PFPT - Earnings call transcript Q3 2017

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Operator

Good day, and welcome to the Proofpoint Third Quarter 2017 Earnings Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jason Starr, Vice President, Investor Relations.

You may begin.

Jason Starr

Thanks. to quarter welcome earnings and afternoon, Proofpoint's XXXX third call. Good

Gary on Proofpoint's Chief the me Steele, Chief call Officer. Auvil, Joining Paul are Proofpoint's and Executive Financial Officer;

release the today, closed copy section of on in be of the available a results is Investor will issued after discussing our We press the that which our was market announced Relations website.

future Proofpoint's reiterate the guidance it or with or on material Form which to it on the financial based These Proofpoint's believe also this X-K. forward-looking call. could in results statements the disclosure XX-Q. and events These and no filings that reasonable or as We unless update including During are that our with consider caption make XXXX. policy Form fully press through regarding October is obligation today's conference Company, the a to adjust are call risk factors will the financial statements call, the be a a done course cause of press this release we to more note, risks the provided We of also SEC, uncertainties also on of to public differ undertake to is factors we Of subject as performance recent risk new detailed these most caution future important to not forward-looking today's future actual such in information of XX, statements release Factors date, are on the contained result materially. assumptions events. as SEC under you and Risk

non-GAAP to set measures items considered GAAP call. in from, both today's exclude non-GAAP substitute in not non-GAAP release. a isolation present will These as our a intended These or are on measures number we for, are non-GAAP in measures results, be why uses performance. our measures and financial the of forth of Additionally, reconciliation and you release. to reasons and non-GAAP press to Proofpoint's a analyzing the we A included all measures of today's measures to when GAAP list encourage GAAP Company superior consider these

to I'll So the that call Gary. said, turn over

Gary Steele

Jason. for joining call everyone the today. Thanks, to like us I'd thank on

marked of exceeded key quarter Proofpoint. operating to We third our metrics our ability rapidly for quarter landscape, enterprise results and the threats. all and again were proven driven across and expectations great remediate advanced another these evolving The cloud migration, identify, block, threat by once

email our are remains advanced socially-engineered at demand As highlighted recent through Attackers threat targeting active. are phishing we attacks the spoofing highly and increasingly infrastructure all solutions. Day, for techniques, of landscape people, threat not our which strong Analyst driving

Banking fact, and be increase increasing nearly an XX%, tremendous and in Ransomware up trend report URLs in next our to compared Trojans with is URL message to the Malicious distribute Malicious XXX%. interesting as highlighted will prior quarter, both week the that the campaigns of threat use overall QX In volume

the organizations course profile reinforced several there breaches that further of challenges the high that face Over were QX, today.

episodic these of that it those to important including near-term do contribute our subscription in events results nature model, here the business third to cloud-based our driven is Given the not quarter. note directly reported

suppliers for employees, across their do long-term perilous their However, and environment. protect level in solutions drive awareness every increased increasingly to which our seeks visible helps every these enterprise, this Company to create highly at as demand customers, incidents their world-class

third key some the to turning of during quarter. accomplishments Now our

of to the Targeted Our be growth important solutions suite our our continues of or including advanced Protection, offering, business. subscription contributor TAP threat to Attack

this a analytics number by uniquely and of zero-day and combining quarter, reminder, to with a block TAP We and As Email healthcare big a including analysis Fraud and that is a company and for system EFD engineering malware TAP messages malware. TAP, Threat XX,XXX Defense application polymorphic purchased wins users, company or a and purchased that Protection data had added Response, and cloud-based for users. attachments dynamic malicious identify company Protection, Fortune XXX,XXX TAP XXX identifies services A XX,XXX TAP XXX and block users. the of URLs noteworthy XXX equipment medical Fortune for that services Fortune that

solutions. we part the Threat to large that Protection, deals the for the migration demand that particular and this Microsoft XX,XXX long-term Privacy, to where and Beyond purchased drive users. Protection, XX,XXX won the XXX security a helping a and broader purchased Response the landscape, to Office threat catalyst for that the EFD, broader for XXX overall displaced cloud security over in is and company TAP, transition quarter shift to to Examples Threat of as a compliance TAP, of continues university users, Proofpoint’s on-premise Office Response appliances included media be

Examples Protection, Protection the Protection We XXX XXX,XXX that of for Office XX,XXX to baseline also XX,XXX the decided food and TAP multinational XXX that customers a solutions and included: to and moved as to continue manufacturing purchased had the Fortune upgrade EFD users, third during logistics a of for Fortune purchased for A XXX company and Fortune products strength bundles. TAP, users. security company XXX who that to retailer TAP, compliance quarter XXX and part users, global Office purchased and their by effectively Proofpoint's compared when of their demonstrate security subsequently provided Microsoft capabilities

and users, for Protection and for Privacy XXX,XXX purchased XXX Fortune A that quarter, Protection be government that for QX large third of protection Global that auto-manufacture customers to users. and TAP solid during users, XX,XXX a transitioning growth. XXXX a of Privacy, the wins a to pharmaceutical our protection agency included new a few company continue added source examples purchased XX,XXX During solution Protection,

our to emerging products Mobile, Intelligence, Discover. demand Social, Domain which also for Response, continue and see Email Defense, Defense, We TAP-SaaS include Fraud strong Threat Threat

products of during XXXX. new the Overall, Day, and add-on again at have Analyst are total of to we once emerging XXX% be business offerings when expanded quarter over source these TAM grew closed meaningfully our and XX% to quarter As already highlighted excellent and new third our our over recent represented compared proving an growth. the the of

