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Packeteer
invented the technology for ensuring application performance across networks and continues
to lead in the growing marketplace
Technology
Computer Services
(PKTR: NASD)
Packeteer, Inc.
10201 N. De Anza Boulevard
Cupertino, CA 95014
Phone: 408-873-4400
Dave Côté
President
Chief Executive Officer
Interview Conducted By:
Diane Reynolds
Associate Publisher
CEOCFOinterviews.com
October 2004
BIO:
Dave Côté, President and Chief Executive Officer
Dave Côté has served as President, Chief Executive Officer and as a Director of
Packeteer since October 2002. From April 1997 to October 2002, Mr. Côté served as Vice
President of Worldwide Marketing and Communication ASSPs (Application-Specific Standard
Products) for Integrated Device Technology, Inc., a semiconductor company. From January
1995 to November 1996, Mr. Côté served as Vice President of Marketing and Customer
Support for ZeitNet Inc., which was acquired by Cabletron in 1996. From 1979 to 1995, he
served in various marketing and sales positions, most recently as Director of Marketing at
SynOptics, Inc. (now Nortel Network). Mr. Côté holds an M.B.A. in business
administration from California State University at Sacramento and a B.S. from the
University of California at Davis.
Company Profile:
Based in Cupertino, Calif., Packeteer® is a leading provider of application traffic
management systems that enable businesses to gain visibility and control of networked
applications, extend network resources, and align application performance with business
priorities. For service providers, Packeteer systems provide a platform for delivering
application-intelligent network services that control quality of service, expand revenue
opportunities, and offer compelling differentiation. The company's products are sold
through more than 100 resellers, distributors, and system integrators in more than 50
countries.
INTERVIEW/Q&A
CEOCFOinterviews: Mr.
Dave Côté, please give our readers an overview of your company.
Mr. Côté: “We are
a company that is focused on application performance over the wide area network and in
giving our customers the ability to both improve and protect the performance of their
important applications and control non-business traffic. That is the core of what we do.
We provide distributed enterprises with visibility into what applications are
running on their network, and the ability to control them based on their relative business
importance. About a year ago, we added compression to create additional virtual bandwidth,
all with the goal of allowing companies to leverage faster WANs, faster applications, and
faster business.”
CEOCFOinterviews: How do
you sell your products?
Mr. Côté: “We are
primarily using resellers. Even though our own salespeople are actively engaged in
end-user accounts with our partners, at the end of the day, most of our customers rely on
our resellers.”
CEOCFOinterviews: What
about technical support?
Mr. Côté: “Technical
support is provided directly by us. We have a team in the field called customer
engineering, and offer a technical support team here at our California headquarters.
Additionally, we offer software subscriptions that enable our customers to call in with
technical questions. Having said that, many of our resellers are also very skilled in our
technology. In fact, we just recently introduced our Packeteer Certified Expert program
that enables them to become certified, and promote the fact that they are experts in our
technology. This will help our partners and resellers because they often act as the first
line of support for their customers. Our certification program enables them to
better serve their customers and build stronger relationships.”
CEOCFOinterviews: How do you make sure that you are supplying
the same quality from the first product all the way down to the last worldwide?
Mr. Côté: “In
terms of the specific product in both hardware and software, they are manufactured here
and go through extensive QA processes and testing before being delivered to the partner or
end-user. With regard to our support, we have customer engineers in almost every country
in which we do business so that they can provide on-site support to our resellers and
their customers, the end-users. Additionally, we have a very specific escalation path for
problems. If they are more difficult for our front-line customer engineers, the problems
are sent back here to corporate and are handled in a very methodical way through a
knowledge base to make sure that we are capturing that information and maintaining the
highest level of support.”
CEOCFOinterviews: How
often do you come out with new products or enhancements to existing products?
Mr. Côté: “From a
business value standpoint, we are primarily a software vendor that delivers our products
on a hardware appliance, which is often how networking professionals prefer to receive
products. Delivering our solution this way allows them to literally install our product
quickly and take advantage of the software immediately. We typically update our software
with a major release about once a year and introduce an upgrade or important new features
once or twice a year. From a hardware platform standpoint, we are constantly trying to
push for higher performance. We just introduced the model 9500 in the beginning of this
year (2004), and typically, we’ll deliver a new hardware release as often as once a
year.”
CEOCFOinterviews: How
are you keeping this technology fresh?
Mr. Côté: “Well,
I think we are fortunate in that the space we serve is a relatively new and growing market
and the demand for technology that controls application performance continues to increase.
We are the leader in that technology and the market share leader in the space we are
occupying. In fact, IDC just came out with a report in May that looked at this space they
call ‘WAN Optimization’ and the report was the first time this market has been
validated by quantitative research, and as a result, Packeteer was formally named the
market leader. Folks like Gartner and META have provided qualitative research on how this
technology is used, but this is the first quantitative study. The attention and interest
in our technology is definitely growing.”
