Fortinet Inc (FTNT) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fortinet Q4 2011 Earnings Financial Analyst Q&A Call. (Operator instructions.)

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Ken Goldman. Please go ahead.

Thanks, and just remind you this is a -- my earlier forward-looking statement disclaimer does apply to any forward-looking statements that we make during this call.

We're starting three-thirty, roughly, Pacific Time. We are limited to four-thirty, given some other commitments, so this call will go for about an hour as we take your questions. So feel free to ask questions right now. Yes. I heard we have none in the queue, so start getting some queue questions.

(Operator instructions.)

Don't be bashful out there. And investors that actually own the stock, you can ask questions, too, not just the sell-side guys.

Jayson Noland from Robert Baird.

Great, thank you. Hello. I wanted to ask about the 5140 positive benchmark results. Is there pent-up demand for that product?

Yes, it's a platform. It's a ATCA (inaudible). [It's very] well fit for the technical service provider market, and then also, with all the [MIP] certification, like any other type [big] technical equipment. That's where we see the service provider data center. They love it because they don't see any other security vendor have this kind of platform, which gave a lot of [reliability] performance redundancy there.

And is the traditional competitor there, Ken, the SRX?

Our (inaudible) is not quite ATCA. It's a -- yes, this is really the full Telco grade platform.

Okay, understood. Is there less software attach with a product like that in [MSC]?

No, it's the same FortiOS. Basically, they have also the -- the 5140 has a 14 blade you can plug in. It's all [hard-swappable], so that's making the service provider they can expand and they can scale quite well.

Okay. And last question from me, the list price on a product like that is north of $500,000?

Yes. It depend on the configuration, yes. Could be over $1 million if they're fully loaded.

Okay. Thanks a lot, guys.

You want to order one?

I can't afford that, unfortunately. Thanks, guys.

Rohit Chopra from Wedbush.

Ken Goldman, question on free cash flow. You talked a little bit about this in the main call, but I wanted to just try to understand what the difference is between your calculation in Q3 and Q4, leaving aside the $9 million patent settlement. I was just looking at it, and you do not adjust out the financing issue for excess tax benefits and amortization of investment premium, and then in Q4 you are.

Yes. I mean, we did in Q4 because the number is -- let's go back. When we talk about free cash flow, what I really tried to do is have it be approximate to what we're generating cash that's non-financial oriented. So that's the focus. That's why, as you recall, we've always talked about how much we pay in cash taxes and the real tax number. And as long as the excess cash benefit was immaterial in our numbers, I didn't worry about it. But when it gets to be $11 million, I find it's material, and therefore I think it just -- in my opinion, anyway, it distorts free cash flow.

But the reality is we gave you both numbers, so if you prefer to use a different number, you can look at that. We prefer to look at just the free cash flow because that's something I can track and I [derive] because it's -- again, we look at the change in cash minus financing, which is in our case stock option exercises. But again, all the numbers are there, and to the extent that you prefer to use one number as another, that's certainly your prerogative.

And then, to be clear on the way that you're guiding free cash flow, you're looking at it on an adjusted free cash flow basis.

That's correct. That's absolutely correct. And because I have a hard time on the excess -- I really don't -- someone asked me a question as to how much it is. It is very hard because we don't know the stock price. We don't know when people exercise, and so our ability to really track how much of [exercise] will go into excess tax benefit versus our normal tax benefit is almost impossible for us to project given the numbers we have right now.

Over time, that will change. It will be relatively modest. But right now, it's pretty big. Over time we'll be a full taxpayer, and again, it won't be really material.

Right. And when you've been giving guidance, you're just looking at adjusted free cash flow the way that you're looking at it right now?

Yes.

Okay. All right, Ken.

Thanks.

Keith Weiss from Morgan Stanley.

Excellent. Thank you for taking my question, guys. Two broad questions, the first one kind of on a sales capacity. And in terms of how you guys think about sales capacity into 2012, I know it's -- all your models fill vis a vis indirect, but you do have the sales assist, if you will. How do you think about your need to increase sales capacity, what kind of sales capacity that you have, and how much of it comes from efforts that you're going to do in hiring of people on board you and how much of it comes from really expanding out the channel and getting more leverage out of the channel?

Well, I think if you look at -- we're saying about two-thirds of our business is enterprise-related, or high-end products, that really does require our sales force. And so we probably charge 70% to 80% of the deals we do in a quarter, so we call it our very high-touch model. So even though it gets fulfilled through the channel, that business is really pulled through by our own direct sales.

