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Imperva (NYSE:IMPV)

Q4 2012 Earnings Call

February 7, 2013 05:00 pm ET

Executives

Shlomo Kramer – President & Chief Executive Officer

Terry Schmid – Chief Financial Officer

Analysts

Rob Owens – Pacific Crest Securities

Tom Ernst – Deutsche Bank

Jonathan Ho – William Blair

Robert Breza – RBC Capital Markets

Shaul Eyal – Oppenheimer

[Sacket] – JP Morgan

[Ryan Flannigan] – Wedbush Securities

Dan Cummins – B. Riley

Operator

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the Imperva Q4 and F2012 earnings call. (Operator instructions.) I would like to remind everyone that this conference is being recorded. I would now like to turn the call over to Terry Schmid, Chief Financial Officer of Imperva. Please go ahead, sir.

Terry Schmid

Thank you. Good afternoon and welcome to Imperva’s Q4 and full year 2012 earnings call. We will be discussing the results announced in our press release issued after the market closed today. Again I am Terry Schmid, Chief Financial Officer of Imperva. With me on the call is Shlomo Kramer, Imperva’s Chief Executive Officer.

During the course of this call we will make forward-looking statements regarding future events and the future financial performance of the company. Generally these statements are identified by the use of words such as “expect,” “believe,” “anticipate,” “intend,” and other words that denote future events. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

We caution you to consider the important risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release and this conference call. These risk factors are described in our press release and are more fully detailed under the caption “Risk Factors” in Imperva’s 10(q) filed with the SEC on November 13, 2012.

During this call we will present both GAAP and non-GAAP financial measures. Non-GAAP measures exclude stock-based compensation expenses. These non-GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to our GAAP results and we encourage you to consider all measures when analyzing Imperva’s performance. For complete information regarding our non-GAAP financial information, the most directly comparable GAAP measures and a quantitative reconciliation of those figures please refer to today’s press release regarding our Q4 and full year 2012 results. The press release has also been furnished to the SEC as part of a Form 8(k).

In addition, please note that the date of this conference call is February 7, 2013, and any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events.

Lastly, this conference call is the property of Imperva and any recording, reproduction or rebroadcast of this conference call without the express written permission of Imperva is strictly prohibited. With that I’ll turn the call over to Shlomo and then I will provide some further details regarding our financials and our forward-looking outlook. Shlomo?

Shlomo Kramer

Thanks, Terry. I would like to thank everyone for joining us today. We are very pleased with our execution during Q4 which led us to a strong finish to the year and our ability to exceed our full-year 2012 revenue and profitability guidance. The investments we have made in sales and marketing and product development are paying off as Imperva continues to extend its leadership position and demonstrate the benefits of an integrated approach to security for critical applications and high value business data in the datacenter.

During the first full year as a public company we have illustrated the scalability of our model, evidenced by our ability to achieve non-GAAP net income for the first time during Q4. Our strong growth continues to be driven by the increase of sophisticated attacks by hackers and malicious insiders along with an increasing number of regulations governing business applications and data that enterprises must comply with.

During the past year, Imperva also illustrated its ability to drive growth by adding new customers as well as further penetrating existing customers as we cross-sell our full solution suite. We currently believe that our existing customer base is less than 10% penetrated and represents a significant long-term growth opportunity for the company.

As a reminder, Imperva’s integrated SecureSphere Business Security Suite secures all data usages and business transactions across various systems by providing database firewall and web application security in the datacenter, including traditional on-premises datacenters as well as private and hybrid cloud computing environments. The company is the only provider to offer a comprehensive integrative solution which we view as a competitive advantage as enterprises look to minimize security overhead while optimizing protection of their applications and data.

Our leadership position is evidenced by our ability to end 2012 with over 2200 customers in more than 60 countries, including the top communication and financial data service companies, over 200 government agencies around the world, and more than 270 global 2000 companies.

