Radware Ltd. (RDWR) Q3 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the third quarter 2014 results conference call. [Operator Instructions] As a reminder, the conference is being recorded. And I'll now turn the conference over to our host, President and Chief Executive Officer, Mr. Roy Zisapel. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to Radware's Third Quarter 2014 Earnings Conference Call. Joining me today is Meir Moshe, Chief Financial Officer. Meir will start the call by reviewing the financial results, and afterwards, I'll discuss the business highlights of the third quarter results. After my comments, we'll open the discussion for Q&A. Meir?

Okay. Thank you, Roy, and welcome, everyone, to our third quarter conference call. First, I would like to review the safe harbor language. During the course of this conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are just predictions and that actual events or results may differ materially, including but are not limited to, general business conditions and our ability to address changes in our industry, changes in demand for products, the timing and amount of orders and other risks detailed from time to time in Radware's filings. We refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company’s last Form 20-F filed in March 2014. And now, ladies and gentlemen, for the financials. We are happy to report record quarterly results and improvement in many parameters: revenues of $56.8 million for the third quarter of 2014, representing 7% sequential growth and 18% year-over-year growth; increase in non-GAAP gross margin from 82% to 83%; EPS of $0.24; non-GAAP net income increased to $11.2 million, representing an increase of 44% compared to net income of $7.8 million or $0.17 per share in the third quarter last year and an increase of 36% compared to net income of $8.2 million or $0.18 per diluted share in the second quarter of 2014. As a result of our leveraged business model, we were able to achieve 20% non-GAAP operating margin, improved GAAP net income, $2 million of stock-based compensation expenses, $400,000 of amortization of intangible assets, $1.1 million of litigation costs associated with IP litigation, offset by exchange rate income of $100,000, bringing GAAP net income this quarter to $7.8 million or $0.17 per share, representing an increase of almost 170% compared to net income of $2.9 million or $0.06 per share in the third quarter of 2013. The headcount for the end of third quarter totaled to 867 employees. Following the payment of $4.5 million in relation with other share repurchase, our overall cash position, including cash, short-term and long-term bank deposits and marketable securities totaled to $306 million, and we have no debt. Shareholders' equity totaled to $315 million. Guidance for the fourth quarter: We expect revenues to range between $59 million to $61 million; 82% gross margin; OpEx will range between $36 million to $36.5 million; financial income at $1.4 million; 13% tax rate; and non-GAAP EPS to range between $0.25 to $0.28. As you can see, ladies and gentlemen, we had a quarter of record results with improvement in many parameters, which emphasize the leverage in our business model. And we expect higher and better results in the fourth quarter of 2014. And now, I would like to turn the call over to Roy.