addition customers family enterprises Response market, our early with resonated the well supply products. pleased few particularly already as this deploying of in Threat the solutions am the completed with has the have to After Defense recognized EFD, Social, emerging to newest chains. on of TAP-SaaS these and our customers customers, solutions interest production only I and full-scale employees, a importance of also a number months Our their deployments. protect that quarter

and the beyond the the customers advanced with for traditional reminder, a applications reach extends enabling reach As of protect solution threats SaaS their firewall. operating attack of to employees they beyond interact content email, this protection targeted when

we've I closed Discover this to strong a with announced in new of deals which well, September handful note pleased As am seen interest solution. that and has customer exciting Domain already was

accounts. attack a suppliers. domains As used ecosystem which A Threat in solution companies to monitor look-alike and Fortune a included, insurance from quick Fortune to proactively Fortune XX,XXX Privacy, XXX products emerging services added XX,XXX Domain identify of QX Threat them media insurance the different which financial reminder, company, their company which EFD and Discover our XXX social company, key two only EFD, a added users, XXX but a business and for users, block partners, entire also added for users, being enables few their employees, Response our life of wins not that social to both XXX XX,XXX and Response food services for customers, of Fortune purchased

earlier our calls we quarter, XX% year. this third outlined earnings segment year-over-year the Governance the expectations During and in Archiving, our that Privacy grew consistent with

deals these We comprehensive expect the play in for profitability course, growth nicely important enterprise rounding remain portfolio of overall to growth, cash out the of the set of in in support deliver to to all the an even growth the enable continue to offering product Note this at larger cloud. business, capabilities role to these and levels of needs flow mature. a segment as current in it and an to level of us as to migrates near-term that the our also pipeline segment contributes the the this at

influenced to Protection upgraded deals that notable to Palo key purchased Response, and quarter influence with the ecosystem CyberArk, mentioned and during the wins In all Other closed which quarter X,XXX Fortune call Networks, users a and Alto conglomerate about partners for Privacy of TAP X,XXX as the Splunk, were the our partnerships by for continue included that Imperva today. relationships very during to and terms retailer we users. ecosystem a these Protection, Threat of XXX on be the and very remain of our several excited help partnerships XXX Fortune engaged TAP, Global

European-based Notable European-based users. and Threat Global brand other bought which based users, Finally, and Threat business included XX% growing pharmaceutical we an users. XXX,XXX make over A closed one XX,XXX Privacy, Pacific Protection abroad, Response during companies Fortune of two quarter for international EFD, progress added expansion Global XXX,XXX with for which XXX and continue TAP, XX% year-over-year added Response EFD representing and the Protection, company further XX,XXX luxury the TAP, revenue. and XXX company that TAP added users, toward for international deals and Asia to that insurance total for of XXX our

market XX% compelling plan have to for the EMEA and these United and we we future market of Pacific regions. the opportunity represents that in in outside growth share the continue Given States a of XXXX, Global Asia increase both currently Proofpoint addressable to

Paul, I would like Independent to say are Board announce joined that an functions to business Proofpoint leads growth the that her as our to Before strategy we and excited business and our extensive Kristen to team believe turning over long-term operations at earlier opportunity. operational Kristen has Gil scale contribute strategy that as it will we today experience to and support we in Google the Director.

over very continue am security momentum our and execution select summary, pleased the business in to the our strong alternatives. in compliance as legacy enterprises So with solutions team's Proofpoint’s I and cloud-based

to cash to unique in growth that, me in a flow investing to gain and have market that billion. well We $XX our revenue it addressable over opportunity opportunity also let across free turn Paul. With exceeds drive longer-term an continue share strong

Paul Auvil

once Thanks, during expectations our quarter. the financial across Gary. We key metrics of ability all were with very to exceed pleased our again

quarter also our high above $XXX.X million. $XXX of for $XXX.X revenue of million. million, previously announced an were and previously our the Third increase quarter of and to of range guidance XX% $XXX end totaled third to $XXX Billings million year-over-year year-over-year up range the above announced XX% million, $XXX million guidance

our XX months contract long-term revenue million growing $XXX.X $X.X ended sequentially $XX.X And this by deferred the the lower up in growing expected, of only and at reflected balances, million. our in duration total, is at short-term range months. trend XX with million end As remained quarter of to historical $XX.X million which by

by driven a the total profitability revenue with during and above expectations for ongoing coupled expenses our quarter. upside margin was delivered to was cloud in third quarter, operations. Turning which gross our of our the On the the non-GAAP XX%, improvements our basis, efficiency

the XX% and continue by operating talent new as to to less return R&D XX% our period was our year to third million, to add-on prior QX total in existing primarily in revenue. the as drive activity we non-GAAP hiring over Growth while key slower expected with to During over customer of increased acquisition quarter, expenses $XX.X driven sales in than the up. in hiring representing likely spending customers, sales add summer total was hiring months due picks spending to growth

the based adjustments effects, we as like currency profitability by result guidance guidance quarter compared revenue per was compared interest earnings that to of income still a result differences to million, expense on of is totaling convertible range as Earnings EPS our Share spending. the provide used XX.X $XX Non-GAAP in $X.XX notes, $XX as of $X.XX above convertible from diluted when third we this uses and of the included a series share “If-Converted” very press debt quarter the favorable delivered the release $X would billion came per million on guidance. a income, delivered $X.XX in calculation additional quarter, to in both on a million nice our in we a resulting this and and based note for for Note for a increase Guidance shares. range Computational entitled reported details calculations performance our to income these for interest associated in such, million guidance fully during GAAP per of share results. to method $XX.X terms outstanding. our cash and million XX.X or $X.XX income $X.XX. other to share, of adds back our to applies our Estimates, the commensurate million, for intended quarter upside On basis, adjusted and on the that the net when higher $X.X non-GAAP fully upside quarter which to Per net topic count when million million share We've with I in $X the net of loss section driven such, diluted without explain recorded and the In these shares above

