Rapid7 Inc (RPD) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Rapid7 earnings call.

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference call is being recorded Wednesday, February 10, 2016.

I will turn the conference over to the Company. Please go ahead.

Thank you, operator, and good afternoon everyone. Thank you for joining us to discuss our fourth-quarter and full-year 2015 financial and operating results. I'm Anitha Gopalam, VP Finance and Controller, and I'm here today with Corey Thomas, President and CEO of Rapid7, and Steven Gatoff, our CFO.

We have distributed our Q4 and full-year 2015 earnings press release over the wire and have posted it on our website at investors. Rapid7.com. We have also posted our Q4 and 2015 results earnings presentation along with an updated Company presentation on our IR website.

This call is being webcast at investors.Rapid7.com and a replay will be available on our website.

We would like to bring the following to your attention. The date of this call is February 10, 2016. Our discussion today may contain forward-looking statements about events and circumstances that have not yet occurred, including without limitations statements regarding our objectives for future operations and future financial and business performance. Statements containing words such as will, expect, anticipate, believe, plan, intend, should, and other statements in future tense are intended to identify such forward-looking statements. Actual outcomes and results may differ materially from the expectations contained in these statements due to a number of risks and uncertainties, including those contained in the Risk Factors section of our quarterly report on Form 10-Q filed with the Securities and Exchange Commission for the quarterly period ended September 30, 2015, and subsequent reports that we file with SEC. The information provided on this conference call should be considered in light of such risks. Actual results and timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indicator of future performance. Rapid7 does not assume any obligation to update the information presented on this conference call, except to the extent required by applicable law.

On this call, we will provide and talk about our results using non-GAAP financial measures and provide non-GAAP guidance. The presentation of non-GAAP financial measures is not meant to be considered in isolation or as a substitute for directly comparable financial measures prepared in accordance with GAAP. We have provided a reconciliation of historical non-GAAP financial measures to the most comparable GAAP measures in the financial statement tables, including the press release announcing our results.

With that, I would like to turn the call over to Corey.

Thank you, Anitha, and good afternoon everyone. I would like to start by thanking all of you for joining us today.

This was a tremendous quarter for Rapid7 and a great way to finish off an exciting year. The demand environment for security data and analytics solutions continues to be strong. We expect sustainable opportunity in the ongoing shift toward programmatic data centric security programs.

There is momentum in the market and we are pleased with our ability to capitalize on it. And we delivered strong Q4 and full-year 2015 results.

For the fourth quarter, total revenue growth was 50% year-over-year, and we again generated positive cash flow from operations. For all of 2015, revenue growth was 44%. This is evidence of strong demand for Rapid7 products and services that help customers leverage data and analytics to improve the effectiveness of their security programs.

Customers are looking to maximize the impact of their security investments and our analytics driven solutions help organizations identify exposures, detect compromises, and measure security performance. This, combined with greater market awareness, our focused go-to-market strategy, and an increasingly seasoned sales team, show strong execution in the fourth quarter and throughout 2015.

We are particularly pleased with the strength of our enterprise business, including closing several large deals greater than $1 million during the fourth quarter. Additionally, we grew new customers 37% with strong adoption across both enterprise and midmarket, and continue to see increasing renewal rates driven by customers buying more of the products that they initially purchased, as well as purchasing other Rapid7 offerings.

Customers have lots of choice in this strong demand environment. Their preference for Rapid7 is a direct result of our focus on enterprise-wide analytics. This focus has enabled us to create the fast expanding market of strategic vulnerability management, which we call Threat Exposure Management. We see this market continuing to grow at a multiple of the traditional vulnerability management market.

We improve the strategic relevance and customer impact of vulnerability management by focusing on remediation analytics, productizing the exposures most likely to lead to compromise, and measuring the security performance of IT teams.

Similarly, our goal is to both disrupt and expand the traditional sale market. This is a market where solutions are viewed as expensive and ineffective. Because of our understanding of how vulnerabilities and exposures lead to compromise, we believe we have the largest database in network of attacker techniques.

Our focus is on building analytics that look for malicious behaviors instead of static rules that just look for malicious technologies. Adoption and momentum for our analytics driven approach continues to build in this market as customers are increasingly frustrated with traditional SIMs.