Thank you, Meir. Our third quarter results reflects strong demand in both enterprise and carriers for cyber security and application delivery solutions. We were pleased to see all our regions posting year-over-year growth. In addition, we had significant new account wins across the world that enabled us to create a base for further expansion and growth. Our North American region performed extremely well. Our U.S. business continued to deliver very solid year-over-year growth, and we continued to grow our market share. We see significant opportunities in carriers, large enterprises and cloud providers, all you need for better security, better response time for hosted and centralized web applications and better availability for the mission-critical applications. In addition, we saw ongoing improvement in our international business. We continue to see year-over-year growth in EMEA. In Asia Pacific, while we still see challenges in some markets like China, we are encouraged by strong wins and the steady growth we are seeing in the region overall. From a vertical point of view, we see major opportunities in carrier, cloud providers and our key enterprise segments of financial services, government and online businesses. In the application and delivery market, our newly introduced Alteon NG and the Alteon 5208 platform are receiving excellent market traction. Alteon NG goes way beyond legacy ADC offerings and allows our customers to guarantee the SLA for each application. Through our leading virtualization architecture, our real-time application SLA monitoring and FastView, with its best-of-breed acceleration capability, we are the only vendor that can guarantee committed resources and performance on a per-application basis. The new Alteon enterprise platform, the Alteon 5208, establishes a new performance benchmark for the enterprise market, providing very significant performance improvements over F5 and A-10 platforms to the extent of 5x more performance than competing platforms. The power of these platforms allows us to offer up to 24 virtual ADC instances and run our advanced integrated security modules of web application firewall and application authentication. We believe that the sales of additional software modules, coupled with our growing cloud security and cloud delivery subscriptions, can positively impact revenue growth and gross margins. During the course of the quarter, several customers adopted the Alteon NG platform. For example, Blueport Commerce, a Software-as-a-Service provider in the furniture industry, now uses the platform to accelerate response time to its customers. Brinkster, a cloud and hosting provider, deliver application delivery service per customer based on the high density of the virtual ADC instances we have. Yes Satellite, Israel's leading provider of home entertainment uses the Alteon NG in yesGO, a new video platform service that allows customers to access video content on their PCs, iOS and Android smartphones and tablets. Our largest win for the new Alteon 5208 platform came from EMEA, with a deal for 113 Alteon 5208 switches from a leading bank. In the application security space, our attack mitigation solution continued to prove its unique capabilities in blocking major cyber-attacks on our customer's data centers. We believe we are, if not the only solution, then one of very, very few that can deal with the rapidly evolving threat landscape. Last quarter, we announced that our DefensePro product family has achieved certification for Common Criteria Evaluation Assurance Level EAL 4+. One of the purposes for the Common Criteria certification process is to ensure that the evaluations of Information Technology products are performed to high and consistent standards. We are pleased to have this industry-unique high level of certification, which is essential for government bodies around the world. We are seeing multiple projects across the world where leading carriers and hosting providers rely on our Attack Mitigation System to protect their internal infrastructure and also to provide key enterprises with new security cloud services. For example, IDC Frontier, which is a subsidiary of Yahoo! JAPAN, provides cloud data center hosting and IP network services. IDC Frontier selected Radware's Attack Mitigation System to protect its new cloud-based network service from distributed denial of service attacks. We continue to enhance our next-generation cyber security architecture, the Attack Mitigation Network. Just to remind everyone on the call, AMN combines distributed detection and mitigation elements to work as a complete grid for optimal attack detection and mitigation across all enterprise resources in the data center, at the perimeter and in the cloud. With little time synchronization of legitimate user patterns, attack traffic and vectors across all networking-enabled and security devices in the data center and in the cloud, AMN provides our customer with a new level of combating cyber-attacks against their data centers. This quarter, we released a new version of Defense4All, which is our SDN security application for the OpenDaylight controller. Radware's Defense4All application offers carrier and cloud providers DDoS detection and mitigation as a native network service. Utilizing the OpenDaylight SDN controller, Defense4All allows operators to provision DDoS protection service per customer in real time. Going forward, we believe that some of the announcements we made this quarter points very well to where we believe there will be significant growth in our markets. We're focusing more and more efforts on cyber security, carrier and cloud data centers and SDN. We believe Radware is unique in its ability to provide a broad set of data center application services that include application delivery, attack mitigation and web acceleration. All of these services are in great need in cloud and software-defined data centers. We are seeing very interesting opportunity for growth in these areas, and as a result, we are investing more resources both in R&D and in sales and marketing to address these opportunities. We believe that these investments, which are already captured in our guidance, will allow us to continue to grow our revenues and profitability and present higher leverage in the business model. Before concluding, I would also like to thank our customers and partners for their continuous support and trust, and the Radware team for all their efforts, commitments and success in growing our business. With that, I would like to open the discussion for Q&A.

[Operator Instructions] And our first question from the line of Mark Sue with RBC Capital Markets.

This is Ameet Prabhu, calling in behalf of Mark Sue. Roy and Meir [ph], if you could just share the geographic contribution in the quarter and sort of the contribution from enterprises and carriers?

Okay. The region -- the U.S., 45% contributed to the sales; EMEA, 23%; and Asia Pac, 32%. As for the enterprise carrier, the enterprise was 70% and the carriers, 30%.