debt, in investments cash by as as $XXX to million We with flow third operating guidance capital compared strong resulting of terms option cash of contributions by June range the investments was quarter In cash of activity. million was well the $XXX generated in during ended $XX generated result XXXX. expenditures from in debt operations we This $XX.X revenue. and collections in for short-term of flow, to $XXX cash million $XX.X sequential $XX million in or XX% short-term and increase million, XX, of primarily total our to million capital above $XXX exercises. million another quarter million million $XX.X in cash driven quarter flow in of and billings stock the quarter in from invested free This as cash driven cash and and and

Now XXXX. $XXX to our year-over-year quarter financial midpoint. the turning of the resulting of million million growth starting outlook at in with be to currently billings expect to fourth XX% approximately $XXX We

to We $XXX of targeting at a million, year-over-year range the are growth XX% or revenue midpoint. million $XXX

XX.X% margin the quarter. to We approximately relatively fourth third quarter expect non-GAAP with consistent gross be

This by course, approximately quarterly to during from to of catches exchange to revenue million, Depreciation million of shares diluted outstanding, a and convertible the of with provision, quarter. the for $XX.X income rates. income foreign flow. of prescribed in for that exclusive be performance decline $X million If-Converted million our cash spending on as share, $X.XX would $X.XX fully some to of tax We absence million an count assumptions of our $X commentary along two $X.X the $X.X quarter to from additional with in contributions net discrete per items our expense and interest $X.XX assumes of for modest cash are share fourth I as notes quarter or included non-GAAP provide million method. QX fluctuations the of of the expect like now the our a million XX.X guidance fourth back adding level series up

the $X started which a transfer team expect intellectual the of one-time Israel tax to we've in United to developed FireLayers at by First, the property from approximately the fourth we States, million quarter. in will result payment

ongoing we revenue XX% spending our the in of SaaS at we generation million, operations of as additional to was Israel. includes well be quarter, Second, for expansions in million in $XX as $X the in mind, to facilities described quarter this of $XX of capital flow last or and million $XX this free a the Canada expect With cash an range expect to combination system midpoint. which approximately million expansion next cloud investments for that our be

financial the our to outlook Turning full-year. for

guidance QX over We the business. our of annual our are the performance driven and expected ongoing increasing by strength

$XXX XXXX to Specifically, midpoint range guidance million. we now $XXX compares XX% to range. expect which of an to annual of $XXX billings million in to growth million of be full-year our the This million rate represents $XXX at of previous the the

$XXX million guidance We compares to a of our guidance the $XXX annual are also revenue of with million to $XXX rate of This increasing an midpoint. XX% our million. previous to growth new total range revenue representing total at $XXX million

toward ongoing to range XX%. our to full-year XX% expect of target XXXX We gross margins XXXX approximately progress XX% be demonstrating non-GAAP

net $X.XX to to million, full-year $XX be of our guidance non-GAAP $XX.X XXXX or an income $X.XX share. $X.XX per million or to expect per million $XX.X $XX.X to As a $X.XX improvement result, from share, we previous to range million,

cash prescribed Our $X.X million new diluted as XXXX million shares the based is under on expense the method. non-GAAP guidance back XX.X EPS adding in for If-Converted approximately and outstanding fully interest

approximately tax $X.X provision, discrete assumes to approximately an also and million of million. million of depreciation of guidance $XX potential income $X.X Our exclusive items

color flow million Israel U.S. $X of payment full-year Recall anticipate guidance tax on not for the provide the additional million described the the been the million. Adjusting that previously me for million intellectual parts. of transfer effect, for the to last $XXX provided our range free we of quarter's property let for from to million this $XXX moving given have would full-year last some to $XXX some did which range cash quarter, Finally, a guidance $XX

flow to to increase midpoint range So XX% a of full-year our equating annual million to previous representing to million roughly in the of this million and are for context, $X the raising $XXX.X cash free $XXX.X we the guidance revenues.

this million. reflects modest up approximately previous full-year million from As also to guidance our range increase previously guidance in of a million, spending noted, $XX $XX capital our $XX to

a with flow quality renewal in XX%, business over on flow high based over our recurring the contract cash which a generates. and this with of mid-teens As rates highlights XX% cash reminder, we are revenues billed an duration recurring model producing average that the the

look our XXXX. As and to momentum over year in continued XXXX, believe to revenues that $X billion against on generate our in we well to this we we are build goal demonstrate progress positioned

view with potential methodologies reflects our process, early are impacts regarding any XXXX of adoption the XXX. revenue net planning income associated ASC not outlook. our still our the does either or share like we to stages such as this to I current Note in a and financial While would of accounting pending preliminary outlook include

context $XXX range our in view to $XXX XX-Q April growth to million XX% indicated results to already with using currently will million estimate end accounting retrospective consistent required growth achieve filings, the low full in of Day of the range XXX terms we enable adopt the we this the We representing revenues XXXX. new XXXX updated report September. that in methodology which historical our in targets when of the we in trends midpoint ASC to for Analyst plan of at the the do As in of our investors our to shared XXXX be guidance, of the method

the with $XXX assumptions. to XX% and million the of million, rate growth line of range $XXX the We in revenue up billings midpoint to be expect our expected in at range