Taking a look at our overall performance during Q4 2012, our total revenue was $31.8 million, up 36% year-over-year and exceeded the high end of our guidance range. This increase was driven by the 53% growth in recurring service revenue, particularly subscription revenues which increased 205% year-over-year and now represents 13% of total services revenues compared to approximately 6% last year. Our combined product and subscription revenues during Q4 grew 33% compared to Q4 of last year which we continue to view as a leading indicator of the strength of our business.

From a profitability perspective as I mentioned earlier, for the first time we reported non-GAAP net income of $1.6 million or $0.06 per share compared to a loss of $900,000 or $0.05 per share in Q4 last year. This exceeded the high end of our guidance and is further evidence that we are continuing to see improving leverage in the overall business. In addition, during the quarter we booked a multi-year deal with a Fortune 500 financial services company which was the largest deal in the company’s history. We were very pleased to have been selected to deploy our database security solution globally and this highlights the ongoing traction we are having with larger enterprises.

In regards to some of our summary level statistics, we continue to generate a significant portion of our bookings from follow-on sales to existing customers. Sales to existing customers accounted for over 41% of our product and subscription bookings in Q4 and 49% of our full-year. During Q4 and full year we added 199 and 553 new customers respectively, representing growth for both the quarter and the year of 28% compared to last year.

We continued to see new customer growth well balanced across all geographies and gained experience and positive impact from the expansion of our strategic account program as our average deal size continued to increase. During Q4 and full year the number of deals greater than $100,000 increased 20% and 29% year-over-year respectively as the dollar value of these large deals continue to grow. Finally, we are well positioned to maintain our momentum as we have entered 2013 with a record pipeline. Similar to prior quarters, our pipeline continues to grow at a rate above both our revenues and our bookings growth.

From a geographic perspective, customer demand was solid across all regions Specifically in the Americas region, revenue increased 35% year-over-year during Q4. We continued to benefit from the strong execution of our channel partners and the investments made in our sales and marketing infrastructure. Our international region also continued to grow rapidly during Q4 with revenue increasing 39% year-over-year and accounting for 43% of our total revenue.

In EMEA our revenues increased 51% year-over-year despite the challenging economies in many regions. The growth was primarily due to an ongoing execution and increase in the number of teams covering underserved markets in addition to the large multi-year database deal I mentioned earlier, which was the largest in the company’s history. In Asia-Pacific revenue increased 22% in Q4 and 48% for the full year, highlighting the continued strong execution of our sales team and the strength of our distribution in the region.

Now I would like to provide an update on some of our key initiatives and accomplishments during Q4. Throughout the year we spoke about some updates to the structure of our sales organization that began in 2011. These changes included regional and area (inaudible) both for the sales and sales engineering organizations and maturing the sales architecture by introducing both the strategic account sales organization and new sales specialist teams for our new product lines.

We attribute in part the strong results we’ve seen this quarter to these efforts. In Q4 we continued to mature our sales management team and in a similar vein began an effort to similarly scale out the field operations and marketing functions. Since Q3 we’ve hired six new executives in sales, marketing, and field operations, bringing in executives from a variety of brand names including IBM, (Inaudible), HP and NetApp. We believe these additions will position Imperva for the next level of company growth.

During the quarter we continued to gain traction, cross-selling existing customers within some of our largest accounts. For example, we approximately quadrupled the size of the total license value for a large telecommunication customer in Australia with the purchase of the database firewall product. This was in addition to rolling out our web application firewall over the past few years.

In addition, due to our existing deployment of our web application firewall with one of the world’s largest food and beverage companies, we cross-sold our SharePoint product based on the functionality and security of our integrated solution with SharePoint which combines all three of our product families – web, database, and file security. We displaced the incumbent which didn’t have the ability to address the critical web security component of the customer’s requirements. Again, we were able to approximately double the size of the total license value of the customer.

Finally, we had an immediate cross-sale with a large government agency, selling both our web application firewall and database firewall product. The purchase was motivated by the need to defend against well-funded, well-motivated adversary attacks against vulnerable web applications as well as the need to implement insider threat controls as defined in the FISMA NIST 800-53 standard. Imperva won due to our ability to offer a full solution for both drivers, beating out both F5 and IBM.