And just a quick question on the security portfolio gaining traction in the market, could you maybe talk about the competitive dynamics in security, whether you're seeing sort of [indiscernible] dilutions [ph] from an A10, F5, and are you seeing an impact from F5's acquisition of Defense.Net? And maybe if you could just talk about that you need to buy or develop additional capabilities in your security portfolio as you sort of ramp ahead.

The main competitor we're seeing securities is the Arbor Networks, especially on the carrier markets. Regarding the cloud service providers, many of them, and especially the largest one, the Akamai, Prolexic, is actually using our technology, so we have a lot of business partners in our ecosystem, both our ability to deliver the cloud service, and many of our customers relying on our technology to deliver cloud DDoS mitigation. And so in general, we didn't see any competitive changes in the landscaping security, and we feel quite strong on our advantages and position. Regarding the expansion of our capabilities, we are obviously looking both to continue internal development as well as on key capabilities that we might want to add. Security is a very -- cyber security is a very dynamic space, and we are focused on the availability-based attacks, meaning attacks that are -- that their goal is to bring down your data center or your application or critical service. And in that regard, as the attackers are developing new ways to do so, so we -- the same we need to do on our end either with internal development or acquisitions. And definitely, we are looking on both.

And just a quick one on gross margin at security and virtual platforms and sort of, do you agree that gross margin then at 82% can go higher? Are you sort of looking at some conservatism at the 82% level, considering 82% in 3Q?

We guided for next quarter for 82%. This quarter, the third quarter, we had 83% based on mix of product. So it depends on the mix of product. We don't see, right now, the full quarter in front of us. So we prefer to guide on the 82%.

And we have a question from the line of Alex Henderson with Needham & Company. Alexander B. Henderson - Needham & Company, LLC, Research Division: A couple of questions. First, what was it in the mix that actually caused the gross margin to be a little higher?

It's a combination of more high-end devices, more U.S. mix and more security. Alexander B. Henderson - Needham & Company, LLC, Research Division: Okay. But -- so all of those -- your trends that you would expect to continue, I think. So is there something that you would expect to reverse out of that?

I'm not sure that the amount of high end versus the mid and low end should continue, and I'm not sure that the U.S. will continue its 45% of our total revenues. So while we are encouraged, we're seeing good gross margin trends, currently, we would like to see more proof for the fact that these are really trending higher and not one-time phenomena. I agree with you, there's a base to be optimistic. Alexander B. Henderson - Needham & Company, LLC, Research Division: Can you talk a little bit about the growth rate in the subscription bookings in the quarter? Obviously, those have been quite strong. And simultaneous with that, can you talk about whatever -- whether you see any cannibalization of your system sales as a result of those subscription growth?

So we continue to trend very well with subscriptions. Obviously, you'll only see a small portion of that in the revenue recognition line. We don't see cannibalization between our product sales and the subscriptions because we sell the subscription to an extended element of the -- of our solution. So for example, if we sell an attack mitigation solution for the data center, the subscription sale is for the cloud service that accompanies the on-promise device. It's not instead. It's always in addition to. And so we are -- we see that as a complete addition. Also, in the cloud application delivery and acceleration, we sell that on top of a CDN service of the customer. So again, it's not cannibalizing any of our regular sales and hence, we are -- we look at that very positively on this trend. Alexander B. Henderson - Needham & Company, LLC, Research Division: So the subscription growth rate, we're talking about the 4x, 5x book-to-bill on that?

Yes.

And our next question from the line of Michael Kim from Imperial Capital LLC.

So can you talk a little bit about your pipeline and how you feel about this especially from repeat sales and larger customers? And is it similar to that kind of level that we're turning in at the beginning of the quarter?