To the extent we do entry level, channel-driven low end SMB business, that clearly is much more channel driven, and therefore we may or may not touch it at all. So that's how we look at it. And so, yes, our ability to keep on bringing on people to drive the enterprise is really crucial to our growth.

All right. And have you guys given an update on how many sales reps that you guys have on board?

No, we tend not to give that number out really for competitive reasons.

Got it. And in terms of where you're able to hire salespeople, has your ability to hire people changed at all? Has it gotten any easier, any harder, given the competitive environments, given sort of perhaps more guys coming into the space?

I would say [generally it's] a lot easier. I think the -- if you go back two, three years, it really was Forti, who are we, are we going to be a major vendor. I mean, I think I tried to summarize a few metrics before I went to guidance, this is how much stronger our Company is and is perceived by both our customers, our competitors alike, and prospective and current employees. So yes, the fact that we're such a, quote-unquote, perceived as so much more successful today than a few years back is a proof point that, yes, we do find people wanting to come work for us, and they can gel in our environment relative to selling products that sell well.

Got it. And the second question was more of a clarification. What did you say that you expect your cash balance to be at the end of 2012?

All we said is it would be over $700 million. I didn't give an exact number. I just said over $700 million.

Wow. And any new thoughts on sort of the use of the cash? I mean, that's building up pretty nicely on the balance sheet. And any new thoughts on sort of how you guys will look to use that cash balance?

No, we haven't -- I mean, whether we look at the various capital allocations models that you can look at relative to buybacks, whatever, we haven't addressed that at this point. We continue to look from time to time at acquisitions, but we tend to be quite cautious as to what we do there.

I mean, if you really look at the number of products we have bought out, most of those came totally organically from our own development team. Some come from relatively small acquisitions which we've used to seed new product lines. But I would say we have a pretty high bar to go acquire something. It has to make a lot of sense for us. And so I would say it's -- I'm not saying it's unlikely, but I certainly don't have anything even close right now to talk about relative to companies that we might acquire with that cash.

The other point -- we don't get asked the question is virtually all that cash is on shore. We don't have any complicated, at this point, structures that force the cash to be overseas. So virtually all that cash is on shore.

Got it. Excellent. Very nice quarter, guys.

Thank you.

Walter Pritchard from Citi.

Hi, thanks. Hey, Ken, just one question on -- I think you guys have been breaking out the deferred product revenue. I think that might have been in the filings. But any detail on did that move meaningfully in the quarter?

I don't know if we have that, but they think it's flat is what I'm asking some folks that I have in this room. So I think it's flat, but we'll show it in our K, but I think it's flat.

Okay, great. And then just on -- we talked with Jim Brandes during the quarter this adjusted free cash flow metric. Was there a precedent you looked at for other companies, or did your outside auditors advise you sort of on treatment of that? Because it's the first time I've really seen a company break that out, and there was a change in accounting rules about four or five years ago that actually included that and put that benefit down into financing for a reason.

Yes. No, it is definitely -- and you see in our numbers it definitely is down there in financing, so we know some companies have [done it]. I don't have it in front of me. And my perspective is very simple. We're going to provide both numbers and, to the extent that you want to look at one number versus the other, that's certainly your prerogative.

I think the other thing I would say is, over -- when the number's $10.8 million, it's a material number to understand. And it's clearly non-cash. In other words, there's no -- I think I said we spent about $1 million in cash last quarter for taxes, so we're not, at least as of '011, we're not spending any money for cash. And I've been very, very clear all along, which is why I broke it out the way I did, is I look at it from cash taxes. It's why also many of you have asked me what cash taxes would be.

And so, again, we're glad to provide both numbers, and if you look at our free cash flow number on the front page of the press release that shows free cash flows, that around $30 million number. So clearly it's all there, and so to the extent that you want to look at that number, that's certainly your prerogative. We have it all there.

Okay, got it. And then just on the high end, two questions there. Do you think that that -- I mean, I know that you guys have pretty diverse business, so you've made the numbers many different ways over the years. But I'm wondering if you think, with some of the more emphasis on the high end and success you're having, if we should expect to see that 38% go up over time.

38% of--?

--I think that's the percentage of product from the high end.

I think sometimes it also depend on the product. I think, in the last six, 12 months, we also announced some low end product. That also can drive some other branch office, SMB business there, I think. So we want to grow the product in other segment. It's really keep the overall growth, so that's the focus we are (inaudible) this particular segment.

