly 50,000 trading partners, all of which are currently connected. This means that we not only have a very large network already established, but we also have the technology necessary to onboard any and all new trading partners easily and quickly. The other thing I d point out is our suite of supply chain applications that come with predefined business processes; it s really just a matter of making some configuration changes specific to each customer s implementation to bring customers live. Our customers are therefore able to leverage an enormous amount of work and best practices that have evolved over the last ten years without developing the technologies themselves or making the mistakes that we have been able to correct over time. So who s your target customer? And in this expansive supply chain, who s the customer that pays you? Our customers are typically Fortune 500 companies from a variety of different industries. The typical customer is the tier-one manufacturer and brand manager like Dell, Research in Motion, Vodafone, Xerox, Avon, or Motorola. Our Page 3 of 12

4 customers pay us for individual applications and according to the amount of spend that goes through the system. This means that fees increase as system usage increases. Additionally, customers pay us for every user on the system and for each trading partner that is onboarded. We bill only the OEM or brand manager (our direct customer), and they decide whether or not to pass along those costs to their suppliers. The result is that we do not have to have direct contracts and financial relationships with the broader set of 50,000 trading partners. This aspect of the business model certainly simplifies things a bit. As an example, one of our customers, Dell, made the transition from manufacturing everything in-house to outsourcing 100 percent of its manufacturing needs. The result was that Dell had to drastically change its supply chain to work in this outsourced model. As Dell s strategic supply chain partner, we implemented a number of different business processes to enable them to successfully make this dramatic shift. Today, E2open is the entire backbone of the supply side of the Dell supply chain. If you consider Research in Motion, the maker of the BlackBerry, they re currently shipping about 11 million units per quarter, and they want to dramatically escalate that volume. In order to get that sort of velocity, they ve had to switch to a completely outsourced manufacturing model. From there, they have implemented a number of automated business processes that enable them to execute increased volume without sacrificing control of product quality, component pricing, and other external operations. E2open best-practice applications have helped them take their supply chain to the next level. So just clarify for me - if you re a trading partner to RIM, do you ultimately have a choice of getting on this network, or is RIM s supply chain weight here forcing all their supply chain partners to comply? Do you have that kind of dynamic helping you on-board these partners? Oh, absolutely, and RIM is a great example because they do have that kind of weight, where they will just tell their suppliers, This is how you have to connect in order to do business with us. Fortunately, one advantage we bring to the table is that we have a huge variety of ways to collect information and connect with different types of trading partners. This means that we are able to rapidly connect to any trading partner regardless of technical sophistication and it s really a very straightforward, painless process for them. But to answer your question directly, our customers do have the ability to dictate how their trading partners, especially the largest ones, will connect to them. Could you talk about the typical type of ROI across the network or is the ROI realized just by the customers that are paying? The ROI really is across the network because it s all about collaboration. One of the most significant problems associated with the supply chains of the past is what has been termed the bullwhip effect, where all parties in the supply chain are effectively over-ordering. This means that by the time you get to the end supplier, the volume may be up to 50,000 for what was originally a 15,000-unit order. Now, that may be exaggerating a little bit, but it demonstrates the problem. Once you introduce real-time collaboration into the supply chain, this problem is largely mitigated. In our system, all relevant supply chain parties have a common view into actual, real-time demand, meaning that there is effectively a single version of the truth and everybody is able to work towards the same end goals. Now in terms of ROI, it s important to think about both time to value and savings on inventory reduction. A typical customer will see their return on investment inside a year of going live. Sometimes, it s literally within months. I ll give you an example. I won t name the customer, but one of our largest customers in the handset business was able to reduce inventory by five days, which translated to 4 An Investment Analysis by Needham & Company, LLC