As a recent example, in Q4, a large insurer with more than 30,000 users selected our user behavior analytic solution at their current SIM could not provide the kind of detection capabilities they needed. They ran an exhaustive evaluation process of our UBA solution along with many competing solutions, the most interesting part of which was when they let their red team penetration testers loose onto their own network. Only Rapid7's UBA solution was able to consistently catch the penetration testing team.

And with our recent acquisition of Logentries, we can now address investigations and forensics in a unique way. With most log-based technologies, it is prohibitively expensive to store data across the enterprise for long periods of time. However, Logentries' designed a system of storage data at much lower cost with much faster search than competitors, making the core technology ideally suited for forensic investigations.

As we said when we purchased Logentries, we will be releasing new offerings based on our combined technologies early this year. We will be updating and combining our behavioral analytics for detection, low-cost search, and end point data collection for the most complete incident detection and response solution on the market. This new offering will enable customers to detect and respond to attacks while also meeting their IT and compliance needs. We see the combination of pervasive data collection, behavioral analytics and fast, low-cost search as key enablers of our ability to disrupt the traditional SIM market.

Lastly, we see increasing demand for our advisory services as more companies shift from reactive spend to developing thoughtful security programs. We see both ongoing adoption and improved margins in this business in Q4 and our growing advisory services teams provide a great on-ramp for our product platform.

With the broad platform and services practice that we have built, we are seeing accelerated adoption and traction with customers who are pleased with the way we are executing on the very early stages of this very large market opportunity. We are already disrupting existing security spin categories, adding new use cases across our products and services, and tapping into several large buckets allocated for security and analytics.

As we look ahead to 2016, we believe that we are well-positioned in the market and positive on the demand environment as we see companies making thoughtful and large investments in security data and analytics.

We are aligned around three primary goals for this year. First, we are focused on Expanding Threat Exposure Management. Our focus here is on continuing to upgrade enterprise customers from compliance-based traditional VM and then expanding adoption globally and in the mid-enterprise.

Second, we see opportunity to further disrupt the traditional SIM market with our IDR offerings. We've trained our sales and go-to-market teams and they are excited to pursue this new opportunity.

Finally, it is important to me as we build this business that we drive scale and leverage. We will continue to make investments across our products and go-to-market initiatives, but we will be doing so in a responsible way. Our teams are working to ensure that with growth comes incremental margin as we make continued and meaningful progress on our path to profitability and drive productivity gains throughout the organization. We have a lot to be excited about in 2016.

With that, I will turn the call over to Steven to walk through the financials and guidance. Steven?

Thanks Corey. Good afternoon everyone. We appreciate you joining us.

We are very pleased with our strong performance in the fourth quarter and full year 2015. We delivered both strong billings and strong revenue growth from continued demand for our differentiated security data and analytics platform across all of our customer types.

We continued to successfully execute our land and expand strategy and we realized leverage in our operating costs from the investments we are making to grow and scale the business. We closed 2015 on a terrific note and we are entering 2016 in a great position to drive further revenue growth, make continued gains on our path to profitability, and generate meaningful positive operating cash flow and positive free cash flow in 2016.

Let's now go through the Q4 financial results in some detail as well as provide some perspective on how that contributed to strong full-year 2015 results. I'll then provide our guidance for Q1 and the full-year 2016. And as always, we will wrap up by opening the call to your questions.

Reviewing our Q4 financial results, three highlights stand out. First, we delivered very strong revenue growth. Second, we again achieved strong growth in both billings and deferred revenue. And third, we generated another quarter of positive operating cash flow.

Diving into this a bit, total Q4 revenue came in at $32.9 million, an increase of 50% year-over-year, above the high end of guidance. Products revenue increased a strong 46% year-over-year, driven by increasing demand for our technology offerings. Maintenance and support revenue growth followed that same trajectory and increased 46% year-over-year. And finally, our professional services delivered another quarter of solid revenue growth, increasing 71% year-over-year as our leading security advisory services continue to be differentiated in the market.

Importantly, we continue to have very high visibility into our revenue forecast with 82% of Q4's revenue having already been on the balance sheet as of the first day of the quarter, and 62% of the revenue being subscription-based recurring in nature.