Got it. And then, Ken Xie, just last question from me. Do you think you're starting to see -- with that high-end box, are you starting to see more penetration into carriers, kind of the core of carriers network versus deploying it on behalf of customers or as part of a managed service?

Yes. I think, like I mentioned early, the carrier to offer a security service is still in the early stage, so we see more and more carriers starting to offer this service beyond their Internet broadband service there. So we see that it's a potential can be a huge market.

Okay. Thanks.

Jonathan Ho from William Blair.

Hey, guys. As we talk a little bit about further penetration in the enterprise, particularly in large enterprises, I just want to understand a little bit more where you guys see this being deployed. I mean, historically we've thought about the lower end UTMs being in branch office-back office, and now you guys seem to be saying that you're getting more on the EDGE. Just want to understand, specifically within a network topology, where you are seeing more traction in the enterprise market.

It still function as a primary security gateway and replacing the old firewall because, like we said in the press release today, we have the Fortis Firewall function, and also, together with some other function, can be enable at the same time. So that's where we do see replacing some of the traditional firewall. And also, from time to time, we also see sometime they use additional protection because some other device, they don't have the network based antivirus or some other -- the full content scanning, so that's also sometime can be deployed inside a company.

The other interesting area we see also in enterprise, sometimes they also combine the Wi-Fi and also the network together, because every FortiGate also can be the Wi-Fi controller. So instead of a separate infrastructure for wire and Wi-Fi, so they can use the FortiGate as a secure bolster to wireless and the wired environment.

Got it. And just in terms of the new product cycle for 2012, I mean, you talked a little bit about the new ASIC that's going to be coming out. But what technology areas do you see the opportunity to grow in? I mean, if you can give us just a sneak peak, and how do you see that kind of impacting the competitive environment as you release those new products?

The ASIC definitely will keeping driving the performance. Unit amount is really, once we release a new function in the FortiOS, it's also take a few years to kind of like move that function from the regular CPU software solution into the ASIC chip. So that will free up the CPU can handle some additional function, at same time can be -- speed up the function in ASIC compared to handled by the CPU. So that's definitely what will keeping driver of the performance, that's for sure. And also -- we're also plan to have a new FortiOS release. On average, we release a new major version every three, four years, so this year will be the new FortiOS 5.0, so we tend to release in the second half of the year.

Got it. And just the last question from me, in terms of product replacement cycles, you guys alluded to this a little bit in terms of being sort of the sole source vendor at the high end of the market. But in terms of your current installed base, are you starting to see people come back for a second round of products at this point, or -- I guess from three or four years back, or is it still primarily new sales to new customers?

I think the network secure gateway, just like any other network equipment, after three, four, five years, because network grow faster and faster, they tend to be replaced by the newer gateway. So that's usually the cycle. Lot of enterprise just keep up. For us, really, the new platform gateway, because they run the same FortiOS, so that's where the customer don't see much changing in the environment in managed security, but they do get a new platform that's faster than the old one.

So that's where, pretty much every quarter, we have a new FortiGate platform come out, whether it would be the middle range or the high end or the low end, so that -- and then they just try to replace the old one, which we said, like three, four, five years ago.

Great. That's it for me. Thank you.

Thank you.

Sterling Auty from JPMorgan.

Thanks. Hi, guys. I apologize if any of these were asked on the main call, but we're bouncing around between a bunch of calls tonight. When you look at the impact of the revenue recognition change in total for 2011, can you give us what was that total? So in other words, what kind of headwind are we facing in the year-over-year comparison in 2012?

Yes. It was about $20 million, roughly. It's not exactly $5 million per quarter, but roughly $5 million per quarter. So, I mean, it won't -- we're obviously on the same rules, but in terms of part of our growth is product related, but part of our growth in '011 was clearly from the change in revenue rules as of 1-1-'11.

Got it.

It's right around $20 million.

Now, I'm going to ask you a question that you normally don't disclose, but I'm going to try it anyway. Can you give us a sense of, at this point, how many units you're actually shipping in a quarter?

Yes, we could, but we're not.

Okay. I just thought I'd give it a shot. And Ken, when you look at the newer solutions that you introduced, whether it be late 2010 or into 2011, whether it be mail or even -- I'm thinking about even some of the database protection solutions, et cetera -- how has the traction grown throughout 2011? What kind of business are you getting out of some of the newer areas that you expanded into over the last 12 months or so?

