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Executives

Remo E. Canessa - Chief Financial Officer and Principal Accounting Officer

Robert D. Thomas - Chief Executive Officer, President and Director

Wendell Stephen Nye - Executive Vice President of Product Strategy & Corporate Development

Stuart M. Bailey - Founder and Chief Technology Officer

Christopher J. Andrews - Executive Vice President of Worldwide Field Operations

Dan Wilson - Co-Founder and Senior Vice President of Partner Alliances & Marketing

Greg Christian

Roger Singh - Chief Technology Officer

Analysts

Alexander B. Henderson - Needham & Company, LLC, Research Division

Infoblox Inc. (BLOX) Analyst Day June 4, 2013 12:00 PM ET

Operator

Ladies and gentlemen, would you now please welcome to the stage, Infoblox' Chief Financial Officer, Remo Canessa.

Remo E. Canessa

Thank you very much for making the trip to our first Analyst Day. It's a big event for us as a company and we appreciate everybody coming here today. What I'd like to do is go through the agenda. So I'll set up the welcoming, which I did just did. Thank you again.

Robert's going to talk about key infrastructure trends and also a view of the enterprise. Steve Nye, who's our Executive Vice President of Strategy and Corporate Development, will give you a view of our corporate strategy going forward. Stu Bailey, who's our Founder and Chief Technology Officer, is going to talk about networks and why they're getting worse. We'll take a break afterwards. And then we'll have a panel discussion with -- led by Chris Andrews. And with us today, we have Dan Wilson, Senior Vice President, Partner Solutions for Accuvant; Greg Christian, VP of Sales of Future Com; and Roger Singh, CTO of Scalar Decisions. So if you guys can stand up, and people can see who you are. I'll do the final financial overview at the end. I will do Q&A. And then we'll have lunch afterwards.

What I'd like also to do is to introduce some other people from Infoblox that are here, and I'll have them stand up also, so you can you can see who they are. Sohail Parekh is our VP of Engineering; Mike Mancher [ph] is our VP of Finance; David Gee is our VP of Marketing; Cricket Liu is our Chief Infrastructure Officer; and Tim Colby is our VP of Worldwide Channels.

So before we get started, I'd like to something and we will be making we'll be making some forward-looking statements today. Those statements, please refer to the recently filed Form 10-Q and also 10-K and to take with our risk factors.

So with that, I would now like turn it over to you, Robert.

Robert D. Thomas

Good morning, and may I add my welcome too to today. Thank you so much for taking the time. It is our First Analyst Day and we're very excited about that and we are looking forward to telling you the story.

So there's not much new in the world over the last 18 months in terms of where IT organizations are spending money. The key drivers on IT spend and the key projects that most IT organizations today are running are all around data consolidation, virtualization, next-gen data centers, cloud adoption, mobile and BYOD connecting lots of things to the network.

And IPv6 is a trend that is exciting people, but I wouldn't say it's driving a lot of business today, but almost every major company we talk to is starting to think about how they transition to IPv6. They have to have a strategy for IPv6. They're going to live in a mixed world for quite a while to come. So while it's been around for a long time and little has been done about it, I would say most major companies, they are developing a strategy about how they will handle IPv6 even if they're not moving towards it immediately. So another great driver of business, but a great driver of interest.

And then of course, the buzzword of the moment is software-defined networking. Probably more of a buzzword in the IT industry than it is in IT departments, but a lot of IT departments are starting to be bombarded with information about software-defined networking. All the big players are making acquisitions in software-defined networking as well. So it's one of those things that's on the horizon. No one quite knows how fast it's going to come towards us, but it's definitely coming towards us. And Stu Bailey will talk a little bit that today because it also sets up a great environment for us.

And then, of course, against that backdrop, there is the increasing security threat and more malware is appearing in the world than ever before. That's not changing, it's just increasing. The threat profile is changing a little bit. It's not so much outside-in attacks anymore, a lot of it is inside-out attacks, mobile devices being brought into the organization, finding home to command and control, bot nets outside this country and other places. In 2012, I think McAfee identified 790 mobile malware threats, 790. So far in 2013, McAfee has identified 39,000 mobile malware threats. So it's definitely increasing at a dramatic pace. And as you know, probably we introduced some products in this area not long ago, and Steve Nye will talk a little bit about that today.

So the profile of IT spending, where people are spending money, the projects they're running is in perfect environment for Infoblox as we take complexity out of the networks.

Sometimes, as a result of those projects and sometimes independently of that, more and more and more devices are being connected to the network. It's -- the pressure on IP address management and the explosion of IP address usage is just dramatic today. And IDC say about 30 billion devices will be connected by the year 2020, 30 billion devices. IPv4 only has, what, 4 billion unique IP addresses due? So even though people aren't deploying IPv6 yet, it's going to come and it's going to come with a fury, I think.

So one of the big problems that organizations have is managing this IP address explosion, how do we manage those addresses, how do we allocate them, how do we keep track of them, how do we understand when the organization is attacked, which IP address it came from, where is it in the organization, who owns what kind of devices is it on? That's just getting more and more complicated as time goes on. And it's true I think today that the Internet has truly become the wide area network of organizations. It's not just there for surfing the web, getting stock prices, buying books from amazon.com. A lot of applications, a lot of organizations are using the Internet as their private wide area network, connecting many things to it, so it's making a very, very complex environment.

And it's not just IP address management that's under pressure. That is under pressure and it's difficult that DNS, the mechanism that navigates people around the Internet and navigates people around their own internal networks to run applications, has become under increasing pressure, too. 123 billion DNS queries a day at the peak of any day, and that's just the Internet. It's not the internal network that organizations run. So inside the network, people using DNS to run almost every application they run today to manage mobile devices and connect them.

So IP address management, IP address allocation and DNS, the foundations of network infrastructure, the things that people must have, the essentials for running a network are coming under enormous pressure today because of these trends and because of the attachment of many, many devices.

So what's broken in all that and how do you fix it? It used to be that people would create spreadsheets, create their own homegrown tools, hire engineers to manage this connectivity, connecting a device to the network, to an application. 5 years ago, that was a are fairly simple thing to do. There were no iPads, there were no iPhones. So organizations would hire experienced professionals, engineers, to manage their DNS infrastructure, the IP address management infrastructure, create their own tools and create their own web sheets. Because of all that's happening in the network today, because of the complexity of it, that just doesn't work anymore. It costs a lot of money to do that, it introduced a lot of errors into the organization. And I don't know whether you saw some of the facts of the scrolling on the screen as you came in, but the average cost of an hour of downtime on a network is $72,000. So configuration errors cause people to spend more money on their network and cost a lot of money.

So how do we fix that? That's what Infoblox does. Infoblox automates that infrastructure connection. We automate DNS, DHCP and iPad, IP address management so that people can free up the resources they're using today for this mundane day-to-day network stuff and put them on the things that matter, BYOD projects, virtualization projects. About 80%, we're told, by our customers, are the network engineers time today is spent keeping the network up and running. And at the same time, the CIO is saying to him, I want a BYOD strategy. I want to connect devices to the network. I want to create a private cloud and provide on-demand computing. There are no resources to do that. IT budgets are not going up. Headcount is not going up. So if we can free up 80% of that time that was spent on just keeping the network running by automating many of these things, then we have a great value proposition for an IT department and that's what we're doing.

It's not just complexity that is a problem and errors and network downtime, simple things like maintaining an IP address is rising in cost. This is from a study that IDC did recently. 37% of companies now have more than 50,000 IP addresses and the estimated cost of maintaining, annual cost of maintaining an IP address, managing it, allocating it, reclaiming it, reporting on it, auditing what's happened, ranges from $6.05 to over $13 yearly, every year. So 50,000 IP addresses, $300,000 a year, just to manage the IP address space that the company has. So complexity is one thing, creating network errors and problems. But the cost of maintaining that network is another thing entirely. And that's what we do, we take that cost out, we reduce the complexity and reduce errors.

So how big is the market? No one goes out and measures this market independently. We have triangulated from a couple of different ways the size of the market. And we have engaged the company called the Measurement Factory for a few years to go out and count the number of DNS service on the Internet, to see what the population of service that we could replace with automated solutions might be. And that number comes in around about 6 billion or so. But I think we need to with other data. So we recently acquired some data from a company called Capital IQ, who count all of the companies in the United States. And there are around about 22,000 23,000 companies in North America with greater than 1,000 employees. And that's our target market, any one that's greater than 1,000 employees. So there's about 23,000 of them in the United States. We have about 6,700 -- 6,500 customers and about just over 4,000 of them are United States customers. So we've touched about 17% of that market in the United States. And we would estimate today that each of our customers is around about 20% to 25% penetrated. So we've touched about 17% of the available market in North America. Touched means we have engaged and they have become a customer, and each of those customers is about 20% to 25% penetrated.

We're about 9% -- we touched about 9% of the rest of the world. United States is about half the market, so there's about another 23,000 companies throughout the rest of the world with more than 1,000 employees and we've touched or acquired about 9% of those. And the penetration rate is probably about the same or a little less in Europe, maybe 20% to 25% or a little less.

And when we estimate the dollar size of that market, we looked at those companies and we took our best practices in deployment and said, what would a company from a 1,000 to 100,000 employees buy from us to automate their systems? And we did a fairly granular analysis of what we sold and the size of people that buy from us. That market is around $6.9 billion. Total addressable market of $6.9 billion. And when you look at everything we've sold into that market in the past, we're about 6.9% penetrated globally from a dollar point of view. So it's a very, very big market. Complexity is just getting worse, so the market isn't shrinking, it's going to increase. And over time, we will probably go down further below 1,000 employees. But today, that's our sweet spot. 1,000 people have enough complexity in their network to demand an Infoblox type of solution.

And we have a lot of customers, even with only 6.3% penetration, we have a lot of big-name customers. We manage some of the biggest networks in the world, some of the most complex networks in the world. And even though we are very strong in most of the major verticals, 7 of the top 10 banks in the world are customers, 8 of the top auto and truck manufacturers in the world are customers, even with that penetration into those verticals, still only 6% penetrated in the entire market. So a long way for us to go and a lot of opportunity in the future.

Just to tell you a little bit about why customers buy from us, that was a great list of customers, we've got just a couple of quotes from customers on why they bought Infoblox. I mentioned earlier that this DNS explosion, the number of DNS queries that are happening in the world and inside the networks is just increasing dramatically. And because DNS drives applications, if DNS goes down, an application goes down. There's a quotation here from a live supermarket chain, that says they were losing business because their DNS infrastructure was manually run, it was creaking, it was failing occasionally and they just couldn't do business when a thing as simple as DNS doesn't work. And people also buy us for reliability, our network uptime. I mentioned earlier the statistic about the cost of an hour of network uptime. I think probably the #1 reason that our customers buy us today is for network reliability and guaranteed network uptime.

So the cost is important, but it's not the major reason that customers buy us today. So we don't see anything changing. We think over the next year, 2 years, 3 years, 4 years, 5 years, network complexity is just going to get worse. 6,500 people in the world, our customer base, have realized that they can't manage this with spreadsheets and homegrown tools. We're adding about 200 new customers or so every quarter to that list. There will be more devices attached in the world as we go on. As I said 30 billion IDC are predicting by 2020.

And almost everything today has an IP address. I was reading just last week where, in Japan, they've released a line of refrigerators that have IP addresses. And people are connecting their fridges to the network. And looking at them from work and deciding what they'll buy, I guess, on the way home. The fridges, cameras, door locks, everything today has an IP address, everything has to be managed and it's part of that complex network. It won't change, it'll get more complex and the opportunity for us will continue to grow over time as that happens.

Now I'd like to hand over to Steve Nye, who will talk -- actually, I'm not going to do that. Jane, are you mad at me? I'm going to ask you whether you have any questions. We're going to do a short little Q&A at the end of every session, just to handle a few questions, if you have any. And then we'll do a larger Q&A session at the end. So if you have any questions I'd be happy to answer them, or we'll answer them at the end. Yes, here comes the microphone.

Question-and-Answer Session

Unknown Analyst

Robert, you talk about your penetration being 6.3%. Who else has all the rest of the penetration? Obviously, there's a lot of freeware and other solutions, but what about other competitors that you go up against, what's the situation there?

Robert D. Thomas

When we measure the 6.3%, we took the amount of product -- and product only. We didn't include our support and services in that $6.9 billion, it's product only. So we took the amount of product we have sold since inception and looked at that as a percentage of $6.9 billion. Now, we have about 42% of the market, according to Gartner, I think, about 42% was the last measurement done. So if we are 6.3%, then the rest of the world, apart from freeware, open source, homegrown tools has got about 4%, 4.5% or so. But we consider them available to us as well because every quarter, we replace probably half a dozen to 10 BlueCat accounts. Every quarter, we replace 3 or 4 or 5 QIP accounts. So even though other people have sold partly into that market, we only have 42%. We believe they're all targets for us as well.

Unknown Analyst

Robert, a question I often I also get from investors is, given the importance of the market, why is this market not growing faster? Why are you not growing faster even though 30% plus is very respectable? Just wondering from your perspective, is there a way to accelerate your growth in the market? Is it a function of more sales? Is it more channel partners, is it more education? Anything else you can shed light on?

Robert D. Thomas

But you're happy with 30%, right?

Unknown Analyst

I am happy.

Robert D. Thomas

I think it's mainly awareness. I think I've said this before. When you analyze how we create an opportunity and how we close business, about 65% of every opportunity that turned into business for us comes through us running a webinar, a seminar, an event some kind. And about 35% of the opportunities come to us through people coming to our website, looking for a solution. So only about 1/3 of the world knows that there's a solution for this problem that they face every day. So we are increasing our spend in marketing, we are increasing our spend in awareness, we need to pump that awareness up. More people come to our website looking for opportunities, the faster our growth will be, the lower our cost of sales will be. So I think it's an evolutionary thing. I think there will be a tipping point at some time. We're getting a lot of -- not a lot, but a few customers now who are telling us they're actually creating line items in their budget for the products we sell for the future years. That will help us a lot. As people become aware and start to budget for it in futures years, it will change our momentum as well. No one budgets for this stuff today. Our sales cycle is about 9 months. That means every time we're going to sell something, we have to steal a budget from someone else or wait through the next budget cycle, which stretches our sales cycle. As that changes again, I think we'll see an increase in momentum.

Unknown Analyst

Robert here, a little surprised to see the cost maintain and allocate IP address. Does it double as you go from less than 50,000 to over 100,000? Why is that? Why want wouldn't you see a [indiscernible] scale in this environment? And what's driving that increasing cost as you see more devices?

Robert D. Thomas

It's driven purely by manual effort. If you have 100,000 IP addresses and not 50,000, you have a bigger network, you need more network engineers to manage that network, you probably make more errors in managing that space as well. So there's no economies of scale when you're doing everything manually and building your own tools and running own spreadsheets and hiring people to do the job. There is an economy of scale when you can automate that, and that's the kind of value we bring. Jane, over here.

Unknown Analyst

Just a follow-up on an earlier question. Given your optimism on the market, a $6.9 billion tan [ph], why aren't we seeing more of the larger IT vendors take a focus in this space? Why don't -- Cisco is a player, but why don't we see some of the big IT vendors [indiscernible] particularly struggling with growth in this environment? Why are there not focused on this particular space?

Robert D. Thomas

I think they are starting to focus. You're right, they haven't in the past. And DNS and DHCP and IP address management as such essential but almost forgotten elements of networking because they just happen for years and years and haven't had this complexity associated with them that people have ignored it. But recently, we have seen people, like F5, for example, take a much bigger renewed interest in DNS. Cisco announced a partnership with BT INS to try and bundle together or cobble together something that's similar to this. Microsoft has started to spend a bit of money on IP address management and invest a little bit in DNS and DHCP in the Windows software. So I think they've all started to take notice. I think they will take even more notice over time. But as common and essential as this technology is, it's also very, very complex. So we have, I think, a 10-year start on anyone in building a system that will manage this as a network with the right order, trails, the right degree of management and right degree of deployment capabilities and so on. So people are starting to take notice but it'll take a long time, I think. And I think I better finish now and let Steve have a word, and then we'll answer any questions we haven't answered towards the end of the day.

