Fortinet Inc (FTNT) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fortinet Q1 2012 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.

Great. And just a reminder that the comments I made the start of the earlier call about forward-looking statements applies to any forward-looking statements made, as well, during this second call.

So, with that, to the extent that you have additional further questions, we're glad to take them. So, Operator, if you could just -- this is all Q&A. If you could just see who's queued up, that'd be great.

(Operator instructions.)

Aaron Schwartz from Jefferies.

Hi, I just had two real quick questions. One, was there any currency impact on expenses in the quarter?

I didn't check that, and I'm looking around. I don't think so. I think the Company's been pretty stable certainly between Q4 and Q1, so I would say generally nothing of a material nature.

Okay. And then--.

--(Inaudible) expenses.

Right, okay. And then, the second question was, just with the DDoS product that came out today, I mean, I was wondering if you could talk about the strategy there. I think the competitors are a little different than some of the competitors you see on a daily basis. Can you talk to that, and then also the strategy there? Are you going to have more of a specialized sales force behind that, or is that just sort of opened up to your current [certifold] distribution? Thanks.

Yes, this is Ken Xie. I think that's -- the DDoS is one of the area we keep (inaudible) in, like, research into the engineer for the last few years, and so we have some function in our own FortiGate product, but also we see some of the data center, big enterprise, they probably needed some dedicated product, which we like the approach this Company has, the [Intragard], which they have a very low latency, they have some virtualization function there, and is a pretty good feed for the future direction we are going to develop there. So that's where we -- it's more a core technology and a team, and also we'll continue to keeping (inaudible) adding our own resource and keeping develop the function -- the product feature there.

So the three portal we announced, the FortiDDoS 100A, 200, 300A, is pretty much based on the product they develop in the last 10 years since they found the Company, but we also add a lot of resource ourself right now to keeping [it enhance], and that's the next -- the new generation will be released in the second half of this year, we believe will improve both on [a] performance and the function a lot.

But it's a good space, especially [for this] data center, the big enterprise which they have, like, a very important website they want to protect.

Okay. And any comments on the sales strategy there in terms of special size sales force or just general?

So far, we have not build a special sales force. It's just pretty general, leverage the current sales force we have.

Yes. What we sometimes do is we'll sometimes, for several of our additional new product families, we'll add some additional sales folks to target those new products, but we also continue to basically incent our existing sales force to sell them, and they get full credit, as well.

Okay, terrific. Thanks.

Michael Turits from Raymond James.

Hi, guys. So I'm going to start with my usual questions just on taxes. Ken, what about the GAAP tax rate for this year? It came in a little low, like around, I think, 28%. Where do you think that ends up, and any thoughts on what the cash tax is like for this year?

Well, yes. Right now, when we estimate our Q1, that's as good as we know for the year. So right now, I'm going to assume 28%. Within a quarter, there could be, as they call it, discreet items that could affect that, but I can't evaluate that until the end of the quarter. So right now, 28% is the number.

Relative to cash taxes, that's a hard one. It'll probably be in the order of $5 million to $10 million, but it's a pretty wide swing right now. There's a lot of balancing act that we have in our -- which allows some variability, as well, in our free cash flow forecast for the year.

And then, you still think that, for fiscal -- or for 2013 that you're a full taxpayer, so your cash taxes look 30%-ish, or whatever the rate (inaudible) is?

[In terms of] cash, I think we'll be something less than that. I can't say which. Again, it'll be primarily because we'll continue, from a cash point of view, expect to have disqualifying dispositions, which will help us from a cash, not a rate, point of view. So we may still have some of that. So I think -- and we are today, as you know, a full rate anyway. From a cash point of view, I don't think we'll be fully there in '013.

Okay. Then deferred, I don't know if I missed it or not, but did you break out the deferred balance by product versus services versus ratable, which you sometimes do for us?

No, we didn't break that out any further, no.

Is that something you can give now?

No, I don't have it here. And to the extent that we do it, we would put it in our Q.

