睿科網路 (ATEN) 2016 Q2 法說會逐字稿

Good afternoon. And welcome to the A10 Networks' second quarter 2016 financial results conference call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Maria Riley with Investor Relations. Please go ahead.

Thank you all for joining us today. I'm pleased to welcome you to A10 Networks' second quarter 2016 financial results conference call. This call is being recorded and webcast live, and may be accessed for one year via the A10 Networks' website, www.A10Networks.com. Joining me today are A10's Founder and CEO, Lee Chen; A10's CFO Greg Straughn; and our VP of Worldwide Sales, Ray Smets.

Before we begin, I would like to remind you that shortly after the market closed today, A10 Networks issued a press release announcing its second quarter 2016 financial results. Additionally, A10 published a presentation along with its prepared comments for this call and supplemental trended financial statements. You may access the press release, presentation with prepared comments, and trended financial statements on the investor relations section of the Company's website www.A10Networks.com.

During the course of today's call, Management will make forward-looking statements including statements regarding our projections for our third quarter operating results, our expectations for future revenue growth, profitability and operating margin, expectations for customer buying patterns, anticipated benefits from our acquisition of Appcito, and the general growth of our business.

These statements are based on current expectations and beliefs as of today, July 28, 2016. A10 disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise.

These forward-looking statements involve a number of risks and uncertainties, some of which are beyond our control, that could cause actual results to differ materially. We disclaim any obligation to update these forward-looking statements as a result of future events or otherwise. For a more detailed description of these risks and uncertainties, please refer to our most recent 10-Q filed on May 5.

Please note, that with the exception of revenue, financial measures discussed today are on a non-GAAP basis and have been adjusted to exclude certain items. A reconciliation between GAAP and non-GAAP measures can be found in the press release issued today and on the trended quarterly financial statements posted on the Company's website.

We will provide our current expectations for the third quarter of 2016 on a non-GAAP basis. However, we will not make available a reconciliation of non-GAAP guidance measures to corresponding GAAP measures on a forward-looking basis due to high variability and a low visibility with respect to the charges which are excluded from these non-GAAP measures.

Before I turn the call over to Lee, I would like to announce that Management will present at the Pacific Crest conference in Vail on August 8, and we hope to see many of you there.

Now I would like to turn the call over to Lee for opening remarks. Lee?

Thank you, Maria. I would like to thank you all for joining our second quarter 2016 financial results conference call. I'm excited to be here with you today to discuss our second quarter performance and our recently announced acquisition of Appcito. Which helps accelerate our A10 Harmony vision and expands our addressable market with a cloud-native application delivery subscription service.

We delivered a solid second quarter with record revenue and I'm pleased with the team's execution. Which continue to result in above market growth even in the mixed spending environment.

Total revenue in the quarter grew 20% year over year to reach $37.1 million. With our continued topline growth and disciplined approach to managing costs, we achieved an improvement of 80% year over year on our bottom line. And our per share basis reported a net loss of $0.02. Significantly, better than our guided range.

Given our bottom-line improvement, we continue to believe we see a clear path to reaching non-GAAP profitability by the fourth quarter. Our growth this quarter was driven by the continued adoption of our ACOS Harmony architecture.

The agility, flexibility, scalability, and security designed into our high-end cloud-ready and threat-smart Thunder solutions are increasing our network footprint within both existing and new customers.

As a result, we delivered solid year-over-year growth in the U.S.. Revenue growth in the Japan and Asia Pacific regions were particularly strong with 66% and 40% growth respectively.

Over the past several quarters, we have increasingly discussed the importance of the cloud. Given our strong technology differentiation and position in the high-end of the market with customers that are building public, private, and hybrid clouds, we view the cloud as an opportunity to grow our business.

While there is much debate on how networks of the future will be deployed, one factor is guaranteed they will include a diverse range of deployments from traditional on-premise data centers, virtualized networks, bare-metal/white box installations, and public, private, and hybrid clouds.

With all of these options available, the deployment combinations have grown exponentially in comparison to just a couple of years ago. We believe this is precisely why agility, flexibility, scalability, and security need to be designed in at the core. And why managing multiple application services across data centers and clouds requires a holistic approach.

Leveraging the strength of the ACOS platform, you have seen us introduce several targeted innovations designed to make networks more agile and secure. Whether they are deployed in a traditional on-premise network or a cloud environment.