Wendell Stephen Nye

Thanks, Robert. Well we've heard that there's a large market opportunity and we've heard a little bit from our customers. What I want to go through over the next couple of minutes is to review the challenges our customers have, look at our products that we sell to solve those challenges, as well as our product strategy.

So running a network is hard. It's been hard for a long time and what really makes it challenging is so much of it is done by hand. You heard earlier from Robert configuration changes, all of these drive complexity. And what we found with our customers is that when they make these changes by hand, they don't really have information available to them. So there's no centralized information, no centralized management across the network. We also have found that what makes it hard to run is that there's lots of silos. You have server groups, you have application groups, you have various different constituents that depend on the network and they all do their own thing, and they also often don't do it in conjunction with one another. And consequently, the network is always the problem, they're always getting the finger pointed at them and there's never enough people to get it done. And importantly, lately, over the last year or so, the network is a very big target. It is -- it extends all the way to the extreme ends of where an enterprise or an organization is, and that target as something that people have started to attack by going after the infrastructure. So it's a big attack surface and this is making the challenges of running a network even more and more heightened over the last couple of years.

So why is it hard? Well, some of this on this slide you'll recognize. The stuff along the bottom, firewalls, routers, switches, proxies, load balancers, we know that they are. And believe it or not, a lot of vendors would tell you, especially up and down the valley that they exist because that is the network, and the network is here to serve the organization.

Really, the network is here to serve the applications and the end points at the top of the screen. And we think about end points, think about ATM machines, scanners in grocery stores, point-of-sale devices, sensors on patients and hospitals, robots and manufacturing environments, assembling goods and assembling parts. And you can also think about smartphones and laptops and printers and desktops and tablets, all of those are endpoints, all of which are important to run the business. But they all require something very important and that's IP address and they're visible, and they can be seen on the network.

Virtual machines and private cloud, well, CIOs are adapting these today because there's economy of scale with that. You can get more from the resources that you have already. But they all exist for 1 reason and that's application. Applications are only visible to a network when they have an IP address. If you have an application running on a server and it doesn't have an IP address, it's not visible. If you do not have DNS, you can't find it. And the way IT organizations run today, it's applications talking to applications, users talking to applications, devices talking to other machines and other devices. All those happens with the network.

Think about it. You can line up all the servers you want, put side by side, but if they're not connected, they don't talk to one another. So it's hard because we have all this complexity across the top and we've got this either physical or virtual layer on the bottom, and what's in the middle isn't nearly as sophisticated. It's a lot of people. You heard Robert say it, so much of what's done in the environment today is done by hand or is done with point products.

Now we have complexity growing because of the $30 billion end points that will be here in another 7 years. And we heard questions about the cost. Well, of course, the cost is going up because if you don't automate this, it's going to become increasingly more costly. Visibility and flexibility, it goes down because people can't scale. Lots of point products here, people sitting at terminals, entering information into terminals and command line level, this is where again, referring back to the graphic that is on the screen when you all walked in, the cost of downtime, the cost of instability, the cost of not being able to run the business is increasing. So this is what's in the middle, this is the control plane that most of the companies have today.

And coincidentally, it's where Infoblox plays the best. We have essential network control, which is our DDI. You'll hear me refer to DDI, we're acronym-crazy, it's DNS, DHCP and IP address management. And we play this role of handing out those IP addresses and resolving the queries, the DNS queries, so that applications can talk to one another, devices to talk to applications and so on. At the bottom of the screen, we also discovered the network. And we provide real-time configuration and change management of the network. So the guys you saw on the screen before that are sitting at terminals and doing pearl [ph] scripts and trying to automate through scripting, that functionality is taken care of with our automation portfolio.

And once we've collected this information, we have great visibility into the network, so we have really good reporting. So the customers can understand what's happened to the network, when it happened, where IP addresses were, they use it for forensic especially when we think about security and reducing risk and the network becoming a target, being able to see into the network and have that visibility is becoming increasingly important. So we believe in a transparent infrastructure as opposed to an infrastructure that is full of as despaired applications and humans doing manual things.

So the benefits, you saw some of the benefits that customers talked about earlier. But this list happens to be a list we compiled from our old customer survey and we also saw an IDG survey that came out just recently. Interestingly enough, top 3 items are our top 3 items from the 2. Zero downtime. Customers can't afford to have their networks down. If they do, it's $70,000 an hour I think was one of the statistic we saw when the network's down. We provide 0 downtime through technology, patented technology that we brought to market over 10 years ago. We call it the Infoblox Grid, and I'm going to talk a bit more about it in a few minutes.

Massive efficiency and control. We talk about selling lots of appliances to our customers, either virtual or physical, and we manage them as if they're a single system. You think back to the side where the people are sitting at the Microsoft terminals and so on, those are all managed independently and individually. There's no concept of managing those as a system. So where it may have taken multiple people to manage a Microsoft or an Alcatel QIP environment, we can do that with very few people. Oftentimes, it's 1 person, and it's a less expensive person. So it gives great efficiency and great control.

Our security, we don't try to be a security player in the broadest sense, but we are going to be a security player for infrastructure security. When I talk about infrastructure, I'm talking about DNS and DHCP. It is the attack vector of choice right now and I'll talk a bit about that in a few more minutes. But with our ability to discover the network and resolve DNS where we do, I mean we're the first touch point when it comes to the network, we are the natural place to mitigate those problems and we're doing that with the products we introduced back in January. Real-time visibility, network visibility and historical reporting. Again, knowing what's going on in the network and where it was, when it was from a historical trending point of view.

And the last bullet is something that we're finding more and more important to our customers. That is integration. Integration with VMware, with Microsoft, with F5, with CA, with Cisco, BMC, the list goes on. Companies are looking at the handling of the DNS and DHCP as part of a workflow, and its no longer acceptable to so it by hand. It needs to integrate into systems that they purchased to enable the cloud or enable virtualization. So that we're part of that ecosystem and it does become a seamless spin up of virtual machines or elastic expansion within a cloud environment.

So what's in our portfolio? First, I'll say is, we deliver our products on appliances. They're either virtual or they're physical appliances, but that's how we deliver it. And we do it for a reason, because we want them to be very secure, and it's something that customers can't -- not customers, but bad guys, hackers can't hack into. We also don't want the guy in the server environment say, you know, I know how to make a UNIX server run a little faster. Let me go tinker with this Infoblox system and I'll make it run faster. That's not what we want. We need 99.999% uptime, so we lock it down and make it secure.

But the real value in the company is not in the appliance. It's in the software. And our first layer of software is this Infoblox Grid that you've heard me talk about. You may have heard Robert. Certainly if you've heard us ever talk, you'll hear us talk about the Infoblox Grid. It's a real-time distributed network database. It's unique, it's differentiated. No competitor has anything like it, and this is the 10-year advantage that Robert spoke to a few moments ago. We started building this more that 10 years ago. Most of our 6,500 customers have it installed. It's our way of being able to distribute data across a broad network with essentially managed capabilities. So this is where our "manage everything as a single unified system" comes in. With it, we have capabilities such as built-in disaster recovery. We have high availability built into it, resiliency.

So our customers, when they say I want 99.999% uptime, it's because of the Grid that we can assure that. Now we'll connect a lot of appliances to the Grid. We can connect thousands to the Grid. They all run the same operating system, they run the same version of software, they look the same, but they may be different sizes, depending on where they are in the network. But it's the Grid that has built this foundation that keeps us competitive and ahead of many other customers -- other competitors.

Network services, this has been our bread-and-butter over the years. This the DDI, in terms of DDIs, the DNS, DHCP and IP address management portfolio we have. You manage, control and optimize handling of IP addresses and DNS, which is the main aim services, so that we can find applications on the network. That's how you find them, IP addresses, given visibility.

Load Balancer Manager. Today, we manage in the 5 [ph] global traffic manager. And the reason we did, customers came to us and said, "You know, I don't want to go to more than 1 place to manage my DNS, and we expect you to be the authoritative source for managing it." So a year ago, we introduced a product where we manage global traffic managers. We actually did something where we are able to manage them as part of our Grid, so they become part of this bigger DNS system, as opposed to when they stand alone, they're managed individually. So we've extended our great capability to other vendors and that's just a good example of where we've done that.

IP address management itself is critical. If a customer is considering moving to a private cloud environment, having a strong handle and understanding their address base is critical to make that transition smooth. This is where we look at those 50,000 IP addresses that Robert referred to or 100,000 IP addresses or 1 million IP addresses and take it out of spreadsheets and give it the ability to manage it so that we don't hand out duplicate IP addresses that we recover when we need to. But it optimizes this address space. We also have add-ons for Microsoft so that we integrate and we look at the Microsoft IP address environment, as well as for VMware.

Security is quite a new opportunity for us. Back in January, we introduced our DNS firewall and our Security Device Controller. The reason we did this was because the -- to be just slightly technical for a moment, but DNS happens to be a signaling protocol and firewalls let it come through. If a firewall does -- blocks a DNS query, that means the network will appear that it's not working, so they let it come through. Bad guys have figured that out and they put malware, hide malware into those DNS queries and they come into the network and they set up shop, and they establish a communication channel back to servers that are on the outside. So if that's going to happen and we're going to resolve that DNS query, it's the natural spot to defend and mitigate the malware. So we've done that, and that's what the DNS firewall product has done for us. And it's done something else for us, it's allowed us to accelerate sales opportunities. We've been able to shorten some sale cycles because of it. We've seen customers go from, "we're interested in talking to you", to actually buying in a much sort short period of time because they all recognize that this is a scary area for them and there's budget for it.

The Security Device Controller, it's another area we introduced in January. It is to provision policy and access control list for security devices. And think switches and routers that have to have rules so that services can go through those, as well as multi-vendor firewall environments. It's part of our automation portfolio.

And speaking of that, our network automation piece, this is where we discover the network, we automate functions, these things that people that do by hand. We also integrated tightly into our IPAM system so that we now have combined this rich information about the network with our rich information on IP address management. And we do this for a reason because we believe that there should be a single source of information for making control decisions, and we see our database that's embedded within the Grid becoming that single source.

So that's what our products to do. They also scale, they scale from the extreme edge of the network. Think of a retail store which is kind of at the very far edge of the network, all the way to the core. Our products are priced and sized appropriately for the part of the network that they're going to play in. We also deliver virtual instances on Cisco, on Riverbed, on Hyper-V for Microsoft, as well as VMware. I already mentioned that we manage load balancers.

So our strategy going forward is a pretty straightforward 3-point strategy. We're going to extend the grid. And we already have such an advantage with the Grid. We're going to invest more, from an engineering point of view, to create a more robust but form of the Grid. And you can see across the top, on the right-hand side, enhancing our security and evolving our offerings around advanced discovery and firewall management and load-balancing, configuration management and automation.

Some of these functions today run separate of the Grid. And over time, and we begun doing this today, put these functions on to the Grid so that they now behave in real-time and they share the same data source so that integration's easier. Some of these functions happen, for example, many companies have providers discovery, they'll run Discovery once a week or once a month. We think that Discovery ought to be targeted and ought to be done whenever a new device is added. Putting that information together, creating this authoritative source for control decisions is part of our longer-term strategy. And we want to do that because when we expand the DNS and DHCP and IPAM market, to be able to reach out and go after the rest of the market that hasn't been bought from us, we need greater functionality, more control from our IPAM console. And today, we have a centralized single pane of glass that we manage all of our DDI infrastructure from. That single pane of glass ought to be able to manage the security aspects, the discovery, the automation and so on. So we'll extend our commercial grade DDI by enhancing the Grid, but also by adding more and more functionality to it.

We also see a great opportunity to embed ourselves and integrate into cloud orchestration environments such as clouds stack or open stack or deeper into the orchestration, cloud orchestration products from VMware as well as system center for Microsoft. And we'll continue to do that as we build out this portfolio of IPAM and DNS and DHCP capabilities.

And the last of the third bullet is going to adjacent markets. We already signaled where we're going, we did that in January. We said we're going to go after the security, securing the infrastructure, the DNS and DHCP infrastructure of our customers. And you'll see us put more energy around the denial-of-service attacks and in intelligent denial-of-service attacks, where we are able to fend off the attacks and the flood that comes to us, but let the good traffic through and do it in a different way and do it at protecting the infrastructure of the network. Advanced DNS firewall, adding more capabilities to the DNS firewall we currently have, as well as DNS analytics. And we're going to do it by leveraging our core competencies. We're not going to try to go outside the areas that we've done so well in the past.

So today, if you were to look at our solution, we have the Infoblox DDI product, which has been the anchor and the center of it, with the Grid pretty well attached to it. And we've got integration with network automation and integration with our security -- infrastructure security. But what you'll see over time in successive releases of the products, and this is happening now in each -- if you were to look at our roadmap, you'll see this happening over the next number of releases, that we'll build more functionality into the Grid and we'll treat our DDI capabilities as an application that's consuming data that's stored within the Grid and taking advantage of those resilient and high-availability features that are found in the Grid, just as network automation is and infrastructure security. But you'll also see us build more in the area of network analytics and reporting, enablement for cloud, as I mentioned earlier. And if SDN takes off, we'll be ready. The reason we think that is because no matter what the technology being used, IP addresses, resolving DNS, configuration is going to be relevant long into the future. And this is where our long-term strategy will be. Take the Grid, make it relevant, create a single source of control information so that we can automate those functions that are being done by hand today.

So our customers, they sum it up in 3 areas: High availability, go through the Grid; secure, we provide very secured appliances today, but we also secure the infrastructure; and automation, taking the manual aspects out of what people are doing today to run the network so it's not so hard, making it much easier for them.

Okay. So I can take a few questions as well. Jane has a microphone, she'll...

Unknown Analyst

It looks like the Grid is obviously the key differentiator here. How is that different in some of your other competitors that are also trying to automate the network? It sounds different from certainly the manual process, but is the Grid unique to you or is some of your competitors they're automating with software, other appliances? Are they using a Grid technology as well?

Wendell Stephen Nye

No, they're not. Our competitors, they manage individual servers as individual servers. So they don't have this concept of a shared database, a centralized data, but independently and individually maintained servers in it. So the Grid is very unique to us. There's nobody that has developed anything that looks at all like it yet.

Unknown Analyst

When you talk about managing IP addresses, I guess you mentioned like 50,000 IP addresses earlier. What would be -- I guess, what would the average comp in, let's say, 10,000 employees, how many IP addresses would a company like that have? And I guess my understanding is that there's certainly a range of those addresses that are going to be private IP addresses, and do you have to manage private IP addresses in the same way as you do public IP addresses?

Wendell Stephen Nye

So we use, especially when we think about the opportunity, we think about 4 to 5 IP addresses per employee in a company, and it may be higher. Some companies is higher than that. But just in my briefcase, I have 3: My iPad, my iPhone and my laptop. That doesn't count my printer working [ph] and so on. So I think 4 is fairly conservative. So a company of 10,000 probably should expect about 40,000 IP addresses in the organization. And that's not counting the IP addresses that are assigned to applications that individual employees don't have or the various different network equipment or the surveillance camera or the thermostat. I mean the list can go on and on and on. So it's probably higher than 4. And you're right, there are going to be IP addresses that are going to be static. They don't need to be recovered. That's the way it was done years ago where an application will have an IP address and it would always stay the same. But an organization has an address pool for which you -- it only is so large. So knowing where those IP addresses had been assigned and which ones are able to be reassigned and recovered is important so that we don't have overlap and we don't have duplicate IP addresses. If there's duplicate IP addresses, it appears that it's broken.

All right, here's one. I'm sorry?

Alexander B. Henderson - Needham & Company, LLC, Research Division

Alex Henderson, Needham. I was hoping you could talk a little bit more about the NetMRI product in terms of how integrated it is in the Grid elements and whether you're going to continue to talk about it as a separate product or is actually a big part of the core to what is driving the value proposition around the Grid. It seems to me that the IPAM is really a Trojan horse that's putting you in a position of strategic control, and to talk about it as a separate product seems kind of odd to me.