CEOCFOinterviews: Many
companies today manufacture outside of the United States to keep costs down. Why do you
continue to keep your production here?
Mr. Côté: “Well,
again, the value is in the software not in the physical hardware, so it makes sense for us
to keep it close. The final assembly is here in San Jose, which enables very good
communication with our contract manufacturers. At this time it makes sense for us because
of the quality of product they deliver, their proximity, and the quick response time.”
CEOCFOinterviews: How
important are your partners to your company?
Mr. Côté: “Partners,
from a standpoint of resellers, represent our primary distribution channel. So, both our
distribution partners and our integration partners are critical to our success overall. We
have always had a strong partnership with Citrix, really since the company was founded. We’ve
worked with them closely to help guarantee the performance of their software over
multi-service wide-area networks. Additionally, in the past year or two we’ve begun
to develop more technology alliances. About a year and a half ago, we signed a
co-marketing agreement with Polycom, looking at the growing importance of voice and video
over IP and taking advantage of their solution, coupled with our product. We have also
secured partnerships with Extreme Networks and Foundry Networks, as well as a number of
different players that I describe more as co-marketing activities and partnerships rather
than formal reseller relationships.”
CEOCFOinterviews: Going
forward, do you feel that acquisitions play an important role in this company?
Mr. Côté: “I
think they certainly might. We aren’t actively pursuing anything at this time, but as
we look at the breadth of requirements that our customers will likely demand of us in the
future, I can see where this will evolve. It may make sense to continue to develop
part of the solutions internally where we have core competencies like application-layer
traffic classification, policy control technologies, as well as compression, and then
acquire other technologies to satisfy customer needs.”
CEOCFOinterviews: You
were quoted that you were a little disappointed in your second quarter. Going forward,
what do you think you will do different to improve it?
Mr. Côté: “Coming
off seven quarters of record revenue and earnings growth, this quarter was a
disappointment. While we did continue to grow revenue, extending our streak of revenue
growth to 11 consecutive quarters, the second quarter profitability really didn’t
meet our expectations. Our North American and European industries were very strong, but we
had some challenges in Asia with regard to our sales institutions and poor communications
with our resellers. However, we feel that this has been resolved. Our new vice president
of worldwide sales, who joined us in January, spent several weeks in Asia earlier this
summer, and he just returned from another two-week trip. I really feel like the team is on
track in understanding their responsibilities. We have communicated clearly with our
channel partners, so there is no confusion about their role in our success. As we said in
our Q2 conference call, this was a one time event and we expect to return to our growth
levels this quarter.”
CEOCFOinterviews: It is
important for people to realize that you had 11 quarters of continued growth and that it
isn’t always going to continue, you may be a little bit off, but, in the long run
this has been a very progressive company.
Mr. Côté: “Thank
you. Yes, I agree. It is something we try to stress with our investors, that yes, we were
disappointed as well, but we understand how and why, and have solved those problems. But,
like you said, we have had a good track record over the past couple of years in growth and
profitability.”
CEOCFOinterviews: You
will have been with this company for two years in October. What has been your biggest
hurdle?
Mr. Côté: “Well,
I think that as this market grows and gains both competition and growth rate, there are
things we need to do throughout the organization to prepare for that growth. This is
a company, as with many technology startups, that invented a new idea. For the first
years, that was the primary value this company offered; the delivery of new technology
that had never been done before. While this is still the case and innovation is still a
key driver, we have more than 5,000 customers today who understand our technology. They
are asking for things that help them with their implementation, use of the technology,
total cost of ownership, etc. We need to marry the innovation that founded this company
with a strong sense of what the customer is looking for today and tomorrow -- both in the
products and in the way we deliver them.
My focus over the past couple of years was putting in place a strong system for product
development and business strategy in handling customer relationships. That is an ongoing
challenge as we become a more strategic supplier to our end users. Where three years
ago we would deliver a couple units to solve a specific problem at specific locations,
today, our salespeople are focusing on delivering a solution that is deployed throughout a
customer’s network and in the case of large multi-national companies, these could be
hundreds or thousands of units. So the whole scope of our sales opportunities are changing
and therefore, the way we deliver our system solution is different in terms of our ability
to deliver central management and central reporting and the ability to scale our solution
as opposed to a few boxes solving a few problems.”
CEOCFOinterviews: Are
you able to continue to meet the demands on your company?
Mr. Côté: “I
believe we are. Evolution and demand for better, faster solutions that address more
issues and to make business and life easier is a fundamental requirement in technology,
and we know that. We focus on following/keeping up with trends in technology
development so that our product can address those trends. We have thus far been able
to make continuous improvements to our technology at a constant pace in anticipation of
the changes in the end-user market and changes in our customer’s needs. And we
plan to continue in our efforts to meet changing needs through product development and,
partnerships, and potentially through technology acquisitions.”