5 $10 million in savings per year. By comparison, the cost of the application was less than $1 million. Essentially, then, within about two months the customer had completely paid for E2open, and within a year had achieved a 10:1 ROI. It s also important to note that the ROI continues to be compelling every year thereafter based on better management of inventory, fewer assets on the balance sheet, etc. Are you a traditional sales model with direct sales, or are you leveraging a channel? We have a pretty classic direct sales model. However, we are starting to develop some reseller relationships. For example, we have one in the aerospace and defense space with a company called Exostar (N/R), where we provide the technology and they sell it within their space. We re also very close with a couple of systems integrators, but today it s primarily a direct sale. Given the network effect I would imagine there are some viral benefits to your model. Could you talk about the cost to acquire a customer? Do you typically achieve payback within a year or how long does it take for you to break even on a customer? We will typically make about a 70 percent gross margin on each customer in the first year. Our customers are very profitable in the first year and even more so in out-years because some costs such as set-up are non-recurring. This means that in the years subsequent to implementation the gross margin goes up substantially probably in the 90 percent range. What are your key focus verticals? And how would you size the overall market opportunity? If you look at the different components of our solution, there s a cloud-based infrastructure, a B2B managed services layer on top of that, business intelligence and exception-based management layers, and then three suites of supply chain applications for buy-side, sell-side, and multi-tier processes. You could look at just one of these markets individually and it would be a multibillion-dollar business $10 billion annual business, at least. The supply chain side is growing at about 7 or 8 percent a year, and on the network side the market is growing in the 20 to 22 percent range. It s clearly a large and fast-growing market, and we have a pretty unique offering because we combine so many of these technologies. We have customers in a variety of different markets, but there are two specific markets where we are putting targeted sales and marketing resources together to really build up strong ecosystems. One is the computer and peripherals space, where we have customers including Hitachi (N/R), IBM (N/R), Lenovo (N/R), and Seagate. Then we have the communication/mobile devices market, where we have customers like Vodafone, Cisco (N/R), RIM, and Motorola. In addition, the manufacturers of all of these electronic products are also customers of ours, including Foxconn (N/R) and Celestica (N/R). The mobile device space alone is absolutely massive. We ve penetrated that space very well, and based on some of the other companies that we re currently talking to, we re going to continue to penetrate it. If we focused exclusively on the mobile device space, we would be talking about a multi-hundred-million-dollar revenue opportunity, just in that one specific vertical. That being said, one of our growth strategies going forward is to expand into multiple different verticals, and we re going to do that through sales execution. We may complement that with targeted acquisitions. Page 5 of 12

6 Could you talk about how the economy and macro headwinds impact your business, especially given that you re software as a service with a cost savings proposition? You kind of hit the nail right on the head. Part of the advantage of having an ondemand platform is that it actually pushes business to us in a tough economy because it offers a much lower up-front cost with much lower risk. Last year which was by most accounts a very tough economy we grew our backlog by 30 percent. Looking forward, we re even more optimistic, as we see manufacturers performing better than last year and more demand in our customer base. In terms of the typical deal that you ll do, is it typically a one-year deal paid up front? Typically, we ll get a three-year, non-cancelable deal, and customers will pay annually a year in advance. There are a number of services that customers will pay for in the first year, but the following years they will only pay license fees. How has customer satisfaction trended and renewal rates? A typical year for us is a 90 to 100 percent renewal, so it s very different from a Salesforce or NetSuite model, where they re adding hundreds of customers a year, but also turning over 10 to 20 percent of their customer base every year. We just don t have that dynamic because our typical customer spends about $1 million per year with us. Of course, we also have a number of customers that are either higher or lower than that, but our average customer is around the $1 million-per-year mark. The E2open solution integrates quickly with the key processes used to run our customers businesses so once we re in, we become very sticky. The only time that we ll lose a customer is through an acquisition or some dramatic downturn of the business. We pay a lot of attention to our customers; in fact, about 50 percent of our business is up-selling new applications into our install base. So with $1 million-per-year type deals, you re certainly selling a different flavor than what salesforce or NetSuite would typically sell. So are we talking about traditional enterprise sales cycles or is there something about your business that allows you to be able to sell more quickly than what other people in the past have struggled with? E2open used to practice more of the classic big enterprise sales model, where we d start off with a multi-year, multimillion-dollar deal. We ve changed our approach, and today our initial deal might be $500,000 as opposed to $1 million but by the time we turn on the first release, we re already talking about the second one. This means that what starts at $500,000 can quickly grow to $1 million a year or more. Our top five or six customers are probably each at $2 to $3 million a year. And while $400,000 to $500,000 may sound like a lot of money, the pricing is easily justified by the rapid ROI that our solutions offer. In fact, we ve closed some of these deals as rapidly as eight to ten weeks. So how long are sales cycles on average? Probably six to eight months on average, but with existing customers it s typically much shorter and that s because once we re installed at a company and have built out their network, they re not looking to anybody else for their next application. We re the automatic incumbent, so the sales process is much more rapid. In terms of competition, who else is out there with a similar proposition? 6 An Investment Analysis by Needham & Company, LLC