Wendell Stephen Nye

Today, it is a separate product. It does not share the Grid as a standalone product. So if you imagine that slide, just several slides back where I had the boxes across the top on the right-hand side, much of the functionality that you saw in those boxes, configuration management, automation and discovery will be added to the Grid. So our goal has been all along since we brought that technology into the company is just harvest pieces of the technology from that MRI and put it onto the Grid, control it from a central location. So today, it is a standalone product. We have integration where we will discover the network with NetMRI and we'll feed that information into IPAM. So that is a tighter integration. But there are 2 different interfaces today and they are 2 different products. But we'll see starting with our next release -- excuse me, not our next release, that's later this quarter. The release after, which will be at the end of this calendar year. The largest functionality regarding discovery will be moved from that onto the Grid. So we've got a roadmap that is moving it over. And I think you're right, the IPAM is the Trojan horse. So the more data that we can collect from various different sources and combine it, correlate it with that IP address information, it becomes much, much richer and will support configuration provisioning and security.

Unknown Analyst

Just as you integrate more of the technology into the Grid product, should with expect, like we saw in Trinzic over the last year where you have the ASPs moving up, is that a part of the product strategy where you integrate more technology and you're going to be selling, continuously selling things with higher ASPs?

Wendell Stephen Nye

I think part of the strategy is, yes, to raise the price wherever we can. But importantly, it's also to increase the margins around it because if we're able to sell a software license to an existing collection of appliances, the COGS are quite a bit lower. So we want to see -- have the ability to go back to our customers, give them value proposition that we're going to allow you to protect your investment in this equipment that you purchased from us, but we're going to add more and more software functionality on top of it over time, do it through license keys. So we see it affecting us in both directions. And if you've listened to any of our earnings calls, you'll know that so much of our business comes from our existing customers. We keep going back to them and selling them more. And you see it with our reporting appliance, you see it with our DNS firewall and so on. These are all add-ons that we can go back to this install base and keep selling. And that is part of the strategy, keep providing more and more functionality the customers will pay for.

Unknown Analyst

Steve, I was wondering if you could do -- it's a little favor here around the SDN strategy and really articulating where you fit as you think about kind of the world going to SDN, obviously, kind of SDN is generic as cloud now. So as you think about it in an overlay environment with the VMware this year [ph], what's your role as you think about kind of that SDN environment, and then maybe a little bit about how you would interface with maybe an open-flow environment? Are you potentially replacing those layers of control or would you be more complementary?

Wendell Stephen Nye

What I'm going to do is I'm going to call on my colleague later, which is Stu, and the reason I ask Stu to do it is he's very active in open flow, participates in the standards committees within open flow, chairs one of the boards. So I think the best answer you're going to get is going to be from Stu regarding that. And we can take that up in the Q&A session later or maybe over lunch, if you'd like. Okay? Thank you very much.

Stuart M. Bailey

Thank you very much. So you've heard from Robert that the drivers for our business are really around how hard it is to run a network and how much it's getting worse. And it's just getting worse. And you've heard from Steve about some of the core value propositions that we've been delivering into the market now for over 12 years, which is to automate difficult functions so that networks can start to scale in an economic way.

You also heard from Robert that the drivers can be quantified a lot by what we think about in terms of scaling a network, the number of IP addresses. That's one way to kind of measure things. The number of DNS queries, right? This function that allows applications and devices and sensors to find themselves on modern networks. You -- but the other thing you heard is that there's this kind of harder to capture or quantify quality that really, in our experience, has been driving our business since day 1. And that's this idea of complexity, that it's somehow difficult, the scaling vectors bring up this complexity. As you try to scale a network, it's really complexity that becomes the barrier. If just capacity was the most important driver, you'd expect the service provider space, for instance, to be our leading space. But it's not, it's a growing segment. But always, we have had the most success, our distributed automation platform has added the most value into organizations that are battling complexity as a result of relative scale for them. And so that's challenging to quantify. And you can just ask Chris Andrews, our VP of Sales, how do you convince an organization that believes that they've spent all the money they need to spend that really complexity is increasing in such a way that they might want to invest in a strategic automation platform that allows them to cope with the challenges that are coming. It's not an easy thing for us to even do because it requires somewhat of a different mindset and maybe measuring things that we're not measuring today.

So about 9 months ago, we started an effort to see, can we actually quantify in some meaningful way this more intuitive concept of complexity, which tends -- which turns out to be the central driver for our business. So what I want to talk to you about is some very early but exciting work that is -- that we have initiated to do exactly this. Because we think it's -- we have 6,500 customers who understand this, but we need to help both them articulate it better, as well as the market at large understand better how to quantify it so there's a easier grasp at the opportunity that Infoblox has to continue to deliver value as this networking market evolves in an extremely exciting time.

So we have the simple project -- it seems simple to say, but a new project to see if can we find a single number that is at least somewhat easy to compute and somewhat easy to understand, which captures, in some way, some -- obviously, it's not going to tell the whole story, but it captures in some way that's very intangible notion of complexity that's really central to our business.

So one of the biggest challenges in this is actually the mindset for the networking industry, right? The kinds of products and the way that the enterprise, the larger organizations today build their networks. What network are we talking about? What network are we actually going to measure this complexity in? It can't be this collection of boxes that do things, the wires, the plumbing. Of course, there's a lot of complexity there, but it's very hard to attach that to the thing that's happening in the business that's driving the need for the network to evolve. It's really a different view of the network.

Imagine, if you will, a CIO of a health care organization today. 5, 6, 7 years ago, for that CIO, the network meant the left part of this slide, the routers, firewalls, load balancers, WAN optimizers. And the business function of the network was email for the doctors, payroll systems, right? Pretty traditional IT things that businesses have had for 15, 20, 30 years that have been increasingly -- residing on computers. But today, in 2013, your family members may be in health care organizations with actual sensors measuring their vital signs and other important data that is getting sent over the network to some collection point that cause -- that when things happen triggers a nurse to come and administer health care. That is a different view from a CIO perspective. Suddenly, the network is not the plumbing. It's not the collection of these esoteric functions. It's the sensors connected to the patients, it's the systems that are collecting that data for health care reasons and triggering processes that cause health care to happen. That's the network that the CIO is responsible for because the organization is responsible for the health and safety of your family members. And so if some of that data goes to an outsourced partner, like Quest Diagnostics who does tests, the CIO of the health care messenger [ph] is responsible for getting that data to the outsourced testing place and back on time. So even if the plumbing is owned by somebody else, the responsibility still resides with the CIO of the health care organization to make sure that effective network is working properly to provide health care.

Let's take a retail example. When you go to a store today, somebody has clicked an inventory control device to make sure the right products that you're looking for on the shelves. And if those inventory control devices, which are connected to the network, aren't getting that data to the inventory control systems, which are then placing orders automatically with the suppliers, when you go to the store, you won't able to buy the products that you're trying to buy. So the CIO of that retail organization is increasingly aware that the plumbing is not the issue. It's this effective network of sensors, applications and devices, which conspire and interact in realtime to actually get the products on the shelves so you can buy them. But this is a different mindset for networking. So it's going to take some time. But again, we are tremendously confident because we have 6,500 customers who understand this. And it's why they have purchased our distributed platform for automation because it's the right side of this network that is of pressing and increasing importance, a business accountable network as we move forward.

So if we want to measure complexity, what are the most simple questions quantitatively that we can ask? So the first one you'd think is very straightforward, how many of these applications, devices and sensors are actually -- comprise my network, make up my network? Well, again, most organizations, they don't have a comprehensive global distributed system that understands that data can't even answer their question. If you ask most CIOs how many things are connected to my network, your network, the general answer is, let me see what I bought. What are all those devices that I purchased and have asset tags and may have an IP address that I somehow allocated in some way. But as we just said, there -- in the health care organization, when you bring your own device into the hospital room to be with your loved ones, suddenly, your device is actually part of the hospital's network. Right? So how do we even count that? Without a comprehensive system to capture it, we can't. If you're VP -- if you are a large manufacturing company, you have customers that need to buy your tractors, so you -- so getting to your sales information is critical.

Let's say you move to salesforce.com, you've moved to the cloud strategy, so many of our customers are doing that today, increasingly. Is salesforce.com part of your network? Absolutely. You don't own the assets of salesforce.com, but for that moment, if your VP of Sales cannot get to salesforce.com, right, you can't get the business done. You can't call the people, you can't do the right things. So what's connected is different when you think about an effective business accountable network. And we're just beginning to understand how to measure that. And without having a compressive solution like ours, there's no way.

Next is the interactions. So we just said, "Okay, great, we can find out all these things on the network, all the devices, all the sensors, but how are they actually interacting?" What's happening, when those sensors send data, the health care data, they actually have to find the right systems to send it to. And increasing those, systems may be moving around. So what -- how can we actually measure when these applications are talking together? When you -- if you have systems for a large trading floor, right? At some point, some group of systems has to actually contact the other and execute the trade. It's really the interactions, not the structure of the network, the interactions that are happening at every minute of every day that comprise the most fundamental place to capture what's going on in your network and how it's accountable to your business. And if we're going to measure complexity in some meaningful way, we'd certainly want to know how is that changing over time. So as an attack to really quantify complexity, we think these 2 -- these 3 questions are kind of central to gathering the data, which has the information to let us say something quantitative and meaningful about complexity on any given network.

So let's talk for a second about DNS. Now DNS, we don't want to talk about -- it's a protocol, but what does it do? DNS is the perfect place to start to capture the information we need to measure complexity in a general network in some meaningful way. Why is that? Because DNS mediates every meaningful transaction on a modern network today. It is like a device dialing a phone number. It's how the sensors on your family members find at the exact time that they need to upload the data, the right place to upload it to, because that maybe a data center that's outsourced. DNS is that thing that allows applications, sensors, devices to find each other in realtime on the business-accountable network. So if we look -- and we are the industry's leading provider of that function in large enterprise networks today. We're the leader. That's what we've been doing for 12 years, is providing systems that allow applications to find each other in real time. So we feel in a very comfortable place to capture the record of those phonecalls. And that's the way you want to think about it.

So if we wanted to know what applications were talking to what other applications, what devices were talking to what other devices, looking at the history of DNS is just like looking at the phone records for a city. You'd be able to tell, are you 4 talking to each other? Hey, are you 10 over there talking to each other, at what period of time? And we think, here, by just having that information available, we have the inkling that, that information may allow us to say something meaningful about complexity in some quantitative way. That's very exciting. And I want to highlight because DNS often conjures the Internet since that's where it was born as a technology, but never has that been the driver for the Infoblox value proposition in the market. The Internet is just one network of all modern networks today. And the data center, by the way, is just one network. In fact, the network is just a subsystem, generally speaking, in a data center along with compute and storage.

What we have been focused on since day 1 and continue to be and believe the opportunity is, is what IDC now calls the interactive network of things. Now they're very specifically not saying the Internet of things, because we don't actually know all the technologies that will be involved in an emerging interactive network of things. But we know that it is, generally speaking, those networks that are accountable to organizations so they can actually do business, which is exactly the opportunity we've been helping with. And we think that's only going to increase, along with what exactly the analysts have been saying and what our own experience is. Absolutely, our own experience.

So we have these -- so back to capturing the number in some way. Can we find some metric that says, today, you have this complexity rating; and tomorrow, look, you have this complexity rating; and next year, and next year and next year, in a way that allows an organization to predict in a more quantitative way what's happening to their network so they can invest in solutions like Infoblox ahead of the curve so they're not trying to put something in after an inflection point that they didn't even know happened. So with the kind of data that we have, this call record data of all the applications and how they talk to each other, we called up our friends at the University of Chicago that are big data specialists, and we said, "Is there something in this data that can allow us to capture in some fundamental way this ephemeral or more intuitive notion of complexity that's not tied to just scale." Because certainly, if I just have a big network where I'm not actually doing these different processes, it's not so complex. Or if I have a lot of little networks, it's not so complex. And they said yes. The test is, it should look, and we call this the network complexity rating, the numbers should say, well, in 2001, we had a pretty simple network. It didn't do much. We went to the Internet and we had some internal processes and that's it. But in 2013, we moved so much of our actual core business onto the network as a platform that we can tell by analyzing the call records that, oh yes, those 10 systems over there are doing manufacturing. And those 10 systems over there, which in cloud -- which include 3 systems in the cloud, are doing sales. And these guys over here, those systems there and those devices are providing a primary health care function. And they say, yes, there's a way, there's actually a very simple computation, I won't bore you with the math and science of it, but there's a very simple competition that captures both the size of those groups and the number of those groups. Because if I just had one big group doing one thing, it's not -- it maybe big, but it's not very complicated. And if I just had a lot of pairs of people, right, doing it -- that's not very complicated either. But if have a lot of big groups doing things, there's a good -- there may be a good indication that the actual business is moving more fundamentally onto the network as a platform.

So we actually went to our customers and we're starting to establish an actual baseline with this kind of data. And we're just at the very beginning of this. We're very excited. A simple sample we took was to measure this DNS data, which has this information about how devices, applications and sensors talk to each other for just a pretty brief period of time, right, like a week, across different industry verticals, you can see 4 industry verticals here and different-sized companies. And we computed this number, which is a simple number, which says, let's just take the small financial. So it's just in a week, right, there were 6 systems, if you think about these tables, 6 systems that had at least 6 other systems that were interacting with it fundamentally. Now it doesn't mean there wasn't one system, maybe the most important one, if it's a small financial, it still may have hundreds or thousands of customers, or maybe one system that has a lot of interaction. But we're trying to find the balance point between size and number of these interactions to capture complexity and in the smaller 6. We go to the HR world, and there's 419, in this window, systems with at least 419 other systems that are interacting with it in that time period.

And what this means, if you look at the sizes of the companies, is that there isn't a direct correlation. Obviously, it's what we'd expect. The bigger companies have higher complexity ratings. But it's not just driven on the number of employees, and it's not just driven on some -- number of devices either, that maybe an outsourced payroll company has more touch, looks more like a cloud company, the network is more strategic, and that other organizations may have more employees but have a different profile complexity. Now that's interesting in a snapshot, but you can imagine our excitement because we're the only company in the world positioned to capture this kind of data for a global organization to systematically study. You can only imagine it's really how -- once we have a baseline, how is it changing over time that allows an organization and this is -- we've gotten quite a bit of feedback from our -- some of our existing customers that we approached, how much they'd like to know what is -- how is this number changing over time because it lets them think about investing strategically. If this number is growing exponentially, then maybe it's really -- it's not just the Infoblox automation platform they need to think about investing in to come back and cope with the challenges of complicity, there may be an entire strategy they need to think about which is fundamental.

So how is it changing in time is really the big question. Our experience -- so we put a question mark. But our experience in over 12 years of selling these solutions is, this network complexity is doubling every 18 months. And we think we are in a very exciting trajectory to quantitatively prove that. And even the journey of attempting to do that starts to bring into focus the critical systems that our customers, and we feel the market at large need to be thinking about as they start to move more of their business onto the network as a strategic platform. So that's extremely exciting, and you're getting a sneak preview, keep watching us on that.

So what does that mean for the networking industry? Well, if the center network here, so this slide says, on the left is how we thought about networking for 10 years, 15 years, 20 years. Boxes that do things. And that's been appropriate, right? Load balancers, WAN optimizers, firewalls, routers. But they don't represent the center picture here, which is the effective network that a CIO is responsible for the things connected and how they conspire and interact in realtime to provide health care, allow you to sell farm equipment, to sell cosmetics. If the chokepoint -- if this center picture is measurably becoming more complex, then we need strategies like the Infoblox solution that automates tasks so that organizations can cope with the complexity and not be overwhelmed as they actually leverage the network as a strategic platform. That potentially changes everything in the network industry.

