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57. Bull, Bear & Beyond – Corero Network Security executive interview
2 Plays10 months ago
In this interview, Carl Herberger, CEO of Corero Network Security, discusses the growing opportunity for Corero in an increasingly connected world where distributed denial-of-service (DDoS) attacks are becoming more frequent. He describes how Corero can deliver more efficient and cost-effective DDoS protection than its established competitors, a factor which is enabling it to capture market share and secure OEM partnerships with the likes of Juniper Networks, Akamai and GTT. He outlines his growth strategy and ambition to meet the Rule of 40 criteria by the end of 2025, underpinned by new product releases, investment in the sales team, strong customer retention and market share gains.
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About ‘Bull, Bear & Beyond’
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Original interview published on 14/02/2025 and reposted as a podcast
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Transcript
Introduction to Carl Herberger and Carrero Network Security
00:00:07
Speaker
Hello and welcome to Edison TV. I'm Dan Ridsdale and today I'm joined by Carl Herberger, Chief Executive Officer of Carrero Network Security. Carrero are, as the name suggests, a network security business focused on distributed denial of service protection.
00:00:25
Speaker
Carl. Pleased to be here, Dan. and Really wonderful to be here.
Carrero's Approach to Mitigating Cyber Attacks
00:00:29
Speaker
ah Can you start by introducing the business and particularly distributed denial of service?
00:00:35
Speaker
Tell us tell you audience it is about what that actually means. Absolutely. yeah Carrera is focused on a single problem. It's service availability. And we provide solutions to technology companies that have to always be up, that have attacks that are focused at trying to take them down. These attacks need to be managed by technology. These are cyber attacks.
00:01:00
Speaker
And the goal of these attacks is simply to disrupt, to deny, to make unavailable. With the purpose of, of course, trying to keep revenue or a message away, there are many different reasons why people want to take you offline.
00:01:16
Speaker
And the only way to solve this problem is through a technical solution, through essentially a filtering technical security solution. And
Evolution of Technology Delivery and Consumer Demands
00:01:25
Speaker
what's changed within the business? Obviously, DDoS has been around for a while and Carrera has been around for a while as well.
00:01:32
Speaker
But more recently, we've seen you know a pickup in momentum. yeah What's changed? you know what have you What changes have you put in the business? So what's changed is... The entire way technology is delivered, what's changed is the entire way that businesses require technology to be able to run. And really what's changed is the requirement from the consumer, whether it be business consumer or consumer consumer.
00:02:00
Speaker
that requires always on, always up available. Can you actually know how to get into a taxi without Uber? Do you know how to watch a movie without Netflix? Do you know how to order a doctor's appointment without an app and so forth? So everything's changed and everything I just managed to talk about requires this oxygen we call availability.
00:02:24
Speaker
Interesting.
Carrero's Position in the Competitive Market
00:02:25
Speaker
So it's obviously the demand environment is hugely positive. What about a competitive environment? Can you discuss that? Every once in a while, there's an established industry, which we have. And um it's about a $4 billion dollars ah market ah every single year with about $500 million dollars worth of renewals that happens over there, growing about 15% CAGR, right? So that's the market. There's two well-established players with somewhere between, depending on how categorically you're looking at, a 25% to 30% market share each.
00:02:58
Speaker
um And so you could kind of suggest that this is kind of acting the way many other markets work, right? So you have the red company and the blue company, you the Coke, the Pepsi, the ford the the Ford, the Chevy, the Mercedes, and so forth.
00:03:13
Speaker
um We're in that same category as a small, challenging brand, challenging with technology fundamentally. right The second is is that as a result of the technology, it's a lot less expensive.
00:03:29
Speaker
set So we're not necessarily feature-to-feature less expensive. It's just you need a lot less, and you need ah you need a lot less um work to work at OPEX. So we have about, we believe, between 2% and 4% market share growing quite heavily into the space, driving a commanding competitive a proposition out there against two providers that have old tech um and but have a large market presence. So we view ourselves as Dyson or something like a Dyson-like company, and we're trying to talk to people that you no longer need paper filters, you know, and and you can kind of probably clean this yourself.