As I mentioned earlier, we believe that our existing customer base is less than 10% penetrated and represents a significant long-term growth opportunity for the company. From a competitive perspective our win/loss ratio in head-to-head competitive deals remains at a very strong ratio. Similar to recent quarters we had a number of deals in which we won against larger competitors, highlighting the value of our integrated solution and superior level of support we provide on a global basis.

Some of the wins during Q4 include a database deal with a Latin American government agency where we beat out IBM due to our superior technical evaluation and tender; to repeat the theme of our deployment expansion in integrated web and database security was also a factor in this win. We also replaced Citrix NetScaler with our web application firewall at a large financial exchange. The exchange based their decision on our enhanced performance and scalability along with our deployment flexibility and top-notch customer support.

In addition, a leading provider of clinical and patient record systems chose Imperva’s web application firewall over F5’s due to the strength of our technical solution both from a security and a scalability perspective. As I indicated earlier, we also closed the largest deal in the company’s history, beating out IBM for a global database security deployment with a leading global financial services company. We were selected for this multi-year deal based on ability and commitment to support a global rollout which is expected to eventually cover the entirety of the bank’s distributed database state.

Finally, in regards to our technology alliances we recently announced that we have integrated our products with FireEye to enhance protection for critical applications data and intellectual property from advanced cyber-attacks. We also continued to be pleased with our collaboration with Cisco to streamline the deployment and management of the SecureSphere Web Application Firewall in Cisco virtual switching environments. We are very excited about this relationship since it represents the first step in our best of breed strategy for the datacenter’s security stake in virtual environments.

So in summary we had a strong finish to 2012 and we are very pleased with the continuing growth of our subscription revenues along with our ability to report non-GAAP net income for the first time. We continue to demonstrate the benefits of the integrated approach to application and data security in the datacenter as evidenced by our success of adding new customers as well as further penetrating existing customers.

Looking forward we enter 2013 with a very strong pipeline and remain committed to investing in new product developments to maintain our competitive edge, extend our reach worldwide and leverage our global sales infrastructure in order to accelerate our growth. With that let me turn it over to Terry.

Terry Schmid

Thanks, Shlomo. I will first start with a more detailed overview of our Q4 and full year financial performance and then provide our outlook for Q1 and full year 2013. Following my closing remarks we will open up the call to your questions. As Shlomo mentioned we are very pleased with the company’s strong execution during Q4 which again translated into our ability to exceed expectations across all key operating metrics.

Now, turning to our Q4 financial results starting with the P&L, revenue came in at $31.8 million which is up 36% compared to Q4 2011 and exceeded our guidance of $29.5 million to $30.0 million. As Shlomo mentioned we saw solid growth across all geographies along with continued traction and further penetrating our existing customer base as evidenced by the more than 20% year-over-year increase in the number of customers that have purchased multiple products.

Services revenue which represents the recurring piece of our business and consists of maintenance and support, professional services and training, and subscriptions increased 53% to $13.1 million and accounted for 41% of total revenue compared to 37% during Q4 2011. The growth in services revenue was primarily driven by the 205% year-over-year increase in subscription revenue to $1.7 million, as subscriptions now account for over 13% of services revenue up from 6% last year.

Our combined product and subscription revenues increased 33% year-over-year to $20.4 million and as Shlomo mentioned in his remarks, we view this revenue growth as a leading indicator of the strength of our business as the percentage of our business related to recurring services revenue continues to increase due primarily to the growth of subscriptions.

In addition, the number of deals over $100,000 increased 20% to 95 during Q4, up from 79 last year. During the full year of 2012 the number of deals greater than $100,000 increased 29% to 278, up from 216 in 2011, again highlighting the strength of our large enterprise and global accounts.

Turning now to non-GAAP expenses and profitability, which I’ll remind you exclude stock-based compensation expenses: for Q4, gross profit was $25.6 million compared to $18.6 million in the same period last year. Our gross margin percentage was 80% during Q4 consistent with last year and in line with our expectations.