And there's one thing we can say for sure, this is not a theory. Those companies that have embraced the network as a strategic platform, let me name 2: Google and Amazon understand that software has always been and likely always will be the place to cope with complexity at scale, and that software should reside on hardware, which in Moore's law, has been increasing. That's not a theory today, that's not a conjecture. After, I don't know how many, 15 years, we know Moore's law, and I wouldn't want to bet against it, by the way, which is for every dollar I spend, I get that much more computing power. So now, with Moore's law as a reality and an increasing complexity in mainstream networks, we see our customers and market at large moving toward a position like in Amazon and Google where software is the center of value, where they -- and this kind of paradigm shift, we haven't seen a transfer from hardware as the economic center value. I have a box that does this, a box that does this, a box that does this, to a different paradigm where I buy inexpensive general-purpose equipment and layer in value-added software. That kind of paradigm shift has not happened since the end of the mainframe. And that is potentially very, very disruptive because we have 10 years of providing solutions to automate and cope with complexity. The core values of the right side of this slide, we feel very comfortable in actually being a trusted advisor to help our customers and market at large to transition because it's going to be a very disruptive transition, whether it happens in 3 years, 5 years or 10 years. How do you transition rationally? How do you measure what's going on, in a way to say, is it now? Do I do this? What's this -- we feel in a perfect position to help the world transition into a new paradigm for networking, very exciting.

Okay, questions? Now I've taken a lot of oxygen out of the room.

Stuart M. Bailey

Yes?

Unknown Analyst

Stu, you talked a little bit about DNS being the central point of mediation of interactions, and it helps me kind of think about the amount of data that you can capture in that. So when we think about big data, you talk about volume, velocity, variety and you're capturing on this data. I'm just trying to get a better understanding, how do you actually capture the value though? What kind of business value will you generate for your customer by being be able to capture all that data? What can you actually deliver to the customer?

Stuart M. Bailey

Sure. So again, today, the value for us is the reliability, right? It's the complexity of even managing the system. And in the future, is it going to be DNS? Is it going to be something else? We actually don't care too much. That's just a protocol for us. The real value is systems and things have to find each other. What we're demonstrating here is the exact -- hopefully, we hope one of the concrete places we can add value by actually capturing that data and analyzing it more concretely, which is now you have a central place, DNS is the only place. It is the closest thing that is networking, by any definition, but actually accountable to all of the apps. So if you went and measured data from a load balancer, any given load balancer, even load balancer deployment may only touch a percentage of applications. Any different -- WAN optimizer may only look at branch applications. DNS is at the control plane, which is as close as you can get to the applications in the business and still be a general network platform. So from there, we think the network complexity rating is actually -- potentially concrete value point so that customers can understand how is their network evolving in complexity in a quantitative way so they can think about investing more strategically. If you ask them, obviously, we've always sold on a good ROI for those companies who actually understand how strategic it is. The challenge is, if you have never budgeted for it and you just have people who do it, it's hard to say, "Oh, you've already spent this, now you're going to spend this." Whereas if you have -- if you see, "Oh, it's not really just about the ROI. Hey, it's about how my network is evolving over time and how complex it's getting. I need to automate these things." We think that's a value.

Unknown Analyst

Stu, just a follow-up. But if you look at Splunk, right, Splunk captures all sorts of machine-locked data and machine data, and they've developed a huge business model by being able to kind of monetize that. And I'm just trying to get a better understanding, is there a business case to be made that you guys are capturing all this data, is there a way to monetize that in the future?

Stuart M. Bailey

Absolutely. I think the network -- if you think about how the network is going to explode, right, and we just -- and is exploding today, where are you going to capture that data, right? Because if you have exponentially more applications, you have to put probes on those, get those particular logs, right? If I have more and more sensors, how do I modify those? Do I make sure they -- the network actually emerges, and this what IDC says as a platform because that's the place to cap. As the network becomes more complex, we're in a perfect position to capture, as this demonstrates. So you just -- now you add application data on top of that. And software-defined networking, things like open flow, allows to have access to what essentially is network taps at a very inexpensive way. We can only add. If this gives us more than anyone's ever had before visibility, then we're in the perfect position to only add data to that. And more importantly, since we're already at a position of control, we can now dial, potentially dial the knobs on the plumbing in a much more effective way that's more connected to the business. So if I need more bandwidth or I need to make sure this particular application, because it's 5:00 and that's when all the sensors report their health care data, I can make sure that happens. We're at not only a strategic place for data capture, but we're uniquely selling a control-point solution for 10 years. We're in a strategic place to actually take action on that data which is really where the real value is.

Unknown Analyst

Stu, so 2 questions. One, a company like Solarflare that's doing something similar to what you're talking about, except doing it from a cloud perspective with the data points. The data capture happening at the service provider seems like a broader solution, can you address that? And then second, it seems clear that the orchestration and automation is the critical functionality of most of the hypervisor-based companies, whether you're talking about Microsoft, whether you're talking about VMware, they view that as critical to their core competency in managing the network, managing the deployment and then realizing what's in your network. Similarly, the orchestration companies like Tivoli and VMC and people like that, those guys also view this as strategically important. So can you talk about the competition and cooperation between those key players in that context?

Stuart M. Bailey

Sure. So I think both from a Solarwinds perspective and kind of the traditional change in management configuration...

Unknown Analyst

Cloudflare. [indiscernible] of Cloudflare. Cloudflare.

Stuart M. Bailey

Okay, Cloudflare, okay. So yes, I'm not so familiar with Cloudflare but here's what I can tell you. For us, and again I want to keep stressing this, we know of no other company that has a distributed platform throughout the entire organization that manages these control plane functions. And that is -- allows us to have visibility about what the organization is trying to do, no matter what their cloud provider is for any given function. So we put at the center of our kind of value proposition, the CIO that's responsible for a business, not any particular technology group. And I'm sorry, what was the -- and you also mentioned the orchestration. So -- and I also want to be very clear about because we bought a company in the configuration and main change management space in 2009, right, but that is not the market we're interested in. Orchestration is really about workflow. I have a bunch of processes. I want to make sure I can click, click, click like CRM systems. I want to be able to be sure I have a good coordination but I'm not trying to take people out of the loop. We feel that there are a growing number of functions especially in the kind of hardware defined networking space that you'll want orchestrate, you want to fully automate. So we make the distinction between automation, orchestration and certainly interfacing with orchestration players is going to be increasingly and it is today and will be increasingly important. We have partnerships with VMware and others who are focused on orchestration technologies but we're -- we really make the distinction that the value process from Infoblox is to really automate complex tasks in the network.

Unknown Analyst

It's Rod Holiday [ph] from Morgan. I just wanted to maybe clarify a little bit further. So you have this next-generation network visibility analysis capability and in a specific example, let's say Nicira's got a controller sitting there, operating to directly controlling virtual machines or virtual switches. Do you intend to do the same thing that they're doing or are you going to just present information over to them so they can dial the knobs? That's what I'm kind of trying to figure out.

Stuart M. Bailey

Okay, so the question is about Nicira and network virtualization in the data center. I would...

Unknown Analyst

Right, not just Nicira. You could put Big Switch in there. You can put new large networks. Whoever is -- people doing that controller software, do you intend to move into that space or do you intend to provide information to those people so they can do what they need to do better?

Stuart M. Bailey

Okay, so just -- that's general SDN landscape question, just to frame it. And the question is, is there any visibility in their strategy? I think it -- for us, again, we've been laser-focused at adding kind of very tangible value into the whole effective business aware network. The kinds of activity that seem quite frothy right now with respect to software-defined networks tends to be centered in either service provider, right, where there's some economic imperative there and they tend to be called network function virtualization or within the data center where networking is really increasingly considered just a subsystem like storage and compute. And so we would -- again, that's neither of those, there may be opportunities for us there but our opportunities in the network, in the whole as a platform and so the question is, how should we best play into those situations? How should we best partner with those situations? Can you even sell independent software into a data center in 5 or 10 years? Those are all strategic questions that we have to answer ourselves.

Unknown Analyst

Stu, just curious, you started the conversation by making references to service providers. Just wondering, what is the opportunity there for Infoblox or service providers and how does that sort of develop over time?

Stuart M. Bailey

Yes, so I think the service providers have all -- is a growing opportunity for us as they always have. They tend to follow the enterprise in terms of adoption of technologies like IP, is a great example. As Robert mentioned on the call, LTE and Wi-Fi upload, our drivers, those are much more on the very traditional capacity side, which our products deliver. And so I think we would -- it's always early to tell but we consider that as -- continue to be opportunistic add-on incremental growth for us.

Unknown Analyst

Just one quick technical question on kind of this data, what do you do with the data? One, how long you actually -- are you actually capturing and storing data on the device and if so, how much data are you actually capturing relative to always interactions? Is it a week? Is it a month? Is it a year? And technically, are you able to expose that to a customer today?

Stuart M. Bailey

Yes, today, so this is -- so the question is, how do we actually go about capturing it? How long, those kinds of things in terms of getting to this network complexity rating? So these are some of the most -- today, we've been very careful to capture data without affecting any service. We are actually adding capabilities to our grid product to make that even easier. We're being very careful to work only with those customers that are really interested in studying this themselves before turning it on everywhere. So we also make sure we have a good visibility to the analytics. So what I'm giving you is very early preview at capability -- at data capture and what we may be able to do with it. Not necessarily to monetize directly but to help, in this case, specifically, draw attention to the strategic importance. And we're not going to roll that out as a product feature. We have no plans to roll that out as a product feature any time soon. They're just capabilities that we're embedding so we can work with customers who want to study those things.

Unknown Analyst

Just one quick follow-up here. On SDN, just to be clear, are you part -- is your SDN strategy to partner or to be a SDN controller competitor to a VMware, Nicira, Big Switch, new name XYZ?

Stuart M. Bailey

Okay, so I would say our SDN strategy is to wait for an SDN market to emerge. So there's no market today. If you go ask our 6,500 customers, the vast majority of you say, hey, what's SDN? What does that mean to you? They'll go, what? What's that? Right? They have -- had been heads down trying to sell cosmetics and pharma equipment and provide healthcare and they've been -- have a way that they do networking today, which has been working for them. And we're not in the business of telling them that what they've been doing is wrong. We might have some insight due to -- both of our experience and our -- and where we sit as a control plane product that we can say, hey, we think that overtime, this will be increasingly important and I think that. I think overtime, software-defined networking will be of the utmost importance to every one of our customers. But not today. So those companies that are focused on opportunities in the data center, which I don't particularly understand how you make money there. Or in the service provider space, which again is challenging you for other reasons. We're not saying -- we're just like that's not what we're waiting for what we think is a very large opportunity in software-defined networking to emerge as articulated to us by our customers and the enterprise market in general. And we think we're in a very good position for that.

Unknown Analyst

Stu, I'll clean up on this. Before we get -- the road to SDN usually is paved with virtual plans before you get there. So rather than recreating the wheel from SDN perspective, usually, the first thing people do is buy the software virtual version from the same vendors they've been buying before. So comfortable. And then maybe down the road, move to some SDN-like situation, where you have a controller for somewhere else. Virtual right now, I think, is a small part of your business. Obviously, you sell a lot of boxes. You did touch on it, it was touched on earlier, do you see that becoming over the next couple of years more important in your business in terms of people are requesting the virtual version of your Trinzics and how well does it work when it's not on an Trinzic box and it works on either an x86 or some other type of situation?

Stuart M. Bailey

Yes. So the question is, is network virtualization the same with SDN? That's actually not clear. Clearly, that in a high density data center situation, if you have boxes and you have a process around boxes and now those boxes can be virtual, that's some sort of software-defined strategy. For us, again, we're not focus on that but rather what happens when the economics of the network change. When you're actually buying cheaper hardware and software becomes the center of value and we're not disrupted by that, because we have a box that's already a white box and a server, right? So unlike those that sell load balancers or WAN optimizers or firewalls, we sit at the control plane. We don't process packets. So we already sit on a white box and you can buy our appliance on a virtual appliance and put it on your own white box if you want to. That's been available for several years, right? It's only just a little bit cheaper than our -- the reason people buy our hardware is because in a distributed system, which is what our system is, right, it's not a collection, it's a truly distributed system. Bundling the hardware in there just makes it easier to deploy. And at -- because of Moore's law continuous, why not bundle the hardware in there? It's easier to deploy if you're going to deploy 10,000 across the global enterprise because we're not talking about a density situation with our distributed system, we're talking about reach and visibility into a whole network. Why not throw the hardware in there? But if they want to put it on their own hardware, they're welcome to. Whether that will happen or not is not really material for us. It doesn't change the pricing and it doesn't change the strategy for us at all. That's it.

Unknown Executive

Well, thank you, Stu. Ladies and gentlemen, there is a...

[Break]

Unknown Executive

Executive Vice President of Worldwide Field Operations, it's Chris Andrews.

Christopher J. Andrews

Hi, everybody. Thank you. My name is Chris Andrews. I am responsible for sales and support at Infoblox I've been with the company 6.5 years. Formerly worked with some of these people in the room in NetScreen. Going to introduce in a moment, 3 of our value-added reseller partners from around the U.S., and we're going to have a little panel discussion, we've got half a dozen or so questions we'll discuss and then open it up for broader questions from the group in the room, okay?

So let me first ask Roger Singh, CTO from Scalar in Toronto, to please come up and join me. Roger, thanks. Grab a seat, any seat. They're all pretty much the same.

Let me ask Greg Christian, please, to join us from Future Com in Texas, the great state of Texas. Thanks, Greg.

And Dan Wilson, founder of Accuvant out of Denver. Dan, please come up and join us.

Dan Wilson

You have to check for our last name.

Christopher J. Andrews

Well, I'll tell you what. There are 3 Dan's at Accuvant. They're all founders. You have to make sure you get it right. I've known Dan Wilson for about 10, 12 years now. So I'm going to ask maybe, Dan, you start out. You can talk a little bit about Accuvant for a moment or 2. And then the other 2 guys will follow and then we'll go through some questions.

Dan Wilson

Okay. Okay, thanks, Chris. So I'm Dan Wilson. I'm the SVP of Partner Solutions for Accuvant. Accuvant is an enterprise information security solution company. We're based out of Denver. We do business across North America. About an 11-year old company. We've been a partner of Infoblox now for 8 years actually, and I'll talk a little bit more later about some of the numbers there, but our business again is focused on enterprise and a large enterprise to the SME space. We're working with about 5,000 clients now with a lot of those in the larger enterprise in FORTUNE 500. We're working with about half of the Fortune 500 currently, offering a suite of services especially kind of services that are helping define strategy for those clients. Building the front-end architecture, doing compliance work, doing assessment work so that when we do get to the point where we're providing remediation solutions like Infoblox or build a trusted advice relationship with the clients. My role again, SVP of Partner Solutions. I have responsibility for the Accuvant Partner Management. We work with a number of partners, a few dozen very strategic partners, Infoblox included. And then I have responsibility as well for the service delivery, both our on-site and manage solutions services. So thanks for inviting me.

Christopher J. Andrews

Maybe if you can just comment very briefly how many offices Accuvant has, how many people, maybe the size to give us a sense of scale to...

Dan Wilson

Sure, it's just short of 600 people across 38 offices. That group is about half on the services side doing on-site services, delivery product, integration work, as well as our assessment compliance services and about 150 salespeople across those 35, 38 offices in the U.S.

Greg Christian

Thanks. I'm Greg Christian, VP of Sales at Future Com, and we run into Dan's guys 8 days a week. In terms of competition, Accuvant, we're -- we bang heads on a regular basis but we don't have the size of Accuvant. We're headquartered in Dallas-Fort Worth. I've been in business for 22 years having extensive security practice, networking and managed services. Like Accuvant, we probably we resell 70 different lines of products but we can't be all things to all people so we have a strategic alignment with 12 to 15. We sold a lot of f5, McAfee but our #3 partner in that hierarchy would be Infoblox and I'd like to talk a little bit more about the elite program a little later in the Q&A session but long story short, our business with Infoblox, which you guys would be interested in, grew nearly 70% last year and we're on track for exponential growth this year and there's a couple of reasons for that, that I'll go into more detail with when we have a few minutes.

