PFPT - Earnings call transcript Q1 2018

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Operator

Good day and welcome to the Proofpoint's First Quarter 2018 Earnings Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jason Starr, Vice President of Investor Relations.

You may begin.

Jason Starr

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

be Gary on section Proofpoint's Chief We'll after announced the the copy was me Relations today, which release Steele, our Chief the press in call Officer. market Auvil, Joining Investor issued Paul is website. are Proofpoint's available of that the results our and Executive Financial a closed discussing of Officer; on

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

are measures call. number GAAP GAAP analyzing to to for, performance. are not A substitute present financial a superior measures in as would of today's the and also non-GAAP made when isolation exclude encourage remind reconciliation set our reasons in press under X, comparisons items approach. standard. or have intended XXX I and uses release. adopted of why a financial as in measures like financials today's the will as today's measures on These with to Proofpoint's consider list today's all included to press accounting we we XXX January company of all And results, be ASC to non-GAAP in we non-GAAP to that retrospective outlined the in forth full accordance GAAP of prior our on XXXX our call periods considered release a These earnings non-GAAP are and these measures such, revised reference in everyone and measures both of from, as the retrospective as Additionally, discussed you to release. the non-GAAP

the issued and our the provided our of of As acquisition please the connection year on March Wombat on impact recall a a financial from final point, the with the and X, both view release an the outlook of Security filed closing acquisition, press we full Wombat in that first for XXXX. quarter X-K that expected

be will historical figures respect references with we that such, all as of the guidance provided As to our that part to update.

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

Gary L. Steele

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

for Proofpoint. a first the The quarter start strong to marked year

block our socially infrastructure-based Our target through often increasingly identify ability rapidly the to was threat and the once migration evolving to again methods advanced as cloud, proven the to Attackers attacks. ability exceed threats. driven and opposed by expectations ongoing engineered landscape to people

over malicious report, Factor, Proofpoint's threat by ransomware email XX% all banking annual represent and email continues with research indicated messages. As The top attack recently representing the to Human factor Trojans of

their such are an and as to businesses as also of in damage cloud-based registered clicks spoofed they via This being do is actors email of mitigate a organizations most bad new applications industry within organization delivered occur what fraudulently and of malware to XX% visibility approximately email put that suggests fraud on Proofpoint the response that people Attackers together showing and at addresses Dropbox messages approach, vectors, compromise The malicious also or or people, with peers. the comprehensive actionable customers and enables only one can their can cloud often in insight, SharePoint send how research risk to users. delivery the are, data not quickly targeted this threats our their collaboration have domains. host Additionally, prevention protection, experienced and half malicious hour. XX% to greatest the increasingly the unique like attack social for their email, XX Armed understand mails to better end to can to capabilities point Placing over center organizations occur organizations of their and users adversaries then but minutes and recommendations improve can providing effective who view. our data vectors. them happen Proofpoint of tell who how within that themselves overall using posture. security compares appear across lens, risks, changes and Proofpoint targeted from

some turning to operating Now first the results quarter. key our during of

a XX,XXX purchased for TAP Privacy Response that purchased that Protection Privacy users, be TAP Attack that of the Protection, Targeted and We and including had a TAP, Fortune noteworthy quarter, Our and and Global this company contract purchased users, to Protection, XX,XXX healthcare or Threat TAP of wins advanced Protection, offering XXX business. a airline contributor TAP, XX,XXX growth to XXXX manufacturer suite important of XXX resolutions, Fortune for users. for our number a including continues

the their to migration to compliance displaced threat to purchased Fortune where material long-term a Protection, deals company solutions. TAP, XXX, company that Response quarter for a Office Proofpoint's to X,XXX XXX a of users. particular, appliances the global to that ongoing continues helping TAP won Protection, Threat broader as of X,XXX EFD, for company Beyond be healthcare and and Privacy, for XX,XXX Email legacy XXX Microsoft Response users, or transition Defense, in energy on-premise the Protection Fortune this a part security purchased and Examples that that cloud we specialty demand and the catalyst is Threat included broader landscape, XXX and chemical Fraud security Office purchased TAP shift drive the users, for and

We users the quarter Office as compliance compared decided customers Threat win that purchased company XXX and global bundles. and also moved rate XX,XXX included Response manufacturer Overall, continue a staffing of provided Office continue purchased TAP Baseline world-class to and to effectively with that auto a environment XXX TAP Microsoft Fortune Protection, coupled strength of demonstrate the upgrade XX,XXX and a the Proofpoint's that Security by to their competitive users. their had high Examples first Proofpoint during to rates, capabilities Protection renewal subsequently to favorable who for to XXX products with continues of security exceed we when solutions part experience remains and for XX%. the

annual derived this that that total up percentage to a to given that services sales significant As customers recurring this closed purchased quarter to approximately these continues is during said, revenue of note the contribution additional that renewal in our renewed. represent of that excludes the at time existing growth recurring by revenue is add-on considering the the renewal by provide quarter. half a amount for reminder, customers and and And is calculation and that our That any are is annual metric renewal. of add-on calculating the a new

very encouraged for also and our remain strength We ongoing by the demand emerging products.

portfolio in an of and year-over-year. our have these that across The competition. new of offerings holistically cloud, add-on total and continue us TAM in social from last are proving rest competitive our expanded important roughly is the of they have closed meaningfully to meaningfully new the over doubling up also attack as the the email, enterprise and vectors from our way mobile a contributed As to XX% an over quarter, during from evolving and quarter, contributed outpace XX% provide excellent uniquely growth the emerging defend business source by They the products unmatched advantage product past, mentioned rapidly to be we enable methods growth.