Okay. Then again, on the deferred, I know there was some questions on it, but it's great to sign the long-term deferreds into the -- one of the things I do, as I mentioned, was to just calculate your deferred growth [just by] using the short-term piece, not the long-term piece. And that didn't grow as fast, and granted, did have a tough comp. But I guess my question is, as we get through to the end of the year, I would still feel like I'd like to see it -- the short-term bookings based on short-term deferred growing at somewhere close to the same rate as long-term, or not as long-term, [but yes], like the same thing as the bookings overall.

Well, again, there are a lot of moving parts. You get a moving part of, in any quarter, how much is renewals versus new product billings, or the new product billings, how much of that is bundled versus non-bundled. And so all that has -- all that weighs in there.

And so, I know in the past many of you have tried to calculate that. Frankly, it's a hard number to calculate the way many of you try doing it. And when you look year-over-year, it's quite cumulative, so it's going to vary a little bit from quarter to quarter, which is why I try not to ascribe too much information in terms of a one quarter up and down.

Right. That's why I just think over, like, on a trending 12-months basis, it should flatten out to -- so you think we end up pretty much on par, long-term and short-term, for full year at the end of the year?

Well, I could easily see short-term going up faster than long-term in a particular quarter if we don't have the same number of longer-term bundles. And (inaudible) -- we did do some research. I don't have the absolute number here, but product deferred went up about $1 million, service is up about 21, and ratable went -- again, ratable's going to keep on going down, so that went down about two. That makes it about 20, roughly. So, again, ratable, [you're going] to assume it goes down 1.5 to two million every quarter for this year.

Okay, so product went up, and you're talking about quarter over quarter, right?

Yes, sequentially.

a Product went up $1 million, Services went up $21 million, Ratable down $1 million?

$2 million.

$2 million. Thanks. Okay.

Well, it's 19-6, so however you want to round it.

All right. One non-accounting sort of question. Just any sign or thoughts on Checkpoint entering the carrier space with its first chassis product, the 61000, and how that impacts you at all?

We not quite see much. Maybe we are a little bit try to get into the data center, because that's a server base. But in a carrier, so far we have not see -- we are not seeing yet.

Okay, great. Thanks, guys. Great quarter.

Thank you, Michael.

Erik Suppiger from JMP Securities.

Yes. First off, on the DDoS product, who would you be targeting? Who would be the primary target for that?

I think some of the big data center with an important Web server, and also some of the big enterprise--.

--I mean from a competitive perspective. Whose product would you be competing?

I think there's a few player there, like [Auburn], like some other company there, but is -- for us, we probably just try to provide a (inaudible) total solution, so we are not particular target that [DDoI] space. So that's why we try to leverage the current sales force. And if the customer, beside the UTM, they also need some protection for the Web, they can use the FortiWeb or they can use the DDoS.

So DDoS is really a platform, very specific, try to protect very specific attack. So basically, the major function is really some we call the baseline traffic control, so that's where we try to see any abnormal traffic come in, and from all the (inaudible) other attack. And also, the virtualization and some other function, and also need to be very, very low latency, because it's a (inaudible) device.

Okay. And then, on the carrier service secure gateway market you had talked about, have you seen S5 entering that market? Have you seen S5 participating in any of the carrier firewall markets at this point?

I think we probably try to leverage their data center position and offer the firewall. But firewall we feel probably no longer enough to protect today's network security environment. That's the reason, [Mike], I start this company from my previous company, and that's in which we offered a firewall. This is, like, 15, 16 years ago. So firewall is [good enough secure] the connection, but today's attack is more on the content side, on the application side. That's where the virus, all the intrusion, all the spam e-mail, the bad Web content, is a firewall just a basic connection level control.

Okay, all right. So you haven't seen them much at this point, and they probably don't have the breadth of functions that you would need to see them?

Yes, the breadth and the deep of the functions, so they're -- just a firewall alarm is if you -- not enough to secure the (inaudible).