Roger Singh

Hello, I'm Roger Singh and, Chris, Canada is not part of the United States. Here's your jacket. The Canadian on the team, Scalar decisions is now just under 9 years old. Started focused really on the data center. So unlike the other panelists here, we are really coming out of the data center security. Really, it's a new practice to us. Started focusing about that about 18 months ago, very much around Infoblox. Like a few of the other guys here, we've been a long time f5 partner. Scalar goes to market really in 3 different areas, which we call design, deploy and manage design is our presales solutions sets that we build for our customers and our customers range right across the scale in Canada. Right from the 50% organization right into the Tier 1. A little bit easier to do in Canada than it is to do in the United States but also necessary to do. Our professional services division, which today mostly is a follow behind our designs and but with Infoblox actually starting to drive more into assessment services, so leading with services. And managed services in a couple of areas, we're looking at building large compute clouds for media and entertainment, hospital healthcare. So a lot of work in high-performance computing. That's been my background. And specifically to Infoblox, I've got a history with some of your competitors. So we'll leave it at that. And we're -- our focus is really amped up in the last 18 months. Like I said, we're seeing a great opportunity to bring the solution into new customers. So we're certainly using your products and services to differentiate ourselves to get into new accounts.

Christopher J. Andrews

Thanks, guys. Why don't we start with a couple of set-up questions. Maybe you can speak to -- we'll start with you, Dan, speak to some of the network challenges or catalysts that you see in your prospect and customer base. And how that might lead some of those customers to consider a commercial grade solution from Infoblox?

Dan Wilson

Sure. Well, I think I'm echoing a lot of what we've heard in some earlier speakers there that I think the idea of the increasing complexity, increasing demand on the IT group with our clients has just been extraordinary. It's exponential kind of complexity as Stu Bailey discussed earlier, with Bailey's law there. So I think addressing that and certainly, as I mentioned before, we like to be in a position where we're hoping clients build long-term strategies, long-term solutions and increasingly that idea of optimizing the network infrastructure, finding ways that we can automate more of that network infrastructure in order to be able to move resources, to move dollars to other critical areas has been a key part of our growth. And I think Infoblox really is contributing a lot there. Certainly, with the DDI solutions, we're increasing with MRI as well to allow us to have that sort of a conversation.

Christopher J. Andrews

Maybe can you give a specific customer example or a win and where we fit and characterize that interaction a little bit.

Dan Wilson

Sure, yes. We have a large client in Denver, a fast food restaurant, Denver franchise fast food restaurant that we work with and have had a long-term relationship with. They actually had a situation 1,400 franchise locations that they needed to make a fairly simple change to a configuration on an IP set box and I think using their -- using the MRI, using the Security Device Controller. That project that would typically have been something that would take a couple of people 30 days is what they estimated they were able to drive that down. In fact, they probably took it more slowly than they needed to but not a single person spends 2 days on that. So it's a great example. It's a little tough. We were talking a little bit earlier it's tough to find ROI often times when you're in the security space, which is much about avoiding negatives, as it is capturing positives when you're talking about security. So it's very nice to be in the spotlight to have a happy client that can point to clear dollars.

Christopher J. Andrews

The -- maybe, Greg, you can share a little bit of the same?

Greg Christian

Yes. It's interesting, the complexity is obviously, one thing but one thing that we find keeping our clients is awake at night is about compliance. Just having visibility into their network and their operation a lot of these guys simply don't know. Dallas-Fort Worth and Houston, interesting, are very IT resource staff constricted. So the commercial off-the-shelf value of Infoblox as a commercial grade as you guys have heard is important but the appeal to a young person coming out of school or even an experienced IT veteran to say grace over a homegrown albatross system has a 0 appeal. So a lot of the guys that we deal with really looked at not only retraining but attracting IT talent. So the -- Steve roughly talked about integrated workflow and boy, at the -- where people live and breath day-by-day, that's hugely important. So I think that's a point of that really needs to be made. One account, Chris, that would come to mind as far as a great reference for Infoblox is just how well that -- how well customers receive and then kind of go with the flow in terms of the technology, and I'll mention the account by name, it's University of North Texas in Denton, Texas. Roughly 40,000 undergraduate students and these guys had a homegrown system about 5 years ago and the question was to the IT guys, do you really want to be the person in charge when the bat phone rings and that system goes down and the answer was no. Like you, Roger, it was a very competitive situation with BlueCat but based on the POCs and everything, Infoblox was clearly superior but what's important is 5 years later, the delight of the customer, 2 things for us is the revenue has grown every year, year-over-year for 5 years so that's huge for us. Second thing is the customer is delighted and nothing produces success like success. We're in active discussions with these guys with the DNS firewall and it's funny how once the train gets moving, we see more and more revenue coming out of our accounts. The comment was made roughly 50% of Infoblox's revenue comes from existing accounts. But we're finding interestingly enough in the BYOD mobility space especially. We're very good at BYOD and MDM, we just have great technical competence and we found a lot of companies have gone out and gotten themselves in the thicket by buying a MDM solution like a air watch or mobile iron without having thought through their policy, or how it's going to impact the cultural dynamic or operational efficiency of the enterprise. So we start with the -- in the middle with the policy, development in the middle, we help guys develop or refine their policy, the tip of the spear, which is intuitively obvious is the MDM solution but what we've found, like Steve was saying about the proliferation of IB devices to enabling technologies that really fill along for the ride [ph]. I mean, these guys are interested in buying a mobility solution. So in sales, you don't want to talk to them, how do the solution -- you want to sell them what they want to buy. If they want to buy mobility, do we sell them a total solution and 2 enabling technologies there. It's network access control, what's the use of being able to have a IP address if you've got unauthorized users on the network and then the IP address management aspect of Infoblox has been just a huge enabler for our mobility strategy. We probably have 12, 15 active projects within Future Com right now as a result of that holistic approach.

Roger Singh

Interesting, so couple of things to pick up, when I write on a white paper, my mythical competitor it's always Albatross Computing. And University of North Texas, the guy who runs our virtualization practice is actually a graduate.

Greg Christian

Small world, I believe that in Texas.

Roger Singh

Yes, so going back in education, thinking for a minute, and that's a great segue into one of our reference was my alma mater. What we really -- they were already a Infoblox customer, we'll be really looking at extending the visibility of policy management. This is one area that we see a lot of opportunity within customers where you've got disparate solutions around firewalling, load balancers and network and the ability to see everything and draw those policies together has been a big fit. But the marching orders to my field has been specifically around Infoblox is look for customers who are actually looking at or just completed mergers and acquisitions and customers who were looking at BYOD solutions. And those have been very, very good to us in finding opportunities for Infoblox space solutions. The one that I was going to talk to you about is a mortgage alliance organization that brought several different companies together. So it kind of highlighted the problem they had with IP address management to begin with. So we've got overlapping IPs, we've got different command-and-control authority. So we're use the base product, I call it the base product. I know if you mind me saying that. Your IP address management solution, the DDI, as the okay, now we've got everything under control. And now we're extending it into the first implementation of utilizing it to manage f5 GTMs. So really good point in that it's a great solution from our perspective to lay down and build upon. So we're seeing a lot of success with that.

Christopher J. Andrews

Maybe you can speak for a moment. I was having coffee earlier this morning, a couple of the analysts we're asking about competition. And I love the fact that none of you sell any competing products so I feel very safe in asking this question, maybe you can talk a little bit about why Infoblox wins when you do bump into those inferior competitors out there.

Roger Singh

I'll start first.

Christopher J. Andrews

Yes. How about you, Roger?

Roger Singh

Yes. Well, for us, it's really about integration, how we get to solution faster. So we like the fact that you work with f5, you work with FireEye, you work with Microsoft and VMware. Those are very important facets and we analyze and recognize as needed environment. And then techie in these, loves architecture, your layout so availability. So we look at how easy is this product to integrate. How -- what kind of value it brings to the customer from a RAS perspective and then what else we can build on top of it. And going through that checklist, you scratch off a lot of the competition in there. And I'd say, today, as one of the earlier speakers mentioned, your biggest competition is still status quo, right, the spreadsheets and scripts, et cetera.

Greg Christian

I like that exactly. I would agree to what Roger said, and selling Infoblox is really not so much about selling. I don't mean to be trite or trivial as but it's really more about educating. Once the Infoblox story is clearly articulated in distinct way it -- the technology, to a large degree, sells itself. Now the thing that you guys need to be aware of is again, strategy is great but it all comes down to execution and like Accuvant, as I said, we sell -- we can't be all things to all people. So the partners that we really aligned with strategically, it makes all the difference and Infoblox has very good people in the field. Our experience has been that they hire very good people, very bright people, solution-oriented sales people and they don't churn every 6, 9, 12 months. We've got some tenure in the marketplace with guys. So a lot of our accounts, we have 6-, 7-year history with these guys, very sticky. Future Com's very good. Once we get an account, we do a very good job of lending and expanding and it's very difficult and very frustrating to go into accounts even if you're familiar with the technology with a new -- what's top and sidekick, I mean...

Christopher J. Andrews

Come on, you're Texas, you should know this.

Greg Christian

Kemo Sabe. It's very difficult to go in with a new partner. They have to learn the account. You have to educate them and your 4 months trying to find a key to the door before you really get started. So one competitive advantage in my mind that Infoblox has is just the people they have in the field. And the other thing that I really like about the company is the fact that their engineering, they set very good expectations and then they always meet those time frames. A lot of guys saw a lot of vaporware, I won't go into names but when they give us a date, when one of our partners in the region gives us a date, we're going to have this product by this time, they have the uncanny ability of meeting that timeline. So long story short, we're -- any partner, any technology company whether that's f5, McAfee or Infoblox, are only going to be as good as the linkage in the field and the football metaphors, blocking and tackling, it's all in the execution.

Dan Wilson

Well, I agree. I mean, I think I'll reiterate a lot of that, I think there's a number of different reasons that we've seen this -- the -- continued the long-term success we have -- I've had with Infoblox and unfortunately, from my standpoint, we've seen in the 11 years that we've been doing business, there's been a lot of different partners that have kind of come and gone and Infoblox is one of the handful that we've just consistently seen continually ratchet up. I think that's a testament, obviously, to the technology itself and I think the integration of owning the DNS infrastructure and then being able to leverage that to get into some other areas and kind of entry points for our clients. Although we may see competitive players out there, there's no one that has that kind of broad story. No one that's leveraging the different solutions but I think there is an awful lot of blocking and tackling to that as well. I think consistency and the personnel, as Greg had mentioned, I think also the consistent channel approach has been refreshing and we've seen some nice improvements, I think, to the channel program over the last few months and couple of years, I guess. But it certainly has a 100% channel company in the whole time we've worked with Infoblox that's also been a big reason. I think we've been very focused.

Christopher J. Andrews

So I think what you're all 3 saying is it's really all about me.

Greg Christian

Yes.

Dan Wilson

That's exactly it. You're reading between the lines there.

Greg Christian

Exactly, smart guy. We get to mention that some more.

Christopher J. Andrews

Dan, let's start with you. One of the questions, also over coffee earlier this morning, that came from one of the analyst was the ROI of Infoblox. There's a perception out there that we're competing with Free and we're really not competing with Free but there is a perception that we are competing with Free. And we often need an ROI either on the front end to justify the acquisition or later on, yes, we made a good decision and here's the benefits. Can you speak to that just for a moment or 2?

Dan Wilson

Well, yes, I mentioned before, I mean, that ROI is a difficult thing, I think, in the security space to really successfully measure -- you're trying to avoid a negative perception, trying to make sure that you're not finding -- leaving yourselves vulnerable rather than being able to show direct ROI but I think, again, the reduction of complexity, the reduction of the headcount necessary to focus on critical infrastructure that Infoblox addresses has been something that I think is very tangible. I gave my single example there but we've got numerous examples along those same lines of simply being able to reduce the workload in certain areas for certain tasks by implementing, I think, especially NetMRI but the whole line.

Greg Christian

Yes, it's -- one thing we've noticed is that the line a business manager is being drawn in earlier in the discussion, whether it's with Infoblox, f5 or anyone else and a pretty sobering question to ask the line of business, guys, do you really want to be, as I said earlier, left holding the bag when the bomb goes off in terms of a DNS meltdown and there's a large airline in the Dallas-Fort Worth area that's been basically living on the San Andreas fault for the last 2 to 3 years. They looked at Blue Coat -- excuse me, they looked at Infoblox 3 years ago and BlueCat that came in and kind of muddied the waters, some politics got involved and basically the project got mothballed for several years for no good reason. And here, the last 3 to 4 months, there's just been a incredible resurrection of interest in the Infoblox solution and we're actively pinging on a massive opportunity there. Shut your ears. And -- but it's just interesting, they're tired of just playing Russian Roulette with the Microsoft solution and they're very busy about getting their infrastructure automated and secured as we've heard.

Roger Singh

On the ROI, the way -- kind of the way we put it technically as we talked about virtualization to automation programmability and then orchestration, I think somebody asked the question earlier about orchestration. They're all steps along the way to giving you a full automated data center. We recognize that we actually lead with Infoblox in organizations who want to take away the manual task within the environment. Whether you are actually running a competitive product or whether you're running your own, we still run into the same problems with these organizations. So it's about rightsizing, having people do the right thing and more importantly, making it responsive to the application, right? So to Mr. Bailey's earlier point, right, it's all about application delivery and if we can speed up application delivery, there's your ROI and we've got cases where that's exactly what falls out of this. So the customers -- we don't get asked that question from customers. We've got the product because they understand that.

Christopher J. Andrews

I'm going to ask 2 or 3 more questions and then we'll open it up for questions from the room, we'll leave 15 minutes or so for that and if you suddenly become tongue-tied, I have other questions I can ask. Can you, Greg, speak to how Infoblox fits in your overall model in terms of driving growth and profitability for your business?

Greg Christian

Well, there's a couple of things, and that's a very good question. Two mantras regarding Infoblox with Future Com is every existing customer or prospect is a perspective user of Infoblox is number one. Number two where we are already are a trusted advisor and we've already got momentum within account, Infoblox is a very logical addition to what's already being discussed. So the other thing is the elite program, which really a defining moment for our relationship with Infoblox. We had moseyed along with Infoblox, good growth, not the best but accountability really brings a lot of things into focus. And you have to make a value decision on are we willing to invest and do what's being required here or are we going to just continue to be mediocre and sit on the fence where Infoblox was concerned. So when they came to us 18 months or so ago and said, we're going to start this elite program and it's going to require you to have all of your salespeople trained, have X number of SEs Infoblox certified and there are multiple levels of certification there. Have Infoblox compliant lab, a demo center in your office, we're -- they didn't ask but we're in the process of becoming a training center in the TOLA region. I mean, it made us blink and swallow hard in terms of the investment that was required. But the training in that grassroots going deep and wide in terms of the pot of knowledge with our salespeople has been invaluable and the reciprocal aspect of that is if you do this for us, 80% of our marketing money and our efforts in terms of account, our partner focus is going to be through the elite partners. And we get the elite partner deal with the day, at least I do, 1 every 2 weeks. We're going to change the IT industry and if you'll be an elite partner with us, you'll do this and this. And it rings very hollow after a while but Infoblox is one company that has honored their commitments to us. There's been a fair balance of trade. It's been -- the reciprocity has been a win-win for both companies. As I said, our growth numbers are really strong and actually, they're very conservative. So this elite program, we didn't like it at first, we didn't like Tim Colby, we -- get your Chicago pets, get out of here but we've -- he's -- it held our feet to the fire and we're glad that you did. So we're in the process of making history right now.

Christopher J. Andrews

Dan?

Dan Wilson

Well, I'll echo a lot of the same things. I think our opportunity with Infoblox and really our growth over the last couple of years, I think, is the reason I was invited to be up here and the reason I enthusiastically agreed is that I mentioned earlier we've been an 8-year partner. And it's been a good relationship with Infoblox for that whole time. I mean, I think the 5 years prior, 6 years prior, we we're clicking along and it was probably a single-digit percentage of our revenue, a solid kind of complementary solution and it has been in the last couple of years, I think, that we've seen just explosive growth. We've had a great -- we're about 2x year-over-year this year to date and we saw that same sort of growth last year. So I think maybe as importantly, more importantly, the deal sizes are going up. So we've seen that go from 25 to 35 and our pipeline right now is 50. We've done business with about 175 clients and our pipeline has an additional 150 in there. So I mean, I think we're seen a number of things and I think the program, I think, certainly the new technologies and we're very excited about the DNS firewall as a new discussion point with our clients. And I think there's a number of areas that have really kind of put us over the hump in terms of sales opportunities.