So obviously, it reflects also in our guidance and in the numbers we've posted. We feel very good in our business and the -- we don't give specific numbers on pipeline, but the build of the pipeline, the growth and the projects that we have in -- one comment I want to make is that a lot of the large projects, you're seeing more and more of them appearing in the revenue recognition line. Those enjoy very good repeat sales. So in many cases, we are gaining the first set of data centers or the first set of applications and then those expansions that are coming with these large customers, and also, the ability to cross sell more of our solutions. So we're entering on ADC. We can start selling the web application firewalls or the attack mitigation appliances and vice versa. So as we are getting into more of those large projects and large customers, we're seeing strong repeat business as well as a very strong cross-sales opportunity that, again, is helping our pipeline to grow nicely.

And in your earlier comments, you also talked about a number of new account wins globally. Where are you seeing this -- the greatest strengths? Is it large enterprise, at carriers, some cloud providers? Can you give us some color on where some of that demand is being driven from?

It's obviously -- in amount -- in absolute numbers we are seeing the highest one in large enterprise, simply because there's a limited amount of Tier 1 carriers. But across the 3 markets, we had significant wins, meaning 7-figure deals in all of the verticals you've mentioned. So we are very excited about that, and we think that doing more business with these customers is very, very possible for us. And as I've mentioned, growing this large base of large customers that can repeatedly give us more revenues is something that we start seeing happening in our revenue line.

And then just on a broader basis for your out margin target of 20%, how are you balancing that with your investments in growth for -- versus you're seeing margin expansion?

Okay. Actually, we continue to invest in the company, and you can see that we have proven here that the margin is achievable based on achievement of growth. So if we continue to invest, to enjoy from higher growth of margin -- will go higher, we have done it this quarter earlier than market expected and earlier what we set the target for the market only in the fourth quarter. So I believe it will go in line with the growth while the company continues to invest in sales, marketing and R&D.

And our next question from the line of Jess Lubert with Wells Fargo.

Also, I have a couple of questions. First, it sounds like you're continuing to see an uptick in the number of large deals. Can you comment on the timeline of sales cycles and how that trended during Q3 and how you're thinking about the time to close deals going into Q4? Are you seeing that improve? Stretch out? Any comments there?

I don't think we see a major change in that environment. The -- obviously, it's hard on the large deals to know the exact quarterly timing, at least of the initial purchase and with the repeat business, we have a bit more visibility to their process and timelines. So we don't see any significant change. We are seeing more larger deals around the world, and we definitely see that as a good positive, especially from the nature of the customers we are now doing business with. So we don't see any change environment from at least from what we can say stays the same but we are seeing more of this.

So it's a greater volume of deals is giving you visibility to a strong Q4 versus improve closed rates on a similar number of deals? Is that the way to think about it?

Yes.

And then deferred revenue looks like it declined sequentially and decelerated year-over-year. Can you help us understand what happened there?

No, not at all. The deferred revenues, if you take both lines, what you have in short term and long term, so they are up, the trend is up, and Q4 also, we expect it to be up.

Okay. And then on the competitive front, NetScout recently announced it would be buying Danaher's communication business and by extension, Arbor. Any thoughts on how these acquisitions likely to change the competitive dynamic from the DDoS market? And what are you hearing from your customers? Is this likely to open some incremental opportunities for Radware? How are you thinking about that transaction?

I think it's still early for us to provide any meaningful feedback or comments. I think the -- some of the customers and employees are in wait-and-see mode to see when this transaction will close and what will be the exact, I would say, structure and operation. For us, we continue simply to stay focused. We have a leading solution. We have a great proposition here, and we're just very focused on growing that business.

And we have a question from Joseph Wolf with Barclays.

This is Tavy Rosner for Joseph. I was wondering if you could provide us with the core carrier telecom performance by geography.

Actually, this is the same proportion, about 30% -- 70%, enterprise is 30% carriers are from the region.

Okay. And you talked a lot about security -- cyber security. I was wondering if you could give us a sense of what kind of upside potential you see there. When I'm looking at the guidance by your revenues, what was the contribution from that?