Looking at the business geographically, North America continues to be our largest market, and we are seeing a very healthy demand environment, resulting in strong growth and customer adoption. Outside of North America, we delivered solid results and continue to see large greenfield opportunities. Rest of world contributed 13% of total revenue in Q4 with the business posting strong growth in the second half of 2015 and positioning us for good, continued growth in 2016. Our channel partners continue to play a nice role in our ecosystem and contributed a fairly consistent 38% to total revenue in Q4 2015.

On the customer front, we had another quarter of strong new customer growth with our total base increasing by approximately 37% year-over-year as we ended Q4 with more than 5,100 customers globally. This includes the addition of approximately 340 new customers from the Logentries' IT search business that is a great lead gen and on-ramp to our security data and analytics offerings. We are proud to now include 37% of the Fortune 1000 and 40% of the Fortune 500 as customers of Rapid7 as we continue to see large enterprises' adoption.

In Q4, revenue from enterprise accounts grew a strong 42% year-over-year. We also had continued success in Q4 executing on our land and expand strategy, and we saw this across both our enterprise customers and the midmarket. This expansion was reflected in our renewal rate, which increased to 126% in Q4 compared to 111% a year ago. This nice step up was driven by our existing customers buying more of the products that they initially purchased as well as purchasing other Rapid7 products as we grow our platform and expand the value we deliver to our customers.

Our expiring revenue renewal rate, which measures the renewal of the prior year's revenue run rate, increased to 88% year-over-year in the fourth quarter with our enterprise customer base renewals increasing to a strong 92% for the quarter.

Moving down the P&L, non-GAAP gross margin for Q4 2015 was a consistent 75% year-over-year. We are pleased with our meaningfully improved professional services profitability where non-GAAP professional services gross margin grew to 27% in Q4 compared to 8% in the year-ago period.

We've seen improved professional services customer attach rates that are driving higher renewal rates and more attractive customer economics. We are realizing these benefits as we continue to scale the business and we see a strong gross margin profile looking forward.

Let's turn to non-GAAP operating expense for Q4. While we are very focused on capitalizing on the opportunity in front of us and delivering strong revenue growth, we are very balanced in our approach and we're also very focused on continuing on our path to profitability. We believe we are making the right investments in our products and technology platform, growing our sales force responsibly, and supporting our marketing programs to increase customer awareness and adoption as we continue to capitalize on the growing demand for security data and analytics.

In Q4, we also successfully onboarded the Logentries' IT search team and business into our operating structure and we are pleased with how the integration and ramp of the IT search offering has been going. To provide some color on how all this comes together in the Q4 OpEx picture, let's look first at R&D.

We are making investments across our technology platform, including releasing new products based on combined capabilities from Rapid7 and our new IT search technology. We are also smartly shifting engineering expenses to our offshore engineering teams in Belfast and Dublin. This is enabling us to expand our R&D capabilities with terrific engineering talent while also improving our expense to revenue ratios. For the full-year 2015, we improved our R&D expense to revenue ratio by nearly 300 basis points and expect ongoing improvement in 2016.

Our non-GAAP expense to revenue ratio in sales and marketing also improved modestly year-over-year in Q4, even with the IT search sales and marketing costs being added in Q4 of 2015. And for the full-year 2015, we also saw a strong improvement in our sales and marketing expense to revenue ratios where it improved 500 basis points from 63% in 2014 to 58% in 2015. We continue to be thoughtful on our approach to our go-to-market spend, basing our sales and marketing expenditures on what we are seeing around overall increases in pipeline, sales rep productivity and customer traction.

To finish out OpEx, our G&A costs in Q4 2015 increased to 17% of revenue from 13% in Q4 2014, primarily due to the costs associated with operating as a public company. Pulling this all together, Q4 non-GAAP operating loss was $12.1 million and non-GAAP loss per share was $0.31, both better than guidance.

The final point on our Q4 2015 financial results is an important indicator of the attractiveness of our financial model and our continued execution on our path to profitability and delivering a consecutive quarter of positive operating cash flow.

Turning to our full-year results, our performance for the full-year 2015 can be summarized by two straightforward themes. One, we achieved accelerated billings and revenue growth; and two, we realized continued margin improvements and non-GAAP OpEx efficiencies as we successfully made progress on our commitment to profitability.