In terms of non-GAAP operating expenses, while we continue to invest in sales and marketing and research and development to support the future growth, we continue to experience some operating leverage in the model. Specifically, sales and marketing expense increased 35% to $15.6 million; however it represented 49% of revenue compared to 50% during Q4 2011. Research and development expenses increased 7% year-over-year to $5 million but accounted for 16% of revenue compared to 20% of revenue in 2011. Despite the continued improved leverage in Q4 we remain committed to continuing to enhance our solutions in order to maintain our competitive advantage.

General and administrative expense was $3.5 million, up 5% year-over-year and as a percent of revenue G&A was 11% in Q4, down from 14% in 2011. As a result we achieved a non-GAAP operating profit of $1.5 million or 5% of total revenues in Q4 which is significantly improved compared to a loss of $900,000 during Q4 2011, and exceeded our guidance of a profit of $500,000 to $800,000.

During Q4 we reported non-GAAP net income attributable to Imperva stockholders of $1.6 million compared to a loss of $900,000 during Q4 2011. Non-GAAP net income per share during Q4 was $0.06 per share based on 25.4 million weighted average diluted shares outstanding and exceeded our guidance of $0.01 to $0.02 per share. This compares to a net loss per share of $0.05 during Q4 2011 based on 19.3 million weighted average diluted shares outstanding.

On a GAAP basis, GAAP net loss attributable to Imperva stockholders for Q4 totaled $700,000 or $0.03 per share based on 23.6 million weighted average shares outstanding. This compares to a loss of $1.5 million or $0.10 per share based on 14.6 million weighted average shares outstanding in the prior year period. A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial statement tables included in the press release issued today covering our financial results for the quarter and year ended December 31, which can be viewed on our website.

I will now quickly highlight our results for the full year 2012. Total revenue was $104.2 million, an increase of 33% compared to 2011 and above the high end of our guidance range. The strong growth was driven by the 46% increase in services revenue which benefited from the 217% increase of subscription revenue. Non-GAAP gross margin was 79% and non-GAAP operating loss was $1.1 million compared to a loss of $8.3 million in 2011. Non-GAAP net loss per share attributable to Imperva stockholders was $0.06 for the year based on 22.9 million shares compared to a loss of $0.51 per share based on 16.9 million shares in 2011.

Turning to the balance sheet, as of December 31, 2012, we had $102.3 million in cash and equivalents and short-term investments and no debt outstanding. Our cash balance reflects the generation of $4.5 million from cash flow from operations during the year.

We ended Q4 with an accounts receivable balance of $35.6 million resulting in DSOs of 103 days compared to 102 days during Q4 2011 and 93 days during Q3 2012. The sequential increase in DSOs was primarily due to the strong revenue growth during the quarter. Total deferred revenue increased 41% year-over-year to $46.3 million during Q4 driven by our over 90% renewal rates, the growing success of our subscription-based products and continued growth in our installed base and new customer acquisitions.

Now I’d like to finish with some thoughts regarding our financial outlook for 2013 starting with the full year. We’ve entered the year with good momentum and Imperva remains in a position to increase market share and extend our leadership position as we continue to invest in new product development and expand our sales and marketing resources worldwide.

While there continues to be some level of volatility in the global economy we are increasing our outlook for the full year 2013 as compared to the initial views we shared on last quarter’s call. We expect to provide quarterly updates to our outlook over the course of the year as we continue to gain more data points and visibility.

From a full year 2013 perspective we expect total revenue to be in the range of $131 million to $135 million which represents year-over-year growth of 28% at the midpoint and an increase from our previously-announced preliminary guidance for a baseline growth rate of at least 25%, in addition to being off a higher base due to the over-performance in Q4.

Non-GAAP gross margin is expected to be approximately 80%. Non-GAAP operating income is expected to be in the range of $5.0 million to $6.5 million which represents an operating margin of 4% to 5% and includes an increase in our sales and marketing investments to take advantage of the demand we are seeing worldwide.