Yes, we do introduce some FortiWeb and also the -- like two weeks ago it's a FortiDNS. They work together with the FortiGate quite well because sometimes, really, the adjacent space we also see the benefit of both for the sales selling together and also for the partner, try to make a total solution to the customer. But still it's a smaller and also quite a newer area for us. So most of the product really are internally grown, and some of the function maybe eventually will be integrated as a part of UTM. Some of the function will be separate platform. But that's the area we see some good growth opportunity.

Okay. And last question [area], did you mention the renewal rates on the subscription part of the business, Ken?

I actually didn't mention it. It's relatively the same, in the low to mid 70s. I didn't mention it only because it's comparable to prior quarters.

Okay. And along those lines, has there been any change? When you look at the usage of -- whether it be IPS, antivirus, et cetera, is there any change in what the most popular modules that are being used in the UTM, and is there any sense of a trend in terms of the number of modules that are being not only purchased but actually utilized in the field?

I don't think so, really, no.

No, I don't see much (inaudible), because also still the majority we sell as a bundle. It's basically all the function abled for the customer.

Got it. All right. Thanks, guys.

Tom Ernst from Deutsche Bank.

Hi, it's (inaudible) for Tom Ernst. I have two questions. One is you mentioned in the last call that you had some supply chain issues that impacted the quarter, and I guess you had about $7 million of revenues that slipped--.

--I'm sorry, I couldn't -- I didn't quite understand what you said, sorry.

In Q3 '10, you mentioned that you had some inventory and supply chain issues that--.

--Oh, supply chain, got it, yes--.

--And then you had $7 million of revenues that [slipped], I guess, because of inventory issues. Did those deals happen in this quarter?

I will say this. we had less supply issues this quarter. we still had some. part of it is new products you can only bring out so fast in terms of ramping them up, so part of it is just normal business. Part of it is business. And certain of our products was harder than we had expected, or trends. So we did have some amount of business that we couldn't service or support by December, so we have some of that, but somewhat less than Q3. One of the things we have done, as I noted, is we have increased inventory about $3 million, and we'll increase it a little bit more in Q1 so that we're able to better handle run rate forecast [full] business.

Okay. And the second part is, if you look at your guidance for Q1 of '12, at mid part of the guidance, the revenue growth -- I mean the revenue growth sequentially from Q4 '11 to Q1 '12 is about minus 6%, which is kind of, I think, the lowest that you've ever seen historically from Q4 to Q1. Now, are you seeing -- are you being extra conservative, or is it just -- is on the pipeline?

Yes. I mean, if you go way, way back, I mean, we were able to grow through [a little bit of] seasonality. If you go back to Q1 of '11, you have to remember, about $4 million of our revenue in Q1 of '11 occurred in products that we wouldn't have had had we not changed our revenue rules. So that was sort of a favorable we got, so you have to sort of look at Q1 '11 under the old rules, and it would have been down even more so than you see in our numbers. So I think, if you adjust for that, we're pretty comparable in Q1 '12 versus Q4 '11 as we were this past year.

Okay, that's it for me. Thanks.

Erik Suppiger from JMP Securities.

On the product front, or on the outlook for fiscal '12, do you think you'll continue to see products growing faster than services? would you expect any further shift on that front?

My sense is it'll probably be a lot closer. It depends upon do we grow at the rate we projected versus a little faster. To the extent that we grow billings and revenues at the same rate, then I think they'll probably grow pretty comparable. Again, would it help product revenues was a question I was asked a little earlier relative to how much if it related to new revenue rules. And so $20 million in the product revenue growth in '011 was due to new revenue rules, which we won't have that, going forward. So that suggests to me that they'll probably grow pretty comparable year-over-year.

Again, sequentially, remember, product revenues will go down in Q1 versus Q4 because product revenues are much more driven by our billings in the quarter. And as I noted, billings in Q1, because the seasonality, particularly in Europe, will be down from Q4.

Okay. And did you say the tax rate is going to still be 33%?

Yes. I think that looks pretty good from what I see right now, yes, on a pro forma basis, yes. GAAP actually will be close to that, too, within a point or two from what we see right now.

And then, on the FortiDNS, InfoBlox is going out in that market. What opportunity do you see with that product?

It's a little bit different solution. We partner with Nominum, really, they call the Secure DNS. It's much more secure compared to the public holder (inaudible) download [all] this version InfoBlox offer. I think it's really -- and also the security has -- really more fitting as a service provider market, so that's where we see the customer is more -- from customer request to have this solution put in together. So that's where the partnership come from.