XX% from over from $XX range to billings net share of million million, annual do interest the year. Given installed diluted million. the timing back then activity $XX we to the to of course year of the or base, the increase and bonds renewal using With sequentially regards shares our $X.X adding growth per this gradually in of to of on expect down year's midpoint be QX we fully expect income, with XX.X a diluted million the $X.XX expense QX almost outstanding for $X.X to convertible the and to non-GAAP

approximately The income of approximately the $X.X $XX currently demonstrating free to this debt past partners as the terms of cash extended million particularly in expect an years, grow increases tax are provision forecast $XXX year-over-year of additional a that channels. complete target $XX seasonal our expenditures we cash further always our XX% $XX XXXX and items that first the market. backward of cash we quarter we we compelling giving with quarter includes convertible outlook of and approximately flow from XX% investments innovation of opportunities to as Company and keep and mind roughly sales do of is be gain process Finally, this We more payment million to sales of to $X of good our XX% and to exclusive XXXX is release key network the first for free cash flow XX% the Also planning to our the depreciation guidance plan insights the toward ongoing the million, investments flow progress revenues. assumes for our of and the annual timing step to profitability million. believe with and million, XXXX of refine $X or to million. interest payroll commitment in potential GAAP pursue capital initial by to for than revenue the discrete making to reconciliation taxes, issued the associated our in Similar This million guidance associated expense we assumes bonus can kickoff, program. year, our guidance well full-year Company's marketing non-GAAP found costs as to sales XXXX our quarter A fourth in that in as approximately afternoon.

we the have XXXX. and momentum a third well and summary, maintain the for remains remainder Proofpoint So to the year quarter positioned of into strong in very believe

today's our over to the it limit help turning to operator duration a would the that I to to now. before ensure question be just discussion. Operator? has everyone be for that you today. with to taking everyone to Now the Thank for of reduce chance one to join on that, like questions And the to in time call happy us questions, and included we'd themselves request take call

Operator

We [Operator with Walter will first you. Thank Citi. Instructions] go to Pritchard

Walter Pritchard

the as thanks. and able look you could investments talk you build build about to as base of maybe Gary, you you during XXXX. to year, the next made sales to early the that hiring are into out Hi, be make grow? those changes to kind those investments XXXX you now How of into some wondering look did I'm

Gary Steele

Yes. And a great question.

our We continue in grow U.S. here team will the to

sales will at across a see We well our a both as specifically, inside EMEA clearly internationally will team reasonable as grow organization, tremendous we field our grow opportunity and we clip. our organizations and

Operator

Instructions] Matt RBC [Operator Capital next Hedberg will We to Markets. go with

Matt Hedberg

comment federal taking did thanks past on quarter? the for last my we see high-profile this you then call sense buying for spending behavior. change, in in wondering any And it Gary, breaches given Hey, urgency I'm question quarter, any saw this guys.

Gary Steele

respect remarks, we events visibility breaches. business is and episodic don't the a but whether see just our be associated broader the think to short-term there do we cetera these as but urgency, general companies us, executives see know something that And I for breach the their awareness. is with continue a so to a understanding in high-profile to as et see in happened of what with to there's we prepared I organization. becoming indicated Yes, – for priority And quarter, we much cybersecurity risk in drive continue these increase high don't

that long-term demand. So fundamentally question, we it think And Matt? the great fuels me second remind

Matt Hedberg

on spending? federal thoughts any federal, The

Gary Steele

Yes.

relatively business federal our So small. is

spending look of across mid federal those you local, overall government as as single and terms well If state we're in business. percentage of digits

So it's small. relatively

within we two, cloud, And distributed is we initiatives email. so we that we federal, into one, terms of broad in the comment number the XXXX growth to of will saw really have we’re we broadly a broader initiatives didn't that authentication of move and nice weren’t in – we nice enough see there towards federal. What a some fuel in in what for is movement build are much and think There's seeing excited pipeline federal about though Proofpoint. of

Matt Hedberg

Thanks guys. Great quarter.

Gary Steele

Thank you.

Operator

We from will Stanley. take our Morgan Melissa next question with Franchi

Melissa Franchi

Office within your adopt just have Office a driver was all when Hey, to we be taking continues enterprises XXX do like curve Office question. you. adoption for solution of the process in XXX are around think at what in at selling you of for change Gary, terms conversion I in maturity thank of XXX? XXX my wondering a your seen and you in enterprises terms the you just point Office

Gary Steele

question. great a Yes,

actually say go cloud. go. of have from go is into think I far particular, there's range, terms that are is point like number the we to I – kind adoption, in question seeds that buyers of And very a going of on first people we represent to of and way long So across financial it's believe having a of view, enterprise gotten today slow in qualitative to that broad the what that I along in still resonance a XX% verticals we see XX%, would they're there? just And how lot And have they been think a services. there's

that security as the I those of and of against though so In and of understanding concerns to us. move capabilities bodes process that buying brought want for typically organizations process one of we it The core the test the in considering to better relates capabilities think see to the frequently I is the more core a think we're customers things terms being cloud, I is typical think cloud, our on the Microsoft. well

so And the as in going trying to continue and to it out see they opposed is to customers process knowledgeable and earlier to me in as we Office thing that wanting bring more rethink encouraging XXX to before be us it.

Melissa Franchi

It makes you. Thank sense.

Gary Steele

Thank you.