We delivered 53% billings growth in 2015 versus 36% in 2014, and we delivered total revenue growth of 44% in 2015 versus 28% in 2014. 2015 non-GAAP operating loss was $32.8 million, better than guidance, and resulting in a smaller non-GAAP loss per share of $1.46.

Turning to our balance sheet, we ended 2015 with a cash balance of $86.6 million, which reflects the $36 million of cash used for the acquisition of Logentries in October 2015. Total deferred revenue came in at $130 million at the end of 2015, increasing a very strong 53% for the year. This positions us very well as we enter 2016 and represents the strong traction that we are continuing to drive with both new and existing customers.

With that, let's now turn to our outlook for 2016. Based on our strong Q4 2015 performance, the healthy demand environment that we are seeing right now and our good momentum and visibility heading into 2016, our guidance is as follows. For Q1 2016, we anticipate total revenue to be in the range of $32.9 million to $34.3 million. This equates to year-over-year growth at the midpoint of 43%. We anticipate non-GAAP operating loss for Q1 to be in the range of $9 million to $10 million, and we anticipate non-GAAP loss per share for Q1 2016 to be in the range of $0.23 to $0.26. This is based on an anticipated 40.6 million weighted average shares outstanding for Q1 2016.

For the full-year 2016, we expect total revenue to be in the range of $146 million to $151 million, representing 32% to 37% year-over-year growth. We anticipate non-GAAP operating loss for the full-year 2016 to be in the range of $36 million to $40 million. This equates to a meaningful improvement on our path to profitability as the non-GAAP operating loss margin for 2016 improves by up to 600 basis points in 2016 versus 2015. And we anticipate non-GAAP loss per share for the full-year 2016 to be in the range of $0.88 to $0.97. This is based on an anticipated 41.7 million weighted average shares outstanding for the full-year 2016.

Finally, as we've discussed, we are bullish on our cash flow generation in 2016 and we anticipate generating meaningful positive operating cash flow for the full-year 2016 of approximately $10 million, and being free cash flow positive for the full-year 2016.

In closing, we are pleased with the strong results for Q4 and the full-year 2015 and, more importantly, we are very positive on the core fundamental growth and customer uptake that we are seeing in the business around our unique security data and analytics offerings and what that portends for Q1 and the full-year 2016.

With that, we appreciate your time and support. We are glad to open the call for any questions. Operator?

(Operator Instructions). Rob Owens.

Hi guys. Thanks for taking my question. Steven, first of all on the accounts receivable, it came in just a little bit higher than we were looking for. Curious if that spoke to linearity in the quarter, deal sizes ticking up. Just any color would be helpful. Thanks.

Yes, no anomalies, Rob, nothing operationally or customer-wise that we've seen that's off the ordinary course.

Great. And then second I guess for both of you, as you guys think about laying out guidance both for Q1 and for all of 2016, given the macro, given kind of some concerns around potential slowing security spend, just curious in terms of what you are seeing, if you approached guidance for this year the same way you approached laying it out at the time of the IPO in what resulted in a very strong 2015. Thanks.

Thanks Rob. We approach guidance by looking at what's happened fundamentally in our business and we see a very strong demand environment for security data and analytics products. That's driven in large part by the fact that customers have both security concerns and increasing awareness, but they want to make sure that they are getting the best use of their security dollars and their security investments. And the best way to maximize the return on their security dollars is to actually have the right data and the right information. And we provide that data and that information, and so what we see is strong demand for our data and analytics products.

Saket Kalia.

Thanks for taking my questions here. Nice guide for 2016. So maybe on that point, just to start out, not a lot of talk about the McAfee opportunity that was mentioned last quarter. Could you just remind us how to frame that revenue opportunity, and maybe talk to qualitatively how big of a factor that is playing in this year's revenue guide?

Yes, I'll start and Steve and I may tagteam this. So, the way we think about the McAfee is at two levels. One, there's the migration of the McAfee base. And we think about this over four years and we have incentives in place to do it over the first two years. That said, we don't consider it to have an expectation of immediate high impact this year.

What we see is that we are continuing to actually migrate customers, but lots of them we already had in pipe and were already migrating, so that's business that we were doing. The larger impact that we see, both in the near term and in the long term, is the from the integration work we're doing with McAfee that allows us to differentiate our solutions in the McAfee installed base with integrations that we are doing. So we think about those two opportunities as being related but different, and we see the ability to differentiate in the near term being much more impactful.