We're not breaking the cyber security specifically and -- but last quarter, there were several high-publicity incidents across the world that I think even further, not that it's -- not that it was not before, but even further pushed the cyber security topic to the top of line of IT investments, and it even becomes even more strategic to large organizations like financial services, retailers, that even the executive management is dealing with the whole issue of cyber security. So I think there's a lot of attacks taking place, a lot of enterprises and carriers that are suffering tremendously from the attacks. And as a result, there's a very, very strong interest and project activity in protecting your digital assets. We don't see that disappearing, if at all the hackers today even more tools, more capabilities, more bandwidth, more computing power to generate even more sophisticated attacks. And as they are successful, the level of their interest and enthusiasm in launching even bigger attacks is just increasing. So given all of that, I think there's a long-term driver here for our business.

And we have a question from Mark Kelleher with D.A. Davidson & Co. Mark Kelleher - D.A. Davidson & Co., Research Division: I was just wondering if you could give us some more background on the Akamai partnership. You mentioned your technology issues by Prolexic. How does that partnership work? Is that a meaningful part of your revenue? Or could it be?

So it's one of our customers. They're using -- and it's known in the market for quite some time. They're using our device as part of their mitigation -- attack mitigation service. They're a great service partner and using very effectively our platforms. And we are happy to see them successful. Mark Kelleher - D.A. Davidson & Co., Research Division: Not a 10% customer, I would assume?

No. We don't have a 10% customer. Mark Kelleher - D.A. Davidson & Co., Research Division: Okay. And just one other question. Can you give us maybe the percent of revenue from existing customers? Is that possible?

Yes. Existing customers was 80% this quarter and new customers, 20%.

Our next question from the line of Rohit Chopra with Buckingham Research Group.

A few questions here. Just -- Meir, maybe you want to talk about currency and what the impact of translation was, if you can talk about that. And then I know you price in local currency, I guess mostly in Europe, but just want to get a sense, is there any slowdown there due to the currency? That would be my first question.

The currency had impact on Q3, about $250,000. As what you mentioned about Europe, our pricing is mainly in U.S. dollars, so there is no impact from this aspect or not a big impact from this aspect on the revenues.

Back to the Americas, the strength there. What specifically are the products on the security side that people were buying this quarter? Was it specifically DDoS or did you broaden beyond the DDoS products in the Americas?

For quite some time, we've seen the Americas all the attack mitigation solution components, meaning the DefensePro itself or the DDoS and Trojan prevention. The AppWall is enjoying very, very strong growth in the Web application firewall and Web mitigation area, the DefensePipe, the cloud subscription for DDoS is doing very well. And we are also seeing cross-selling to the ADC product line where they're using our Alteon solution to signal and to -- our attack mitigation solution as well as to the crypt SSL attack. So we're seeing actually a very, very broad adoption of solutions with our customers, and they understand also that a single device or a single tool cannot cope today with the challenges of a cyber-attack. And what you need, and that's why we -- I'm not speaking on a product. I'm not speaking on DefensePro or App. We're speaking about our attack mitigation solution. They need a complete solution, utilizing all the cyber-attack mitigation technologies working in tandem, very well-orchestrated, very well managed, monitored through a single pane of glass and operated by people that know how to fight cyber-attacks. Any other way just deploying different appliances from different vendors, trying to synchronize demand and attack, et cetera, was proven to fail. And so I think that's the reason why you're seeing more and more of our customers really deploying the complete AMS solution and achieving very good results with it.

Just a quick follow-up on the security piece. Is there -- could you talk a little bit about your roadmap on -- in the hardware area? Is there a new solution coming out where you're going to combine the ADC and the security? I know they're separate boxes, but I just wanted to get a sense, is there something new on the horizon over the next several quarters?

So first, definitely, those new solutions we are bringing to market. But our regular policy is to announce them only when we release them to market. Regarding the combination of the application delivery and security, that's already generally available. The ADC devices do include security modules like DDoS protection to some level, attack mitigation signaling, meaning whenever we detect, we signal to our other security solutions like the cloud solution or the DefensePro. And I've mentioned the integrated authentication gateway, the integrated Web application firewall. So there's a lot of security capabilities already built into the ADC and generally available, as I've mentioned.