I think that exposure that our engineers have had that were due to Tim, I don’t like him either -- to Tim Colby's holding our feet to the fire -- just joking, Tim. I think it was good. I mean it was a goal but a tough commitment to make because there was an awful lot there in terms of technical training and that kind of thing, and it's absolutely paid off where we've now seen NetMRI. We're seeing the DNS firewall become a bigger part of our business in terms of reference architectures. We're exploring a lot of different ways that we can start to have that as part of the overarching story, partnering with Fire Iron [ph], the partnership that I think Infoblox already has with f5, 2 big partners for us as well has really been intriguing. So again, really excited about where we are today, but I also see an awful lot of upside over the next few years based on a lot of right things going right.

Unknown Executive

Both guys made reference to a program we have called the Elite program. We have about 500 partners worldwide that we sell and distribute our products through. Most of our business, over 90% is sold through the channel. A couple of exceptions are service providers, but the -- 2 years ago, we committed to a program we called the Elite program, which has about 75 partners worldwide where we agreed to make the investment together in competency in terms of sales and technical training, lab and demonstration equipment, et cetera, and that we would vector all our lead generation money and lead through -- or a significant part through those 75 Elites worldwide. So it's been a very successful program for us in terms of grabbing their mind share. Roger, maybe just how does Infoblox fit into your growth plan over the next couple of years?

Roger Singh

Am I going to get a quote increase after this? No? Okay. It actually -- it fits very nicely. So to build upon what Greg and Dan were talking about, when we get placed a goal like that from a vendor, the initial reaction is to go to whether the market actually exists to develop this. And sales point in my organization is my engineers. My engineers have got to come back to me and say, this is something that we, A, can do and, B, gives us a differentiated message to go-to-market with. And those came back resoundingly yes from our team. So once we do that, we'll free up that resource to get done. Always takes longer than expected, you know that, to take people out to the field. But we absolutely see that. We're about to turn up our training center for Infoblox shortly. That's going to extend even further with us. We already are an f5 advanced training center. We want a -- we see lots of opportunity in our marketplace to go-to-market with this, and then some of the exciting stuff that we talked about last night around analytics is some of the areas that we have to have some talks, too, and where we want to take this. We think that there's -- looking a number of years into the future, we see a big growth in that area.

Unknown Executive

One of the things that I hear partners tell me all the time that they like about Infoblox but which -- I don't think we talk about that often compared to let's say the security space, we're not asking our partners to take money out of one pocket and put it in the other pocket like you see in the security space with Palo Alto, Sony against Check Point, let's say, or against Cisco for security products. So it is really, at one level, a challenge because we are displacing servers from various UNIX and Linux vendors or Microsoft vendors, but we're not actively competing against some other vendor and certainly not a gorilla in the space. We have about 10 to 15 minutes remaining. If we have mics around, let's open it up for a general discussion. I don't know if we have to stop at 12 or not, but we can go as long as people have good questions.

Unknown Executive

Good questions.

Unknown Attendee

Yes, hi. Can you hear me okay? All right, so...

Dan Wilson

Yes, we can hear you. We can't see you because of the lights, but we can hear you.

Unknown Attendee

All right, good. I guess maybe I'll throw this out to the whole panel. But you sell a lot of other different products in your practices. How would you compare the penetration level of the BLOX technology, the BLOX products versus load-balancers, LAN optimizers, firewalls? We clearly have seen some maturation in some of those areas in terms of growth and penetration. Where are we in sort of the penetration curve for Infoblox? And how much runway do we have left?

Unknown Executive

I'll take that first. Yes, we are currently f5's North American Partner of the Year, so it's a good question to come at me about. I get this from analysts all the time, so I'm kind of prepped for that answer. The -- there are 2 aspects to this. There's the market addressability from an application perspective, what else do we need to get done. But really, the missing gap in the solution set as we see it today is around management. And if you look at the strategy around where Infoblox is going, it's actually stepping more into that area. So that I definitely see an opportunity in there. I'll label the concern is that your UNIX start to see in the -- I think a couple of guys asked the question, are you going to start to see some overlap with some of their existing partners in there, and quite frankly, that's good for us. We need to understand where the market's going, what makes -- what's the best fit for our customers to drive those solutions forward. Sorry, the last one was firewall you said, right? And on the firewall space, there's still a lot of growth in firewalls. If you look at the ability to do UTM, when was that really brought to the marketplace, 3, 4 years back? Is it still penetrated? Not necessarily. We're seeing some -- that move further into the data centers, so we have layers and layers of firewalls where we may have had 2 before, and now, we have 3 or 4 groupings. Some of its moving into the STN space like some of the stuff that Cisco's building with their Nexus, I think, 1000s. So we're -- and d ability to stretch the cloud. The way I put it very frankly is the 4 walls of the data center no longer exists. So we've got to basically redefine that parameter, and I think there's growth in all markets around that spot. So from Scalar's perspective, we are doubling down in our security practice because we see it's probably going to be the fastest-growing area of our business.

Unknown Executive

Well, we were f5's Agility Partner of the Year last year, so...

Unknown Executive

Cool, congratulations.

Unknown Executive

Yes, met you guys in New York last year, so -- but we live in a world, to a degree, where it's Cisco's world and we have the privilege of living in it. So as an f5 partner, we do a lot of work with f5. So that's top of mind with us. So using that as a comparative, a benchmark, I would say that the penetration level, to answer your question, with Infoblox is certainly less. Exact number, I don't really know, but we just find our opportunity and our challenge is to rouse people from the slumber of denial, thinking that they can just kind of percolate along with their existing homegrown DNS solution and the tsunami's never going to hit. And as I said, we have just seen a real uptick in interest from guys to have that business discussion first, then the technical discussion after that. So I would say that there's -- it's certainly, as far as penetration, much less than f5.

Unknown Executive

Well, I'd agree. We're also an f5 partner, though I don't think I have any awards. We have third place.

Unknown Executive

That's [indiscernible].

Unknown Executive

The -- yes, I shared some numbers, 150 or so, 175 clients currently and another 150 that we have in our pipeline of net new clients that still represents single digits for us. I think we've gone from 1.5% of our total client base, doubling that to 3%. But when we look at an f5 or a McAfee or a Palo Alto, there were teams up to 30% of our client base. So I think that addressable market that we have, that greenfield opportunity that we have within our own client base is massive. I think that also coupled with Chris's comment earlier, that it's incremental opportunity for us. McAfee is a huge partner for us, and I think their acquisition of Stonesoft was an interesting one a couple of weeks ago. But from my perspective, going great, that's going to take money out of Palo Alto's pocket and put it in McAfee's, and we'll have them butting heads. We don't have that same issue with Infoblox without a competitive player on our line card, and again, I think a nice incremental opportunity. And I think that's one of the reasons I'm here and enthusiastically accepted the invitation.

Unknown Executive

Question over here?

Unknown Attendee

Yes, I mean you guys have only so many hours in a day and so many products to sell. Can you just give us a little bit more granularity in terms of where Infoblox kind of sits on the priority level versus that of like of a VMware or EMC and whatnot in terms of what you guys want to sell?

Unknown Executive

From our perspective, really, we could probably -- if we look at our design side of the house, we can probably lead with only about 15 of the 30-plus partners that we have within our portfolio suites. So what we tend to do is look inside of those larger partners like EMCs or VMwares, et cetera, to figure out what that lead point is. With VMware, it's no longer the Hypervisor. It'd be things around like ops center and so on, right? So we -- that's how we kind of address it, by narrowing down our focus and figuring what our go-to-market solution set that we're building. Infoblox is a heck of a lot easier. Really, the 3 points we're talking about was really automation, command and control, right? So we can look at that and go to market a heck of a lot easier with it. So when you -- what we do as a business is we pick 3 to 4 solutions per quarter to lead our seminar series with -- that's our marketing message. We drive these solution sets from that. We do those follow-ups, we pick 3 or 4, and then that's what we have to rotate through. So that's the process in which we go through. And the interesting thing is when I look at next year's plan, Infoblox does Q1 and Q3. So that's my feel coming back to me saying this is important enough that we need to double down on it.

Unknown Executive

Real net-net answer to your question, as I said, we resell 7 in different lines, strategic alliance with 12 to 15. Infoblox is #3 in terms of the financial performance, but in terms of mind share, it's probably vying for #2 with McAfee for us right now, and we're putting an aggressive campaign together with our colleagues at Infoblox to aggressively market the DNS firewall to our extensive Infoblox installed base. I thought what Steve said about really, just in layman's terms, explaining what the DNS firewall does in 30 words or less was one of the best descriptions I've heard of it. So you can -- so many guys in IT just overcomplicate it. Guys don’t really cares as much about the speeds and feeds. They really want to know how is this technology going to affect my company, my business and my career and my paycheck. So we just keep it simple and execute.

Dan Wilson

Our businesses are very similar, and no wonder we compete so much, because I knew that -- I've used the same numbers, we have 70-or-so partners. There's about a dozen that we're able to really make a strategic investment in, and certainly, Infoblox is in that group. Just recently, I think in terms of revenue, moved into a top 10 partner for Accuvant, but was I keep going back to in terms of growth especially from a significant number now to being twice that significant number. It's top 3, and we're seeing just great growth percentage-wise.

Unknown Executive

A question here? There's a mic right behind you.

Unknown Attendee

First off, thank you for the time. Maybe I'll direct it to Dan just because you mentioned existing customers, but for anyone on the panel who would like to have a comment. I think it was Robert earlier on, mentioned about 20% to 25% penetration of existing comps to customers, meaning the opportunity inside of those existing customers. Can you talk about a little bit about how you would characterize your own customer set? Is that kind of in the ballpark? And then how do you push that further with what you're doing today and what do we need to see going forward to get that number higher?

Dan Wilson

Well, from my perspective, I mean, again, we're a security-focused shop. So I think there's an awful lot to be said for Infoblox's story for many years as far as being a good security play. But I think we look at the DNS firewall and that area where the bulk of the clients we have right now are kind of traditional DDI clients. And I think the opportunity we have now to go in and talk to them about [indiscernible] code defense [ph], which is a huge business for us. Obviously, huge demand there. So at this point, we've got a great deal of pipeline, most of it so far unrealized. We've got a handful of DNS firewall opportunities but an awful lot on the table. So I would say that, that 25% kind of penetration sounds accurate, and I think that our first goal here over the next 6 months or so will be, again, to try to get the broader story, especially around DNS firewall, into those clients and to begin to integrate that into some service offerings we have around malware remediation.

Unknown Executive

I'd like to make a comment on that too, if I can, because I see this everyday. It reminds me a little bit of back in the mid-'90s when the first firewalls came to market and the VSTs [ph] who invested in firewall companies all said, this is great, it's a hot new thing. But what happens when Merrill Lynch buys a firewall? What happens when they buy one? What else are they going to buy? And of course, what we saw was there's a proliferation, in this case, of security, but a proliferation of these devices throughout the network for a whole bunch of architectural reasons. I'll give you 2 or 3 in the case of Infoblox. Without getting into a technical architecture discussion, there's a concept of internal DNS and external DNS. They should always be separate systems for security reasons, for example. There's a concept of a caching layer that you could add for performance. There's a concept of adding additional high availability, for example, where you'll add redundant boxes for, let's say, applications that can't tolerate any downtime. Companies might buy into the whole concept at once, but they don't have the ability to buy it all at once or deploy it all at once. So they buy it over time. So a lot of architectural reasons to see this proliferation to move DNS, for example, further out to the edge in the case of retail or remote locations rather than run it back to the core network for performance, local survivability, et cetera. So a lot of reasons why we think we're only partially penetrated. I'll give one dramatic example. We have one very large retail customer. They're the largest in the world, but I can't say their name. They have something like 15,000 DNS servers. Now, these are running on Microsoft and BIND servers, and they have maybe 150 of our boxes so far. There's no doubt in my mind that over the next 3 to 5 years, they will buy many, many more Infoblox devices as we move out to the retail stores into the distribution centers and throughout their corporate networks. A question here? Stand up and yell.

Unknown Executive

I think this is going to have to be your last question [indiscernible] time.

Unknown Executive

Okay, all righty.

Unknown Attendee

This is a question for panel. In your view, when you think about security, and your customers' view, when they think about security, there's been a couple prevailing thoughts about parameter security versus internal infrastructure, consolidation on the parameter versus specialized products. What is your view on that, what is your customers' view on that and how do you map what Infoblox is doing to your view or your customers' view?

Unknown Executive

Why don't we start with Dan.

Dan Wilson

Well, I think it's interesting because we've been talking about the need to consolidate parameter devices for a long time and the de-parameterization of security, and in the meantime, we see some billions of dollars of firewalls sold and we still do a robust business in desktop AV. So I think we certainly have done very well in talking to our clients about the need to kind of get off the path less traveled to understand the security chain is only as strong as the weakest link. And I think you look at some of the things Infoblox is addressing. It's not getting -- we're not getting attention to DNS despite it being obviously such a massive attack vector because it's not what people are used to thinking about. Fortunately, certainly in Accuvant's history, we've gotten to a point where our clients do come to us and say, hey, we've got resellers. We've got people that we can go buy our McAfee AV from. We need to talk to Accuvant about what it is we should be concerned about tomorrow. And there, I think, is where we've got a -- we've had a great deal of success with Infoblox from a security standpoint, and that we've got a lot of untapped market potential.

Unknown Executive

Yes, I don't think it's either or. I think there's a lot of complementarity layers of security, but everything is so outward focused. And we sell some technologies with encrypt database and data rest encryption that has great value because it's on the inner sanctum of the castle. And the DNS firewall, I think, is a great example of that. Everything is outbound. The Palos, the Check Points, even the f5, they're all outbound. But the DNS, as Steve said, is when that malware kind of gets in through the mobile devices or whatever it might be, when they're ready to phone home, they're arrested and it's mitigated. So all the -- in every discussion that we've had with a customer around the DNS firewall, they get it, it's not complicated for them to see the value, and this is just another we want to repaint the fence another color in terms of revenue.

Unknown Executive

So did I get your question? Are you asking, is consolidating the security versus distributed security, is that the gist of your question? Yes. I tell our customers it really doesn't matter. It truly doesn't. The reasons that you distribute it and the reasons that you consolidate it. And it's what kind of fits your business needs at that particular time, right? You may distribute because I might be a Check Point shop but it didn't -- it wasn't doing UTM right out of the gate. So I had to go put a Palo box in and now, we've got a problem to solve, right? So you may consolidate when the facilities are there or the technology's there to come back and consolidate. So actually see it as a flux, and I think it will continue as a flux for a number of years. I really don't see that problem being solved from a technology perspective.

Unknown Executive

I'm going to make one last comment, and then I want to thank the panelists and I think they were going to introduce Remo for the next session. I think my last comment would be simply that most large enterprises especially have the notion of defense and depth, and while they would love to reduce the number of security vendors, I don't know. I mean they are, at last count, but it's in the hundreds. They'd like to reduce the number of security vendors and maybe the locations throughout their network where they want to implement various security technologies. They still buy into the idea of defense and depth and #1, so we kind of work within that construct. And secondly, really, no one else is really looking at DNS security quite the way we are. So it's still fairly unique. Who knows if they follow later, but we do have an advantage in that we're running the -- we're serving the protocol right off of our device versus an external firewall or some other type of technology. Guys, thank you so much for coming to California and you're staying for lunch, all 3 of you, so you'll be around for questions for those who are staying, and thanks a million. Remo, your turn.