A few of our recent innovations have included our ACOS Harmony architecture that can automatically generate a comprehensive set of open application programming interfaces, or APIs. That provides all of our Thunder appliances with the agility to easily integrate with the third party cloud management software and A10's own management solutions.

Our ability to automatically generate open APIs across our Thunder solutions has been a key differentiator, resulting in several competitive wins. We brought cloud-scale performance to security with the introduction of our standalone Thunder TPS, SSLi, and CFW solutions. Our Thunder TPS appliances protect one of the largest public clouds in the U.S. from massive DDoS attacks and are powering several DDoS-as-a service offerings among smaller providers.

Our Thunder CFW is a software-based converged security solution for service providers, cloud providers, and large enterprises that helps stop cyberattacks and web application attacks at scale. CFW became available for purchase in April. It's already gaining market momentum and contributing to our revenue.

In the second quarter, this included one of the most visited websites in Japan deploying Thunder CFW as a datacenter firewall. I would like to highlight that this is the first customer to deploy four of our products Thunder ADC, CGN, TPS, and CFW appliances across their network.

We also recently launched Thunder ADC for Bare Metal, which can be deployed on commodity off-the-shelf servers without using a hypervisor, enabling on-demand deployment. This provides large enterprise and cloud service providers the ability to streamline their datacenter operations by choosing their own bare metal hardware and still obtain the rich features and reliability of A10's ACOS platform.

We believe the investment we have made in our platform and ACOS Harmony architecture are delivering results and have contributed to our above-market growth rate over the past several quarters. Now, we are extending our A10 Harmony vision and entering a new and exciting part of the application delivery market with the addition of Appcito, which we acquired in the second quarter.

Appcito is a cloud-native subscription-based service that maximizes the agility, and improves visibility and security, of enterprise's application deployed in public clouds. Appcito's service takes an application-centric approach, provides deep visibility, and analytics for application traffic, consistent policy, and secure application services, and self-service integration with the DevOps processes.

In 2015, Gartner named Appcito one of the Cool Vendors in Enterprise Networking, and we are excited to welcome Appcito to the A10 team. We believe A10 is now the only leading ADC vendor to have a cloud-service controller and a cloud-native ADC offering. We are entering this market at a fairly early stage, and it will take time to grow our footprint and revenue. We expect to release new A10 Harmony-based cloud offerings that integrate Appcito technology beginning late this year.

In closing, we delivered a strong second quarter and continued to further our technology vision of bringing a holistic approach to solving the application networking and security challenges of today and tomorrow.

As a result, we believe A10 is uniquely positioned to drive the application networking market forward. We are continuing to make solid strides in executing our strategy and building a strong foundation for long-term growth. While at the same time improving our bottom line and making progress toward our goal of reaching profitability by Q4.

With that, I would like to turn the call over to Greg to review the details of our second quarter financial performance and third quarter guidance.

Greg?

Thank you, Lee. And thanks to all of you for joining us today.

Second quarter revenue grew to $57.1 million, a new record for A10 and up 20% compared with $47.5 million in the prior year. Deferred revenue grew 15% year over year to reach a record $75.8 million.

Second quarter product revenue grew 16% year over year to reach $38.8 million, representing 68% of total revenue. This compares with $33.3 million, or 70% of total revenue in the prior year second quarter. Service revenue grew 29% year over year to reach $18.3 million, or 32% of total revenue, compared with $14.2 million, or 30% of total revenue in the second quarter of 2015.

From a geographic standpoint, we delivered solid growth in the United States, Japan, and AsiaPac. Second quarter revenue from the United States grew 14% year over year to reach $31.3 million, representing 55% of total revenue. Second quarter revenue from Japan was $11 million, or 19% of revenue and increased 66% year over year. Revenue from APAC excluding Japan was up 40% year over year to reach $7.7 million, or 14% of total revenue.

The overall market in the EMEA region was soft, with revenue declining 14% year over year. We believe this was related to concerns over the UK withdrawal from the European Union and continued weakness in the Middle East.

We delivered strong growth in both of our customer verticals. We achieved enterprise revenue of $32 million, representing a 16% increase from Q2 of last year. Service provider revenue came in at $25.2 million, up 26% when compared with $20 million in the second quarter of 2015.

Our enterprise and service provider revenue split this quarter was 56% and 44% of total revenue, respectively. In the quarter, we had one U.S. service provider customer that accounted for 10% of our total revenue.