7 Because of the full product we take to market which includes network connectivity, business intelligence, and supply chain applications we have a pretty differentiated offering. SAP (N/R) sells a number of products that may seem similar at face value, but they are not on-demand, they do not offer a trading partner network, and they are really only designed for companies that do their own internal manufacturing. In other words, they re really not a direct competitor. That being said, the majority of our customers are also SAP customers, so we integrate with SAP ERP as part of what we do. Aside from SAP, there are a few smaller companies that offer similar solutions to E2open, but they are all outside our core verticals in the food distribution space, for example. There are times that we will initially sign up a customer as a B2B client only. Cisco, IBM, Motorola, and Vodafone all started as pure B2B customers, and we ve been able to up-sell them a number of supply chain applications over time. When they selected us, they knew that we were much more than a B2B provider; they opted to start with pure B2B, but there was interest to grow their supply chain programs from the start. When you think B2B, some of the classic vendors that come to mind are Sterling Commerce (N/R) and GXS (N/R). We rarely compete against them. We only go after those companies that we think may be interested in additional supply chain capabilities outside the realm of pure B2B. As you look out over the next couple of years, what represents the biggest potential challenge for the business? The biggest challenges are really all around execution. When I joined E2open two years ago, we had a very engineering-driven culture, with not much money or attention being spent on sales and marketing. However, once we cleaned up a number of things on the engineering side, we have been able to focus more rigorously on our sales and marketing efforts. I think that s something we need to continue to do, and I think we can continue to grow distribution capacity pretty aggressively for the next couple of years. A lot of my focus is on the distribution channel and making sure we build it out appropriately. I grew the last company I ran, Serena Software (N/R), from $50 million to $300 million, with a lot of that growth stemming from simply building out the channels, not developing new technology. Given the focus on sales and marketing and ramping distribution are you seeing accelerating growth rates and the fruits of your efforts. We grew bookings last year at 30 percent, and revenue grew a bit slower than that. So revenue growth should be accelerating since the bookings growth will precede revenue growth. In terms of revenue size or headcount, how big are you guys? We re about 300 employees. Last question for you. If you look out three years from now, are you guys a public company, private company, or part of somebody else s platform? We believe we are the platform we re going to build on top of. The good news is that I have very patient investors. I have one investor in particular that owns a little over 50 percent of the company, and he s in no hurry for an exit. He has pretty high expectations of the future valuation of the company. We re certainly considering the various options to grow E2open as an independent company. Going public is one of those options. But we re now profitable and generating free cash flow, which means that we don t need the cash to survive. That being said, going public is one potential option we have to help us through the accelerated expansion of the company. Page 7 of 12

8 Thanks, Mark for you time and perspectives. 8 An Investment Analysis by Needham & Company, LLC

9 ANALYST CERTIFICATION I, Michael Huang, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company (ies) and its (their) securities. I also certify that I have not been, am not, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this report. Price, Rating, and Price Target History: Dell, Inc. (DELL/NASDAQ) as of /4/07 B 12/5/07 B : $28.0 2/29/08 B : $25.0 5/30/08 B : $28.0 8/29/08 B : $26.0 9/17/08 B : $ /21/08 B : $15.0 2/26/09 B : $11.0 5/29/09 B : $13.0 7/14/09 B : $16.0 8/28/09 B : $ /20/09 B : $17.0 2/19/10 B : $ Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Disclosures applicable to this security: B, G. Source: Factset (Prices) / Needham (ratings and target price) Page 9 of 12

10 Price, Rating, and Price Target History: Research in Motion (RIMM/NASDAQ) as of /9/08 H 7/16/08 UP 10/14/08 H 10/5/09 B : $ /18/09 B : $ Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Disclosures applicable to this security: B, G. Source: Factset (Prices) / Needham (ratings and target price) Price, Rating, and Price Target History: NetSuite Inc. (N/NYSE) as of /12/10 B : $ Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Disclosures applicable to this security: B. Source: Factset (Prices) / Needham (ratings and target price) 10 An Investment Analysis by Needham & Company, LLC

11 Price, Rating, and Price Target History: Salesforce.com (CRM/NYSE) as of /12/10 H Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Disclosures applicable to this security: B. Source: Factset (Prices) / Needham (ratings) Price, Rating, and Price Target History: Seagate Technology (STX/NYSE) as of /18/08 SB : $33.0 4/16/08 SB : $28.0 7/16/08 SB : $21.0 9/22/08 SB : $ /23/08 SB : $ /10/08 SB : $10.0 6/10/09 SB : $14.0 7/22/09 SB : $15.0 9/10/09 SB : $20.0 9/23/09 SB : $ /21/09 SB : $27.0 1/21/10 SB : $36.0 4/21/10 SB : $40.0 6/28/10 SB : $34.0 7/9/10 SB : $30.0 7/21/10 SB : $ Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Disclosures applicable to this security: B, C, D, E, G, J, J1. Source: Factset (Prices) / Needham (ratings and target price) Page 11 of 12