Okay. Then your high end -- I mean, your service provider business was at a peak level, 30%. Your enterprise business was very strong, and yet your high-end product -- your unit shipments had come down as a percentage of shipments. Why was that the case?

Some of service provider using beta box, some other server provider use the [Coda CDE-based], so they have a centralized -- the FortiManager that can manage, like, 100 to 1,000 different CPE device, which deploy to the customer side, and they can maybe lease to them monthly, try to fee for it, and then centralize, try to help them put a (inaudible) reporting, some other different approach. But at carriers, really, they have a bigger box. They leverage the virtual system, virtualization function there using a bigger system to support a few hundred to few thousand customers. It's kind of mix of high end and low end.

Yes. And by the way, when we sell to some of our retail customers, they may be using the mid-segment products, as well.

All right. And then, lastly, you had a nice pick-up or shift in revenue to services this quarter. Did you have a higher attach rate for services, or what was driving that?

No. Again, I try to stay away from attach rate, as you know. Again, I think the -- it's really, again, the mix of revenues in any particular quarter, so there's no real trend there that I can point out.

Yes. The reason, really, we tracking by the product, so that's the -- because it goes through channel, and also sometime, when the same customer, they operate to the new FortiGate, we view as a new sales instead of a -- kind of a -- the renew. So that's where it's -- any of the network device, after four, five years, the networks be go faster and faster, they tend to upgrade the gateway. So that's probably the highest rate we feel we can achieve probably is in the high 70s, something like that. That's equivalent to about, like, four, five years usage of the product.

Okay, very good. Thank you.

Thank you.

Keith Weiss from Morgan Stanley.

Excellent. Ken G., I was hoping to dig into exactly the changes in how we're accounting for -- or how we're looking at the cash flow. So I've got some questions. There's just some sort of confusion into what was embedded in the original guidance for FY '12 in terms of the excess tax benefits and then the amortization of the investment.

Well, the only thing that changed is -- I didn't do anything different on the amortization, so the only different -- if you look at the cash flow statement -- the only number that I really changed was the negative two -- I'm just riffling through some charts here -- so in the old day -- well, in Q4, what -- and it wasn't as big a number this quarter, but I would have taken the negative two out of there, and so that would have -- so the gap in free cash flow we had would have been plus two, but I wouldn't have excluded the negative two there.

Got it. And I believe, on the Q4 call, we were asking about that similar adjustment of what you would take out in terms of excess tax benefits, and you talked to a $7 million to $8 million number in there. I wasn't quite clear whether that was for the quarter or for the year, so the $10 million is basically what you had assumed for the full year in terms of excess?

Correct.

Excess tax benefit? Okay.

That's correct, but I would also add that's a big of a swag, honestly, because it has to do with figuring out what options people are exercising, what prices they're being exercised at, what did we assume in our 123-R expense versus what's the deduction. So that number, it cannot be calculated precisely beginning of the year because you don't know the time, you don't know your stock price, you don't know the timing of exercises. So that was the assumption, about $10 million.

Okay. And just to be clear, that at no point were we stripping out the amortization of investment premiums?

Correct, at least not for this year.

Got it. One more sort of a high level question. In previous quarters, when you exceeded the high end of your guidance range in terms of revenues, we had seen operating margins sort of exceed the high end of the range of what you were talking about with operating margins. This quarter you did exceed the high end of the range in terms of revenues. We saw less flow-through, if you will, or we didn't see any -- we just saw the high end of the non-GAAP operating margin range. Were you better able to sort of match up your investment to sort of where you were coming in with revenues, or anything change in the philosophy of sort of letting that upside on revenues flow through into operating margin outperformance?

No, I don't think there was any change in philosophy. I think a couple things I'd point out. One is we were more successful in being able to ramp up headcount expense. And the other number that I pointed out, if you look at it, was $2.1 million's a pretty good size number in terms of expense that we incur on basically social security types of taxes, FICA taxes, that we incur on stock option exercises. Some companies pro forma that out. We have not done that. But that's a $2.1 million number for this quarter, I think up from $1.3 the prior year. And so, as I say, that in and of itself is about 2% of revenue.