As we move beyond revenue, all further metrics discussed on this call are on a non-GAAP basis unless stated otherwise. We delivered second quarter total gross margin of 75.5%, within our expected range of 75% to 77%. This compares with total gross margin of 76.3% in Q2 of 2015 and 76.1% in Q1 of 2016.

Product gross margin was 74.8% in Q2 of 2016, down approximately 160 basis points from Q2 of 2015. And down approximately 140 basis points from the first quarter of 2016. This was primarily related to mix within our geographies and an inventory reserve of some older products. Our services gross margin came in at 77.1%, an increase of roughly 100 basis points versus Q2 of 2015, and 120 basis points versus Q1 of 2016.

We ended the quarter with staff of 868, I'm sorry, 866 including the addition of 31 new employees from the Appcito acquisition, which closed on June 23, 2016. This compares with 831 at the end of Q1.

Second quarter non-GAAP operating expenses were $45 million or 78.8% of revenue, compared with $44.9 million or 83.5% of revenue in the prior quarter. As we closely managed our expenses in support of our stated plan to achieve non-GAAP profitability by the end of this year.

Second quarter non-GAAP operating loss was approximately $1.9 million, a significant improvement from a loss of $4 million in the first quarter of 2016. Our non-GAAP net loss in the second quarter was $1.1 million or $0.02 per share, beating our guided range of a loss of $0.04 to $0.06 per share.

Q2's net loss represents an 80% improvement when compared with a loss of $5.3 million or $0.09 per share in the second quarter of 2015. Basic and diluted weighted shares used for computing EPS for the second quarter were approximately 64.9 million shares.

Moving to the balance sheet, at June 30, 2016 we had $113.7 million in total cash and marketable securities, a $6.2 million increase from the end of March, and up $17.5 million compared with June 30, 2015. Our cash balance reflects $8.8 million in cash generated from operations, and $4.4 million used this quarter for the Appcito acquisition.

Further on the topic of Appcito, the total purchase consideration was $6.5 million including stock and cash holdbacks. Additionally, I'd like to re-iterate that this acquisition does not change our previous stated goal to become non-GAAP operating profitable by the end of this year.

Back to the balance sheet, average days sales outstanding were 65 days, down from 85 in the prior quarter, a 20 day improvement.

Moving onto our outlook, we currently expect third quarter revenue to be in the range of $58 million to $60 million. At the midpoint, this represents 16% year-over-year revenue growth and 19% growth for the nine-month period.

We expect gross margin to remain in the 75% to 77% range. And operating expenses to be between $45 million and $46 million which includes a full quarter of expenses from the addition of Appcito. We expect our non-GAAP bottom line results to be between break even and a net loss of $0.02 per share using approximately 66 million shares on a basic and diluted basis.

For modeling purposes, I'd like to note that in the event non-GAAP operating income is positive in Q4 the non-GAAP fully diluted share count would be approximately 73 million shares.

With that, I'd like to open up the call to your questions.

Operator?

We will now begin the question and answer session. (Operator Instructions) At this time, we will pause momentarily to assemble our roster. The first question comes from Rod Hall with JPMorgan. Please go ahead.

Yes, hi. Hi, thanks for taking my question. This is [Ashwin] on behalf of Rod. One verification and one question. Greg, can you quantify the impact of inventory reserve on the (inaudible) given the quarter?

It made a little less than half of the [delta] from quarter to quarter.

Okay, great. And then my question is on your comment related to weakness in Europe. Can you give us a sense of how your business, first of all how your business is split within enterprise and service provider in Europe today? And in which part of the business did you see more pressure?

We tend not to break down our regional results between service provider and enterprise for discussion. But I think that the weaknesses and slowdowns you saw in Europe were kind of a cross vertical that was more related to macro than anything specific to a vertical.

Okay, great. And finally, this will be my last question. Could you comment on your win rate in the marketplace? Any significant changes there?

No, not really. We've often talked about our win rate being north of 70% and that continued to be the case this quarter.

Okay, great. Thank you.

Thank you.

The next question comes from Catharine Trebnick with Dougherty & Company. Please go ahead. Catharine, your line is open.

Oh, sorry. Hi, guys. Good afternoon, this is Jack on for Catharine. One quick question, I know you talked about your cloud strategy with the Appcito acquisition. Can you provide some color on how this might benefit you in infrastructure as a service deployment such as AWS (inaudible)?

Yes, now with the position of Appcito we now offer a application-centric cloud native ADC as a service for both public cloud, for both Azure and AWS. So they really expand A10's product footprint (inaudible) which we don't have excess [people].

