The Growth Factor:   Preview of The 19th Annual Needham Growth Conference
Needham Funds' Commentary by John Barr 
January 8, 2017
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Needham Funds Team
John Barr
Portfolio Manager
Chris Retzler
Portfolio Manager
Jim Giangrasso
Chief Financial Officer
Preview of the 19th Annual Needham Growth Conference
It's the new year and that means it's time for the Needham Growth Conference 1. The Needham Funds' team will attend the 19th Annual Needham Growth Conference January 10-12 in New York City. We attend a number of investor and industry conferences throughout the year, and the Needham Growth Conference provides a great kickoff for the year and a sense of how companies are viewing 2017.
Management teams of more than 300 public and private companies will present at the conference. A number of our small and mid-cap holdings will present and we will meet with about 75 companies over the three days. Top holdings as of September 30, 2016 which will be presenting at the conference include Amber Road,Inc. (AMBR), Entegris Inc. (ENTG), Form Factor Inc. (FORM), KVH Industries Inc. (KVHI), PDF Solutions Inc. (PDFS), Reis, Inc. (REIS), Super Micro Computer Inc. (SMCI), and Ultra Clean Holdings, Inc. (UCTT).
The private companies that present tend to be within a few years of going public. We like to get to know companies while they are still private in order to make informed decisions about investing in them as newly public companies. Many of the presenting companies will webcast their presentations.  To listen to the webcasts, click here to receive a registration link and webcasting schedule.
Today's theme is successful IPOs, past, present and future. We highlight three of our holdings as of September 30, 2016 that are presenting at this year's Conference: Nutanix, Inc. Class A (NTNX), The Trade Desk (TDD) and Wage Works Inc. (WAGE). Nutanix and The Trade Desk went public in the third quarter of 2016 and the Needham Funds participated in the IPOs. Wage Works went public in 2012 and the Needham Funds were investors on the IPO. We also highlight three private companies: Code42, Inc. MapR Technologies, and Roku, Inc.
Nutanix, Inc. (NTNX)
Howard Ting, Chief Marketing Officer; Duston Williams, CFO; Tonya Chin, IR
Tuesday, January 10, 8:40 AM ET - webcast
Dheeraj Pandey co-founded Nutanix in 2009 with a vision of simplifying computing and storage for enterprises using data centers. He was previously VP of Engineering at a company acquired by Teradata Corporation (TDC). The Nutanix Enterprise Cloud Platform combines computing and storage for enterprises running their infrastructure in data centers. The Enterprise Cloud Platform runs on standard servers made by Super Micro Computer, Inc. (SMCI) and others. The Platform is simpler and less expensive for an enterprise to buy, deploy and scale than the legacy alternatives. The integration of compute and storage helps enterprise customers reduce their deployment time by up to 85% and their total cost of ownership by up to 60%. 
Nutanix has over 300 of the Global 2000 as customers and is investing to add to its installed base. Nutanix Xpress, introduced in May 2016, is a cloud-based service offering for small and medium sized businesses.

Nutanix is targeting positive free cash flow by January 2018. The company went public on September 29, 2016 at $16 per share and closed at $26.56 on December 30.
Presenters are Duston Williams, CFO, previously CFO at Gigamon Inc. (GIMO), SandForce, Inc. (acquired by LSI Logic Corporation), Infinera Corp.(INFN) and Western Digital Corporation (WDC), and Howard Ting, Chief Marketing Officer, had experience at Palo Alto Networks Inc. (PANW), Cisco Systems, Inc. (CSCO) and other companies. We will be listening for comments on the enterprise strategy and Xpress.  
The Trade Desk, Inc. (TTD)
Jeff Green, Co-Founder and CEO
Wednesday, January 11, 10:00 AM ET - webcast
Co-founders of The Trade Desk,
Jeff Green and David Pickles
The Trade Desk is used by sophisticated advertising buyers to manage digital advertising campaigns across channels and formats. The system also provides analytic tools that use data from many sources.  The co-founders, Jeff Green, CEO and David Pickles, Chief Technology Officer, remain the company's leaders. Prior to The Trade Desk, they were pioneers of real-time bidding for digital advertising.
Many advertising technology companies have had a difficult time profitably growing past $100 million in revenue. These companies have business models based on arbitrage of ads. They buy ads from publishers and sell to advertisers, while keeping some of the spread. This model puts the ad tech company in competition with its suppliers and customers. Also, many of these companies view advertisers and publishers as their customers and they ignore the advertising agencies. The Trade Desk combines great technology with a SaaS subscription model and a focus on advertising agencies.  
The Trade Desk has a history of operating profitably. Prior to going public, it had raised just $25 million and had retained earnings of $13 million since its 2009 founding. Street estimates show GAAP operating margins growing from 13.5% in 2016 to over 20% in 2017. Revenue in 2016 is estimated to have grown to $193 million from $114 million in 2015. The Trade Desk went public on September 20, 2016 at $18 per share and closed at $27.67 per share on December 30, 2016.

WageWorks, Inc. 
Joe Jackson, CEO; Colm Callan, CFO
Tuesday January 10, 10:40 AM ET  - webcast
WageWorks is a leader in administering consumer-directed benefits. These benefits include Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs), transit, parking, COBRA and other employee benefits. WageWorks could benefit from expansion of HSAs under the Trump Administration.
In November, WageWorks announced the acquisition of Automatic Data Processing, Inc.'s (ADP) Consumer Health Spending Account and COBRA businesses, and an agreement with ADP to distribute WageWork's products. Initially, WageWorks expects approximately 14.5% non-GAAP EBITDA margins from this business. Longer term, we believe this former-ADP business could earn WageWork's average 26.3% EBITDA margin.
Earlier in 2016, WageWorks announced that it had won the United States' Office of Personnel Management (OPM) business covering 2.3 million workers, which had previously been serviced by ADP. Only 15% of Federal workers had adopted FSAs, in contrast to WageWorks' 30% average. In November, WageWorks announced it had also won the business of the 500,000 employee United States Postal Service. Open enrollment for these workers has ended and we will be looking for commentary to see if WageWorks was able to  increase participation.
WageWorks pays a 40% corporate tax rate, as almost all of its earnings are domestic. WageWorks also has a $667 million cash balance with no interest income. A lower tax rate and even slightly higher interest rates would be positive to WageWorks' after-tax earnings.