Got it.

And so I'm not trying to make excuse as much as that's just a number. I think, from a business point of view, we, I think starting really Q3, Q4 last year, got some momentum in our hiring, and that is by plan to increase our hiring velocity, if you will, this year.

Got it. Was there impact to the P&L, or any significant impact to the P&L, from the DDoS acquisition?

No, I can't think of anything, no. I mean, it's very, very small dollars all around the [corn], both in terms of the balance sheet as well as expense.

Excellent. That's it for me. Thank you, guys.

Thank you.

(Operator instructions.)

Rick Sherlund from Nomura.

Yes, thanks, Ken Xie and Ken G. I'm -- not covered the Company for very long, so I apologize. I'm sure you've talked about this in prior quarters. So Palo Alto, their IPO, I mean, I'm inclined to think that could be a benefit to your stock, to the degree they get a high multiple, you won't be in such rarified territory, I suppose. But in actual competition head-to-head with Palo Alto, can we kind of talk a little bit about that? I tend to think that -- they talk more about Cisco and Checkpoint than they do Fortinet. How often are you encountering them in the market?

I think from my reading of their IPO document -- this is Ken Xie -- their target more is the government, federal government, and some big enterprise and finance service sector. So that probably has some competition with us, but we -- these three sector is relatively small. Enterprise we see the -- [very nice] growing, but also a huge sector. You can have many player there. So that's probably they have more overlap with some other competitors.

On the other side, we are much more broad. We cover much more vertical segment, and also kind of -- we kind of try to more focus on development long-term basic technology which improving the performance, improving the functionality. That's probably a little bit different focus compared to Palo Alto and some other competitors, which they are probably more leveraged some server, CPU performance, where us, really, we feel CPU is good, but also you need to add an additional boost by the chip, which take a long-term investment and also some basic function, like antivirus. All these kind of things take a long, long time to develop and also make it better. So that's where we try to more focus in the long-term, basic technology and the more broader market, and the --both from a region-wise, and also on a vertical-wise.

Yes, I think, [if I thought about it], Rick, I think it's maybe from a product customer point of view, maybe 15% to 20% is the overlap. I think, for whatever reason, Cisco and Checkpoint, Juniper, a lot more overlap in terms of who we see and who we target and so forth. And so I think they have -- they've gone after much more the pure firewall, which is much more pure Checkpoint than against us, so to speak.

Yes. The only thing, Rick, I would add, too -- it's Michelle -- is that Ken Goldman in his script talked about two -- at least two, maybe three deals that Palo Alto was in that we beat, and they were primarily firewall deals for large enterprises.

Yes. So as you--.

--(Inaudible) -- where we try to (inaudible) is among -- I think it's -- right now, we keep, like, 30%, 31% of the spending in the sales and marketing since they are more spending, like 40%, 50% in there. So I think for us, really, we try to balance in our area more focused on long-term, so that's the--.

--I think -- as I said, I think the overall comment I have is we are in a pretty large market, a growth market in which there are really a finite number of reasonably sized competitors.

Yes, [I know]. And tell me if I'm thinking about this incorrectly. I tend to think of your market being traditionally more carrier and SMB oriented, and you've got the whole UTM solution versus firewall. So if you move more up-market, are you running into a market that wants just a single product, just a firewall product, and does that limit your traction moving up into the higher end of the enterprise market and you run more into these companies of the traditional competitors in the firewall business?

I think, if you look [in] the trend, the bigger security space trend, that's where the multifunction and also the speed is two very important factor there, because right now -- that's for -- like, for the service provider, they have to be very high speed, and also the FlexGate, a function to offer the service.

The same thing for the SMB. They can see right away the benefit of the UTM. And in enterprise, they've take a little bit more time because they made -- most enterprise, they already have the traditional firewall. It's take a little bit time to keeping the upgrade and [more in there]. But everybody suddenly realized that traditional firewall probably no longer enough. You need to add, like, antivirus and the intrusion, and also protect the Web content there.