Great, and one last cleanup question for Greg. Can you give us the percent of revenue of the total from EMEA?

Let's see, for the quarter --

I think it's approximately $5.9 million for EMEA.

Okay. Got it. Thank you.

The next question comes from Tal Liani with Bank of America/Merrill Lynch. Please go ahead.

Hi, guys thanks for taking my question. This is [Dariush] on for Tal. I had a question regarding enterprise and deferred revenues both decelerated pretty significantly year over year. Enterprise was also down quarter over quarter. I'm wondering what is really driving the weakness here? Are you seeing some impact from [the release] of the cloud? Is there a spending pause maybe due to SPN? Or was there also maybe a spending pause around the testing of new products that you guys were rolling out and are now in the market?

Let me have Ray talk about it from the sales traction perspective. We'll come back to the deferred revenue piece later, but just in terms of general Enterprise spending I think maybe Ray can answer it.

Yes, so [Dariush] this is Ray. How you doing? So from an enterprise perspective we actually saw good performance year over year and quarter over quarter. So we're actually pretty satisfied with that approach.

I'd say one of the strongest headlines in the quarter is really strong performance in our run rate business which is primarily made up by enterprise. So we've invested in a channel program. We call it, it's an [indy] channel. And it's delivering I think very, very nicely to our strategy to grow. So we saw some good stability there.

And just to clarify, the enterprise revenue we saw in the quarter was slightly down from Q1 which was a record enterprise quarter for us. But it was pretty high growth year over year. And the deferred revenue side is primarily related to the timing of maintenance renewals. So we'll see it move up and down from quarter to quarter. But that's with more of a serve metric versus total volume of spending.

Got it, and thanks. And last quarter you mentioned financial services vertical you're gaining some traction there, did you see that continue this quarter?

Yes, there's no real change there. I mean we continue to approach that part of the market. We continue to land and expand with existing customers. So that part of the enterprise market continues to go exactly in the direction we'd like it to go. So I think just kind of the punctuation there is just good solid execution [under] enterprise.

Great, thanks. And then a question on Appcito. If I heard you correctly, I think you said that you purchased it for $6.5 million cash and stock. I think its last series [where the series there is] was about $7.5 million. I'm wondering what sort of traction is it getting in the market? How sort of near to completion or products it has? I think in the announcement you guys said that you were coming to market with products sometime this summer of 2017. So when do you expect solutions from these guys to sort of ramp and have an impact?

So when we looked at Appcito the key things that we saw were some top, top quality people, and a very solid product that would integrate well with what we do. Rather than looking at it from a customer traction perspective.

And so we'll be selling that product in some way, shape, or form by the end of this year. And it's likely to be a subscription product so it moves slowly into revenue. We're not expecting there to be any material revenue contribution in 2016. But we think we've got our hands on some great people and great technology here.

Great. Thanks a lot. And sorry, one last quick question from me housekeeping-wise. I missed the guidance, what is the revenue guidance that you guys provided for next quarter?

It's $58 million to $60 million.

Great. Thanks a lot. Congratulations on the quarter.

The next question comes from James Faucette with Morgan Stanley, please go ahead.

Thank you very much. A couple questions, first as you plan to -- just following up on the Appcito question and as you plan to roll that out. As you said, not expecting revenue to be meaningful this year, but have they gotten some early key customer trials and that kind of thing that you can convert into revenue? I'm just kind of trying to build on the question around where they're at in product development and bringing it to market.

Yes, as Greg said earlier we acquired Appcito for people and technology. Appcito do have probably a dozen [odd] customers, but [usually] it's a subscription base so the revenue is very small. But again, we do plan to integrate with A10's Harmony architecture and bring a product out in Q4 this year.

Okay. Okay, great. And just on the strength of Japan and AsiaPac, how much benefit was there from a strengthening? And I guess I ask the question both in terms of translation benefit but also encouragement or moves by customers to take advantage of the [strong] and to go ahead and do purchases in the upcoming quarter. And I guess I ask the latter part to get a sense from what you think the likelihood is that we'll continue to see strength out of Japan and AsiaPac.

So if you look at on the revenue side, if you look at the yen change year over year it added about $900,000 of revenue to this quarter versus what we would have seen for the same amount in the yen volume a year ago.