During the products portfolio. computer-based simulation expanding Wombat our and to first phishing of training, quarter, and the awareness we're close leader emerging in pleased Security, a acquisition security

in we've We recently integration, part at Wombat of RSA. Security-Related are with Training named the held and the was Best Program are made excited that IT pleased the as progress SC Awards

XXX,XXX product potentially a Abuse our valuable XXX a capabilities fast that compelling and users. a roadmap Threat and a our of energy malicious messaging a and XXX,XXX teams. between purchased pharmaceutical Social supply Response, and of built and current XXX have Response Threat for QX integration A proper to company expected real Mailbox into XX,XXX and Fortune our in industrial is users, is security, company for being orchestration that manufacturer and into Discover Fortune emails Abuse feature, Fortune for few Response the the saving orchestrates manual estate suite QX. We Mailbox security Fortune anti-phishing Fortune key North added Response integrate Monitoring users automation several here Wombat's last new Wombat lag TAP, the that for XXX purchased solution Threat example users, at for as XXX in week that airline will users, emails Wombat will the for that with services added announced Response, intelligence, this and Threat for EFD capabilities wins was points American capability. product purchased threat clothing time of a available lines This technology One product, that added and PhishAlarm recent XX,XXX of which be platform, Monitoring company our users, processing malicious emerging included processes, automatic provide Domain Unlike that Threat RSA. Wombat EFD Response through firm XXXX Protection, a XX,XXX Threat remediation actions and and other

a capabilities our $X a distinct we As a providing offerings, now tremendous have installed gained base, the when over opportunity believe incorporating acquisition our dozen with Wombat, in billion opportunity represents over of an well us product across recurring reminder, we add-on from revenue.

we partnerships the alternatives. to engaged with particular, continues Networks, relationships WildFire who Palo to integration and Turning ecosystem about these best-in-class as other offering Alto Imperva Splunk, compared continue value resonate be with with excited Alto's when customers our during partners very our very these solutions Palo In remain to to CyberArk, quarter.

levels healthcare resulted this all go-to-market at earlier. customers that are the two broad a cooperation large wins our I aligned in quarter, in new including the and number teams of highlighted Our in

the point our has been local we leverage our existing extends their new reach relationships. effective the given Another accounts, have in seen with go-to-market momentum which into channel,

past We our build the in few have made these efforts to out progress significant years. over

and the booked booked over add-on represented again the deal channel the of during largest our example, business For the XX% quarter. in and overall was quarter channel-led new

a Threat also users, mining TAP expansion that Protection, operations abroad users and the revenues for uptick XX% with are that Global which for further Global purchased year-over-year towards included and Finally, purchased a by TAP Threat for in grew driven and our progress footprint continue XXX,XXX and pleased closed insurance the represented XXXX international We've we our international recent Response Response that XXX,XXX business, multinational revenue from the to XX% make and in company in company XXXX and users. steel a the Global recently their expanded deals acquisitions. and our Notable Nordics. with internationally and EFD Italy total XXXX XX,XXX of quarter purchased generated during part

growth Asia-Pacific that to to in our we're represents and our and for belief investments addressable success Proofpoint, opportunity the market these we seeing future plan continue EMEA in the a increase regions. compelling Given both

summary, and with across our seeing strong momentum our in the ongoing start entire year the am business. we're pleased So, very I to

well-positioned turn market. for and a growth are in total let the billion it addressable As over Paul. share that, over gain believe me result, to to $XX I we With

Paul R. Auvil

Thanks, Gary.

deferred ASC as and of years into retrospective ASC earlier like under our to our indicated have start an accounting revenue adoption in in reporting the standard XXXX. on call form the that activity would the quarter, sheet in acceleration accelerate I the prior new statements well this observations our revenues accounting earnings calculation income recorded the had periods impacts of XXX on of last offsetting the These on terms as the equal December discussing revenues accelerated the statements sheet some Before that revenues standard results, with the as the as impact in balance is are billings of metric. now the historical reported historical The compared XXXX our standard. carried to would under during reflected to of that been how in recognized it revenue our I'd the standard. financial increased otherwise effectively XXXX how Recall of balance new to affects corollary XXX and balances XX,

balance revenue should sheet of new such, compared a $XXX.X deferred $XX.X direct on amounts million of periods. as under under the $XX.X XXXX. the And is future revenue reflects to It standard when lower total all declining million. opening operating million deferred XXXX used be million million. the balances when historical balance short-term balances adjustment deferred to reduction As first is December XXX revenue from ASC XX, results financial the The December Proofpoint's the XX, these $XXX.X from balance for the revenue that declining to reported long-term to with evaluating the quarter for XXXX and deferred $XX.X

the our the be standard years offset call, as the few add-on standard associated we with that to average balance reflect contract commission This income we ASC solution, five our opening here last being to with last under term had our In fiscal the for compared our amortized to months be the historical business and in estimate where on addition new these in XXX accordance the over to under commission standard. in at lower new reported years. over historical the of expense and the of new deferred contract contrast the new updating in of mid measured historical retrospective changes in dictates prior, the expected revenue, our over balances for amortized life term stands Proofpoint. year each individual the to commissions In sheet statements years this which XXXX to expenses on deferred amortized financial commission we with the standard, to have discussed start been as statements million new with standard accounting the earnings in $XX.X order accounting the the added the standard, to the be being low-teens expenses accounting as

changes to change easily revenue the how this for has during in balances adding given of the is deferred in calculating the Under be terms simply Beyond derived also the the balance quarter to change revenue and the recorded XXX our standard, few the over this any by a quarter the historical ASC billings could amount course quarter. sheet, opening of billings metric introduced calculated. the

balance refine we've new so tie elements our However, under accounting ASC XXX, to there the thus, the billings reporting, to the are quarter. introducing two calculating that methodology amounts to the our then that for our customers need impact sheet invoiced during to metric, it actual continues