So that's where (inaudible) moved to that direction, so that's why we feel that the UTM offer kind of a -- have more function, easy to manage, and also better on the return of investment. I think the product offer by some other competitor, which does have a firewall and the intrusion detection prevention there, it's just a subset, because antivirus is much more difficult to do, and also sometimes you protect the Web content, also need additional computing power, which is difficult to use a CPU alarm to deliver, to boost.

And so that's the -- I'm doing this in this space for 20 years as a [plus-three] company. Thus we see the different platform advantage and disadvantage. Thus, we feel we have the best platform to really address this marketing in a long-term. And the enterprise customer starting to see the benefit. That's the enterprise. You see the middle range starting to pick up, and so I think it's a -- in the next few years, and so more enterprise customer is realized the benefit of UTM.

Yes. And actually, just to add one more thing, too, Rick, is that the enterprise is actually one of them. We talked about this, too, especially in America, it's one of the fastest growing segments for us. And Ken talked about a win with a Fortune 50 enterprise company that's primarily for a next-generation firewall. So as Ken Xie was saying, I mean, we look at next-generation firewall as a subset of UTM. So even though we -- you know, if our product is branded as a UTM solution, when it's in very large enterprises who choose -- the project is about a firewall, we absolutely sell firewalls and next-generation firewalls to large enterprises.

So I just -- that tends to be sort of a misperception of Fortinet, that we're not really in the enterprise, or we're not selling firewall to enterprises, because we are, but our solution's also much broader than that.

The other thing, really, for the enterprise, really, when they look in the function, it's really sometimes difficult for them to test [validate] themselves. That's where the certification is a very good indicator how secure are each function. So that's also very important. So that's why, for us, we have more certification for each single function we have, and that's also important for the enterprise customer to base on that one to make their decision.

All right. And Ken Goldman, the rationale for backing out the excess tax benefits from stock options, what's the rationale there?

Well, no, I didn't do it this quarter, as you know. The rationale was it's a number that is very hard -- the rationale at the time was it's a hard number to project, and it's really a noncash item. And so that was the rationale. But, frankly, it wasn't worth the effort. It's in discussions we keep on having on it. So I'm just including it as is.

Okay. So I just wasn't clear on the guidance number that you offered.

The guidance includes it, so I have not adjusted it out. So it is what it is.

Got it. Okay, thank you.

Alan Weinfeld from Davis Securities.

Hi. Can you hear me, guys?

Yes.

Yes.

Great quarter.

Thank you.

You just said that you see the next-gen firewall market as a subset of the UTM firewall. There are a few companies, Palo Alto one of them, and a few others that are public, let's say, that they only sell next-gen firewall. But they do it after they sell an intrusion prevention, or they start first with some other product and they next build next-gen firewall to lead into a customer. And they literally have been on record saying that it is your company, or Checkpoint, one firewall is not enough, and that's why you need a next-generation firewall to plug some type of hole, I've heard, in the DMZ. Could you address that statement at all from some of these next-gen firewall vendors?

The reason we say subsets, really, for all the function we see over the so-called next-gen firewall is all offered in the UTM, and plus we offer much (inaudible) from, like, other antivirus and some other -- like the Web-based application [check-in], some acceleration, and also take care of some Wi-Fi environment. And there's more function in a UTM, but also, with decent architecture, you can turn on, turn off different function based on your need. Because each function [started] have to dedicate engine, some [ASIC], some your CPU, so that's also the performance or each function kind of have relatively independent there. So that's where we say it's a subset of the UTM.

I think that's where in the early days, like when Fortinet launch in 2000, they said we -- first we call the app secure. We just try to target sort of application security, and then we feel it's not enough, because (inaudible) really not only have some application, but also lot of other different traffic the user use. So we need to see how to make the whole networks more kind of a secure, more kind of fortified. So that's where we feel that the UTM concept, and with the platform of the dedicated chip level and with the latest CPU and with the latest access and design, it's a better platform than just target, like, two, three function.