We expect non-GAAP net income attributable to Imperva stockholders excluding the impact of stock-based compensation to be in the range of $4.0 million to $5.5 million or EPS of $0.15 to $0.21 per share. This assumes a tax provision of $1.0 million to $1.5 million and fully diluted shares of approximately 26.5 million for the full year. We expect capital expenditures for the full year to be in the range of $2.5 million to $3.5 million. Finally, we continue to expect to generate positive cash flow from operations in 2013.

Now turning to our outlook for Q1 2013, we expect total revenue to be in the range of $27.0 million to $27.5 million, or growth of 27% at the midpoint compared to the same period in 2012. Non-GAAP gross margin is expected to be approximately 79%. Non-GAAP operating loss is expected to be in the range of $2.0 million to $2.5 million. Non-GAA net loss attributable to Imperva stockholders excluding the impact of stock-based compensation is expected to be in the range of [$2.25 million] to $2.75 million or $0.09 to $0.11 per share.

The loss in Q1 is primarily driven by the costs associated with our accelerated ramp up in sales and research and development to support the growing opportunity we see reflected in our accelerating growth rate and record pipeline. It also reflects our typical increase in costs early in the year associated with payroll taxes, sales kickoff and higher marketing budgets. This also assumes a provision for income taxes of $200,000 to $300,000 for the quarter and diluted shares outstanding of approximately $25.5 million.

In summary, we are very pleased with our Q4 execution which resulted in a strong finish to the year and our ability to exceed expectations. Imperva remains well positioned to maintain its momentum since we continue to be the only security provider to offer enterprises a comprehensive, integrated solution that minimizes security overhead while optimizing the protection of their critical applications and data.

With that we’d be happy to take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions.) We’ll go first to Rob Owens with Pacific Crest Securities.

Rob Owens – Pacific Crest Securities

Great, thank you very much and good afternoon, guys. Shlomo, in your prepared comments you talked about your account base being less than 10% penetrated. I’m just curious if you can give some color as to what’s being protected, where are the additional sales opportunity and what’s going to get you deeper penetration within these accounts?

Shlomo Kramer

So the growth in the account happens in multiple dimensions. One is the footprint within the account, and we are seeing customers not trying to [board the ocean] from the start but deploying in one datacenter a few databases or a few applications and then over the years continue to grow as they mature their implementation. The second area that we see growth is through use cases. We have many customers that started to use our platform with specific.... A HIPPA for example use case and then go to different compliance or regulation requirements, and go to different security. There are many, many different types of use cases that you can use our system.

And finally there is the product line which is the third dimension. So our largest build that we’ve described, for example, is only structured data. There is a significant opportunity there to address the unstructured data, the file product line and the web application product line. So we are seeing customers growing in all three dimensions.

Rob Owens – Pacific Crest Securities

Great. And then Terry, just focusing in on the DSOs, I know this has been one of the tougher targets for you guys. Should we be focused a little more around days billings outstanding given the large deal nature that you guys have seen into your business over the last couple quarters? But you mentioned some of the subscription elements as well as the high renewal rates so maybe just a little bit of color on either the average age of receivables or how you’re thinking about that.

Terry Schmid

Yeah, so first I’ll make a qualitative comment about the DSO number coming out of the quarter. The quarter bookings were higher than I’d anticipated they were going to be so we had a more successful quarter than I was imagining on the Q3 call, so and linearity remained largely the same as it had been in the past. So that’s the real contributing factor to why DSOs are up.

I’ll tell you that of that outstanding AR that was on the balance sheet as of 12/31 we’ve already collected well over half of that number, so when I look at things internally I don’t concern myself necessarily with the DSO number itself because I don’t think it’s indicative of extending payment terms or it being more difficult to collect. It really is just a function of the linearity within the quarter and the growth rate of the company. We’re in a position right now where our bookings are higher than our revenue, and our bookings growth rate has been very, very high. So it puts us in the position where as long as linearity remains where it is the DSO number is probably going to stay elevated.

Rob Owens – Pacific Crest Securities

Alright, thank you guys.

Operator

And we’ll go next to Tom Ernst with Deutsche Bank.