Remo E. Canessa

Okay, we'll go through the -- and thank you for everybody being here. We've got the guys from -- our partners coming out of 2 or 3 days out of work, coming here and doing this for us, really appreciate it. Thank you very much. The April quarter, 34% growth on a revenue basis year-to-year. Product grew 37%, service support, 30%. As we've talked about, one of the biggest assets that we have is our customer base, some of the world's largest companies and governments are our customers. We achieved 79% gross margin, 10.8% in operating profitability and $0.11 per share deferred revenue, which is primarily unamortized for contracts, and to a much smaller extent, inventory. And the channel was up 24% year-over-year at $92.1 million. We ended the quarter with $190 million in cash and cash equivalents and investments with no debt. As you can see, we've been growing around 30% year-over-year for the last few years. On a 9-month basis, we tend to look at the 9 months of fiscal year 2012 to the 9 -- year-to-date 9 months, we've grown 30% from $124 million in revenue up to $162 million. On a quarterly basis, you can also see on a year-to-year basis that we've grown in the 30% type range, going from $49.5 million, our first quarter, to $54.4 million and $58 million. We have a broad customer base, as we've talked about. No customer represents more than -- no end customer represents more than 10% of our business, and no vertical -- we're dispersed, almost all the verticals is more than 15%. So we're across the board in every area, government, service providers and in various enterprises. If you take a look at the growth and you look at the Americas, the Americas has grown substantially over the last several quarters. Growth rate year-to-year in the 30% type range. EMEA, we talked about on a conference call, we expected to decrease in the third quarter. Still strong growth on a year-to-year basis. The decrease in the third quarter was related to, at the year end, EMEA had a large, I don't want to say budget flush, but a lot of budget money came through at year end, which popped up the revenues in EMEA. APAC this last quarter on a year-to-year basis, a growth of 33% over the prior year. And you can see APAC's been relatively flattish over the last several quarters. The reason for that is we made a change in management in APAC. The first one's been on board for about 1.5 years, and we're starting to see traction in APAC and we feel very good about the performance of APAC going forward. One of the things we talked about in our conferences and also when we did the public offering is the same things which is being said by our partners. And what we're saying is that once we get into a customer, the customer continually buys more products from us, products and services. And as you can see, when you take a look at the bookings for fiscal 2008 top 300 customers, they did about $40 million, $42 million in bookings. Those customers through the 9 months of this year have grown to about $160 million. So a 4x type growth. That's type of growth that we'd expect going forward with these types of customers. And as we've talked about the penetration that we have in our customer base in the 20%, 25% and also our ability to put more products out there, not just the -- our base product, this was the DDI product, but security, BYOD, more virtualization, and as the complexity of networks become much more complex, as Steve has talked about, this is -- and as I've talked about before, as we've talked about also on the road, it's a large market. We see it as a $6.8 billion type market opportunity. And the question's not when this market's going to happen. This question is not a question of if, it's a question of when it's going to happen. And so again, taking a look at the class of 300 customers, you can see the growth of the profit -- of our bookings has been very, very strong. Revenue mix, mid-'50s. We'd expect that going forward, $58 million total revenue, 58% was product and the rest was service and support. Deferred revenues, I talked about. It's been increasing 20-plus percent on a quarterly basis. And again, that's the support contracts and channel inventory. Gross margins, you can see the gross margins have been very solid at the 79% to 81% range. We did introduce a new hardware platform last April. We thought the impact on margins would be greater. It hasn't been. So therefore, our margins have been stronger than what we initially expected. Our product gross margins have been in the 78% range in the last 2 quarters, and service support, 82% and 81%. The profitability, the company's been strong. It's also exceeded our expectations. The increase in profitability is basically based on higher revenue, higher gross margins and expenses being a smaller portion of total expenses. We had a dip in Q4 2012, which we expected. The consensus at that time was 1%. The dip was related to expenses related in a public company, as well as compensation expenses being high, higher that quarter. The quarters afterwards, you can see that the 2 quarters have been around 7% and last quarter, we're close to 8%. Our headcount at the end of the third quarter is 564 people. 49% of the headcount was in sales and marketing, 16% in services. Those were customer support, professional services and training. G&A, 13%, and R&D of 22%. On a go-forward basis, one of the slides that Robert presented was our penetration. And when you listened to the partners in North America, very strong. We made significant investment in our company into the channel programs, marketing and so forth in North America. As we go forward, we're going to make more investment in sales and marketing, and a significant portion of that investment will be international. To get the percentage of revenue in the international regions to a higher percentage of total revenues is what we'd expect. As I mentioned, cash on the balance sheet, $192 million. They can see in a quarterly basis, it's been increasing significantly, $10 million on a quarterly basis or more. Positive cash flow from operations, last quarter, $13 million. As I mentioned, no debt, DSO's 52. We expect DSOs to be in the low to mid-50s. On a long-term model target, and this target model relates to the fourth quarter of fiscal 2015, so the July quarter, we expect gross margins in the 75% to 77% range. That's higher than we had projected before. The reason for the higher amount is on the low end, it was 73%, now it's 75%. It's because of the new product introduction. We're not seeing -- we haven't seen the discounting so we don't expect to see that going forward. R&D, sales and marketing, G&A, all the same percentages you've seen before, and the operating margin has increased to 20% to 22% versus the 18% to 22% we had before. So again, outstanding quarters for us as a public company. We reported 5 times we beat each the expectations, quite 5 times. We've also raised our guidance 5 times. No guarantees we can do that in the future. However, we're proud of our track record and the ability to guide the Street to results that we thought we could deliver beginning of the quarter and we're actually able to deliver. So with that, I could ask people to come up or I can answer questions. How about if I answer a few questions here then we'll get the rest of the group up.

Unknown Attendee

Remo, I don't know if you can help us here. How do we think about maybe sort of the mid-to-long-term sort of growth potential over the next 3 to 5 years? Because one thing I think investors also struggled with is the top line growth. And then I was just curious, do we need to worry about seasonality at this point for your business? If you can just give us any help there.

Remo E. Canessa

Yes. On the seasonality, we really don't see that much seasonality. We -- if we do see any seasonality, I would say it's probably in the April quarter. We've seen it in the past. But again, not significant seasonality at this point. Again, we're a fairly small company. The long-term growth of 3 to 5 years, and I didn't give a revenue projection purposely because, basically, where we are right now is it still requires a lot of holding in our part to get the revenue. The channel is doing outstanding, we're seeing more traction, we've got additional products. But if you take a look at where we are right now and what the total market is in DDI, which those companies have sold into, it's something in the $500 million-type range. If you believe the numbers that we have related to the TAM, in which those numbers, I think, were done on a basis that I think are justifiable and rational, it's a very large market. At some point, we don't know when it's going to happen, and all the things we've talked about, the complexities in networks, the need for networks to be up for health, aviation, trading, you name it. Across the board, as the complexity goes up, as the importance goes up, as the resistance goes down on the part of IT professionals to stay with what they have and go to a solution, a hardened solution which is secure and we get that message out, the growth could be very, very high. We're not there yet. So that, we're still -- that's going to happen. It's not -- as I mentioned, it's not a question of "if", it's "when". And then the kind of question it comes down to is our ability to execute. If we're able -- the core advantage that we have outside the technology and the people we have in the company, we have a customer base of 6,500, the largest companies in the world that relying to us to run their networks. And based on the positioning that we've put up, with Steve and Stu, related to where we can take this to, it really comes down to making the correct investments, proper execution, and if we do that, there's no company better positioned to basically run companies' networks than Infoblox today. That seems like that can be the case in the future, but today, we're in that position because we have that foundation with that database with all these information we can do a lot of things with.

Unknown Analyst

You've just outlined a set of strategic elements that should accelerate the demand growth, can you talk to us about what the benchmarks are that you look at in terms of the things you need to do in order to get there? For instance, new product launch timing or the -- the timing of expansion of the LEAP program to Europe and Asia. And sort of what the timeline of those benchmarks might look like so we can have some way to track where you are against them?

Remo E. Canessa

I'm going to speak broadly about that, maybe some of the other people can add more specifics. But the investment in EMEA and APAC, it's happening now. So we are making that investment currently. So we're going to be making that investment as we go forward, with more people, more support, more of the operations being run internationally versus here in the U.S., because we've been a U.S.-centric company. The real key metric that I look at is something that Robert's talked about, is the 65, 35. We've got to go out and touch 65% of customers to buy our product. That's got a flip. And once customers know about us and come to us and come to our partners, that's when we're going to know that we've got the shift, the tipping point, in my opinion. That's still not the case. It's still not 65%, 35% range. That's what I'd look at.

Unknown Analyst

I just had a question on your prior quarter's results. You obviously exceeded estimates by a healthy margin. Given that the sales cycle of the company is about 9 months, I think, that's what you guys have said in terms of the sales cycle, I wanted to get an idea of what you were seeing in terms of your pipeline. Whether that was building deal sizes, given that might have had really good visibility the prior 2 quarters because of your 9-month sales cycle. So I just wanted to -- kind of question on the pipeline.

Remo E. Canessa

That's a really good question, and the guy sitting right next to me has got the answer to it. He doesn't want to answer. We get together on a weekly basis, and the level of forecasting that we do, Chris is part of it, Robert's part of it, I'm part of it, Mike [indiscernible] is part of it, and there's other people part of it. We roll up on a weekly basis and we look at what the pipeline is. We got to -- and again, once we come into a quarter, and we take a look at our support revenue, a lot of that is renewals. So we've got a pretty good idea what the renewal revenue is, going into the quarter. We don’t generally carry much backlog, so that's really insignificant. Channel inventory, we know who's going to sell through, and then the rest is basically new business, which we have a pipeline, and we take a look at, by probability, what we think things are going to play through. Any quarter, you have things dropping out, you have surprises coming in. So the visibility that we've had the last few quarters, and again, once we go into making our projections or for estimates for the Street, we take a look at it pretty -- in detail, and we feel pretty -- feels comfortable this quarter, as they have been in prior quarters.

Unknown Analyst

I want to ask the macro question that no one else has asked here. But -- and you talked about on your earnings call that you haven't really seen any significant impact from the macro environment, but just looking around, the world of tech, I don't know, it seems pretty clear that there's some pressure out there in terms of sales cycles, close rates in certain pockets, let's say China, Europe, U.S. Fed. It's hard for me to believe that you guys are not seeing any pressure whatsoever, but any commentary you can give on how you've been able to navigate some of the macro pressures would be helpful.

Remo E. Canessa

We're a smaller company. It's something we haven't talked about in the past but what's interesting is that selling our product has never been easy. One of the things that partners has indicated that also is that the period of time we've been able to keep people into the company, in particular salespeople, SEs who understand our product. The environment is more difficult, there's no doubt, the macro environment, on a worldwide basis. But because of our stability we have in our workforce, because of the capabilities and understanding we have of our product and our market, because of the type of review we do on a forecasting basis, where we understand where everything is, we can give -- I'm not sure what other companies do, and again, it's not to say we're not going to miss in any one quarter, but we look at it in greater detail, and I just think that we are becoming more relevant, and that relevance, again, that relevance, still, we have to go out and touch. We've been doing it for 8 years. I mean -- it's -- when we first got to Infoblox, Robert, myself and Chris, I mean [indiscernible] things we're talking about, just really difficult. We've got a really seasoned and strong sales organization and also a strong overall company with -- across the board in product management, marketing, engineering and the G&A groups. I think that's the reason I can point to.

Unknown Analyst

Then summarize it as relative execution versus macro, is that where you can credit?

Remo E. Canessa

Yes, I think so. I think so. How about if I get the whole group up, but we'll still take questions for myself? Okay, do you guys want to go up? Or -- you're going to sit there. Hop over on this side.

Unknown Analyst

We've heard a lot today about your security products. When do you think it will be fair for us to start to look for that to be meaningful? I mean, obviously, it's early days now, can we look at second half of FY '14 where we should start to see some meaningful revenues? How are you thinking about that and how does the sales cycle differ compared to your core DDI product and how does that play into that?

Remo E. Canessa

It's a very good question for Chris or for Robert.

Christopher J. Andrews

We'll tag team it. We're definitely seeing -- I think it was either Robert or Steve who mentioned earlier, we're definitely seeing a shorter sales cycle for anything that is security-related, for a couple of reasons. There's available budget and fewer sales. The initial -- most of the initial deals for security went into our existing customers. As you know, we do fairly well with our customer base. It was just software they can add to their existing DNS environment. So the sales cycle was fast. In many cases, maybe just a month or 2. So we're very optimistic. We're still very early on the runway. We've only been selling it for one full quarter thus far. But we're very optimistic that it'll be, a, visibility of the space, b, capture budget. Our channel is extremely competent when it comes to selling security products. So there's a number of stars that aligned well for us there that are really nice initial indicators.

Robert D. Thomas

And I think we said on the earnings call that we sold -- I think 23 customers bought DNS Firewall in Q1. I don't think we've ever introduced a new product that we've sold 23 instances all in the first quarter. So reiterate everything Chris said, it's well understood, there's a budget for it, we have a channel that's very security competent, understands our product as well as we do. When will it become a meaningful part of revenue? It was, of course, some revenue -- we booked 23 orders in the last quarter. We didn't necessarily deliver them all, so some part of the revenue last quarter. It will continue, I think, to be a growing segment of revenue. I think we'd like to see how it plays out and like to see the growth rate in it mature before we start talking about how much of our revenue stream it is. And I doubt that we would call out DNS Firewall revenue before calendar '14, anyway. Is that reasonable?

Remo E. Canessa

Yes.

Unknown Analyst

Right. Following up on your security products, I was kind of curious as to how easy it is to sell your security product solution, because, obviously, it's a very unique solution concerning DNS, compared to, like, a larger company such as f5 that can, sort of, sell the whole gamut of security solutions. And also following up on that, what are sort of the major areas of security outside of DNS that you could potentially go into?

Christopher J. Andrews

Sure, I'll go first. I didn't hear all of your questions, the middle part of it, but I think you asked how do we compare it to or do we bump into f5? We -- and I think f5 has messaged they want to move more and more into security, in general, whether be it in the DMZ or whether it be inside the network. We haven't seen a lot of them yet, and we'll see how that plays out over time. Relative -- specifically to f5, in terms of...

Robert D. Thomas

How easy is it to sell the security product?

Christopher J. Andrews

Yes. It's -- well, so far, it's proved -- compared to what we used to sell for the last 8 years, it's substantially easier because there's awareness, there's -- almost every enterprise knows they need security. They don't always know where they need it, who they're going to buy it from, but they know they need it. So there's an awareness that's naturally already there. There's budget that's naturally already there. In our initial experience, we've sold it to our existing customers, so I don't have to replace the DNS server to add the DNS Firewall, for example, it just runs right in the existing DNS platform, so it's a very non-invasive, relatively easy sale, thus far. In terms of new projects, as we've mentioned, our sales cycle is typically several quarters long and we're seeing -- this quarter, we expect a number of new accounts that the DNS Firewall either be an important differentiator for us or will have helped, in some way, accelerate the sales cycle or find money.

Remo E. Canessa

And to your -- I think the second part of your question regarding our security products, I think the way to think about it would if it -- if we can secure the infrastructure. And when I say that, I'm thinking, we're thinking DNS and DACP, principally. That's a part of the security offering that it does avoid. f5 doesn't do it, even though they're entering the space and they do have some DNS background. But the traditional firewall vendors aren't doing it either. So you'll see more functionality coming from us in those areas. I mentioned on my slides earlier areas of denial service, and this is a big area for us because flooding a DNS server with hundreds of thousands of requests can cause it to stop performing, which means the network stops performing. So that's a natural for us to protect against. Analytics around DNS, you heard some talk about analytics, now we could use DNS information just to understand complexity, but we can also use it to understand the security landscape much better, and use it for that. As well as advanced DNS firewall, where we go after and start looking for unknown threats that otherwise had been found before. So think about our security offering, those 3 areas, principally, over the next couple of years.

Unknown Analyst

A couple of questions here, if I could. First, maybe for Robert. I really wanted to go back to growth a little bit. As we think about kind of the business, if I look at just, kind of, the model, 2011, 22% product growth, 2012, 18% product growth. I think you've, kind of, positioned things a year ago as being, kind of, a high-teens type kind of growth opportunity. Things clearly have accelerated. And as you think about it is changed, comparing and contrasting where you're at today, versus, maybe, where you're at a year ago, it does feel like there are more levers to grow. So talk a little bit about how you feel about the business today, versus a year ago? As you think about those levers, is there an opportunity to sustain higher growth? And how should we think about Remo's conservatism here, but also the opportunity that lies ahead?