I think that the next-gen firewall pretty much has some firewall pass intrusion and control certain application. That's already included in the UTM. And so that's the space we see in today.

So basically, again, I guess these guys are still -- I guess you said that maybe you see them 15%, 20% of the time, and it seems that maybe they're selling to enterprises more overseas because it doesn't make sense how they're getting 20%, 25% sales increases even though it's off, say a $200 million level but smaller than yours. Again, this class called the next-generation firewall, if you ever see them, you're always beating them. They [must be] taking share, or the industry's growing 15%, 20%. Which do you think it is?

Well, Al, I want to just point out one thing. I think they are taking share from some others. I think the - my sense is they do very well in some pure firewall replacement markets, and so you're talking about there -- I think you've done some -- I think, I don't know this for sure, but I think there's some large deals in the federal space, in the financial services space, areas that we aren't necessarily large in from a market share point of view. So I think there are more domestic than international, still, and I think they're focused on a couple-three segments, if you will, areas that we historically haven't been as strong in the Americas, financial services being one and the other one being federal.

Yes. I think it's a big space. It's like the whole network security [proper] around $10 billion. There can be multiple players. But long-term wise, my view is really who can build a better basic technology, and then who can execute better, and also have the right strategy will be the winner. I think right now is really -- well, if the base is small, sometimes compare our base for some bigger player, so that's where the smaller base tend to -- more easy to focus or grow in relatively faster. But once we reach more broad, more bigger sometime, the -- [since] really try to see -- thus will be the long-term. I think for us, really, we just want to focus in the long-term growth.

So you won't be seeing Barracuda Networks driving around buses in five years?

We not quite see them right now, so I'm not quite -- and also the--.

--No, no, I'm not saying you do see them, but they're just ridiculous. I don't know how they've been around for five or 20 years. Thank you very much.

Well, thank you, too.

(Operator instructions.)

Operator, are -- there may be none in the queue?

We currently show no one in queue.

Okay. Well, unless someone is able to click on that star-one quickly before I have my closing comment, we're going to call it a day.

We do have a question in queue, sir.

Yes. I'm sorry?

We do have a question in queue.

I didn't talk fast enough. [Everyone knows me], I talk too fast, and now I didn't talk fast enough. Go ahead.

Tom Ernst from Deutsche Bank.

Hi, it's actually [Tav] on behalf of Tom Ernst. One quick question on the -- you said that you had strong sales into the retail segment [dealing with] PCI regulation compliance. Was that more a FortiWeb versus FortiGate? What parts are driving strength in that?

Yes. Its' really FortiGate.

So it's not VPCI? It's not the FortiWeb Web firewall in that segment?

FortiGate.

Yes, I said FortiGate.

That's a UTM product.

Okay. Okay. the other question I had was on the slide. You mention that, if you back out the multi-year deal for midrange products, the growth rate for the hiring is a lot higher. I'm not sure if I get that right. Can you explain that a bit better?

Well, again, the chart is as-is. I didn't back it out in the chart the way it's described. What I said is, if you did an adjustment, I said how the percentages would apply, but that's only if you did the adjustment. But the chart itself is as-is.

So you had more sales. So you're saying that the percentage for high-end has been driven down this quarter because you had more sales of midrange that span multiple quarters?

That had multiple years of basically bundled subscription, yes.

Got it. Okay. Does that drive down the [ASP] for the quarter, though? I mean, if you look at the number of--.

--No, because, remember, it's not going to affect the ASP because the services is -- it's a billing. It's not revenue, all the services, so it just shows up in deferred.

Got it. Okay. One last question before we drop off. How's FortiWeb doing in terms of momentum compared to FortiGate and other products? Do you see a lot of momentum in FortiWeb?

Yes, we do see some quite interesting development, but it's come from where -- FortiWeb is really, we're a small base. We develop in-house right now, so that's where it's a pretty small base but is a [very good] product.