Unique Technology Solutions for Traffic Filtering
00:04:11
Speaker
Interesting. so so So looking at the technology specifically, what is it about your technology set up that yeah differentiates you from the most peers? So our problem is to filter the illegitimate traffic.
00:04:26
Speaker
And these digital filters that come out are first to understand the characteristics of the bad particulates in the traffic pattern. and um And then we need to know how to actually filter them.
00:04:38
Speaker
The old way has been um to put filters at the origin of the traffic, so your your internet service providers and so forth, and filter from there and then allow the consumers, the businesses, the benefit of the filter.
00:04:53
Speaker
The challenge is just like a water filtration, like your central water facilities, that if you do it at the central location, your filters have to be coarse. So you actually, you you do a lot of leakage is what they call it.
00:05:07
Speaker
So the trend has been to do filters at the source and filters at the the front end of the business to be able to get the app to be able to be very granular filtered.
00:05:18
Speaker
So both of those exist. We do that today. And what we make is what's very, very different is we make, in addition to those solutions, a solution that can actually ride on the conduit, right on your pipe, so that we can actually ride on top of the pipe and detect what's inside and know how to characterize it very quickly. And then through the magic coding, we can actually drive a filter magically to the faucet at time of need or to the to to wherever the water is being distributed at time of need. So said simply in a tech world, we have a solution that can actually, so a software solution that can sit anywhere and see and orchestrate a filtration command on behalf of the network.
00:06:06
Speaker
resulting in a network not needing specific vendor equipment. The network becomes the detector, and the network self-heals through the technology. So that's what's very disruptive. This results in far less OPEX because you don't need specialized equipment. by And it results in far less OPEX because you don't need to have these network wizards that know how to move traffic around to get into proper filtration systems and then move clean traffic back into the proper environments and so forth.
00:06:37
Speaker
And you have mishaps when you do that. It's just the meantime between failure and the way that you orchestrate these things. Plus, you have a requirement for heavy, knowledgeable engineers to be able to do those sorts of things. And we remove all of that.
00:06:51
Speaker
um
Adaptable DDoS Protection and Predictive Analysis
00:06:52
Speaker
So this is the adaptable DDoS idea. So this this is really our sweet spot. It means that you can actually do DDoS in places that weren't once possible, in the cloud, in the application, throughout the entire organization, as opposed to just building little scrubbing centers and so forth. And it's become... wildly When people see it, the magic of it, there's a paradigm that comes down and it's been magically wildly so successful in the marketplace.
00:07:21
Speaker
Interesting. So, simpler implementation, more efficient implementation and, I guess, access to a wider a range of network environments. That's right. And to be honest also, we're the only ones that will manage it for you. And one of the reasons that we can do that and the other vendors can't do that is because it's so simple for us to manage because it's so highly automated. And to be honest with you, another thing that we do is we have essentially sentinels in all of our customers to be able to see what's going on.
00:07:52
Speaker
And as a result of that, we can provide weather forecasting for an attack that can come. So as opposed to waiting, because in our world, these seconds or microseconds are everything. We can forward deploy a protection and we don't need a detection. We can do predictive analysis that is coming.
00:08:12
Speaker
And we can get into that if you like. And that's really the next generation of security is to. is to understand what's happening, who's who's who's at risk, and to actually forward deploy the the filtration systems that will catch that.
00:08:26
Speaker
Predictive analysis. That's interesting. And you've got ambitious growth but growth plans for the business. I like to think that they're humble, but as there you know have I have employees that tell me they're ambitious.
Growth Channels and Partnership Strategies
00:08:37
Speaker
What are the key elements of that in terms of channels, technology, and so on? Yeah, we have ah our go-to-market strategy encompasses, I think, a quite a nice set of handsome ways that we actually conjure up revenue. So first, we have the predictable direct selling model, from which we've gone from eight direct salespeople to 14 this year.
00:08:58
Speaker
ah And they're all over the world. And most of them come from competing competing solutions, and they really know the space, and they understand ah who buys these things and so forth. and who is We have a partner partner model that helps us in region with that direct selling force. um And they get to hear and provide telemetry of people that have issues in this space.