The first statement in being actually the the Under situations, accounting revenues on accounts to recognized standard, receivable. the prior income for unbilled associated element are customer the invoiced with them. is certain

required to it'd two agreement both we're recognized to is customer services engagement. example the a as where is one-time activity services be a an allocate be the two-year which paid well and of revenue receivable, Under professional includes period. unbilled the As subscription of as the in the within the for a guidance, contract accounts installments, month has of where contract services revenue case professional executed to completed, amount work this revenue the when first likely an appropriate equal

amounts equal. invoiced As that despite in first the in result, revenue than year the year, the the contract first second and a the year the is recognized second the under revenue fact in greater the are recognized

the been an by is of in year which definition, point, invoiced, year unbilled two-year contract contract, the unbilled, the hence and element. there such, second the the at full revenue of As value of the invoicing no the has longer a pending start at recognized first is the amount certain of

the the Given to receivable the accounting to properly order accounts in approach to invoicing reflect our adjusted to true be metric reconcile activity, underlying dynamic, historical to this activity calculating billings quarter. needs during unbilled the

to are deferred The situations associated that may and is until the revenue deferred is customer prepayment invoiced, liability, the has right In standard, been referred under this deferred a the second refund accounting a a reclassified from the revenue prepayments. case, from balance of instead reflect is certain refund with where this customer element subject refund. new have amounts certain amount of considered Under to lapses. a conditions customer the revenue to right as but right refund also to removed

a as of historical our is part that of acquisition have concept Proofpoint activity. nature not of refund assumed in the right and standard, merger a While do a we Proofpoint of handful this by contracts were contracting of clauses legacy

never we've under as deferred had until is lapsed. refund agreements, out the such, to XXX reflect to ASC prepayment our adjusted of to And by revenue be the properly these adjusted customer dictates activity, true approach to needs a to impact While to reconcile any the revenue their a to accounting. of right the our the nevertheless, driven in exercise these invoicing be rights that of balances metric deferred historical customer amounts refund order billings underlying calculating balances the

for which these the accounting example, balance calculated suggest the figure of $XXX,XXX, would the million revenue the $XXX bringing effects when from for billings to metric to customers if we to apply the of first the during amounts derive the in in Here deferred two XXXX, serve quarter. adjusting historical then to by If properly elements, acquisition, total for the increase invoiced of ties we our these it $XXX.X quarter Wombat net million, first out adjust to two the a derived method sheet billings, to million. added $XX.X

elements customers XXX billings under is detailed for when billings of part to statement from with ASC as As the these table income roughly included bring associated in billings the sheet order two of the under $XXX,XXX restated that during our release. another point in of reference, derivation in as Proofpoint amounts retrospective metrics period. line calculated press in ASC XXX, The quarter are invoiced the and working balance to today's metric first with the XXXX reconciliation adjustment of

with So the get results. to all on that backdrop, as let's

effects As providing to accounting guidance our during of as exceeded a the XXX reminder, the projecting with our earnings as quarter parts as standard, result, both expenses. meaningfully given many a combined call, new ASC when profitability associated terms performance with take particularly acquisition the revenues for thoughtful in activity, and chose last moving we And to guidance. our well the approach both our revenue overall a on

First quarter $XX.X this quarter QX the Had we we That said, is pleased past aforementioned duration billings were to to at add-on nicely of were of to viewed million, a range due deliver recorded the would long above with duration $XXX.X dollars our in to first updated been XX Note and our duration $XXX guidance higher. ended recorded that our for revenue sequentially This our of million and duration than context. trend Contract in of million renewal bookings billings to business in the at ahead year-over-year points to approximately XX% quarter, of term low XX%, in in have such, to above was QX $XX.X the year-over-year up which growing million, during $XXX $XX our million, quarters, term XXX $XXX falling and that acquisitions up $X.X ending million. basis terms our of for were million. quarter in $XXX.X this high reflected revenue balance Wombat recorded quarter earlier that the our our the as Billings updated XX% million XX% least of guidance and duration the $XXX when totaled several $XXX.X that million low by million million short of exceptionally quarter. of new, recent our contributed our of months we XX contributed the of consistent range roughly of across end the the and the range several at acquisition our growth organic when guide million here lower an growth historical coming in absolute first and XXXX. million $XXX increase by balances, adjusted record low, set XX%. with deferred the end

in following for updated indicated As we we naming the recent acquisitions, today's segments conventions that report. our have two release, the revenue

known now formerly referred Advanced Protection The Advanced simply and as first will to Threat, segment, Threat. as be

Privacy as the and Advanced to product The Governance, formerly as be the now line in and second Archiving, Weblife product segment. segment, Cloudmark Compliance segment referred Compliance. will added to will Threat lines Wombat be included the known will The be and

segment Threat represented During grew and revenue. XX% the first quarter, our year-over-year of Advanced XX%

grew of segment year-over-year, with Compliance outlined represented earnings and past the revenue. expectations during calls Our growth consistent that XX% XX% we

that difficult favorable of basis, We these in deals in archiving at last latter under segment compare to this year Also continue the in growth in larger the to a the pipeline levels in as Compliance expect near mature. note retrospective given to term remain XXX. first faced segment the growth adjustments the the on the quarter results a the year-over-year ASC

by expenses gross profitability basis, expectations, performance. our driven XX%, to the first above total revenue Turning a quarter, our primarily was non-GAAP strong and margin which on for our was

the quarter, product the operating representing revenue. the to sales, non-GAAP and XX% offerings quick was capabilities we expenses increased hiring, build During capacity. period and prior-year both of both talent pick million, Growth deepen to to by sales resources spending our as in of over driven XX% broaden primarily along first R&D in added $XXX.X total total with

the to our of terms above our In significant million, updated quarter. $X.X non-GAAP driven net during range $XX.X revenue by of $X.X guidance reported quarter, income million, for we million the outperformance well profitability of