Last question. Just -- Meir, you mentioned that sales and marketing and R&D, there'll be a little bit more resources towards -- or thrown towards that. Is there some type of inflection or should it continue to increase at the same rate we've seen it over the last several quarters?

We haven't set yet our plans for next year, but we plan to invest based on the opportunities, as we see higher opportunities we'll invest more. And the outcome of this, you have seen it this quarter when we introduced higher sales by that growth in the EPS and achieving margins even earlier than expected.

As our sales now are ramping faster, you can assume also that there will be some ramp up also in expenses in line with that. But as Meir mentioned, we continue to manage the business with the high leverage that is seen in the P&L.

We will go next to the line of Catharine Trebnick with Dougherty & Company LLC. Catharine Anne Trebnick - Dougherty & Company LLC, Research Division: A couple of questions. First, I hopped on the line, looks like, late. Can I have -- could you please re-give the outlook for next quarter?

Yes. What we are talking about next quarter, the revenues will range between $59 million to $61 million; gross margins of 82%; operating expenses, $36 million to $36.5 million; financial income at $1.4 million; tax rate of 13%; and non-GAAP EPS range between $0.25 to $0.28. Catharine Anne Trebnick - Dougherty & Company LLC, Research Division: And then a couple other questions just in general. In looking at the security, I know we beat this to death on the call, but on the security piece of it, would you say that the majority of the products are more software related than hardware related? And that's one of the reasons why the company has -- if it -- we estimate roughly 30% of your revenues from security that, that drives a higher growth margin. That's one of the reasons why you're able to stay above 80% to 82%?

As I said, I think it's a bit more than that. #1, in security, the customers that we are approaching today also tend to buy higher-end platforms, which, by itself, is a higher gross margin for us. Second, we're seeing also on the ADC, we've seen very strong success with our high-end platforms that we've launched. And that again goes back to the gross margin. And third, and as I've mentioned, the U.S. proportion this quarter was relatively high. And the U.S, as a whole, has a higher gross margin versus some of the, for example, Asian -- Asia Pacific markets. So I think if you look on all these 3 together, that contributed to the results. Catharine Anne Trebnick - Dougherty & Company LLC, Research Division: Okay, great. And then the next question is, on May, you announced your partnership with Cisco and then again today we -- you discussed some of your OpenDaylight activity. Could you pretty much bring us up to speed on some of your partnerships? Check Point, Juniper and the more recent one, Cisco and IBM and where you are with some of these relationships in getting traction?

With -- first, with Cisco. We have a marketing alliance where we are one of the partners around their ACI, application controlled infrastructure platforms. And we continue to enhance this and working together with them. And our Check Point business continues to grow well and perform well. And we're satisfied with the progress, and we hope to see even more coming. Regarding Juniper, I don't have any news around this partnership. It's at the level that it was. I don't think I can provide any major update on that. Regarding OpenDaylight, that's something that we've launched for the second generation, in line with the second release of the OpenDaylight controller. OpenDaylight is obviously a place that we're meeting many, many vendors that are adopting this controller. And now, they can enjoy our attack mitigation solution on top of that. So it's great for us to start strategic relationships, and we think it's also a very good direction for us to bring our SDN business to early success.

We have a follow-up question from Alex Henderson with Needham & Company. Alexander B. Henderson - Needham & Company, LLC, Research Division: So a couple of questions. First one, can you talk about any success in actually delivering against the Cisco replacement opportunity?

Yes, absolutely. We have a -- we continue to see these projects all the time, and we've just completed a very important one in the Tier 1 North American carrier that we're very pleased with. So these opportunities continue to come both in the enterprise and in the carrier market. We don't see any specific uptick in this. It's just customers, as they come to the replacement cycle, Cisco is out. So checking their alternative. And here, with our vADC density and the whole vADC concept that, that matches or plays very well with the Cisco architecture. So customers that both Cisco -- and utilize their architecture find our platform as a very, very strong solution for the next-generation ADC. Alexander B. Henderson - Needham & Company, LLC, Research Division: And can you talk about the vADC license attach rates on a the per system sale? Are you seeing an increase in the number of licenses on a per system sale basis?