And, James, this is Ray. I'll take the second half. We do business in Japan in Japanese yen. So the fluctuation is somewhat mitigated in terms of customer buying behavior. What we [did] see was just a really good strong execution. We're really satisfied with the execution in Japan. We continue to have very strong engagements with some of the largest service providers across Japan.

But part of our strategy, in addition to land and expand there, is also to get access to a broader part of that market, the enterprise market. And we had some good success there as well. So overall in Japan, the fluctuation in currency really didn't have a big impact on buying behavior there.

Okay.

If you look at the past three quarter, even with the Japanese yen basis we had three strong quarters especially with the new products CFW and TPS.

And going back to the level of engagement there then, do you feel like that there's a pipeline that should persist there, and that we should continue to see good response and results out of Japan? Or is it still likely to remain a bit volatile like we've seen in the past?

For the current quarter, we continue to see a strong pipeline in Japan.

All right, great. And then just one more question from me is how much of the growth that you're seeing in the June quarter and as you look out to the rest of this year is coming from new products versus how much is the core ADC products?

Well, I think we're seeing growth across the product line. And so we are seeing growth in absolute dollars and in the ADC side. Clearly, we're seeing a higher growth rate in the new products and the security portfolios. So we're actually pleased with the mix of business that we're getting. And that's why we're continuing to bring new products, but also continue to expand our ADC footprint at the same time. We think both of those viable for us. In ADC itself, we've seen several quarters of growth above what the publically reported market rates for that market are.

All right, great. Thank you very much.

The next question comes from Alex Kurtz with Pacific Crest. Please go ahead.

Yes, thanks guys for taking a couple questions here. Can you just comment on what kind of ASP changes you saw in the enterprise market this quarter? And just overall pricing dynamics and in the US commercial market. And then also what demand looked like sort of through the first month of the quarter? That'd be helpful.

This is Greg. Welcome.

Yes, thank you.

Our ASP kind of moves around a couple thousand dollars plus or minus per quarter, but it's generally going to be in the 25, 27 range kind of across all products. We've not really seen much in the way of volatility on that.

Okay, and then demand in the US both enterprise and service provider through the first month here?

[We have to check that]. We can come back to that, but we don't talk about demand within quarters across the months.

[Great].

I mean our pipeline coming into the quarter was strong and as we gave our guidance that's kind of our best indicator of how we think the total quarter will play out. But we find months aren't particularly relevant to how quarters end.

Right.

We're checking on ASP here. But let us get back to you on the ASP question.

Sure.

It's possible I misstated, but we'll get back to you separately.

Okay. And then yes I'm just trying to understand sort of around sale cycle that you saw through the first month. And whether or not you saw any changes excluding what's going on in the UK.

Yes. All right, I think actually I'm going to clarify. The one thing I will say about ASP is because we sell such a broad spectrum of product you can't read a whole lot into the ASP because it doesn't really tell a story because we can be selling a $5 million transaction with a few products and a $20,000 transaction. So it's not the most relevant indicator that we have out there.

Okay, just last question for me. Just net new customer adds, is that something that you guys look to as a key indicator of the enterprise business? Or you're more focused on larger strategic transactions in the US market?

I think the larger strategic ones are something that are very important to our business. We do look at new customer adds, and our new customer adds for the recently completed quarter were very much within our typical ranges.

Okay. All right, thank you.

The next question comes from Mark Kelleher with D.A. Davidson. Please go ahead.

Great, thanks for taking the questions. Congratulations on a strong quarter. Just a couple of numbers questions. On the inventory, you seemed to take a step down. Is there something driving that? That seemed to be a nice contributor to cash. Should we assume that that's unusual, and we're going to spend cash to build that back up again?

I don't think it was unusual. It's actually part of several things that we've been doing intentionally to drive that down. Having to do with our supply chain operations, and how we design equipment up front, reusability of components, our forecast in products has gotten better. Some of our lead times have tightened up. So it's basically something that we've been putting through and trying to improve.

Now we are in a place where we're transitioning from one product set to another. And so there's a possibility in the next couple quarters that it won't be quite a continuous line, but it is an area where we've thought we could improve our working capital decision and have successfully done so I believe.

Okay. And then just one more on Appcito, you've got 31 people coming over, very little revenue. So that should have a dilutive effect. Can you kind of size the dilution to Q3 and Q4? (inaudible).

Yes, the key thing there is as we mentioned that we do not expect this to change our goal of profitability for the year. And in fact, if you look at our guided range for this particular, the quarter that we're in, we did include break even as one end of the range for the results. And so what we see with Appcito is that it's more of a substitution of hiring for people that we would have bringing on board as new A10 employees over the balance of this year.