Operator

take will Bank. Gray with We question next Powell our from Deutsche

Gray Powell

for Thanks Great. taking the questions.

saw drivers there the margin on talk going sustainability just and you forward? you some QX. main particularly margin the So the pretty Thanks. in margin good of leverage that gross Can about on side, side guys then the

Paul Auvil

of of even we of at had so might above quarter I were great the be where mean, high a Yes. and all, kind first things thought reach I revenue results we would say, to end too. delivered that we expected a bit where we

in gross be operating for going level against to think the basis on investment. got on think you've I is and of so current the right about And margin margin spending us your expectations we a that the XX.X% target talked I QX, to. But for

catch XX%, full-year, the again I model we're XX%. the but to about low does XX% of talking that for up, of which our with start some fact spending end XXXX think to kind of As is being the at the

leverage nice model. are and and ongoing that in half. of a the I out year think some the nice it year seeing a margins last over improvement seen demonstrates gross we We've

XXXX, of guide gross quarter-to-quarter. provided improvements you if we do just the guidance what incremental again, that modest so margin, about didn't we And specifically we expect to think for sort to ongoing see

feel of next some not good of our some timing quarters towards bit, here little quite a on so depending up trajectory up quarters years several gross target. a on we've the XXXX Some like but over got that margin much investments, we

Gray Powell

much. very Thank Understood. you

Paul Auvil

Thanks.

Operator

our from with take Jonathan next Blair. question William will We Ho

Jonathan Ho

me okay. hear you Can

Gary Steele

Yes.

Paul Auvil

Yes.

Jonathan Ho

I for in so wanted products with out terms make to need emerging of you XXXX? particularly question just level to the some a Perfect, the start support of investments to that of

Paul Auvil

Yes.

next a core generation we're this which see nice I’ve really SaaS scale a reimagination XXXX. with our of related into it’s how the much sort more think new capital right think cloud now, talked operating we'll too I to of a about some some way our So elements spending of at It's platform. – as on products. bit from we work It's not of leverage perspective, the little

we For a fixed of it's Email whether products kind they product, datasets operate. those the that Discover that of Fraud are sort build they're Defense the Domain on – of costs large newer lot already

do So margin while we cost component. those revenue scale, there that close against fall additional see that as incremental are very nice some and as fixed through variable we we on customers costs drive

Gary Steele

Again, things Nexus the all pretty the and integrate Nexus basically to platform steady has profile. a platform cost those

So getting Paul as described. we're leverage

excited of So these contribute this of of cohort over emerging whole the we're all the and of profitability next products years. will couple growth pretty to about

Operator

We will take ISI. Evercore with our next question from Talanian Ken

Kenneth Talanian

for guys. question. taking Hi, the Thanks

So guidance. changes you into around I that XXXX from any in rank your wondering factored the your was billings are if and the order renewals growth drivers can expectations contribution

Paul Auvil

changes had a regard in far year to to kind and a historically. we perspective, renewals measured look any continue expect as expect of another over see seen in don't as performance the consistently revenue basis. to in that that rates Renewals recurring here same solid so We From we've XXXX. XXXX very on Yes. that we XX%

but products business. and continues meaningful for or nice a new the and our are And contributor to terms rank order TAP growth, margin, obviously that driving add-on things In core – the a to the growth, drive of be catalyst Gary… emerging product

Gary Steele

Yes.

broad creating so in cloud really taking things us off, actually challenging two is all echo to advantage move we're landscape disruption and I that and two that think so it to and TAP what threat customers. this it the the is sell those Paul movement fundamentally allows cloud, said simple that to displacement Protection and and it's extremely it’s go to

So those really drivers that. and key growth the primary falls two things Company are two the for behind everything

Kenneth Talanian

Thanks Great. much. very

Gary Steele

Thanks.

Operator

come will Winslow question with from Wells next Fargo. Our Phil

Philip Winslow

on competitive/pricing a Hey, question just thanks I the just the guys. environment. had of sort

when year, last you've the of kind the anything sort dynamics or the of those half, were we just Thanks. dynamics going in how XXXX the half about been year versus and into are guidance? in pricing terms forward Just that over there first thinking as out you you contemplating change of second move seeing

Gary Steele

the could emerging and those from success saw in thing hear that we're good Protection from dynamic to half of customer first adding but emerging the But we're have it and second is the engagements of success steady we products that and into and in. much We start Paul though saying not you I'll We're only we the half. competitive transactions. selling where very Yes, will because the those products in benefited jump gave. having TAP, on one very examples the

has we're So the products come is effect as of emerging net half of ramp transactions on. the saw seeing bigger that, in really Phil, than the say first the we

Protection wherein Would So in on believe that that we're originally. super capabilities about then – and that think that plays encouraged XXXX, and you Paul? by uplift transactions deal going anything the how out to that we add emerging that these with and to on tacked to to continue do or TAP we that from we're see bolted benefit

Paul Auvil

No, I think said. well that’s

Operator

come with Our next Jaffray. question Piper Andrew from will Nowinski

Andrew Nowinski

Microsoft scenarios. ask in on rates your versus to rates about us the could you win wanted just any win whether in and color quarter two give I Thanks. your

where chose move the Office came one, the And the back anyway two, number So and Proofpoint Proofpoint. Microsoft Microsoft chose then with and to then instead Solution? going initially customer to Thanks. customer where XXX

Gary Steele

think are in rates of I Yes, those scenarios, our both extremely high. win

XXX, well obviously head The into rate ourselves So that against to is like that where insert to Microsoft, when balance have is things we over those et to decision go it’s cetera. we our of when our high But really through place opportunities someone expansion focus they missing is not taps us tested, high. win extremely to one win on so rate the channel head continue XX. of when Office just we

Andrew Nowinski

Thanks.