I'm not sure if we're seeing on a per system, but we are seeing obviously the absolute number continue to grow. And we're seeing customers coming back and purchasing more instances. So we are seeing all the time the large customers populating more and more of their platforms with more instances and then continue to buy new platforms for the next set of instances. We see it from very large carriers in Asia Pacific. We're seeing it from government bodies across the world. It's -- we're seeing more adoption of the concept. Alexander B. Henderson - Needham & Company, LLC, Research Division: And I don't think I heard a specific growth rate around either security or ADC. I assume the security business is growing faster than the ADC business. Can you just give us some relative rate of growth between those 2?

Might change. It changes every quarter. It's not that -- this quarter, we had a stronger security growth than ADC. I think long term, it's tough for me to predict specifically because we are also integrating a lot of the security capabilities into the ADC, and then is a matter of interpretation where do you allocate the revenues. But I think both markets can grow double digits for some time. It might be that ADC, depending on pricing and vendor activity, et cetera, is high single digit and sometimes to low double digit, and it might be that securities is obviously higher. But I think both markets can have a robust demand for long term. Alexander B. Henderson - Needham & Company, LLC, Research Division: So for the quarter, are we up over 20% in the security business?

Alex, we're not breaking it specifically. But I think you can work with the assumptions that I've shared and get a good result. Alexander B. Henderson - Needham & Company, LLC, Research Division: Given security generally is going to get you a higher multiple than the ADC business, why is it that you choose not to break it out?

We were thinking about it. We -- but it's also, we need to be consistent and we need to have a very clear way of measuring the contribution of each component. Once we'll get into a conclusion, we'll be happy to share it. But at this point, we are focused on growing the business, growing the revenues and the profitability. And I think that will get us higher multiple by itself. Alexander B. Henderson - Needham & Company, LLC, Research Division: So you'd had a restructuring about midsummer last year in your European sales organization. Subsequently, for the last 4 quarters, you've grown 13% year-over-year each quarter. Is that going to show acceleration? Do you think that you can get that growth rate up towards the corporate averages given the very rough performance you had in the prior 6 to 9 months from that? Or is the tougher conditions in Europe going to hold that back?

So I think you're very right in your question. There's a balance there. We definitely are looking for better growth from EMEA. We think we are progressing well. And we think we have a very strong team now in place. And we do believe there's an opportunity for growth there. We need to take that together with the economic situation there. But still, we believe there's a room for improvement. Alexander B. Henderson - Needham & Company, LLC, Research Division: And looking at the EMEA business, I mean, obviously, there was a lot of turmoil in Russia, with the Ukraine and the swing in the oil prices and a lot sort of good stuff that's going on over there. Was there any disruption late in the quarter in EMEA? Was the linearity consistent over the course of the quarter in Europe? Or was there disruption associated with some of those issues? How visible do you see the European condition based off of what you've seen over the course of the quarter going into -- and going into 4Q from that perspective?

I'm sure it doesn't help, but we didn't see any specific interruption to the business from all of that. And also, I think in general, we are very focused on specific areas that are very mission-critical, both in the application delivery and applications security market. I think we should be able to continue to grow. And as I said, we're targeting even faster growth in EMEA with the current climate that as we see it. Alexander B. Henderson - Needham & Company, LLC, Research Division: And last question, I see -- or again, I assume the pricing environment to still flattish in the ADC market and no change in the security market?

Correct.

And we have a follow-up question from Catharine Trebnick with Dougherty & Company. Catharine Anne Trebnick - Dougherty & Company LLC, Research Division: Mine's easier than Alex's. But mine is more with -- are you seeing, from your end users buying for volumetric or application attacks? What seems to be the more crippling or -- I know both of them are. Just kind of wanted to get your color on which one.