So while there's no revenue and technically if you look just at those people and apply them against the revenue it would look diluted. But when you roll them into our total business it doesn't really look that way. And then as a reminder of the gross margin you will see an Appcito product as it begins to sell will be very accretive to our current gross margins given that it's a pure software product.

Okay, great. Thank you very much.

Thanks, Mark.

The next question comes from Michael Leonard with Oppenheimer. Please go ahead.

Hi, guys. Thanks for taking my question. I'm on for Ittai. My first question, how do I think about the growth in terms of your respective solutions? Is there growth in the ADC? Or is the growth primarily coming from DDoS? Is the CFW at a point where it's meaningful? It's been a couple of quarters now, or like last year is the growth primarily coming in your DDoS appliance. How do I think about kind of -- I mean don't break them out but just roughly how do I think about that?

Yes. When you look at growth, as I've mentioned a little bit ago, is we are seeing it across all of product lines. Our ADC growth rate continues to be above what industry sources report as a overall ADC market growth. So we're seeing growth in that product set. We're seeing growth in our security portfolio as well.

And I think Lee mentioned that we were seeing some good [winds] in the CFW product. And so even though that's only been in the market available for sale since early in this quarter, back in April, we're already seeing good traction on that. TPS has been a strong product for us all along. And we've had SSLi wins going back to the time before we even had a SSLi product.

And so we're very comfortable with the trajectories of each of these. And from a growth rate, obviously we're seeing a higher growth rate in the security portfolio. But in absolute dollars we're seeing it across geographies and across products.

And then also as Lee mentioned, we kind of had our first customer who now has bought four of A10's standalone products. And that's something that we would expect to continue to happen to other customers as our land and expand strategy continues to be successfully executed across the globe.

Okay, and the CFW the traction, the interest is clear there. But has there been recognizable revenue yet, or was it too early just because --

Yes.

-- (inaudible)?

Yes, there was recognized revenue in the recently completed quarter, yes.

Okay, cool. Moving on, EMEA was 10% this quarter. Would it be fair to figure the UK as maybe low single digits of your overall revenue? I know you don't break it out, but just given that EMEA was 10% is that a fair estimate for the (inaudible)?

Yes, without breaking it out I'd say that you're probably not too far off on that.

Okay, that's fine. Just given that the [weakness is important]. Last question, more of a housekeeping, I'm sorry if I missed this. Did you guys give a new customer addition number or have you decided to kind of stop giving that on a quarterly basis and maybe more of a milestone type number at this point?

Yes, I think it's more of a milestone type number. But this quarter's number was fairly consistent with numbers that we have reported in the past.

For the quarterly increase?

Quarterly. Yes, the increase for the quarter.

Okay, all right. Cool. Thank you for the questions, and good luck.

You're welcome.

Our last question comes from Ryan Flanagan with Buckingham Research. Please go ahead.

Hi, guys. Thanks for taking my questions. Just three short sort of housekeeping ones here. I'm not sure you may have answered these already. The DSO's ticking down from 85 to 65, is that an effect of better collections? Or are you guys getting a little bit tighter with your payment terms or something else at play there?

Secondarily, I know you're not breaking out security on a percentage basis, but directionally can you say if it was up or down just quarter over quarter and year over year? And then the third piece was you had a little bit of benefit here to interest income and other of about $1 million. I was wondering if you can sort of tell us where that came from because that looks like that's dropping the bottom line? Thanks guys.

I'll try to remember all three of them. So on the [DSO] question primarily related to better collections there's some effect in that we've started as we've redone our partner program. We're kind of getting a higher caliber of partners, some markets who do tend to pay more promptly on average. But our collections team has just done a great job, and actually it was a very strong quarter for billing. So we saw both sides of the equation being very strong there.

The third question that you asked had to do with the $8 million in other income. And we are seeing income from our investment portfolio. But the biggest part of that was conversion on the exchange rate difference in Japan. So I think that was about 850 of that was a yen conversion.

And I'm sorry, what was the middle question that you had there?

Securities that was up year over year and quarter over quarter.

Yes, security was up year over year and it was up quarter over quarter.

Great. Thanks, guys.

This concludes our question and answer session. I would like to turn the conference back over to Lee Chen for any closing remarks.

Thank you all [shareholder] for joining us today and for your support. Thank you, and good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.