Tom Ernst – Deutsche Bank

Good afternoon, guys, thanks for taking my questions. Following up on this point that that’s one thing that really struck me, is the current billings growth is the strongest that we’ve seen in quite some time at 49% year-on-year. So you mentioned that the bookings were stronger – is there anything else that’s atypical in that? Did you perhaps deemphasize multiyear contracts or something that stiffed that number or is that representative of the strong bookings you’re talking about?

Terry Schmid

It’s representative of the strong bookings. As far as the composition of those bookings, and multi-year deals versus single-year deals I haven’t seen a change in the proportion that we generally see there. It’s really honestly driven by the high growth rate that we have and the linearity in the quarter. Other than that there’s not another driver behind it.

Tom Ernst – Deutsche Bank

Why the breakout in Q4? What do you think came together? Is it budget flush, is it new campaigns? What do you think caused the pickup?

Shlomo Kramer

Again, as we said before we are continuing to see the pipeline buildup and the leading indicators being strong and we continue to see very good momentum in the business. And what’s behind that is very simple – there’s increased pressure on organizations to correct their spending to the datacenter because that’s where the threat is targeting. And it’s a very sophisticated and dangerous threat, and that’s where the regulation and legislation is targeting organizations. So this is to be expected.

Tom Ernst – Deutsche Bank

We certainly expect your business to grow and do well, I’m just curious maybe of why it inflected now. Any sense that perhaps this was maybe sort of a budgetary flush phenomenon that might not be necessarily representative of growth next year or do you think that it’s customers waking up and getting more excited kind of on the margin today?

Terry Schmid

I don’t think it’s any more of a budget flush than any other Q4 – there’s nothing unusual about it from that perspective. It’s always our biggest quarter of the year. Every tech company says that’s largely attributable to a certain degree to budget flush at the end of the year but I don’t think budget flush for us this quarter was an outsized part of the acceleration in our top line growth.

Tom Ernst – Deutsche Bank

Okay, I wouldn’t expect that either. Thanks for taking my questions.

Operator

We’ll go next to Jonathan Ho with William Blair.

Jonathan Ho – William Blair

Hey guys. Just starting out with the competitive environment, have you seen any type of shift here either from folks increasing their focus or just delivering broader product sets? Just any change out there that’s notable?

Shlomo Kramer

No, we haven’t seen any change since we last reported on the competitive landscape last quarter. It’s more of the same.

Jonathan Ho – William Blair

Got it. And just in terms of the government opportunity that you highlighted, I think you talked about a specific compliance requirement. Are you seeing a push towards trying to meet some of the compliance requirements out there as an accelerator maybe in that vertical? Or can you talk about whether you see sort of additional opportunities related to the government compliance vertical yet to grow?

Shlomo Kramer

We are very pleased with the overall, not necessarily only compliance but with the overall progress that we are seeing in the government market segment. And we are seeing definitely increased awareness in that vertical together with the overall increased awareness, but specifically here we are definitely seeing a shift.

Jonathan Ho – William Blair

Got it. And just in terms of the investments that you’re making relative to sales and marketing and R&D, can you talk a little bit about how you’re maybe thinking about growth versus showing profitability, maybe not relative to just 2013 but how you think philosophically about that breakdown?

Terry Schmid

I think philosophically, we’ve always said in the past that we try to take a practical approach to this and be pragmatic about it, and balance our top line growth with the investments we make in the business. I think we’re probably skewing a little bit more right now towards investing in the business because the pipeline growth has been, as we’ve pointed out on several calls in a row now, it’s been growing more rapidly than we expected it to. So we’re investing in the business to take advantage of that and I think that’s showing up now in the acceleration of the top line. So there’s probably more of a skew now towards investing in the business to support what is recognizably a larger and growing market opportunity.

Jonathan Ho – William Blair

Got it, thank you.

Operator

We’ll go next to Robert Breza with RBC Capital Markets.

Robert Breza – RBC Capital Markets

Hi, thanks for taking my question. Terry, I know last year you guys saw DSOs kind of go up seasonally and then yet you were able to collect a pretty large portion of the revenues or the AR during the first couple weeks. Can you kind of update us on how that went? And then I’ve got a follow-up, thanks.