Operator

from next Our will with Securities. Koenig Steve question Wedbush come

Steve Koenig

an in of even level, decisions, decentralized in Maybe Gary. early bit you're higher to whether sounds percent, Hey, on goal. think you're we talk trying up it's the last about at what And channel, present any what sorts year, sense metrics an qualitatively this Microsoft fulfilled you. channel a managing should in it as can important working through beyond you this you about expand believe you're I how channel. pick percent influence, to, the I the Thank to of Being wanted to that it that? kind your little theme year? of the partners goals of accomplish clearly

Gary Steele

some as in here jump well. I'll Yes. probably will have and comments Paul

well things the of us. one job national has on and big is for So phenomenal that resellers, Optiv, an that we done relationships have a worked driving great like phenomenally with

a a engaging accounts. now set resellers last frequently relationships have of to in or that Over the either very more regional particular half, we've good the of and with particular year been year verticals course the

growing so those we're reach and U.S. broadly our through across And and giving the us more with providers internationally. relationships growing presence broader channel regional deeper

bringing So – a business one use, that you key the that add use progress how channel we as quarter-over-quarter. to simply we is internally much we metrics us. to there's And metrics Do is that of number just what the continues at that Paul? of about think but show looking great anything

Paul Auvil

that's No, right on.

Steve Koenig

lot guys. a Thanks Great.

Operator

Sarah Hindlian next question from will with come Our Macquarie.

Sarah Hindlian

much. very you bit trend. of the seeing? would range, trend really the wanted helpful to about It XX-month of driving Thank dynamics to duration. I with that to the you’re lower talk continues XX little that kind guys understand it And you there what that be a are are towards to end

Gary Steele

to sales we're and and Yes, people honestly, how question. the and our close out we structure and driving business dynamics contracts. a frankly, that’s trend incent good the running are And that quite how go

we various terms, shorter sell we billing with that in on is price better users view contracts products get that pricing duration in Our them. terms of the terms per of

very it a our customer high rate, higher And drives of so much for given lifetime renewal value the us. very,

but discounts always the would And customer, to another more and above again, to interest opportunity possible to That’s they deal. of a that, creates obviously renewal, some entry when write that. two every obviously one-year our but is We terms to we products, there's be commitment at the for who us in part customers goal when there key always the we strategic provide a a to in paid and they are And drive We're drive they view preference but value for the service will do in in make the customers fine. yet on playing they beyond and this as advance. attractive stickier and from just that, that very role choose for our make is XX or and offer those that check the hence, nominal of years international sales, just a very, which much lifetime do we we're what three drive rate happy get environment so opt business year also growth that is look for it of see that customers have that and months, the value really point how enterprise. they like to view

Sarah Hindlian

That’s very helpful.

Gary Steele

Thanks.

Operator

Our with Tim next question Securities. will from Klasell come Northland

Tim Klasell

Yes. afternoon, taking for question. my everybody, Good and thanks

to that I currently. Just and archiving a hear archiving on how quick the didn't when as security around much is compared side margin the structure product question, and wondering how the doing is

Paul Auvil

Sure. question. That’s a good

this nice this in saw governance past It’s sticky in segment. range imagine. year-over-year email email in for the it in remarks, provide be the cloud compliance their very large for need there. also the and prepared of to to But Gary their provide that the the with calls, being they needs, deal as using all I employees venues. you of we about because our in year-over-year the for important needs of to DLP talked when their are where venues suite comprehensive those compliance our that the but rate to of and our customers, in can portfolio operating content privacy round that and had we and growth that allowing streams to We so not Dropbox of and Archiving mentioned, expect incredibly XX%-ish as Box, decline also that have number customers of committed continues the that one, terms very rates, interact think segment everything all their business. all in security revenue only cloud, full out growth helps and for numbers quarter social example through able to As they're archiving did could we course you compliance the shared archive to driving move really

hope several as ongoing that's quarters long, couple have is provider. view going it's next part kind interesting what growth of a a a over our of there is closing close about slow, ramp, sometime of some The foreshadowed So in really the march important we're customers of to steady pipeline again helps sort deals last full as we service really the we've quarters. and of that in where call us driving but suite the and the on excited

rate. terms gross the very the said, your company the that you margin with when of which compelling average it's bit to So below think about margin for or our little important I in think revenue out dollars it's metric cash grows I see margin contribution of as question, probably current net just quarter, the a is growth think which but most the reported beyond flow, and to above you

Tim Klasell

Great. Thank you.

Operator

Gur Talpaz will with Our Stifel. from question come next

Christopher Speros

is This on for Chris Speros Hi. Gur.

spend international related and nice primary of GDPR the Can a QX. role? this you your saw in drivers if growth played business You any in talk about growth,

Paul Auvil

Yes.

very with with an we're that nice on pleased team putting think results international I from growth. the

serve. continue forward as across to winning drive see we ourselves we excited We're the marquee XXXX accounts opportunity We and nice that across look to we territories the can EMEA.

it engaging with requirements. have relates been We customers to GDPR their as

term will think a and deadline. I that early I in work sales we're don't yet, and I we GDPR longer the too for catalyst our I think area. the think GDPR XXXX get it's very as think closer growth to into be do EMEA it do getting way we but

Christopher Speros

you. Thank

Operator

Our with Susquehanna. from question will come Meisner next Anne

Anne Meisner

thanks. Nice quarter. Hi,

the respect enable day DMARC Just other the with security to other this, a think federal some DHS you basic alluded news quick to to but directive agencies and federal follow-up on other protocols. Gary, that without the I about side, that email requires the

would there sort of their response email Proofpoint? as them be threat I would and are more other to agency encryption this of bad with that the already assumption, many assume compliant enabling on expect of And all, maybe elaborate the re-evaluate a you maybe then so I for can but of would expect to that's or simply be a broader if initiatives? initiatives whether result First you security implications protocols some email that you assume standard