$XX.X $X.XX. cash interest onto the was to shares in diluted million Computational debt share with Moving provide We've our explain and uses to to differences the quarter is entitled that million outstanding. on in recorded additional range count adds net totaling or diluted method GAAP release a apply Per topic associated convertible first section fully $X.XX our results. used we the and EPS the press above does in for in XX.X calculation and such, per to share, back a On quarter. notes, the which the guidance on based details this share calculations the XX.X our as per loss convertible on $XXX,XXX fully intended resulting for $X.XX quarter Note our included basis, If-Converted share EPS, a earnings shares non-GAAP Guidance per Earnings based Estimates, for of on million Share $X.XX these

in of in In flow of generated and million cash invested range we free flow $XX.X our million short-term the $XX to short-term $XXX cash the and in operating December employee $XXX during resulting the was million, from XXXX. flow, in million. cash investments from terms plan. We by compared acquisition million operations $XXX the capital offset $XX.X for of quarter and primarily cash and sequential XX, to both well contributions as our option This $X.X $XXX million and quarter the $XXX with for and stock cash cash in expenditures, cash exercises as investments $XX in above guidance capital purchase of ended stock in driven decrease the generated million of used million to debt debt first Wombat, the in million cash million quarter by of as

resulting a in XX% adjusting are currently the expect growth and to the that to of in year-over-year outlook, assume mind, $XXX as remainder the persists million, our be we this this we With XXXX, the low billings duration accordingly. believe with is financial prudent we we quarter it starting Now of midpoint. the in given turning $XXX first million of quarter, estimates saw record that such, year, our second for duration at to to the

outlook, the targeting such, basis points of growth revenue revenue OEM we rate of of of contributions I second this of the and legacy contribute practice Cloudmark's we to plan growth noted historical million, year-over-year guidance $XXX the our effect $XXX quarter, revenue and roughly well million to XX%. as our acquisitions our have included course a perpetual selling as during XXX to down suggests Regarding this the results wind relationships organic that quarter, last range eliminate which growth XX% their to part XXXX. licenses midpoint, at or we are the model, an the expect to Also, as business were will as reducing historical of over several in

the is mix note of during growth ASC accounting greater across standard, vary some compared new relates it likely the see the XXX, in recorded will it important to historical we revenues period. terms under XXXX of each of quarter As to the quarter-to-quarter the variability to will that since rates based standard as business on close from each under accelerated the arc standard new the

recognized period a revenue elements, hardware is when that these services, result, booked business As from combination with in derived that are revenues and our accelerated suggest that considered and in can was as be now contrast high revenue around in this any X%. as stands where to typically quarter, under given XXX in which as X% in-period X% revenue to of compared ASC

while the in denoted as footnote same Additional will Subscription and denoted in filing revenue the detail over amortized as contract be regarding our footnote Software, a revenues as Subscription the these accelerated elements will be XX-Q Service. included duration

redundant the second to we quarter. delivered to cloud We up SaaS associated quarter spending catch continues our as to during be non-GAAP margin our approximately costs system second throughout some and next-generation carry several the gross past revenue quarters expect continue XX% accelerated with

million We $X.XX $X to expect second net or to quarter $X per $X.XX non-GAAP be million, to share. income

contribution in XX.X of As of count fully assumes limited we the $X.X we back as take adding of expense be of impact to exclusive discrete the the tax expect This had largest notes million revenues. guidance diluted realized to method. items quarter, $X If-Converted for as million quarterly by provision million with quarter and shares $XXX,XXX an on a to a the indicated in convertible to acquisition acquisition income of full guidance during share $X.X depreciation cash from prescribed outstanding interest and worth million our income our of approximately quarter's we associated the during net Wombat, expense updated a second the negative with

of of timing cash first In our our terms the results to the pattern cash of second as of delivered the with call flow This pronounced during spending XXXX, is similar majority cash in year. to a this year XXXX we discussed given half flow the in here free increase in part follow acquisition-related in February, flow, during in more expect somewhat of year. asymmetrical the this the

quarter currently expect second free specifically, of to the in Here million. $XX we $XX cash flow million

duration a The roughly year million. it as we've expenditures and our as assume earlier, $XX new this remainder capital that persists we second that accordingly. such, for year, is to includes mentioned adjusted believe guidance perspective, quarter estimates of prudent the the lower From full of

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

terms points discussed stands increase and point growth also down, Breaking XXXX XXX, are to XXX of $XXX a and our XXX indicated color, $XXX the XXXX as growth ASC to ASC acquisitions. million growth guidance, now represents Note XX%. is which, implies to acquisitions full the reported rate completion our in transition revenues to that raising year. our annual $XXX the It million recent we the $XXX.X rate rate $XXX XXX. on are To $XX range acquisitions call, our the most ASC organic our $XX this to under $XX products basis, as compared expected of million new last to year, new of we at this $XXX.X to compared of under our into our contribute of takes on three included such, basis previously last This expectations our reflects recent basis to as earnings million an now XXX, as to for driven these guidance million million. our account provide and just range $XX to of In to had million revenue to Cloudmark new million under as growth of XXXX. headwind million for million we organic contribute revenue, XX% $XX million which indicated an sales in additional the estimates a headwind are the expected post by quarter, as to rate revenue some these Wombat here that these

as the installed in the the over during income the an year. the work historical that $XX customer a revenues both with are in in revenue rebuild the the brought of sheet here in they recorded that that million bases point, the was XXXX These X-KA hence, the XXXX, Wombat contributions growth as recorded measured acquisition case XXXX of the as course the which only historical to includes revenues will under of so be inorganic, starting the XXXX. the of their renew the of over With And of a doing But $XXX.X said, revenues from the of contributing million deferred for under as recognized example, that accounting $XX course existing customer form balance against million in XXX over of when their filing when be statement roughly just May in be we teams will note original recorded points that under time statement take such, XXX. $XX.X of with will written in million and base Proofpoint in on respective for that they the XXXX base revenues basis be revenue of a the subscriptions $XX time. As point revenue from deferred million, to the ASC XXXX to total historical inorganic acquisition million of these XXXX. will we the income reference, recorded of $XX.X as of base sales out the well recognized renewal standard. of their that the early In year fraction over Wombat, our

at target of to XXXX continue to gross range end our XX% approximately to low of year margins the XX%. non-GAAP XX%, full We XXXX be expect

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

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

discipline $XX A of be both in and Proofpoint today's low line proven the million. delivering quarter the given guidance of throughout release cash compliance full delivered to security bottom $XXX well-positioned with or second and at to our approximately this This second strong XX% record that well, the press momentum half GAAP million we the our results duration, In capability and operating the afternoon. reconciliation the range the flow first expenditures defend cash free XXXX summary, in midpoint, of can maintain includes majority Finally, of capital the the year guidance the and flow advanced issued million to this found full that revenue believe our raising we year. XXXX, top despite for year execute continue enterprises against our quarter non-GAAP are this we in threats. remains $XXX of for to of to and to