12 445 Park Avenue, New York, NY (212) % of companies under coverage % for which investment banking services with this rating have been provided for in the past 12 months Strong Buy 8 11 Buy Hold 29 7 Under Perform <1 0 Rating Suspended 1 20 Restricted <1 0 Under Review <1 0 Needham & Company, LLC. (the Firm) employs a rating system based on the following (Effective July 1, 2003): Strong Buy: A security, which at the time the rating is instituted, indicates an expectation of a total return of at least 25% over the next 12 months. Buy: A security, which at the time the rating is instituted, indicates an expectation of a total return between 10% and 25% over the next 12 months. Hold: A security, which at the time the rating is instituted, indicates an expectation of a total return of +/- 10% over the next 12 months. Underperform: A security, which at the time the rating is instituted, indicates an expectation that the price will depreciate by more than 10% over the next 12 months. Under Review: Stocks may be placed UR by the analyst, indicating that the stock rating and/or price target are subject to possible change in the near term, usually in response to an event that may effect the investment case or valuation. Rating Suspended: Needham & Company, LLC has suspended the rating and/or price target, if any, for this stock, because there is not a sufficient fundamental basis for determining a rating or price target. The previous rating and price target, if any, are no longer in effect and should not be relied upon. Restricted: Needham & Company, LLC policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Needham & Company, LLC s engagement in an investment banking transaction and in certain other circumstances. For disclosure purposes (in accordance with FINRA requirements), we note that our Strong Buy and Buy ratings most closely correspond to a Buy recommendation. When combined, 69% of companies under coverage would have a Buy rating and 14% have had investment banking services provided within the past 12 months; Hold mostly correspond to a Hold/ Neutral recommendation; while our Underperform rating closely corresponds to the Sell recommendation required by the FINRA. Our rating system attempts to incorporate industry, company and/or overall market risk and volatility. Consequently, at any given point in time, our investment rating on a stock and its implied price appreciation may not correspond to the stated 12-month price target. For valuation methods used to determine our price targets and risks related to our price targets, please contact your Needham & Company, LLC salesperson for a copy of the most recent research report on the company you are interested in. To review our Rating system prior to July 1, 2003, please refer to the following link: Stock price charts and rating histories for companies under coverage and discussed in this report are available at You may also request this information by writing to: Needham & Co. LLC, 445 Park Ave., 3rd Floor (Attn: Compliance/Research), NY, NY ANALYST CERTIFICATION By issuing this research report, each Needham & Company, LLC analyst and associate whose name appears within this report hereby certifies that (i) the recommendations and opinions expressed in the research report accurately reflect the research analyst s and associate s personal views about any and all of the subject securities or issuers discussed herein and (ii) no part of the research analyst's or associate s compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst or associate in the research report. The following disclosures (as listed by letter on the cover page) apply to the securities discussed in this research report: A The research analyst and/or research associate (or household member) has a financial interest in the securities of the covered company (i.e., a long position consisting of common stock). B The research analyst and research associate have received compensation based upon various factors, including quality of research, investor client feedback, and the Firm s overall revenues, which includes investment banking revenues. C The Firm has managed or co-managed a public offering of securities for the subject company in the past 12 months. D The Firm and/or its affiliate have received compensation for investment banking services from the subject company in the past 12 months. E The Firm and/or its affiliate expect to receive or intend to seek compensation for investment banking services from the subject company in the next three months. F The analyst or a member of the analyst's household serves as officer, director or advisory board member of the covered company. G The Firm, at the time of publication, makes a market in the subject company. H The Firm, and/or its affiliates beneficially own 1% or more of any class of common equity securities of the subject company. I The analyst has received compensation from the subject company in the last 12 months. J The subject company currently is or during the 12-month period preceding the date of distribution of this research report was a client of the Firm and received investment banking services. J1 The subject company currently is or during the 12-month period preceding the date of distribution of this research report was a client of the Firm and received non-investment banking securities related services. J2 The subject company currently is or during the 12-month period preceding the date of distribution of this research report was a client of the Firm and received non-securities related services. K Our affiliate has received compensation for products and services other than investment banking services from the subject company in the past 12 months. This report is for informational purposes only and does not constitute a solicitation or an offer to buy or sell any securities mentioned herein. Information contained in this report has been obtained from sources believed to be reliable, but Needham & Company, LLC. makes no representation as to its accuracy or completeness, except with respect to the Disclosure Section of the report. Any opinions expressed herein reflect our judgment as of the date of the materials and are subject to change without notice. The securities discussed in this report may not be suitable for all investors and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. Investors must make their own investment decisions based on their financial situations and investment objectives. The value of income from your investment may vary because of changes in interest rates, changes in the financial and operational conditions of the companies and other factors. Investors should be aware that the market price of securities discussed in this report may be volatile. Due to industry, company and overall market risk and volatility, at the securities current price, our investment rating may not correspond to the stated price target. Additional information regarding the securities mentioned in this report is available upon request. Copyright 2010, Needham & Company, LLC., Member FINRA, SIPC. 12 An Investment Analysis by Needham & Company, LLC