Catharine, they need both. If they will protect only against volumetric, it will take the hacker 10 to 15 minutes to figure it out and vice versa. The hackers are trying everything. The hackers are not a sterile lab environment that now I will only try a volumetric attack against you, and now, I will move to one application attack. What we're seeing, we're seeing in every cyber-attack today multiple -- what the call multiple vectors, multiple attacks, attempts of different kinds together being launched. You can see 8 attack vectors. You can see 10 attack vectors. It's very rare you will see only a single attack vector in a cyber-attack. So if they're buying only volume protection and not application or the other way around, they're exposed. It's better for them not to buy anything than to invest their money in a half-baked solution. Catharine Anne Trebnick - Dougherty & Company LLC, Research Division: So then that's a good -- so my other question is then, do you think -- where do you differentiate more against like an F5 or an A10 or an Arbor when it comes to several vector solutions? Do any of them have more have a hole in their solutions than you?

So I think first, the ADC vendors are not yet real competitors in the security market. It's like us competing with our Alteon platform there. I don't think it -- that itself is obviously not what we are selling in that attack mitigation solution. And hence, I don't see currently F5 and A10 with their current offering able to deal with the complete problem. Regarding Arbor, I think we have -- without giving this too much technical specific information and boring the crowd, we have across the whole spectrum of volume, network, intrusions, scanning, application attacks, database attacks, multiprotocol, et cetera, across the whole spectrum, we have unique algorithms and capabilities.

And we'll go to Giorgio Wanick [ph] with Oppenheimer & Co.

When you look into 2015, how should we start to think about first quarter seasonality?

Okay. You shouldn't ask seasonality, as you asked seasonality in the first quarter, every year for everybody. We haven't started looking behind Q4 for the market. But as Roy mentioned that the pipeline is building very well. Some of them will be closed in the first quarter. It's too early to discuss now the first quarter. But it's based in your question that Q1 is in linearity for the entire market -- excuse me, it's the seasonality for the entire market.

Yes. And then just a couple of specific questions. How much is left on the buyback? And how should we look at the tax rate for next year?

Actually, the buyback, we mentioned it, we spent $4.5 million for this quarter. So far, just over $10 million, remaining almost $30 million for the next 2 quarters. And the tax rate, this is, as we guided at the moment about 13%. We believe this is the a rate that we'll see in the foreseeable future.

[Operator Instructions] We'll go to Jessie Katz with Makor Capital.

I wanted to ask you a bit if you could elaborate a bit on the ADC market, if you're still gaining some market share against F5 or A10 or how you see the market a bit?

We need to see all the companies report. But there were some preannouncements our market. And given our growth and some of the data we have, we definitely believe we are gaining share right now. We believe we are very well positioned, and we think we can continue that for the -- definitely for the coming 12 months. But I don't have all the data for the quarter from all the vendors. It's based on the information that's public so far.

You see that there is a specific growth in this quarter in the ADC market, is there a reason for that? Or what -- how can we understand that?

I think the ADC market continues to grow consistently. I think a year ago, there were some price adjustments driven by vendor activity in the market that resulted in the total market size in dollars. Now to grow -- other units continue to grow this year, as the pricing environment is more stable, you're seeing the underlying growth of the market. And I expect that to continue.

Okay. I've got last question on the enterprise market and the carrier market. Where do you think is the strongest potential for you? Do you think that the enterprise market is more attractive at the moment? Or do you see a pull-up in the carrier market? What are your expectations in that area?

I think we're seeing different opportunities but good opportunities in both. In carriers, the move to LTE, the growth in data, the fact that they have more and more endpoints and their need to protect against cyber-attacks. In enterprise, the launch of new applications, the hybrid cloud environment, the build-out of software-defined data centers, the mission-critical applications. We're seeing very good drivers in both markets. So -- and we're growing relatively well in both. So we will continue to focus on the specific opportunities in each market as we see them.

And we have no additional questions. Speakers, I will turn it back to you for closing remarks.

Okay. Thank you, everyone, and have a great day.

Thank you. Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation and for using AT&T Executive Teleconference service. And you may now disconnect.