Gary Steele

question, it’s and couple flow how but is going this just to Great Yes. to super try out through, to early exactly figure comments. a

So one get to the there. There's side, DMARC got ever the requirement very authentication organizations so standard. on few to the

over. help that to agencies jump a Proofpoint think can Defense is that's to So that the for offer be EFD. frankly those federal we capabilities We agencies We them a we these hurdle to get to federal with an view big given partner standard. great for Fraud opportunity this Email or

more believe organizations in that still need I think be role to I of respect standard out that, that decisions help itself federal the don't and early some do understand figure demand customers environment. consultative do through kinds of be that that government the side bring easy e-mail they much involved be With conformant. excited of growth. greater to us visibility for particular will is encryption can and some we're initiatives magnitude drive of a that handled So of these the more I take and catalyst what a to configuration know about it. relatively but to to what for and with will in things, But speaking their do I think we to broadly a

a So do the take I been great positive, don't space to hit here know drive but investing demand think we've it. federal into of we're does it short-term I the that there's and hoping advantage in where

Anne Meisner

you. Very Thank helpful.

Gary Steele

You bet.

Operator

our next from with Goldman Sachs. take Borges We'll question Gabriela

Gabriela Borges

they also taking from then for can taking us on-premise Thanks Security share pushed asked little on Microsoft provided opportunity was on guess earlier? remarks email I’m has Email bit Security, another as to Gary, prepared the that cloud. back of I to on with and you where touch a question as little the switch the see switched a already on come move cost have opportunities the from you hoping it SaaS afternoon. if you customers to Good bit to Email question. Proofpoint. Great. comment some displacement security touched my

Gary Steele

because the in we of things see the the decision either make of for a cloud through one we and cloud particular make noted whether of or solution. from great that's Office Microsoft They email then Proofpoint. No, do to the on-premise number and that reasonable XXX customers provider that G utilize to a that the oftentimes and Yes. that or move by getting creates threads solutions advance Google then that something opportunity prepared to some a case be happening spoofing it's go they remarks, is Suite else

And remarks so it that's that’s because our actually common been prepared in a such happens specifically and we very it noted case a and common case.

Anne Meisner

Thanks, color. the appreciate

Operator

with next our Erik take question Suppiger from JMP. We'll

Erik Suppiger

the are the acquired that that the discussions question. a of catalyst, taking might regards can to they of or they that for thanks posting a Suite fact their to more security posting Yes, starting how member G board and is talk having bit acknowledging that looking you at are their a With capabilities. about new Google, become them sufficient they is for customers little your back years few you seem with not and so

Gary Steele

business board in to customers. one not said operational discussions and done We we We've they think critical additional to and with be and email Yes, Board, opportunity the the the do well addition we're going she'll I’ll G that, join think Kristen security. that the go correlation the her something look to to joining We that and We are be between customers great Suite about given related, a strategic way the phenomenally $X think billion G Kristen exist. Having start board. to that experience. quite for Google thrilled Suite as have role see she'll a those we see continues with Google then beyond.

Suite customer a see as G We do Office customers we presence marketplace in the over adopting of target have Google greater our of number target XXX. seen and our result a Google

market there and opportunity. the And Kristen that interpretation that think so but interesting joining market between shouldn't in in is any Board be we

Erik Suppiger

you. thank Good,

Operator

next take with from We'll Colville question Arete Research. our Patrick

Patrick Colville

impact month. of prevent was email any that done insurance anything Deloitte lessen necessarily The though or Could there. to the hack not this products the and breach? Hi, of Proofpoint's

Gary Steele

to exactly there always is fully happened what difficult environment. It understand

hesitant was would exactly related, do the about on that be I to went email make there. at. So understand it's attack prognostication excel things what very though it related and of We one any we phishing

an great us. clearly does it opportunity for So

Patrick Colville

Okay, you. thank

Gary Steele

Thanks.

Operator

next Gregg Our and will Company. from question Moskowitz with come Cowen

Gregg Moskowitz

lower Great. to operating is XXXX in Paul, you're in flow expected are we just CapEx some expecting bit back FireLayers a even though you. guidance. cash free Can year? you the I had be margins leverage cash see XXXX expected margin tax with why payment next expanding Thank QX year? flat the currently a in next out margins If associated to walk not question through just one-time on flow are free

Gary Steele

feel of cycle. this terms right XXXX expect as current the toward them But moving the guidance if Yes, I that the as March start. number you one-time current I and adjust quarter million way guidance of think then annualize fourth the margin XXXX, even and the in sales problem, early making it's thinking In presented we item the we're adding was for take good it. come that numbers $XX planning I a around I roughly we investments in about the guide and and at out kind of XXXX We our here do increasing to think the billings just XXXX. for as little a of different here XX% the October results it's cash the point parts thought assumptions honestly in in think about ongoing to and step with back place efficiencies we're flow about to we number and from by that, as think this evolution under

talked to feel We good about we to continue range XX% getting in XXXX. to that that XX% about

Gregg Moskowitz

thanks. Okay. Great

Operator

Alex & Our will with come Henderson from Needham next question Company.