Got it. Got it. And then also kind of on the same topic of 2016 revenue growth, could you just talk to us qualitatively about how you see some of the growing areas of the business contributing like UserInsight and services obviously both much smaller pieces of the business, but growing much faster. How should we think about how those more emerging businesses maybe interplay with Threat Exposure Management in 2016?

Absolutely. Steve and I will tagteam this one. What we see is that the nice benefit that we have is customers are trying to figure out the most cost-effective way to solve their security problems. They often have different priorities. And so we have the ability to either land with our Threat Exposure Management solutions, but increasingly we also land with our UserInsight. Its customers focus on how they more detect attacks in their environment, and we will be expanding that offering and that capability in the coming months. And we also land with our security advisory services which really help customers understand the effectiveness of their security programs today and build them a security roadmap about how to actually build an effective security program.

And so one of the ways that I think about the high level that we look at this is each of our offerings here enable customers to improve and build on their security programs, and they are able to actually start their Rapid7 relationship in a number of different ways.

To Corey's point, the nice part about the growth profile, as you said, particularly looking out over the course of 2016, is that there's multiple drivers, which brings us a lot of comfort. So certainly what you were talking about across the different offering areas when we look at our total growth for the year, there's a really good blend and balance between not just TEM, but also -- Threat Exposure Management -- but also the incident detection and response, and the security advisory services also contributing to that nice profile. And that comes from a combination of enterprise and midmarket customers, and then also domestic US, North America and international as well, as Corey said, both a combination of product driven growth and services.

Very helpful. Thanks guys.

Gregg Moskowitz.

Thanks very much and congratulations on a very good quarter. You mentioned earlier that you closed several deals north of $1 million this quarter. Would you chalk most of this up to seasonality or do you think this reflects a bit of an inflection with respect to larger deals?

I think this is a reflection of really two things. One, you always tend to have some seasonality in Q4 of course, but I think, most importantly, we've made investments in our enterprise selling capability. We've long had products that have been sold and effective in the enterprise, but we really invested in both our inside and our outside teams being able to sell and engage more enterprise customers. And that business is continuing to scale and grow over time. And so while it's still early stages in our view of what we are able to do with large deals in the enterprise segment, we are very optimistic that over steady-state we will be able to continue to grow this business.

Okay, great.

To that point, the math behind it, as Corey was saying, is that we have seen a kind of just slow and steady increase in ASPs, and we are seeing more and more larger deals. And so it's not that there was an anomaly or we had a large deal that pushed it over the edge. We are just starting to see more and more larger deals sequentially quarter to quarter, which just, as they add up more and more, are growing the pie.

Okay. That's helpful. Thanks Steven. And then with respect to Logentries, or IT search, I think, heading into the quarter, you were expecting about $1.5 million in billings, about $0.5 million in revenue and I think for it to be [$0.06 to $0.07] dilutive. Just wondering how it tracked relative to what you were expecting.

Yes, yes, good, fair question. We'll tagteam again. Mathematically results-wise, the short answer is both the organic core business and the Logentries IT search business came in ahead of expectations, meaning billings came in a little bit better, revenue came in a little bit better on the IT search business, the operating loss came in a little bit lower, meaning better, and the EPS impact also was favorable. So following on the qualitative point is the business itself has been well integrated. Already there are some good technology products and platform integration that we will be talking about very soon on that front that we are pretty excited about, and the organic business itself has been performing in and of itself better than we had anticipated.

Okay, terrific. And then if I could ask one last question. So your renewal rates and upsell rates were extremely strong again, and they have in fact continued to improve. The enterprise renewal rate you mentioned is now at 92%. That said, do you think we are approaching a ceiling around renewal rates and upsell rates? How are you thinking about that?

So, I think that, on the enterprise side, you see that we are approaching more market norms. We continue to focus heavily on the midsize business and midsize enterprise, and to grow those renewal rates, and that helps as security continues to be a priority.

I think the big focus if you think about the focus really being on our customer base is the ongoing focus on upselling and cross-selling our customer base with our expanded products and services. And we see that as a sustainable long-term opportunity that we are still at the very early stages of. And so I'll say we have heavy focus on our customers' high expectations there, but on the renewal rates themselves, you see different markets in different positions.