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

Operator

first Matt Markets. Capital go RBC to We'll with Hedberg

Matthew George Hedberg

Paul you're with the emerging existing contribution these thanks an net year, or my the add guys, of this from organic versus some about on guess, think of like for into of sort with I expect they you success new you franchise? do products products that EFD you how when for growth customer new customers these when coming billings just question. at look Hey, and others, either now XX TAP, having products taking and emerging Gary, the some the

Paul R. Auvil

expect way the mean, I well new about and activity. between it's balance given customers a Historically, customers organization, reps that business and look and activity. comes members a sales new drive seen and out the add-on I XX% I the in of think, new about to go renewal add-on and as good quarter – from but a it XX/XX nothing team Yeah. of add-on as which to take as existing net question. sales take the balance customers at we've our care that customer acquisition built to contributing we net hunt we a has sales do – that

stay as our full to XX/XX and in year, at just I'd model, roughly the QX look the what I in plus delivered expect for of us So, range or that current we estimates minus.

deliver Now contributor particularly of at base received add? and for I are do XX/XX the think meaningful these there margin a be to But, that year. how anything want that is products existing propel our likely we're to overall, when installed growth talked Gary, to by else helping think some the look are products helping growth new on looking for the I about balance. to we emerging you a growth, you

Gary L. Steele

exactly that's I think No, right.

is a way XX/XX the growth drive to I to the long-term think continue healthy balance of business. very

Matthew George Hedberg

Great. Super helpful. Thanks, guys.

Operator

next And Jonathan to Ho William Blair. we'll with go

Jonathan F. Ho

given and afternoon how in on just I of we around sense with recognition billings strong just get are way a terms a seasonal parts there of to shifts wanted additional that from the you color I the the lot Good of a maybe Hi. that's given revenue XXX. bit, congrats mean, to maybe and bit there? the I here moving move any – the for a know ask acquisitions can just little of results. Is pattern. little going there's

Paul R. Auvil

just unbilled billings expect think terms said and to affect But Yeah. than – talked this at if customer XXX puts existing I be other you quarters, the mean both billings more couple all over of the renewal at with inconsistent of you'll activity. do not metric tend of receivable our it with that said, the and that's and are invoicing sales velocity the by didn't sales and experienced about something whatever nature industry takes the ASC of to customers It the see of on of assume as new the it of and we've to in activity it. doesn't the of look, I I affected course terms reasonable year, it's how in past notion drive customer It the the add-on in you for do call four of to the think that securities. that have half the the again, with of to second regards We reason prepayments. seems years. And the in we not the just accounts to

you year, there probably last won't think relative this about overly a quarter. year, benefit Cloudmark. and will bit we're from So, albeit each activity from timing lift of that up I that think a uniformly kind been Wombat is as getting the everything it look otherwise we of of both But from both sort dissimilar in have roughly would just where contributions to inorganic

Jonathan F. Ho

you. Thank Great.

Operator

We'll our Microsoft Inc. for is go suite. Havemeyer Fred Capital technology up next (USA), to on we Doing Hi. within Sarah Havemeyer anti-spam its work, - Hindlian for leverages were with Sarah email Frederick its This Macquarie. Cloudmark that some actually Macquarie Hindlian. of picking

So Microsoft? we sort are what Cloudmark has of wondering if you with us licensing could tell agreement

Paul R. Auvil

had. were good that relationships as OEM on that they but question. you plan had independent specific we there out. operating any I lengthy customer some business Cloudmark perhaps arrangements, have Yeah, noted prepared that phase established commentary in We comment that's were I a when might to overly the reminded don't everybody that

declining agreements is competitor So where find business might any to revenues (USA), on Cloudmark own be of out to first the done pressure research using Havemeyer Cloudmark of Inc. phase the Macquarie itself the plan we those – do over not will declining that renewed. quarters because we those are Cloudmark that drive you you. we'll that - as phased Frederick anybody Thank revenues several bit Capital out, might what that's part a put and those have a technology, there little

Operator

And we'll go with to Stanley. Franchi next Morgan Melissa

Melissa Franchi

just dig into my just to taking a guide more. bit for wanted question. I little the Thanks Great. billings

or And contract there? the your duration what impact you're a less organic like than guide be up, what moves looking implied basis, all from would if growth just something been billings is the basis, but adjusted like-to-like at you've QX. a bit in it So duration in guidance? that else Is in the little on there

Paul R. Auvil

Yeah.

the duration quarters have actually and million so $X a saw couple grow would your more in million somewhat what duration terms with to tends versus with QX we normalized as deferred what $X So, several like seen a duration a our in that's I quarter, by this over our in in point, that to of typical million, the last here saw long-term swing by exceptionally revenue QX. low we we declined almost first noted,

period, accumulating full So, that on number. margin, the year a then over about meaningful it's pretty a think

the And suggests that guidance that to I since your lower year this any anything the information point, duration the throughout so, contrary. to have provided we don't persist assumes

I've ASC a businesses billings it and result about is what In I and XXX provide. time a provide are visibility the and out actually breaking core you creating. revenue, the feel clear how terms some too calculation remember ultimately, about it's you that sense how pretty on inorganic headwind the dissect coming think organic and XXX. gives organic contributions those like of that basis And, But again, for, the organic are the our get do and driving switch that together that's inorganic as around numbers as details billings, of included to face revenue, taking to by organic to point do of complicated you revenue

We the put pleased first revenue for QX, rate like some like points, a feel XX% the off couple feel organic of here old we in at the right again, standard. now XXX XX% hundred in basis of we've guide momentum the part with good We QX. growth adjusted of it's So more up got the it year. really the for net like is we're under

Melissa Franchi

Okay. Thank you very much.