Daniel Park

this question. Park on taking Hi, Dan Alex. is my Thanks for for

want Day? the and they partnership So future your thoughts transition that platform their driven Analyst a to with partnership data just our link business on announced to opportunities, especially the Palo Alto hear I model a as during

Gary Steele

question. Yes, great

integration for had it Targeted that between Attack Alto has customers resonating been seen I our and strong solution We've we've WildFire technical with been the and played find from So thrilled Protection their the and really that role great It’s success it's particular great a basis working with solution. partnership. we've relationship bigger Palo and we're additional worked closely results would that areas critical look provide with much frankly whether would. there really that be value is Alto looking to clearly we ever thought and Having something other innovation our can so that, that's and and well. we Palo that are always all at to said for that will evaluate follow of point see where integration integration customers. we It

that So we're doing we nicely and with the are about quite doing we it. that what here excited work dovetails think they're

terms today, have outside more think our likely to months Splunk. Alto Imperva been more and partnerships Palo cautious think to there's the course being over partnerships. couple a about next identify this and that we trying where customer great people and opportunity and overlap the XX we'll announce of Alto, very In some CyberArk, do opportunity to limited of we're partnership Palo there's I other select

Operator

Jayson from Baird. our Noland W. We'll question Robert with next take

Jayson Noland

Okay the great. versus the there? what wanted Paul, FX revenue expect FY I which do and on guidance to baked into you on XXXX ask what's we then have impact billings,

Paul Auvil

that FX I markets so know and trade pretend Yes, about wouldn't everyday. more the currency the to guys

and is exchange rates the we're So quarter current for assumptions XXXX. fourth into XXXX using both then

the So euro bit little a now there's change the make comeback. years – was a you going of back the of a roughly. a valuation a now you dollar – there couple that see between in the and in significant euro know And as

billings it's revenue $X cost a that think basis like is small again the the significant. cost as modest there team of then of impact the and million not located So the against XXXX on positive London. nominal as our literally in very both continent people line million, on impact $X.X a the well to is maybe timeframe, And but in

unique years So as something made big just euro move. but enough call the more first they it's might an when out rates keep specifically out be eye move factor, several exchange I did call ago as I that will we we on will to its bother that that if small didn't it meaningfully

Jayson Noland

Okay. Thank you.

Paul Auvil

Thanks.

Operator

question Michael Kim Imperial take from with a We'll Capital.

Michael Kim

Hi, guys. afternoon, good

Threat still opportunities is and your of market the out of a more You products the perspective get seeing recently it and curious just head-to-head evals? you? called you're merging talked highlights Greenfield about kind and for category and Response if automation like vendors maturity number relatively to and Or orchestration on on

Gary Steele

Great question.

played we Response current increase very the quarter. environment. specific in the seen really has we've have a that in seen results a in demand been and numbers. through our We use significant We're reported our it's about Threat traction case with excited Where

capability that in one operations got So allows it malicious. TRAP, date we be copies delivered Auto-Pull. later know they of messages, to so Response the a to security that someone out is at center call Threat a or pull It’s able multiple we

you customers and efficiency demand. point that And then very that that and create resources is new, of your so relatively about automation is that And it been for and specific the to it they theme it automates lack the can has that are which to it's particular the headcount the is given have. orchestration the hear shortens that and space, more continue remediation Greenfield, to we use and action. case And time automation driving looking

things case played that clear success specific really on of super because automating traditionally use terms this winner in around a that and we've have driven so manual. And been it's

Michael Kim

Thank very Great. it. much. Got you

Gary Steele

bet. You

Operator

Trebnick will Catharine from Our with next question Dougherty. come

Catharine Trebnick

even forward particular building in and early competitors than up did And some there more regional market, Symantec regional of Thank out Mimecast. Thanks against haven't are Cisco, for we or you coming Competitively, really taking that talked that markets you're others? remarks the and the say your pushing in question. the about you're you. any

Gary Steele

is so like we our very run incumbents. people have landscape competitive clearly consistent, Symantec see the them. and and Yes, The wide say so would we Cisco that share market obviously I into

the of then the earlier obviously to at has in And they a market. against running move the when role noted Mimecast we've Microsoft. customers clearly call, low the As cloud, end up were

significantly We at end haven't obviously the run them low but up we of move marketplace, seen the into them in market. the

Catharine Trebnick

right, thanks. All

Operator

with from come Our First will Smith final Analysis. question Howard

Howard Smith

you. Thank Yes.

So slant another on time archiving but around governance. the and this question, competitive

plans of around analyst is around you've I kind end that product? take real formulate new, their Your was product been anything still competitive know the on some marketing update I of that almost there. CA to but do event if or wondering or of relatively any advantage life able it's responding to time environment of to and

Gary Steele

question. Great Yes.

institutions is solution. by to supervise customers what to due events their that to of financial So out again, used do one of the life announced they're in September Orchestria been end of end that month to life of happened the their figure basically there CA Orchestria raising the and going email hands, of is trying next. has

it has us And been been opportunity build really for pipeline. to build, has so an it’s

And a so interesting we look as pretty at this opportunity.

huge, not on drive critical that it customers how is mission something gives some important very compliance. it's they access While in us to

doesn't Those in we're XXXX excited probably to about the It six deals already it we've pipelines. nine So efforts out happen already marketing overnight. timeframe think that. We and think mobilized in and months. plays we're I our making progress run building

excited it. all we're We're about over So this.

Howard Smith

the Appreciate color. Great.

Gary Steele

Q&A You bet. End of

Operator

this back At to turn questions closing time. no additional any I’d the are for or there appears at like remarks. It further Gary conference time, to this

Gary Steele

Great. to for Thanks everyone moment a call wanted today. the take so on joining I thank us to much.

results excited Thanks reported we the look We talking you are so we about that next our and very to to much. call. on forward

Operator

your This concludes for today’s you participation. call. Thank

now may disconnect. You

Proofpoint (PFPT) 19 Oct 172017 Q3 Earnings call transcript