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Sales to the North American and Asia Pacific markets grew by 14% and 12% respectively, while sales to EMEA were 6% lower than prior year. We invested during the year in further building our team in North America and the opening of our office in Sydney reflects the AsiaPac market's growing importance to Endace. Likewise, continued investment during the period in the further improvement of our market-leading product and technology base underpins further progress over the coming years.
Markets
An important and growing theme over recent periods has been the increasing need for all large organisations, whatever their nature or activity, to have an accurate record of the performance of their networks and applications. This is both to provide forensics in the event of a malicious cyber-attack and, increasingly, to ensure the continued efficiency and improvement of networks, enabling organisations to operate and compete most effectively in their markets.
We continue to serve our traditional markets of Telecommunications Service Providers, Government Security Agencies and Financial Services. Telecommunication Service Providers represented 23.1% of group revenues for the year and Government Security Agencies represented 16.9%. With the evolution of our addressable market beyond our key Financial Service customers, we now include the Financial Services sector within the Enterprise market, which represented 48.7% of total invoiced revenue.
The Telecommunications market was consistent but slow overall; the US market in particular came under pressure from concerns over the European debt crisis, resulting in a disappointing performance in the December quarter, a period that has traditionally been strong.
In Government, our focus continues to be on the "Five Eyes" nations (Australia, Canada, New Zealand, U.K. and the United States). Our strengthened team on the ground and our deepening channel capability resulted in good year on year growth in North America; looking forward, this market is very promising. Our UK sales were below our expectations however, with changes in Government defence spending announced in October 2011 delaying orders, particularly in our final quarter.
The Enterprise market showed good growth, driven by three main factors - 10Gbps infrastructure becoming the datacentre infrastructure of choice (a development which would probably have occurred a year earlier were it not for the Global Financial Crisis), the industry trend towards cloud computing, which requires centralisation of application hosting and therefore larger and faster datacentres, and virtualisation, which reduces network visibility and therefore increases the need for accurate and real time packet-based monitoring. Additionally, the satisfaction of increasing compliance and regulation in many industries and markets requires enterprises to be able to monitor properly and record network activity. The Enterprise market now represents just under half of our revenues and, with all organisations increasingly reliant on the security and effectiveness of their networks to do business, offers the potential for good growth for Endace. The Enterprise market also brings improved forward visibility versus our traditional Telecommunications and Government business.
Team
We made concerted efforts during the year to improve the strength and quality of our sales team, with key executive appointments in particular in the USA. Spencer Greene joined us from Juniper Networks as SVP Product Management and Marketing, and Rob Atherton joined us from Fortinet as VP Corporate Development. In addition, Jason Moore was appointed SVP US Sales, having relocated from successfully building and running our EMEA operation. These and other investments are all intended to improve our profile and reach into the important US market. Tim Nichols, our VP Marketing, also moved to Silicon Valley to join Spencer Greene's team. Tim's presence in the US market will make it much easier for him to interact with key industry press and analysts who are vital to ensure our message is heard and is relevant amongst our target audience.
As we continue to learn from the strategic review being led by Deutsche Bank, it is clear that investment in our US market presence is a key requirement to our future growth. Our New Zealand roots and world-class R&D team impress customers and potential partners alike, but a strong presence in the US market is vital for us to build the partnerships within the vendor and channel communities which will allow our technology to reach the largest possible audience.
Product Portfolio
We continue to develop our product portfolio and maintain or increase its technology leadership, satisfying our customers' near term requirements and driving growth opportunities by preparing for their future needs. In doing so we continue our evolution from our beginnings as a specialised technology company, to a vendor of systems and ultimately a supplier of integrated solutions, moving up the value chain as we do so.
The most exciting innovation to be announced during the year was EndaceVision, launched in the second half. EndaceVision is the result of significant investment in a brand new layer of intellectual property, enabling us to index, search, retrieve and display packets from across an entire estate of Endace probes.
The EndaceVision application is at the heart of OSm 5.0, launched in March 2012, our latest release in our range of 100 per cent accurate high speed network monitoring and recording systems. It has taken 10 years for network infrastructure speeds to evolve from 1Gbps to 10Gbps and we expect it to take only 5 years to move from 10Gbps to 100Gbps. OSm 5.0 can operate at speeds from 1Gbps to 100Gbps, giving our customers the confidence that our product base is already able to cover their monitoring requirements into the foreseeable future, as network speeds accelerate beyond the current capability of our competitors' products and technologies.
During the year we completed the development of EndaceExtreme, and shipped the product for revenue during the second half of the year. EndaceExtreme is another industry first from Endace, delivering the capability to capture all packets on a 100Gbps link and deliver them to multiple 10Gbps probe interfaces for recording and analysis. The system is built leveraging our unique FPGA-based DAG architecture and demonstrates our ability to keep pace with the latest network technology developments. This capability sets us apart from industry competitors, and signals our ability to scale with core data centre architectures.
We are delighted that we continue to benefit from two technology grants, totalling NZ$10.6 million, from the New Zealand Ministry of Science and Innovation, which reimburse a proportion of eligible R&D costs, and which have enabled us to accelerate a number of significant projects.
Customers
It remains difficult for us to disclose certain customer related information, but we continue to build strong relationships with top tier organisations across all verticals. Our top 10 customers contributed 51% of invoiced revenue this year (2011: 58%). 8 customers had purchases in excess of $1 million, with our largest customer representing 11.4% of total invoiced revenue. The top 5 customers remain consistent with prior year.
Partnerships and collaborative agreements
A focus of every year is the continued growth and enhancement of selected partnerships and collaborative agreements that are intended to extend our marketing reach and enhance our products' capabilities. This year sales through resellers represented 26% of group revenues, and we continue to invest in growing our channel. The appointment during the year of Rob Atherton to lead the development of our channel relationships highlights their growing strategic importance to the realisation of our commercial goals and the increasing investment we are committing to their development.
The agreement entered into with Axial, a leading European reseller of network monitoring and security systems, is already beginning to generate early revenues. We also engaged with Ymon, a reseller to the Nordic markets and, in the US financial sector teamed with Verizon, to make financial market data feeds more reliable and predictable for trading firms. We were pleased also towards the end of the period to reinvigorate our relationship with Rsignia, which will help further develop our customer base in the US federal and commercial marketplace.
Employees
I am as always grateful to all Endace's employees for their important contribution to the Group's performance. It is their strong commitment and effort that is driving the Group forwards and creating further opportunities for growth.
Outlook
We remain cognisant of the uncertain macro-economic conditions and their impact on our markets and customers. There is however no doubt that with ever increasing network complexity, traffic and speed, organisations of all types require the ability, provided by our products and technologies, to monitor their systems if they are to go about their daily business with confidence in their integrity and operational effectiveness. Our sales pipeline is healthy and we remain very excited about the opportunities for Endace.
Mike Riley
Chief Executive Officer
22 May 2012
CHIEF FINANCIAL OFFICER'S REPORT
Revenue and Margins
Group revenue for the year ended 31 March 2012 was US$41.2 million (2011: US$38.4 million), an increase of 7.3%. Revenues in the US accounted for 62.0% (2011: 58.5%) of total Group revenue, revenues in Europe, Middle East and Africa (EMEA) accounted for 28.9% (2011: 32.8%), and revenues in Asia Pacific 9.1% (2011: 8.7%). On a recognised revenue basis, the US and Asia Pacific regions showed strong year on year growth, delivering revenue 14% and 12% higher than prior year respectively. Revenues declined in EMEA by 6% primarily due to reduced purchasing from the UK Government sector.
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