Operator

to with And Jaffray. next we'll Nowinski Andrew Piper go

Andrew James Nowinski

I Great. the your competitive quarter. Thanks. Congrats back environment. a to nice of on to some go comments want on

a they focused it on motion beat whether security to But your quarters. other in if from Microsoft and are on and said which you wondering you comments sales think easier change perhaps is I with was previous remains any less noticed favorable, I getting now. consistent

Gary L. Steele

quarters see the in shift big any Yeah, a didn't relatively we environment saw Microsoft We from and previous competitive exhibiting really posture was great that in question. marketplace. the the out stable remain

I when think stayed incredibly competitively I rates across win win at competitors, our the consistent. various our all rates look

Andrew James Nowinski

Thanks.

Operator

Winslow Philip with to Wells next go we'll Fargo. And

Philip Winslow

to Hey, for Congrats a question. the year. start good on my Thanks taking guys.

starting saw is products. Just sequentially. Obviously, on the across circle mean, emerging to the in portfolio? seeing those breadth is you break this even wanted some Or and emerging a of the just one are to year-over-year of products you success I out? really big uptick

Paul R. Auvil

Yeah.

variety think strength I we a those. seeing are of across good

back go we to where lot remarks and customer in listen the and noted If did EFD wins, we prepared a Threat Response the of see you quarter.

think the were deals has the across interest very as the automate And cases So orchestration driven then issues the demand there's broadly more of looking from we authentication I forward, it And and about the dealing on are been Wombat synergy to we response is speaking, customers broadly driven specific doing the nice lot with in a side. short relates Wombat, speaking the Response. EFD. Threat our use as look and success are pretty saw even that excited more in we to and one I on we we market a email on around automation think time and that's space, that own

incredibly So those things don't performance what call as it – that driven out, know and that obviously, growth I'd break highlight are has segment. good but demonstrating in I'd the I it's

Philip Winslow

guys. Thanks, Great.

Paul R. Auvil

bet. You

Operator

with Needham. Alex to next Henderson We'll go

Alex Henderson

could talk cash commentary about flow you the a I you Super. little hoping was just that bit made.

acquisition some of that Is the You the we that of cash in as lower back into be absorbing with to coming half of using about the half bulk the way back be think that normalized Wombat. said better right anomaly? a that you that's that rate half of a out in, first expected function flow somewhat costs are assume the in it? an I rate the with the the of to Is year. year you as of these the should more base we a base following look

Paul R. Auvil

a Yeah. And good question. that's really

overall definition two. first last the of year, get be half, go you if the to higher average rates by for those in you So, and at in the back an a tend little and obviously lower then a look little our second half, that's in middle example,

a higher and lower and the result year, that cash half. paying a half use as a as particular, that half, the down spending, into take first of out going of I a run annually. a the this lot will items thing pronounced first rate wouldn't second the including which more which is company of second in have think year. the I plan, a projection bit out will true as be bonus same that in QX, is we in usual, paid uniquely, the We'll, flow be but happen have in next quarter acquisition-related step then little we But are

There's We one-time higher for a the have that's associated commission expensive accelerators. with of and often team somewhat sales items. kick-off kind expense

does each flow to then in tend bit a year. way take and of back work its up cash dip So QX a

Alex Henderson

clear. Very Super. Thank you.

Paul R. Auvil

Thanks.

Operator

We'll with go Meisner Anne next the Group. to Financial

Anne M. Meisner

sort my believe this just archiving big email taking curious you I'm products. point driving would just emerging practices durations, there's there's can anything would deals So would lower of specifically I of business for that to the point the Paul, a Hi, more to with anything know difference lead in persist. everyone. versus if sort solutions? question. emerging to you you is would be you in invoicing book there duration. the guess, industry? that a something new as that Thanks the Or shift Is you to maybe changing that think procurement between core specifically in natural and do

Paul R. Auvil

Yeah.

notion then. you paid team per most continue for any plans that execute change multi-year be literally if paying advance. more successful the our Put pay plans year in dollars established fine point given since customers to the a in them discount you a comp So more rather per and that to get back say the deals duration things get paid where sales I XXXX of comp user getting just haven't the help on by the ultimately that we shorter than on transaction do would tends and around

point, But the talk each the hard seen duration been But And the And, in and and range. low here this we've just Gary public year was it again, I a should so that now number felt, first read this in hit low unique models over the what prudent always I as forecasted six-plus comment quarter. I maybe it's we so years for just we customers, to to have gradual the decreases point a just use it into the look with duration but on be the at a use he's predict would predict set multi-year so end at Customers we say the pipeline is the that one-year isn't coming quarter. through, let really of there do quote to have meets for in going year with ask what we can't contrast as often you to Gary the that I mix. seeing your is lot for what – overall different. environment, buying I'll him really of anything quote,

Gary L. Steele

anything I don't different there's of a view. And Yeah. market from think point

We out would in of we quarter the represents they're a continued increasing with duration. just contrast fundamentally is where this that And shareholders. drive now to been right we've doing really on think benefit for that are industry high security that the what have I a the lot rate journey the low duration. believe in vendors other is I point great a to that the duration renewal

in reflects think I So this on we've the our journey. are journey this we quarter that point been and just

Anne M. Meisner

Okay. you Perfect. Thank very much.

Operator

Gur to will And we go next with Talpaz Stifel.

Gur Yehudah Talpaz

for Thanks question. Great. taking my

I validation strategy Splunk's Thank in this you of was other comment on Gary, the acquisition Do Phantom you. see of then competitive of purchase in you in I namely believe hoping the and your now some of PhishMe the the this or space QX, dynamic Cofense. does acquisition could called So, change your view?

Gary L. Steele

question. great a Yeah,

think I different. each very they're

shows the automation of and think orchestration acquisition think it Splunk, broad I there's Phantom this I and the space. by demand in interest

great competitive yes, for be issue will competitive very them no – think hasn't good with and seen in on probably of early in We anything changed And some We've of really simulation partner. a of change I time side, point a with We and have we there executed business. as segment in drive a that at about then PhishMe particular us help good this We level the today some view. feel we And from interest to phish like view ownership that and feel it perfect Splunk. our security friction while seen momentum competitive reflects Wombat. training. transaction Phantom, growth demand, awareness the

So excited it. super about we're

Paul R. Auvil

Yeah.

not think the of accomplished And, we're I on And that just is Wombat somewhat part we was. quite and really we takeout and exclamation fit. the say Proofpoint think the acquisition and team but the point it's different price business the lower what add I'd pursue one is of a the that Wombat just not thing of an business, a them paid given was have where a And the what and made purchase for family. the proud better make bring PhishMe they PhishMe award choice I there. good it's to frankly, to than was think us that won, felt price I that – Wombat in them only it recent we put

great So price. we got company, great at people, great a a products great

Gur Yehudah Talpaz

quarter. the Thanks. on Congrats

Paul R. Auvil

Thank you.