Robert D. Thomas

Remo's conservatism? If you believe the numbers we said today on TAM, the $6.8 billion TAM, and I think, as Remo said, we arrived at that in a fairly scientific way. I mean our sweet spot is 1,000 employees and up. [indiscernible] out there in the world. What would be a typical implementation for 1,000-person company, a 5,000-person company, a 10,000-person company? So we've put a lot of work into that. So it's -- I think it hangs together. So if you believe that's true and you believe that networks are becoming more and more complex, and even a company our size, we have 568 employees but we have BYOD issues now and -- because we use our own product, drink our own champagne, not eat our own dog food. If you believe that's true, then clearly, the market is large and it will start to grow more quickly as people become more aware of the solution and start to encounter these problems. And I think, a year ago, when we went public in April of last year and we gave that long-term view, 16% to 18% revenue growth, 18% to 22% operating margin by the July quarter of 2015. We're in an environment where it's still a tough sell, and we're seeing gradually growing awareness, I wouldn't say it's a flood yet, but gradually growing awareness is a problem. People are starting to budget for DDI, not in a wholesale way, but we're starting to see some customers put a line item in their budgets for DDI for next year, and therefore they'll put in the years beyond. So we're very confident about the large-scale opportunity. And we have seen more winners in the last 12 months than we have seen in the 12 months before. But I think we need to temper all that with not being certain on when the floodgates will open, not understanding exactly when the tipping point will come and will be [indiscernible] for everyone. We just don’t know that, it's been a gradual movement for 8 years now. We've been in Infoblox for 8 years. So it's been a gradual movement and we have to assume, at least in forecasting and budgeting and hiring, that it will continue in a slow way, otherwise, we might just get ahead of ourselves. So the opportunity is big, but then when we start to see the tipping point happen, then of course we'll reflect that in what to do in guidance and so on. But we have to be responsible, I would say, in predicting growth when we're not seeing it happen dramatically or quickly.

Unknown Analyst

Couple questions. Robert, how do you look at the opportunity for your edge device? If we segment your market in terms of the network, you got the edge and then you've got your traditional products and then you've got 4,000 higher-end. What opportunity, if you're looking out maybe 3 years, does that edge -- I think it's the Trinzic 100, what opportunity does that represent? And then secondly, you've talked about the lead generation that you drive with educational events. You want to get that to, maybe, 50%. Are we -- can you give us a sense for how long that might take at this point? It seems like you're feeling better about channel development, particularly with the LEAP partners. Do you think that you're getting to that tipping point where we can see the channel momentum picking up? And I've got a question for Remo after that.

Robert D. Thomas

Okay. Well the Trinzic 100, that very small box that you talked about that we just released couple of months ago, was really driven by this guy coming back and saying, "I've got all these customers who need a device at the edge. I've got retailers, still, I've got large organizations with branch officers who want local survivability. They want things to work at the edge, the wireless network and the scanners and Point of Sale terminals, if the network goes down." So we didn't kind of build a product and say, "Where can we sell it?" We did it in response to a lot of customer input on needing a device at the edge at a certain price point and so on. So I think there's a big opportunity. I think it's in retail and it's in widely distributable organizations, probably not financial institutions. Financial institutions tend to drag everything back to the center. So I think a big opportunity, I don't know what those numbers will be, it's a lower margin product, it's in the mid 60s, and we expect to see them in the thousands so their volume will be relatively high. We've taken a few small orders. I think we'll probably see a decent order or 2 over the next couple of quarters for a higher volume. But I think it's got a lot of potential for us so we're feeling good about that product. On the marketing front, I'd like to see it flip the other way. Instead of 65 generated by us through webinars, seminars and so on, I would like to see 35% and 65% accounting. We're definitely making progress in that area. David Gee who joined us as VP of Marketing just over a year ago, and that's how we went public. He's brought a whole new skill set to marketing that we didn't have before. And we're definitely making progress in that area. We are spending -- we spent more money this year, on marketing, significantly than we did the year before, and we will spend a decent uptick in marketing money in fiscal '14, starting August 1, than we did this year as well. And a lot of that around creating awareness, bringing people to us rather than us having to go touch everyone that ever buys a product from us. So it's having an effect and it will continue to have an effect as well. And the other thing, I think, which helps us on this front is getting into the security space and having a channel that really understands security. I have 2 major objectives from a modeling point of view: bring down sales cycle from where it is today to something shorter; and increase our deal size, from where it is today, to something bigger. And having a security product in the channel that understands security and that LEAP partner program, where we focus a lot of our attention and dollars on a very small group of partners, is also helping on the awareness front and helping on the sales cycle front. So there are a few things working in that space to move us really.

Unknown Analyst

Would you be disappointed if you didn't have 50% by the end of fiscal '15 or something like that?

Robert D. Thomas

Yes.

Unknown Analyst

Okay. Remo, you had put up a slide, the top 300 customers. It looked like the 9 months -- last 9 months' bar was, kind of, consistent with where the others have been, and they were annual numbers. Have you seen a -- that would suggest that you've seen a pretty good acceleration in terms of sales under those top accounts in the last 9 months, is that a trend that, that was reflecting?

Remo E. Canessa

I think it is. I don't know the exact numbers. But your point is well taken. It looks like that -- or it is, for those 9 months, that it is increasing. And again, it's based on the penetration of our existing customers. And I think that being customers for 5 years, basically, the more they fill us out into their networks, the more products that they buy. I'm not sure if that's sustainable, if it's going to increase, but it's been fairly consistent. But this year has been an increase.

Unknown Analyst

Almost all of the discussion that we've had today has been around what I would describe as traditional data center kind of footprint. Can you talk a little bit about what portion of your business goes into service provider, what portion of your business goes into large cloud environments, either Web 2.0-type environments? Or to what extent you're in private cloud footprints as opposed to in-house data centers? So maybe split along those traditional lines and give us some sense of what your plans are for the public cloud Infrastructure-as-a-Service vendors, whether you can participate there or not?

Robert D. Thomas

I think we are mainly an enterprise company. About low teens in the service provider space.

Remo E. Canessa

Yes. Currently, for the 9 months ended, we are double-digit, but low double digits in service provider, and then government is 10-ish percent or so, maybe bubbling up some quarters, probably bubbling down a little bit, and the rest is enterprise. So we are truly in the traditional enterprise space where those network problems are. I think the service provider space, though, has opportunity for us as the places we sell mostly, usually in DNS caching, we have large service providers around that. And we've talked about this explosion in DNS and mobile devices create a lot of that. When you turn on your mobile device, it does 20-something DNS lookups. And then when you initiate Facebook in it, it does another 30 DNS lookups, and then when you do mail, it does another 30. So that explosion in DNS is largely unexpected by service providers and non-intended consequence of lots of mobile phones and the explosion of mobile devices. So in the service provider space there's a healthy business for us in DNS caching where I will put large boxes in strategic parts of the network to offload some of this DNS activity. Similarly, with Wi-Fi offload. A lot of people congregate in one space, like Super Bowl. I'll start sending text and taking photos and sending them home, the cellular network can't handle that so they offload to Wi-Fi in certain locations. So there are applications for us in service providers where we can do really well. And I think we'll grow to be a bigger part of their business, over time, but it won't go like that. In the private cloud space, I think we have a lot of opportunity. As people start to deploy private clouds, automating infrastructure, connecting VMs to the cloud, to the network, to everything else, it has to be automated if you want to deliver computing on demand, and we play a role in that. In large public clouds we don’t really have the scale to do that today. People who have done large public cloud deployments and -- people like Amazon who just get on the way, provision of UVMs and some storage and so on, to use, they have written stuff to do what we do, and have written at scale for their environment. One day, we may get there and provide -- do those things, but they don't them at the scale needed today for large for large public cloud.

Remo E. Canessa

For the 9 months ended, also, government was mid-teens.

Unknown Analyst

In the back. Two questions, one for Remo and I think one for Steve. Remo, on the salesforce, can you correlate the growth in your salesforce to your product revenue growth over the last couple of years? And is it that as you expand the salesforce, because as Rob said, this is very much of a pull type of a model where you have to go out and that 65% you have to go out and get the deal. So has your product revenue grown with the size of your salesforce? Or has your salesforce just become more productive as they have gotten accustomed to the products as well? And can you give us a sense as to what you're looking at in terms of growing your salesforce over the next couple of years? That 564 total, where does that go to, mostly on the sales side. Give us a sense of if we look at this from a sales capacity model, what are you building the company to be able to handle revenue-wise? Give us revenue growth number. Give us a sense as to what, in your mind, you're thinking of sales capacity-wise, in terms of where your salespeople are going. And then Steve, you started off and talked an awful lot about grid and then maybe I missed -- didn't hear it, but in the last 1.5 hours I didn't hear much about grid, I heard -- moved back to main DDI functionality. How much of your revenue, and you going out and getting deals, do you think comes from people really interested in the automation orchestration part that comes out of the grid and the resiliency that comes out of the grid, versus people just waking up to a DDI functionality in the first place?

Remo E. Canessa

I'll take a section of it and I'll turn over the other part to Chris. Current headcount, end of Q3, 564. If you take a look at our website, we're substantially behind in our headcount, our hiring. We plan to continue to hire, and if you take a look at the positions we have opened, a significant portion of those positions are sales and marketing. From -- it is still, as I mentioned -- as we've mentioned, it's a high touch on our part. And I'll let Chris talk about the correlation between salespeople and product revenue, but the more people we put on the street, strategically, and if you take a look at what are strategic for us, you take at our penetration that we have in EMEA and APAC, I think that's where we're going to make the investment in those areas. Both infrastructure, as well as people and support. So with a correlation for product and...

Christopher J. Andrews

We're definitely seeing -- we don't break it out in terms of productivity per head, publicly, by region. But we have a pretty solid machine in North America and we want to take that model, as Remo mentioned, to Europe and to APJ. We have seen an improvement in productivity, and we expect it -- over the next couple of years, you can guess that just by the way we're looking to improve operating margins to 20%, 22% range in the next couple of years.

We're going to have to get that leverage. We do feel like we're seeing it, especially where we've had the infrastructure in place, like North America, where we can realize it over that extended sales cycle.

Wendell Stephen Nye

So the Grid. When I started off my presentation talking about the Grid, the purpose was to create an understanding of the Grid that it's a clear differentiator. And as a technology and architecture, that it's different from other people and I wanted to use it as a platform so that -- or a discussion point so that we could describe our forward-looking strategy as to why we'll have the opportunity to be successful. I think it over the last hour, what you've heard are value propositions that are all derived from the technology that sits beneath, what people see when they wake up every morning. They look at DDI. A lot of that is the Grid. I mean, we've had many conversations with the customers that are extremely penetrated with the Grid across their installed network. And I've met with people who say, "I don't really know what the Grid is." But they do understand the benefits of it, that -- the high availability that we heard people speak about, the disaster recovery and the ability to move data about and now our ability to store data that is used for security purposes. So it's -- the discussion earlier was about the Grid as a technology and how it's going to propel us forward.

Robert D. Thomas

But we do. I would say -- Chris, pick a number and you tell me if I'm wrong, I would say 95% of all the customers we sell to have the Grid. It's built into what we sell them. It's the way they manage multiple platforms. As Steve said, it's the thing that gives an HA and reliability and redundancy and so on. They may not talk about it as the Grid, they may not mention it, but it's a secret sauce. I mean, it's one of the reasons we win against our competition, that single systems view of multiple appliances. We have some customers with over 2,000 appliances. And they all sit on a Grid so that they can be managed. So it's something that brings a lot of value today. And what we're about is leveraging that thing that brings value today to do more, to take the data that resides on it and do other things with it.

Wendell Stephen Nye

And from a revenue perspective, we don't sell the Grid as a standalone unit. It is part of our DDI product. So when you should think about it, it is foundational technology that comes along with our intrinsic DDI.

Unknown Analyst

I got a follow-up on a separate topic, your relationship with f5. You have a partnership with them. Steve, you started talking about Load Balancer a little bit in one of one-ff things that you, guys, should be putting on top of the Grid. They do talk a little bit about DNS from their side. Can you just describe and just define for us the partnership? How you guys go to the market? What -- where the boxes sit? And what that relationship means? And just basically, just from a technical perspective, how it works and what we could be looking for from it going forward?

Wendell Stephen Nye

Yes. The partnership with f5 has been one that started out as a go-to market. Me and the field that can go to market together. You heard some of our partners. They're f5 resellers. So we do a lot of events around the country, certainly in North America where f5 and Infoblox will together and we'll have presentations and we'll talk about what we do, respectively. So that's an informal part of the partnership. But it's -- in many parts of the country, it's very successful. There's a lot of tenure in their organization, as well as in ours, and there's a lot of collaboration. As it relates to the technical side, when we've integrated with f5, we've integrated through open APIs and the interfaces that they provide, something called iRules. And it didn't require a deep codevelopment-type relationship. It was one that other companies could do. But what precipitated that was customers, more customers that said, "We really would like to have management of our global traffic managers. We're sitting here doing DNS on your box and then we'll swivel our chair and enter the same DNS information into the GTM." And they came to us and asked us to look at integration. And then when we went to f5 and said, "What do you think?" And f5 said, "You know, we have nothing like the Grid. Our management is far more immature than yours is and we would give you the help necessary to be able to do that integration." So the partnership is built on go-to market and it's built on that kind of engineering collaboration between the 2. We see f5 and certain parts of the world where they sell a product that -- of course, you know they have an ADC and they sell a global traffic manger on top of it. And that's generally looking out into the network, almost always is looking at -- facing the Internet. And if you think about where we sell our products, we predominately sell on the inside of the network. So the DNS and DHCP and the IP address management piece that we sell for most of our customers, we do not compete with them in any way. On the external side, facing the network where there's external authoritative DNS, we sometimes do bump up against them because they have a product that's an add-on to their product that we run into. Generally, it may be in parts of the world where we may not have a lot of penetration yet. And sometimes we see it in the federal government. But that's where we see it. It's generally on the outside of the network facing the Internet. I mean, Chris, you're up against them a lot.

Christopher J. Andrews

I think you covered it pretty well. I mean, the advantages that we have, for example, as an RPM database, we can put Microsoft data, UNIX data, f5 data, and f5 pretty much has really no IPM capability at all. So we have clear differentiation, but sometimes we compete for money.

Unknown Executive

I think technically, and if you look forward, it's -- the way to think about it is, they sit in to use the emerging software-defined networking technology or terminology. They sit in the data path. The actual traffic that flows between any 2 applications, any device and an application, they're actually affecting those flows. We sit very squarely in the control path, the initiation time. And so from that perspective, we're really extremely complementary in terms of how the market is evolving.

Unknown Analyst

Just a question on the long-term guidance. Your gross margin is currently over 80%. Then why does your long-term guidance says 75%, 77%? Is that because you're being conservative? Or you actually see some sort of a pricing headwind? Another one is do your S&M -- sales and marketing long-term guidance is 31% to 35%, which is significantly lower than current over 50% range. So given your low penetration and as far as you understand, are you guys still heavily investing in emerging market? When do you expect to see the leverage coming?

Remo E. Canessa

So let me see if I get those answers. On a gross margin basis, our estimates for this quarter, for the July quarter, is 78%. The 75% to 77% is -- could be mixed. It could be more discounting. It could be the competition. At this point here, over the last several quarters, we have not seen any increase in discounting. So -- but that's what's -- that long-term model is trying to take into effect a mix shift to selling a lot of T100s potentially, potentially doing more discounting. But again, where we are now, we don't -- in the last several quarters, discounting has been pretty flattish. From a sales and marketing line, getting to 31%, 35%, that's 2 years out. So that's 9 quarters out getting that to that 31% -- or 8 quarters out getting to that 31% to 35%. I think that from my perspective is that we -- because this is a large market opportunity, as the ones that we've talked about, is we can dial that line down if we want to, but I think we compromise our potential growth with awareness of our products. Again, people on the street are selling our products, getting market share, building up our customer base. So as we go forward, as I mentioned, we're going to -- the main investment that we're going to be making is going to be in sales and marketing. But getting to that 31%, 35% out in a quarter is -- I think we can get there.

Robert D. Thomas

Okay. Anymore questions? Great. Well, thank you very much, really appreciate everybody being here.

Wendell Stephen Nye

Thank you.

Remo E. Canessa

Thank you.

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