But is it (inaudible) that's targeted more towards the PCI compliance and Web filtering? I thought FortiWeb was more designed towards the whole Web application filter, market, and more tuned for PCI compliance versus the FortiGate file, [like that is] more of a generic UTM and generic firewall.

I think for some enterprise retail, which they need both protect the Web and also the other traffic there, so that's especially in the branch office or in a retail store, thus UTM is a better feed. But if someone just want to protect the Web server, that's probably -- FortiWeb is a better product.

Okay, so I guess they use the IPS on the FortiGate for their Web protection?

Yes, that's part of the function of UTM.

Got it. Okay, that's all I have. Thank you.

Okay, let's continue on. [Think we have] a couple more questions up.

Michael Turits from Raymond James.

I'm all set guys, thanks.

Okay. Thanks, Michael.

Rob Owens from Pacific Crest.

Thank you, and just one quick one, guys. I apologize if I missed this. Did you give the year-over-year billings growth by geo this quarter?

Yes. So I'm happy to repeat that. That's okay. I sometimes go through stuff pretty fast, so let me just find that again and -- give me a second here. So yes, so if you want to go look, Americas was up 30%, EMEA was 23%, and Asia-Pacific was 35%. This all compare Q1 to Q1.

One factor to consider, last year, Q1 in Japan is because all the earthquake, tsunami, so they see they are more and more recovered.

Yes, we really had a very good Japan this year.

Great. Thank you.

Kevin Merritt from Plural.

Hi, thanks for taking my question. Just a quick one for you on margins. You've historically been pretty consistent with your incremental margins, around 40%-plus. This quarter was a little bit softer. I know you're guiding to a nice improvement next quarter, but the question is, in terms of an incremental, is this quarter an aberration and you'll be back to that pretty consistent trend we've seen in the past?

Just so I understand, when you're doing your incremental, you're doing it from when to when?

Year-over-year.

Year-over-year, okay. Well, I mean, I'm not sure how you're looking at it. I mean, the overall operating margin was basically the same year-over-year at 22%, and so you could argue pretty much everything sort of aligned itself year-over-year. And I think there is a difference this year. I think we probably go into this year feeling that the environment, knock on wood, is a little bit healthier than last year, and so we have continued to, therefore, put the pedal to hiring.

And so, therefore, we've seen expenses grow much more consistent, if you will, with revenue growth. I think last year at this time we probably were a little bit more cautious relative to the way we looked at the year, going forward. Again, this is all relative.

But we provide, I should say, guidance for the rest of the year that takes into account what we see, as best we can see it, at this point.

Great. And your hope would be these incremental investments will help you accelerate the growth even beyond what we're seeing right now?

I think, and Ken Xie even more so, I think we believe this is a great time to continue to gain market share. We have momentum on our side. We have products on our side. We have a good new product introduction scheme coming for the rest of the year. So I think we feel that we've seen some competitors get acquired. So I think it's our sense that this is a time to continue to ramp up, not to detract from margins, but to continue to invest and maybe -- and by the way, it's the exact same thing I said last quarter about going into this year is that we said margins this year would be relatively flattish to '011 because of our expectation on investments. So it hasn't really changed.

Got it. No, I understand. Got it. Thanks for the explanation. Nice results.

Thank you.

Thank you. This ends our Q&A session. I will turn it back to Ken Goldman for closing remarks.

Well, yes, I really appreciate it. I know we cover a lot of ground. We'll probably see if we can simplify a little bit of our prepared remarks. But nonetheless, we have a lot of -- we try to provide a lot of information, and there is a lot of information on the charts that are provided on the website, as well.

So thank you. We will be attending a number of technology conferences this quarter, which we will give full notice on, if you will, relative to our [itinerary], but there's a number of those that we'll be attending both locally here, as well as in Boston and New York, and Chicago, I think.

So thank you, and with that, we will basically complete this call. Thank you.

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