Operator

Evercore to next ISI. go with We'll Ken Talanian

Ken Talanian

the for taking question. guys. Hi, Thanks

plans you're growth that us tracking some during give your a year? to you might could for sense wondering, drive Just the international and how against upside what

Paul R. Auvil

international up we growth it noted, we we as QX rate that put to pleased in our As were relates the with expansion.

And to the our to We is feel significant in are where a put continue out going the the and ahead dollars we're more opportunity amount and And there specifically been to plan we there. drive Italy, to to about relative marketing we while of us. in Nordics, continue expansion we Europe, good noted sales expansion very focused of have we to into in continue the expansion growth. believe Europe on opportunity that

Ken Talanian

you. Thank Great.

Operator

with Baird. Jayson next go Noland we'll to And

Jayson A. Noland

about Okay. platform rollout. ask Thank you. wanted the to I Paul

rolling You've with old to I efficacy. new been system system, a out an parallel in believe, prove

impact half to second then gross update an expected maybe there. So And margin. the

Paul R. Auvil

question. good Yeah,

this We're actually and parallel, overall continue on platform than at full the and several better really efficacy are the we platform. scale that for in working ones running extensive So in do it's to we've legacy in the scores now testing. pleased been quarters,

don't roll to over end scoring customers. we we for immediately any through using ensure that off, that sure the improve we're to additional it customers. we and we've our turn so efficacy service system make And But with put our we other better we and disruptions of want for sort some shake, to when that switch that all got of up rattle

But in the plan, can think end at see, I to had down as extend compared days said, to time up then that through costs we we're as you into we carry bringing And of for strong the we're QX our since it We're So that XX and a just bit decided strong XX% another these gross I to by going because revenue with XX%, margins get redundant quarter. basis over and points calling by an primarily it upside. XX% move we offset in the QX, think hopefully QX. fourth you'll the is original which why where QX the XXX of you year, to the quarter. see again, see the in would full XX%

Jayson A. Noland

you. Thank Okay.

Operator

Walter to next Citi. Pritchard go We'll with

Walter H. Pritchard

know us that market on wonder a you large if I one. Gary, I could Thanks. archiving. update Hi. is

still might legacy but players pipeline your business. investing, in below the is of the change Some haven't see that? that Protection been it Anything growing you

Gary L. Steele

Yeah. It interesting. is

Orchestria are the spin-out are Vault remarks, the revenue. larger to changes changes surface on the be where of at many there's changes has lot going optimistic products in services a the The by have on on with for out emerging that that opportunity CA, security pipeline broad And nice ownership. Micro Carlyle dynamics have there of build optimistic with interesting Symantec given The about really product, think to their Focus, equity with financial the industry. private is prepared The in see at changes into very supervision. we obviously, and growing do There happening see grown of the a we'll about is, fast, used firms But there have, lagged Group into gone archiving. went long-term noted While change sweeping under deals are is changes on the how that question we we is and the the of which extremely Enterprise in products archiving continue a going as faster, is and somewhat. feel those I what very lot been we it, competitive with

Walter H. Pritchard

Great. Thank you.

Operator

Okay. Sec We'll go Koenig next Wedbush to with Steve [Securities.

Steve R. Koenig

Securities. Hey, Wedbush there. Hi, guys.

Gary L. Steele

Hey, Steve.

Steve R. Koenig

bit maybe you Wombat. the Wombat core And very revenue little sell on eager potential their What's next Talk too. to into color guide Hey. very year? or the I to base. the announcement about Wombat have synergy us what beyond and guided you salespeople on product your think I on – ask a also, to CASB hands the into are just are eager want for little but we already, to reps your get sales a

Gary L. Steele

Yeah.

Wombat all So month basically side, time, of sales sellers. where it for ownership in going of Proofpoint we or our hands prospects had reps roughly had And installed in a the Proofpoint on significant Proofpoint traditional period we that uptake saw the of base. the across either we into

the broad prospect interest Wombat across saw base. also We

We that that So term that a working is training do of the There believe and of very think we how turns manifests opportunity. and accomplished We that feel opportunity. is a segment more which good obviously one phish We on. lot this there. bit is about about integration need hard points we're this simulation in really good we in itself there's quarter. lots feel awareness security little of to revenue, to experience take quickly opportunity globally, that lot that important, pipeline we a product capability but as gauge we and longer

synergy On the XXX we're other and CASB and side, today what email environments. threats malware is across coming how are the broader in increasing that between seeing Office over spread threats

offering. Protection nice so deals TAP between closed our synergy And those that starting see with with pipeline we're CASB and and to we

about there well. we're So potential as the excited

Steve R. Koenig

guys. Thanks, Great.

Gary L. Steele

You bet. Thanks.

Operator

with Suppiger Erik to Securities. next go JMP we'll And

Erik L. Suppiger

Yeah.

of Protection? little suggest Social Social from you Messaging of discussions Can saw social our Some a more there. is concern networking your getting what or you be to bit out comment about a Protection

Gary L. Steele

You bet. you. with I agree

concern around and broader continues broader awareness I relates be organizations to as think more it activity to engage the as social. on there broadly malicious

our business things customers. to the broad incredible consistent yet that is we seen of super haven't One is What marquee close been deployments. we continue about has

to winning customers, we're getting customers. in big just we're marquee while those So started

of lots social higher and continue But future definitely marquee grows. as customers. great potential there's we to win priority the footprint So becoming it's a

Erik L. Suppiger

getting compared Does or prospects revenues have EFD? to revenues for meaningful that like to be something big

Gary L. Steele

Yes that that, but we relatively market say I believe is would and early.