Okay. Perfect. Thanks guys.

Melissa Gorham.

Great, thanks for taking my question and great quarter. Corey, you talked about (technical difficulty) market. Is that something you are doing (technical difficulty) today or is that something that's on-the-come? I know that you (technical difficulty) describe to us what you think would be resonating with the customer, just given it is a very competitive market?

Yes, I just want to -- so I'm going to clarify because the line was a little choppy. I think the question is really about what are we seeing in the market to differentiate ourselves, because security itself is crowded? Was that the question?

Oh, I'm sorry. Yes, no, I'm sorry if this is breaking up. It's related to SIM. So, you talked about disrupting the SIM market. And I'm wondering if that is something that you are doing today or if that's something that's more on-the-come with the new products that are coming out next year.

Perfect. Absolutely. So, we have our UBA solution today that really provides a capability that SIMs just don't have today. SIMs typically look at a bunch of log data and try to look at patterns and anomalies in that data, but they are not set up to look at the core behaviors, attackers or users in the environment.

Our behavioral-based analytics allows us to detect attacker patterns and malicious behaviors in the environment and not just look for machine anomalies. That's highly differentiated today and we are seeing lots of resonance in the market.

More importantly, very soon, we are going to be launching an offering, as we talked about when we acquired Logentries, that allows us to put together a combination of technologies and a solution that SIMs just don't offer today.

SIMs primarily offer compliance and they do a good job of it. They are missing the behavioral analytics piece that I talked about earlier, but they are also missing the piece to actually get data out and to be able to do forensics investigations seamlessly and easily in the environment. And that's a combination of not just analytics but that's low cost fast search.

We are integrating the technology from Logentries with our user behavior analysis technology to provide a smooth and seamless offering that allows you to not just achieve your compliance needs, but most importantly, to detect attacks quickly and to be able to effectively investigate those attacks. And that is highly differentiated and SIMs just aren't meeting the bill today in that regard.

Okay. That's helpful. The then you both mentioned traction in winning enterprise customers, and I know it's (technical difficulty) when you said 42% growth in enterprise accounts. I'm wondering if you could just maybe update us on where you are in terms of enterprise quota-carrying sales heads, and then what you are seeing in terms of sales productivity with those guys.

Sure. We talked about the investment that we made in the enterprise being very thoughtful, Melissa. In other words, it's a crawl before you walk before you run, so we are not going out and deploying 50 very expensive enterprise folks. So, we started the year with probably four or five, and we are ending the year -- ending last year with about eight. And we'll probably add a few more heads this year. And so orders of magnitude, if you're talking about 10 to 12 folks over the course of this year in the enterprise space, it's a very rifle-shot approach. And as you would expect, it's been, A, an orderly transition as we managed accounts, and B, we've seen nice productivity increases. Again, the consistent theme of nothing heroic or herculean, but just nice singles and doubles all along the way.

As part of the reason we can be both thoughtful and efficient here is that we have a very motivated and skilled inside sales team that's able to do a range of deals, including very, very large deals too, cost-effectively. So what we look at when we think about the go-to-market is our total team and our total bench. And we have a very, passionate committed team that is increasing in experience and that's helping us here.

Okay, great. Thank you.

Jonathan Ho.

Let me echo my congratulations as well. I just wanted to start out with some sort of further questions around the cross-sell/upsell opportunity. I just want to understand what products that you guys are seeing sort of cross-sold and relative to the upsell opportunity, maybe where you are seeing some additional traction with customers, just as a starting point.

Absolutely. So we actually see it across the business. And so the upsell of course is much more on our existing Threat Exposure Management business, as you would expect, because they're upselling, they are buying more than what they had before, and that happens be our largest install base. But we see good traction and adoption with both cross-selling our incident detection response product, our UBA offering as well as our services into our temp space.

Most importantly and not to be lost here though is that we get lots of net new customers also from our other businesses, which now includes IT search, our UserInsight offering, and our services. So this is a business where customers truly do land in multiple areas, and then buy other products and services over time. So we have customers that buy our incident detection response products and then moved to our Threat Exposure Management products, likewise with services. And we're just getting started, but we are starting to see evidence of that also with docu search business.