Did you say that you will be targeting the service provider, or that's where Nomina's been targeting?

No, the secure DNS more fit into the service provider market, and also more secure compared to the open code DNS.

Okay, very good. Thank you.

Dan Cummings from ThinkEquity.

Thanks. Yes, I've got just one more here on Fortinet after dark. Can you talk about the demand or acceptance for some of the next-gen firewall controls, the application controls, policy controls? It seems like a very policy-driven product set. But in particular, in the managed services market, we're finding that that's still largely a portent protocol market. I was just curious how fast you see the next-gen side getting traction in the managed services side. Thanks.

I don't think there's anything new there in the policy application control. Like Fortinet, when we start in 2000, the first year we [call] App Secure, address application security, but [with them] we feel we need to address much broader than just the firewall application level.

I think there's a lot of [policy] control still in the firewall, which control the connection, control how the application can come in and come out. But [handle] the network security we feel can be much broad, including the (inaudible), including all these different application, even cross the data [was and] the video. So that's where we have this UTM platform, and also [saddle] it by the ASIC to boost additional performance.

I think, if you look on this (inaudible), I think it's a -- and then the app secure science serve back again in the -- like 2006, 2007. I feel it's really -- that's where some other [market] research firm, whether from -- there's quite a few market research firm tests that we -- it's a soft [side] feature of the UTM, because that's where the definition is all included in the UTM platform there already.

Thanks. And just to follow on to Erik's question a moment ago, are there opportunities for you to connect with a bigger community of service providers through Nominum than you already are? I'm just curious about the opportunity you're seeing with the DNS appliances.

It's a partnership where we're helping each other, so some will come from us, some will come from their customer base is the partnership we're looking forward. Both will be win-win solution for both company.

Okay, thank you.

James Westman from Raymond James.

Hey, guys, it's Michael Turits from Raymond James. First, Ken, I'm sorry, I know you explained it on the call, but can you just explain what the removal of patent settlements was, and does that recur at all in any way?

I'm not sure I totally understand the question, but let me see if this helps.

Well, the $6 million in the year for -- and cash for removal of patents.

Oh, yes. It's two things. One is we paid out $9 million in Q4 for patent settlements, which was a TrendMicro, and then we received about $2.6 million, or close to $3 million, in terms of some sale of patents earlier this year. I think it was Q3, wasn't it? Yes -- so yes, but that's where they paid us $3 million, right, $3 million. So we got $3 million in, $9 million out, and so that's the net negative $6 million that we paid for patents.

And when you say you paid it, that was just the final settle, cash settlement--?

--Well, if you go back to Trend itself, we paid $9 million. I'm not going to say what -- it was a range, and it could have been worth going forward. I'm not going to get into that at all. We just agreed to settle with them for $9 million and be done with it all. So we paid them -- and that's basically a fully -- I think of it as a fully paid up license for those particular patents now, that those patents go through '015. So that's what we did.

Got it. Then let's just review, if you could -- and again, I know you got -- answer on the call, but just to clarify, cash taxes in 2011 and what you expect them to be in 2012?

I don't have the numbers. I would say -- I don't have it right in front of me, but we paid around $4 million to $5 million roughly in '011, roughly that amount. And then for -- in terms of total tax, we paid around $4 million or $5 million if you include federal and all the various taxes.

In terms of '012, I don't have that number. All I've looked at so far is -- well, I do. It's around $8 million to $10 million Americas, and maybe a little bit more for foreign. So roughly $10 million. Again, we don't have all those numbers done yet, so I can't give you a hard number.

So you say 10 total, or an additional 10 for international?

No, 10 total, roughly. It may be a little bit more than that, but roughly that.

Okay. One thing that -- I mean, I know that's what you say, you paid, like you actually paid, but you also ended the year with $36 million income tax payable on the cash flow statement. So that's what -- you owed an additional $36 million, and that--.

--Yes, but a lot of that goes into deferred tax. A lot of it goes into -- we won't pay it, per se, because of -- we call it disqualifying tax positions.

Yes. So I guess the question is -- I mean, the reason I want to look at that is to try to figure out what point -- I mean, at what point you become closer to a full taxpayer on a cash basis. So if it's not 11--.

--Well, that's not (inaudible)--.

--Doesn't look like it's 12--.