Erik L. Suppiger

Thank Very you. good.

Operator

Colville next with go We'll Patrick to Arete Research. Okay.

Patrick E. Colville

there. Hi, for question. my taking Thanks

a to? and the largest On Defense what could product, Is you us Email for also go enterprises Defense company Email to Fraud need the Fraud a it smaller Authentication? penetration help product use could or can Thanks. understand just Email mid-market

Gary L. Steele

interest a adoption base. Yeah. our We the It's interesting. all down see question. way It's customer basically at great

basically we pursue the done the with just end actually so deals levels which product and levels – those QX, we well. to in doing our lower we even historically to and even had sales want access our And and actually had to organization quite it didn't of gave decreased we've seems – be

we've So success very good got board. the across

it of really of installed top enterprise; a broad and the the adoption just problem not we're seeing base. is EFD it's So across our

Patrick E. Colville

you. Thank

Operator

Borges Gabriela with to next go Goldman we'll Sachs. And

Gabriela Borges

years things be email group? size? coming a ago. of customers? Thanks you engage need the they question awareness doing helping comment they seats couple a any emerging noticed maybe any versus The Thanks. a are then is in it of the today, change problem? my level in afternoon. they if the sophistication security, to Good level conversations Great. or Gary, high of for across just there is in the Do consistent have customers willing the ago a that's the higher just a products you to Have Proofpoint change with year customer Meaning, question. And more versus of you're which on pretty maybe ago? the types year taking or having average to could on today of customer the that

Gary L. Steele

profile the say, from customer years. last kinds previous say year that terms have we seen the close great closing answer last first, been and we've year Yeah. your consistency of would in I would I to this question to of

within overall see the buyer looking customer result problem of One and themes. their around across a is spend. dollars terms today. allocating we and the this that, and there's consolidate they're as more to In a And base of with product are to phishing our associated risk broader sentiment line, customers couple understanding broader interest this

because And visibility. about share to taking it I think attacks, we've message RSA. so I organizations identify that to has we We are big across been really and one vendors at and benefactor hearing that consolidation drive ourselves think of these the go our was so variety spend been of accentuated using as see kinds can think simply vendor what a they're and customer phishing more a block

Gabriela Borges

Thank you.

Operator

we'll And with Powell go to Bank. Deutsche Gray

Gray Wilson Powell

question. Great. taking the for Thanks

How pricing up do your you then you customer they feel And Email products? for environment about any as one. level So a prices Security the increase TAP maybe come on do to renewal? for opportunity core and higher see

Gary L. Steele

Yeah.

a So, couple things.

TAP although think the Protection pretty remained we is are sensitive above So customers, to we where to the we we uplifts one market pricing uplifting is. the do consistent. And them that between and for has – thing that not always ensure one ability have we're our

got we'll time. assessing always where with relative customer in we at much to If of that a renewal a we're are, they're right got So to Street not increase market customer pricing, a customer a a discount top think option their on that's increase exercise likely deeper likely pricing with – where how their we've paying we where the renewal customer prices at pricing time. will actual

Gray Wilson Powell

it. you Thank much. very Got

Gary L. Steele

You bet.

Operator

And Okay. comes Tim question final our from Klasell.

Tim Klasell

any afternoon, bundling? s to Does given What's that consolidate as level. product question, good Have a product on to guys. maybe all? Hey, thinking giving vendors. are about Congrats broad and line rethinking or Yeah. looking at revisit that? change You're quarter. you Quick high the your very you customers, mentioned,

Gary L. Steele

don't important. think A couple of that I are we philosophies is over-bundle. One

a offering, for a back So as are at discount because and all providing using to SaaS if the will they're not they to not customer, using claim ask a a all capabilities, they they renewal bundle that will come you're time that of bundle. you

a think interest identifying to we're bringing that. together with having the that, customer of good compelling of today core that capabilities said But sensitive price. capabilities I we're are job those of pretty and is So a a what doing

it's I the then had you if create not look for and example. an formal we've creating bundle, products, economic reflected value that's our large the emerging while at in with success bring so to And think is opportunity And it a customer the products. multiple as

that we're been multiple typically one selling our that that's the success. sale. in of think And I things driving products has initial

Tim Klasell

great. Okay, Thank very you much.

Gary L. Steele

bet. You

Operator

Steele. question-and-answer session And I'll concludes the Gary over our back that call turn to for today.

Gary L. Steele

thank Thanks. to us joining I on for want everyone today. the call

and look our We to are call. our talking a forward with you results day. Have to pleased on great next

Operator

And this for call. thank your conclude today's does participation. you We

disconnect. You may now

Jason Starr	Proofpoint, Inc.
Gary L. Steele	Proofpoint, Inc.
Paul R. Auvil	Proofpoint, Inc.
Matthew George Hedberg	RBC Capital Markets LLC
Jonathan F. Ho	William Blair & Co. LLC
Frederick Havemeyer	Macquarie Capital (NYSE:USA), Inc.
Melissa Franchi	Morgan Stanley & Co. LLC
Andrew James Nowinski	Piper Jaffray & Co.
Philip Winslow	Wells Fargo Securities LLC
Alex Henderson	Needham & Co. LLC
Anne M. Meisner	Susquehanna Financial Group LLLP
Gur Yehudah Talpaz	Stifel, Nicolaus & Co., Inc.
Ken Talanian	Evercore ISI
Jayson A. Noland	Robert W. Baird & Co., Inc.
Walter H. Pritchard	Citigroup Global Markets, Inc.
Steve R. Koenig	Wedbush Securities, Inc.
Erik L. Suppiger	JMP Securities LLC
Patrick E. Colville	Arete Research Services LLP
Gabriela Borges	Goldman Sachs & Co. LLC
Gray Wilson Powell	Deutsche Bank Securities, Inc.
Tim Klasell	Northland Securities, Inc.

Proofpoint (PFPT) 26 Apr 182018 Q1 Earnings call transcript