00:09:22
Speaker
um But the the third way is we actually OEM our equipment and our tech to some of the world's largest providers. so So there are many, many people, probably legions, that don't even realize that it's Carrero that's actually doing the filters in the solutions that they've already procured. So, for example, Juniper Networks, one of the largest network providers in the world, being purchased by HPE.
00:09:48
Speaker
It looks like any day now that the final announcement will come out on that. ah Their entire DDoS solution integrated with their router solution sets is Carrero. um Akamai, the world's largest cloud scrubber.
00:10:03
Speaker
They also have an Amazon equivalent business called Akamai Compute and other businesses that they purchase throughout the world now. that they use our tech to enable and fuel and protect the and to actually sell through the solution. In fact, Akamai On-Prem, that specific product is OEM relationship with Carrero.
00:10:29
Speaker
And then GTT, one of the world's largest ISPs, Internet service providers, is their DDoS solution when you purchase an Internet link is 100% us. And all those vendors, all those partners are august and overt about the relationships that we have. So these are wonderful, wonderful relationships. And then we have a high retention rate. The company's been around for 10 years. We have nearly a $20 million dollars return recurring revenue stream and customers.
00:11:03
Speaker
recurring i should say renewal rates on our customers So these are industry highs. So just a renewal algorithm alone should tell you how effective the software is.
00:11:19
Speaker
Great. Can we
Focus on Revenue Growth and New Product Releases
00:11:20
Speaker
turn now to your financial model? Yeah, sure. you've been growing refuge robustly, but your earnings have been growing quicker. So you can you talk a little bit about the operational leverage that you've got and and also how you balance growth versus profitability, investment in growth versus profitability.
00:11:38
Speaker
So I've been on board for a year. i think we talked about it, Dan. And um the goal that we've set, the management team has set on the business, is a rule of 40 by the end of this year. Yeah.
00:11:53
Speaker
And with the heavy weighting being on ah the revenue growth component of that, and I would say the somewhat more modest but yet double digits on the EBITDA percentage, we have um a scenario whereby we have no debt, large cash, and a pristine way that we go to market in terms of of COX, your 91% gross margin.
00:12:22
Speaker
So our journey is to just do more of more because at the end of the year, essentially in the last four or five weeks of the year, every 50 cents of a dollar goes to the bottom line.
00:12:34
Speaker
So EBITDA, we've we've ah guided between 2.1 to 2.5. And that's up from 1.8 from the year prior. and that's grope that's up from one point eight from the year prior So if you do the math, the 10% growth um resulted in rough roughly 15% EBITDA growth.
00:12:57
Speaker
So we're actually double the growth rate on EBITDA versus the revenue growth. That shows you some really hard attention to, as a percentage of sales, the investments in R&D and OPEX and so forth, and attention to it all.
00:13:15
Speaker
We did all of that on the heels of the biggest year we've ever had with product releases and announcements. We had 10 SKUs go hit the market.
00:13:25
Speaker
We had a brand new platform, the highest end platform in the marketplace, the highest density platform that were released at the end of the year. We released a brand new set of portfolio capabilities called Core.
00:13:39
Speaker
And Core gives us this amazing capability to do cloud-native security at the application level and give visibility capabilities to all of our customers, which we haven't had in the past. So essentially, we've had the hamburger, and now we're filling out the portfolio of fries and Coke and so forth around around the business. And we did all of that while adhering very nicely to the cost controls in the company.
00:14:06
Speaker
So we are excited about 2025 because what we think we have is a tremendous product portfolio, significantly differentiated with many more hands on deck to go sell with many more partners.
00:14:17
Speaker
We feel like this year is just an execution story.
Optimism for 2025 and Future Opportunities
00:14:22
Speaker
Interesting. So it's actually a business that compounds. You know you can grow your analyze recurring revenues, invest back into the business at the same time as growing earnings.
00:14:30
Speaker
And there's $500 million dollars that renews throughout there. We're not yet a $30 million dollars business. So we just think there's a tremendous amount of harvestability.
00:14:41
Speaker
Fascinating stuff. Manufacturer, you can't tell it's a passionate topic of mine. Thanks for having me.