Got it. And then just relative to the increasing ASPs that you mentioned earlier, can you talk a little bit about the competitive environment and whether you are seeing any issues around pricing or competitors responding just given how well you guys seem to be doing in the space?

Absolutely. So, we don't see pricing as a big deciding factor. I think one of the things to really keep in mind is that because of our focus on analytics and because of our focus on insight, what we are really selling is a value proposition that allows customers to do more with limited resources. And so they're really looking at what's the impact that they can have. And our solutions allow customers to have a significant impact on their business. And so our sales teams and our go-to-market teams don't see pricing pressures from customers. Now, customers have a bunch of constraints, they have lots of other things, but we have been able to prove our value out quite well.

We talked about this a bit, the model, the economics priced on its volume, we have seen throughout 2015 really on each quarter and then over the course of the year our ability in aggregate to raise prices. And competitively, we've been able to, candidly, lower prices in the midmarket and raise them in the enterprise relative to our economics in prior years. And interestingly, we've seen very large increases, 30% to 44% plus growth in volume, so we've seen really a very inelastic demand curve which has therefore driven really strong bookings to that point.

Great. Thank you.

Michael Turits.

One first for Steven. Really great to see the free cash flow positive guide for this year, and also see the better-than-expected EBIT margin guide. Anything you can tell us, Steven, about how we should think about EBIT margins and EBIT tracking going forward so we can understand how we get to breakeven there? And then I have one for Corey.

We'll talk about that for sure, Michael, through the year. But our model, based on what we have, is not something that is dissimilar to other expectations. And so we would manage to profitability at both the operating margin and ultimately a net margin what you would expect over time.

Okay.

Right now for sure, as you noted, though, the current goal and the milestones that we see as important arbiters of value are OCF and free cash flow.

All right. And then, Corey, can you talk a little bit more about advisory services? Who are you seeing competitively? Is it mostly advisory, or is it in assessment, or is it mostly incident response? And what are some of the standalone new entry deals and services that you have picked?

So just for what the business is, it's broadly sort of like three sets of services -- assessment services that helps customers understand where are you today from a security perspective, how susceptible are you to attack, what are your biggest risk factors. So that's the first one.

The second one is program development services, which is really about taking the view of where you are today and saying here's your roadmap about how you build out a security practice and securities team. And then the last one is incident response services that, if you are -- if you think you have been comprised, we can go in and help you understand the scope and remediate that and get that out of the environment. So that's for what it is today.

The business started off being heavily assessment, and we've really built up and picked up both the program development based on customer demand, and the incident response services which we initiated and started in the last year. So you see those as becoming meaningful parts of that business, and we expect that, both this year and over time, it becomes much more balanced across those. But lots of customers are still trying to figure out where am I today and how susceptible am I today to attack?

The nice thing that we are seeing is more and more of those customers, when they want the assessment and they are starting to say all right, please help me figure out how to build out my security practice and program, or how can I actually leverage your technology to actually better protect myself.

And one more follow-up. Steven, just on your comments on pricing, so you said that pricing has been going down in the midmarket but up in the enterprise. So -- but you've said it's been going up each quarter, so is that viewed as down mid, up in enterprise, so net up between the two each quarter, is that what you meant?

Yes, so, in the midmarket, what we've been able to do is, at selected price points and product offerings, we've been able to lower pricing. But net-net, our ASPs actually in midmarket have kind of increased sequentially quarter by quarter. Sometimes it's kind of a scallop curve, if you will. It's not a straight line linear up and to the right every single quarter for pricing. But net-net, we've seen increases. What we are trying to portend is that we have a lot of flexibility in pricing in the market.

Absolutely. And the key thing is that the midmarket is less about competition and more about how do we actually provide more of an on-ramp for customers to actually come into the market for security data and analytics, and ensuring that we have the right elasticity that allows customers to on-ramp into our products and our technology. Because our goal and our focus, as I stated earlier in my remarks, is to expand the market for all of our offerings, including Threat Exposure Management, which has been growing nicely and expanding nicely. But a big part of that comes because we are not just upgrading the enterprise customers. We are expanding the market, both in the core midmarket space and internationally.

All right guys. Thanks. Great quarter.

Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation and ask that you please disconnect your lines.