CEOCFOinterviews: To a
potential investor, what should he or she be looking at in terms of this company?
Mr. Côté: “I
think the important point to remember is that this is a growth market. This is a whole
area of providing application performance requirements across shared IP networks.
Organizations are finding that they are delivering more applications, whether it is voice,
video, or data traffic, across one network and therein lies the problem. The increasing
complexity and quantity of WAN traffic is the basis of the market that we serve, and I
think the market is becoming more interesting. We are the leader, we invented this type of
technology, and we continue to lead in technology innovation that resolves
business-critical issues. I think that those are things that investors would pay
attention to.”
CEOCFOinterviews: What
do you do with outdated inventory?
Mr. Côté : “We
manage our inventory very closely, both in terms of what is in our channel, which is
typically there for less than 30 days, and our own finished goods inventory, and I will
say that there has never been a problem. We manage that pretty tightly, and I don’t
see it as an issue.”
CEOCFOinterviews: Do you
feel you have adequate management going forward?
Mr. Côté: “Yes,
we have made significant changes both at the staff level as well as throughout the
organization. Just this year alone we hired a new vice president of sales, a new vice
president of engineering, and a new vice president of marketing to join the other three
members of my team. So we have a good balance of people who have been here a while,
understand the company, and who helped get this company to get where it is today, as well
as new talent that helps bring in the customer focus that I was talking about. Additions
have also been made in our leadership organizations at the director level, so a number of
new directors in the company are giving us added strength in our management.”
CEOCFOinterviews: It is
very exciting, since there are always new challenges that are coming up.
Mr. Côté: “There
are big challenges, and it is very exciting to be a part of a company that is delivering
something that is not only unique in the marketplace, but is also only beginning to be
understood by our customers as to its real value to their networks. It is a very exciting
time.”
CEOCFOinterviews: How do
you promote your company and products?
Mr. Côté: “There
are a variety of techniques that we use. The Web and electronic marketing are very
powerful. We conduct webinars about our technology, sometimes with partners and
sometimes by ourselves, and customers and prospects attend. In the U.S., we’ve
started a variety of techniques, one that I call a CIO Summit where we will go to a city
sponsored by a trade publication and put together a round table of CIOs to talk about
their issues. We are there to listen, and at the end to give them a sense of what our
products can do to help them solve their problems. So, some very local grass-roots events.
We also participate in trade shows as well as in a lot of what I call electronic direct
marketing worldwide. We are creating demand for our products that we then filter out to
our resellers and salespeople to follow up.”
CEOCFOinterviews: You
mentioned you are in about 50 countries, is there an area that you are not currently in
that you would like to be?
Mr. Côté: “We are
constantly assessing that. We do business in Asia and Japan, but the majority of our
international business comes from Europe, Australia and Singapore. We have not done
a tremendous amount of business in China and India. Those are areas we think represent
great opportunities for us, and we’ve begun to make investments in both countries.
There are also regions in Europe that haven’t had traditional coverage. Italy,
specifically in the northern territories, and parts of Eastern Europe are other examples
of where we do not have direct coverage with people on the ground. Those are additional
areas we are targeting in various degrees.”
CEOCFOinterviews: In
closing, could you tell us about your current financial position?
Mr. Côté: “We
have a very strong balance sheet. We have about $100 million in cash, which grew by about
$7 million last quarter; we are strongly cash flow positive and have no debt. Our DSO is
approximately 46 days. We are down three days, but our target is the mid-50s and we tend
to be in the upper 40s, so that’s a very good DSO for a business that is as
international as ours. We do more than 55 percent of our revenue outside of the U.S., and
again the DSOs are very strong. We have deferred revenue, which is primarily from our
software subscriptions and maintenance subscriptions, that grew nicely again last quarter
and is about $13 million now. A very healthy balance sheet is important to our investors
and very important to our customers as well, as we deal with more worldwide, multinational
corporations. Many of them got burned in the past four or five years by small companies
that are no longer in business. The fact that we have a strong balance sheet, good cash,
and no debt, gives them comfort in knowing that we are going to be around to give them the
solutions that they are looking for now and in the future.”
CEOCFOinterviews: It’s
funny you said that. There were a lot of small companies out there that did have some
great products, but they weren’t strong companies.
Mr. Côté: “I had
a French distributor whom we’ve been working with since 1999 or 2000 come visit us a
year ago. He said at the same time he began working with us, he had picked up about
five other product lines, but we were the only ones left. Some of these new technologies
just never got to the market. Ours did, and every day we’re trying to capitalize on
that opportunity.”
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