Terry Schmid

Yeah sure. So to date with respect to collections for what was on the balance sheet as of 12/31 we’ve collected well over half of that number. Collections have been very strong, in line if not ahead of where we expected them to be at this point. So similar to last year where we came out of Q4 with our largest DSO number of the year, it tends to rise over the course of the year. We’re collecting very rapidly what we came out of the quarter with as far as AR.

Robert Breza – RBC Capital Markets

Okay, great. Shlomo, as you look at the sales force and the expansion and what you’re doing with some of these new partnerships with FireEye for example, when you look at the productivity improvements and the investments you’re making from a sales force perspective how should we think about the productivity improvements there and how much do you think the new partnerships will contribute? Thanks.

Shlomo Kramer

So both the partnerships with FireEye and with Cisco are meeting the channel type of partnership versus a distribution partnership. So they definitely contribute to the pipeline generation as well as obviously to the value of the customer but not necessarily to the productivity of the salesperson themselves. We are seeing in both partnerships a lot of excitement with customers and I think that customers are seeing a lot of value in that so we are definitely optimistic about it.

Operator

We’ll go next to Shaul Eyal with Oppenheimer.

Shaul Eyal – Oppenheimer

Thank you, hi, good afternoon guys. Congrats on a good quarter and outlook – a couple of quick questions on my end. Terry, Shlomo, the multi-year deal that you guys indicated, is that a seven-digit deal and if so how many of those kind of do you guys have in the pipeline?

Terry Schmid

Probably we’re not going to talk about exactly how large it was but I can tell you that what we’re seeing in the pipeline is more deals that are large like this one, not necessarily in every case as large as this one but larger deals are making up a larger percentage of our pipeline both on a dollar basis and a number of deals basis. So the success we’re having is bringing us into larger accounts and larger deals.

Shaul Eyal – Oppenheimer

Got it. And Terry, as you think about the F2013 budget how many people do you think you’ll be adding to the headcount later on this year roughly?

Terry Schmid

Yeah, we don’t talk about the expectations for headcount growth. I can tell you that where we’ll focus is where we focused in the past which is in research and development and sales and marketing, and building those organizations out to continue to support the top line growth that we have.

Shaul Eyal – Oppenheimer

Got it. Maybe just a final one that maybe could be a bit on the trickier side: the increase in your revenue guidance for the year, clearly your markets are growing but is it indicative of the market growth or whether it’s kind of gaining shares that you’re seeing out there, or both?

Terry Schmid

We’ve said in the past and we still believe this is true – the overall markets that we serve are growing by 25%. So for us this is a combination obviously of that market growth but also of us taking share.

Shaul Eyal – Oppenheimer

Got it, thank you very much and good luck.

Operator

We’ll go next to Sterling Auty with JP Morgan.

[Sacket] – JP Morgan

Hi guys, it’s [Sacket] here for Sterling, thanks for taking my questions, a few of them if I can. Terry, can you give us an update just on the split among the three major product groups in terms of revenue and how each of them grew during 2012?

Terry Schmid

The file product is still by far the smallest, file/SharePoint, although growing at the fastest rate. So if you look over the course of 2012 that’s becoming an increasing, it’s increasing its percentage but still it’s single digits. And if you look across database and application security they’re still roughly growing at the same rate over the course of the year – they’re still roughly equal in size, so both continuing to do very well for us.

[Sacket] – JP Morgan

Great, that’s helpful. And then on the sales and marketing, the incremental sales and marketing investments coming in 2013, I know you said you weren’t giving any detail on sort of headcount plans for 2013 but can you just give us a little bit more color on whether those incremental investments are going to be coming in strategic account teams or a greater channel presence – just a little bit more color on the incremental spending.

Shlomo Kramer

All of the above. We are going to… It’s mainly going to be scale versus structure, I would say it like that, in 2013. So we have put in the structure that we need and we are going to continue to scale it now.