As of September 30, 2016, Needham Growth Fund and Needham Aggressive Growth Fund owned WageWorks from its $9 per share 2012 initial public offering. On December 30, WageWorks closed at $72.50 per share.

Code42, Inc. (Private)
Joe Payne, CEO
Tuesday January 10, 10:40 AM ET
Joe Payne, CEO
Code42 supplies a backup service called CrashPlan for data on personal computers, servers, laptops, tablets and mobile phones. A single administrator can see the status of all of their employees' backups on a single dashboard. Data can be easily recovered in case of a breach, allowing even the largest consumer-facing businesses to be up and running quickly.
The company has over 39,000 businesses as customers including Intuit, Adobe, Stanford University, Lockheed Martin, the Mayo Clinic, Kohl's, Uber, Supervalu, Xilinx, Yelp, University of Texas, Ohio State, Notre Dame, Penn, Oliver Wyman,, National Geographic, SanDisk and Sierra Nevada.
In July 2015, Code42 raised $85 million in a financing round led by JMI Equity and New Enterprise Associates, Inc. (NEA). Existing investors Accel and Split Rock Partners also participated. The company had only  raised capital once before with a $52.5 million round at the beginning of 2012. Revenue in 2014 was approximately $65 million with growth over 100%.
CEO Joe Payne was previously CEO of Eloqua, an independent marketing automation company. It went public in August 2012 and was acquired four months later by Oracle for 10x trailing twelve months revenues and 104% above the IPO price. Mr. Payne joined Code42 as CEO in 2015.

MapR Technologies, Inc. (Private)
Matt Mills, CEO; Dan Atler, CFO; Cynthia Hiponia, IR
Wednesday, January 11, 9:20 AM ET
Matt Mills CEO
MapR Technologies' vision is to provide the industry's best Hadoop big data platform for real-time insights to business processes. Applications include sub-second response credit card approval for fraud prevention, secure and highly available insights for better healthcare, petabyte analysis for threat detection, and improved customer experiences for call centers. MapR is used by customers such as American Express Company, Cisco, comScore, Experian Plc, The National Institutes of Health and United Healthcare. These organizations have lots of data in different formats. The Hadoop system is used to store and process these very large data sets. However, Hadoop is an open-source project lacking the niceties to make it easily useful. MapR enables the Hadoop big data to be used in production. It provides high performance, ease of accessing the data, security, an in-Hadoop NoSQL database and allows multiple users to run separate programs.
MapR has a strong pedigree, having raised more than $194 million, including a $50 million Series E round in August 2016 led by the Founders Fund. The Founders Fund was co-founded by Peter Thiel, Luke Nosek and Ken Howery of PayPal, and Sean Parker of Facebook investing fame. Other investors include Google Capital, Lightspeed Venture Partners, Mayfield Fund, NEA, Qualcomm Ventures and RedpointVentures. MapR CEO Matt Mills joined in 2015 from Oracle where he had been a member of the executive committee and lead the North American business. Founded in 2009, the company is based in San Jose, CA and has over 450 employees.
Roku, Inc. (Private)
Anthony Wood, Founder and CEO; Stephen Louden, CFO
Wednesday, January 11, 4:10 PM ET
Roku was founded by Anthony Wood, inventor of the digital video recorder (DVR), in 2002.  Roku believes that someday, all television will be streamed. Its vision is to provide the standard operating system and user-interface for streaming over-the-top video.
Anthony Wood, Founder and CEO
Roku offers a line of Roku players, including the Roku Streaming Stick, which sell in the range of $30-130. They are extraordinarily easy to set-up and use to watch Netflix, Amazon Prime, Watch ESPN, WWE Network, TED Talks or any of your favorite over-the-top channels. Roku also licenses its software to smart TV makers and has a 13% share of the market. We believe that within a few years, all TVs will be sold with the ability to access over-the-top video.
Roku also generates an increasing percentage of revenue from high margin content viewing, promotion and advertising sales.
Roku ended 2016 with 13 million active accounts. To put this in perspective, Verizon has just 7 million Fios subscribers and Comcast has 22 million video customers. Roku has nearly as many hours viewed as AppleTV, Google Chromecast and Amazon FireTV combined.
Anthony Wood will present and should give an interesting view of where over-the top video is today and where it is going.
1The Needham Growth Conference is hosted by Needham & Company, LLC; an affiliate of Needham Asset Management, LLC, which is the parent company of Needham Investment Management, LLC.

The Needham Funds aggregate ownership as a percentage of net assets in the stated securities as of September 30, 2016:  NTNX: 0.18%; TTD: 0.83%; WAGE: 1.58%. 

The information presented in this commentary is not intended as personalized investment advice and does not constitute a recommendation to buy or sell a particular security or other investments.
This message is not an offer of the Needham Growth Fund, the Needham Aggressive Growth Fund or the Needham Small CapGrowth Fund. Shares are sold only through the currently effective prospectus. Please read the prospectus carefully and consider the investment objectives, risks, and charges and expenses of the Fund carefully before you invest. The prospectus contains this and other information about the Fund.
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