--Mike, Mike, hold it. It's hard to project, hard for you, hard for us, because it has a lot to do with disqualifying dispositions, or tax exercises. So we don't really ever quite know that number for sure because it really reflects the peoples' exercises, what our stock price is, and so forth. That is driving more -- we don't really have NOLs, so what's really driving our tax payable, going forward, is going to be disqualifying dispositions, which is not unusual for a company at our maturity.

Right. And then, I mean, I know you can't know these things, but you gave a free cash flow guide on an adjusted basis. So what is the embedded assumption in that for the excess tax benefit?

It's about the number I just gave you, $10 million.

About $10 million? That's the assumption for tax benefit on exercise of stock options? Because that was 20 this year.

No, that's the -- no, no, that's what we expect to pay for tax cash -- as we expect in cash to pay for taxes.

Okay. And on the tax benefit from stock options, you were $11 million for the fourth quarter? Does it make sense to think of that as a run rate?

Yes, and I didn't -- I was very clear. I did not give a number for that. I can't guess that number.

Okay. Great, Ken. Thanks very much for the clarification. I appreciate it.

Just to be clear, that's why we're showing on our chart -- if you look at chart 13, we show both free cash flow and (inaudible) free cash flow because, at least at this point, I don't have the ability to at all forecast the number of excess tax benefits, because it has to do with stock exercises, our stock price, and [give in time] and so forth. It's very, very hard to project, and I just don't have that number right now.

Okay. Ken, thanks very much.

To be clear, we will provide both numbers, and so you can use both in terms of your projections as you want.

Do you figure, as we get close to '13, that the first time we'll know about cash taxes for '13 will be the fourth quarter call next year?

Yes. My sense is, by '13, we'll probably be much more where the amount we pay for our taxes will be much more representative of what we book from a tax -- from a book point of view.

So it should be pretty similar by '13?

I would think so. But again, I haven't thought all through right now in '13.

Okay. Thank you very much.

Aaron Schwartz from Jefferies.

I just had a quick question. But on the population of products that were the firewall only, it didn't seem like that moved around in the quarter, so maybe that's just kind of a normal run rate for your business. But do you see the opportunity to go back in and sort of upsell subscription services over time, or is there any sort of focus around doing that, or are those primarily just firewall only sort of products and that doesn't really change all that much?

Yes. I think if your question is, if we sell more of a firewall related, we don't sell a subscription at the time, would we likely sell a subscription down the road. My sense is probably not.

Okay. And then just a real quick sort of second question here, can you just -- I know you gave this on the call, but can you just remind me what the currency impact on expenses was in '11? And then I think you sort of gave an expectation for '12?

Yes. I think in '11 it was -- was it $2.5 million, $3 million? $2 million, and that's compared -- what point are you starting for. It was $2 million. The reason I didn't bring it up, it was only $2 million from the point we guided early in '011, so I thought that it actually wasn't all that material. So it was about $2 million a negative to expenses in '011 vis a vis our guidance at the beginning of the year.

Okay. And then did you make a comment on what you sort of assumed here in '12?

No, I don't think I did. No, all I said in regard to '12 was we talked about some costs that will re-occur, if you will, in Q1, which has to do with payroll-related taxes, vacations and merit increases and things of that nature. But right now I think it's sort of neutral-ish, if you will, in terms of FX in terms of my expectations, going forward, vis a vis Q4.

Okay, understood. Thanks for the time.

(Operator instructions.)

Okay, Operator, no more questions.

[Evan Merritt] from Plural Investments.

Hi, good afternoon. I have a question regarding margins. Ken and Ken, is your target model still predicated on 25%? You're pretty much there now, so is the model still at that level, and how should we think about margin expansion?

Reality is we owe you a new model. We have not updated the model in the last couple years. We have been over-achieving in some quarters, and so we owe a new model, which we will put together. So I think you ought to assume that we're over-achieving the model in Q4, somewhat in Q3, and right now I've only projected, so to speak, 24% roughly for '012. But I'm not suggesting at all that we don't have room to maneuver -- room to go up from there, because I would expect us to go up from there, over time.

Great. Thank you.

Yes.

We show no other questions in queue.

Okay. Well, I want to thank all of you for listening. To the extent that we didn't handle something, feel free to call us. If we can sort of update you on any of the numbers that we -- in terms of explanatory comments, glad to do that. Otherwise, we thank you for your call. I would say we will be presenting at a number of investor conferences. We do announce those on our website when we're going to be there. So for those on the buy side, you'll see us at a number of places in February and March.

Thank you again for -- on this call.

Ladies and gentlemen, thanks for participating in today's program. This concludes the program. You may all disconnect.