[Sacket] – JP Morgan

Got it. And last one for you, Shlomo, if I can. Can you just remind us how you gauge that metric of less than 10% penetrated into your customer base? Is that based on sort of overall security spending or maybe based on the number of databases or web applications available to protect?

Shlomo Kramer

Yeah, we look at our customers and we see what the scope of the deployment that we have versus how many databases and applications they have in general as well as SharePoint and file shares and other unstructured data they’re [processing]. And that’s, you know, as a qualitative measure it falls below 10%.

[Sacket] – JP Morgan

Got it, thanks very much.

[Sacket] – JP Morgan

We’ll go next to Rohit Chopra of Wedbush Securities.

[Ryan Flannigan] – Wedbush Securities

Hi guys, this is Ryan Flannigan on for Rohit, thanks for taking my question. You talked a little bit about some of the federal compliance opportunity here in the US and there’s recently been some cyber security proposals coming out of Europe. Can you maybe give some color on the compliance and regulatory opportunity in international markets and if you guys are involved?

Shlomo Kramer

Yeah, so we are seeing increased numbers of regulations coming out all the time as well as existing regulation becoming stricter. An example of such recent regulation that is affecting our customers and driving business is the Singapore Monetary Authority regulation for financial organizations not only in Singapore but everyone that has a presence in Singapore. And you know, there’s one in Taiwan, in Korea, and you’ve got it all over the world.

So I would say that the pressure that organizations feel to take ownership of the challenge of securing their business data and business applications in the datacenter is increasing all the time not only because of the threats but because more and more governments and other bodies increase the regulation pressure. Make sense?

[Ryan Flannigan] – Wedbush Securities

That’s helpful, thanks.

Operator

(Operator instructions.) We’ll go next to Dan Cummins of B. Riley.

Dan Cummins – B. Riley

Thank you. I’d like to ask about the whitepaper, the beef if you will with signature-based antivirus which I think a lot of us on the call would wholeheartedly agree with and we wish you a lot of luck in terms of shaking loose more budget for what you’re doing. But I’m curious about two things. Terry said the growth backdrop is probably around 25%; Gartner and some others have looked at adjacent areas like data loss prevention on the one hand and other areas of application security and they’re suddenly seeing much stronger growth rates. These are markets themselves that’ll approach $1 billion in size maybe soon. So I just want to ask what’s changed in the field, your field organization as a result of putting that out there, that whitepaper, and are the phones ringing? Are your customers calling? Are prospects calling? This is a longstanding problem with money going for the wrong things. Thanks.

Shlomo Kramer

We definitely continue to see the pipeline growing at a very healthy rate as we’ve mentioned, above our revenue growth rates, and that’s a representation of the fact that the awareness of customers to the fact that the main security challenge today is in the datacenter. And the way that they chase mice today, the bad guy in the network, is useless. Everybody knows that the antivirals are not effective. I think that the last breach of the New York Times is just another example – you don’t need our report to know that. And it’s also there’s kind of other ways to chase mice or pests a little bit more effective, but at the end of the day it’s enough to have a single mouse in order to cause tremendous damage so you really need to guard the cheese.

And that’s what we do – we guard the cheese in the datacenter, the business data and the business applications and the awareness of the importance of that is really driving the pipeline growth and is really the motivation behind our increased investment in our scaling the sales organization.

Dan Cummins – B. Riley

And just a follow-on to that, is the partner activity going to be very, very brisk this year in terms of you guys interoperating with more big players in the technology industry?

Shlomo Kramer

We are a channel company. We believe that this is a broad market, that building the datacenter security stack really requires leverage in order to be successful. And we’ve always been a channel company and we continue to invest in that with more and more significant partners, yes.

Dan Cummins – B. Riley

Thank you.

Operator

And at this time there are no more questions in the queue. Mr. Schmid, I’ll turn the conference back over to you for any additional or closing remarks.

Terry Schmid

Thank you, Jessica, and thank you all for joining the call today. We appreciate your continued support and interest in Imperva. Thank you.

Operator

That concludes today’s conference. Thank you for your participation.

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