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Imperva (NYSE:IMPV)

Q2 2014 Earnings Call

July 31, 2014 5:00 pm ET

Executives

Terrence J. Schmid - Chief Financial Officer, Principal Accounting Officer and Treasurer

Shlomo Kramer - Co-Founder, Chairman, Chief Executive Officer, President and Member of Acquisitions Committee

Analysts

Rob D. Owens - Pacific Crest Securities, Inc., Research Division

Nandan Amladi - Deutsche Bank AG, Research Division

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

Jonathan Ho - William Blair & Company L.L.C., Research Division

Robert Paul Breza - Sterne Agee & Leach Inc., Research Division

Kenneth R. Talanian - JP Morgan Chase & Co, Research Division

Michael W. Kim - Imperial Capital, LLC, Research Division

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Imperva Second Quarter 2014 Financial Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference is being recorded.

I would now like to turn the call over to Mr. Terry Schmid, Chief Financial Officer. Please go ahead, sir.

Terrence J. Schmid

Thank you, Amber. Good afternoon, and welcome to Imperva's second quarter 2014 earnings call. We will be discussing the results announced in our press release issued after the market closed today. Again, I am Terry Schmid, Chief Financial Officer of Imperva, and with me on the call is Shlomo Kramer, Imperva's Chief Executive Officer.

During the course of this call, we will make forward-looking statements regarding future events and the future financial performance of the company. Generally, these statements are identified by the use of words such as expect, believe, anticipate, intend and other words that denote future events.

These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We caution you to consider the important risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release and this conference call. These risk factors are described in our press release and are more fully detailed under the caption Risk Factors in Imperva's 10-Q filed with the SEC on May 9, 2014.

During this call, we will present both GAAP and non-GAAP financial measures. Non-GAAP measures exclude stock-based compensation, amortization of intangibles and acquisition-related expenses. These non-GAAP measures are not intended to be considered in isolation from or substitute for or superior to our GAAP results, and we encourage you to consider all measures when analyzing Imperva's performance.

For complete information regarding our non-GAAP financial information, the most directly comparable GAAP measures and a quantitative reconciliation of those figures, please refer to today's press release regarding our second quarter 2014 results. The press release has also been furnished to the SEC as part of a Form 8-K.

In addition, please note that the date of this conference call is July 31, 2014, and any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events.

Lastly, this conference call is a property of Imperva, and any recording, reproduction or rebroadcast of this conference call without the express written permission of Imperva is strictly prohibited.

With that, I'll turn the call over to Shlomo, and then I will provide some further details regarding our financials and our forward-looking outlook. Shlomo?

Shlomo Kramer

Thanks, Terry. I would like to thank everyone for joining us today. We are pleased with the company's execution during the second quarter, especially our ability to exceed guidance across all key operating metrics.

During Q2, we made good progress on productivity initiatives, which resulted in a rebound in United States sales performance, as well as continuation of our overall high win rate globally.

Although we are at the beginning of a multi-quarter sales execution improvement process, we had better visibility into sales cycles and forecasts during the quarter. While we are pleased with these initial productivity improvements, we have more work to do to see the full benefit of these changes.

Taking a look at our overall financial performance, during Q2 2014, our total revenue was $38.4 million, up 23% year-over-year and exceeding the high end of our guidance range. This increase was driven by the 39% growth in service revenues, particularly subscription revenues, which increased 110% year-over-year and now represent 14% of total revenue compared to approximately 8% of total revenue last year.

From a profitability perspective, during the second quarter, we reported a non-GAAP operating loss of $6.2 million and non-GAAP net loss of $6.4 million, or $0.25 per share, both also better than expectations.

In regards to some of our summary-level statistics, during the second quarter, we added 175 new customers compared to 185 during the same period last year. However, during the first 6 months of 2014, Imperva added 346 new customers compared to 333 during the same period in 2013.

The number of deals greater than $100,000 increased to 88 during the quarter compared to 76 during the second quarter of 2013. Also during the first 6 months of 2014, Imperva booked 155 deals with a value of over $100,000 compared to 140 during the same period of 2013. We also continued to generate significant portion of our bookings from follow-on sales to existing customers as they again accounted for over 60% of our products and subscription bookings in the second quarter. We continue to believe that our existing customer base will present a significant long-term growth opportunity for the company and is only about 10% penetrated currently.

Finally, our overall pipeline continued to grow, and we have started the third quarter with a record pipeline. From a macro perspective, customer demand remained solid across all geographies as booking growth exceeded total revenue growth during the quarter.

While we did, as expected, continue to see extended sales cycles on deals over $100,000, our efforts to improve sales execution are beginning to take hold. Specifically, we have aligned all field operations into one organization, which is starting to have positive impact by enabling greater synergy between the direct sales, channel sales, sales development, services and customer success organizations. In addition, our enhanced focus in tools and processes designed to provide additional focus on deal stage and execution are being implemented so that U.S. sales management can provide greater deal guidance to their teams.

We have also made adjustments to the sales leadership team in North America. We believe these changes have had a positive impact on the results in the United States, and, as a result, revenues in the Americas region increased 14% year-over-year during Q2.

In EMEA, we benefited from continued strong sales execution in addition to a flattering comparison to a relatively low performance in the region during last year's second quarter, resulting in a 51% year-over-year increase in revenue during the quarter.

In Asia Pacific, we achieved solid revenue growth of 22% year-over-year in Q2 despite ongoing economic challenges in some countries.

Now I would like to provide an update on some of our key accomplishments during the second quarter. In Q2, our overall high win rates remained consistent with prior quarters, and we had a number of deals in which we won against larger competitors. I want to just take a moment to describe a few of these key wins.

We won an enterprise database activity monitoring deal with a Fortune 1000 health care company. This deal, which we began negotiating during Q1, was highly competitive with IBM. We were selecting -- we were selected on the technical merits over the IBM product, in particular our product's superior ability to scale to the extended size of this deployment.

We also won a very large Web Application Firewall deal in the U.S. federal space. We were in competition with F5 in this deal and were again selected for the scaling advantages of our product over the competition and also our superior security capabilities.

We also continued to make good progress on our cloud security strategy. From the Imperva side, our SecureSphere WAF for Amazon Web Services product, which we announced in February alongside discussions in Incapsula acquisition, reached general availability late in Q1. In June, the product went live on Amazon's marketplace, and we expect to provide an on-demand version later in the year.

From a win perspective, we reached double digits in terms of number of customers in the first quarter of our availability. We believe we are seeing strong demand due to the fact that our SecureSphere product is the first to deliver a truly enterprise-level Web Application Firewall that supports the key native networking and availability characteristics of Amazon.

During the quarter, we also introduced Skyfence Cloud Gateway 3.0, which provides organizations with advanced capabilities to address the blind spots of security gaps created by the adoption of cloud applications. The new capabilities also help organizations to automatically identify, manage and unmanage mobile devices and post specific access policies for cloud applications based on whether a device is managed by IT or not. During the quarter, Skyfence booked 2 orders related to this use case, both with banks, 1 in the U.S. and 1 in the U.K. In both instances, the key use case was enforcing the banks' bring-your-own-device policy with respect to sensitive SaaS applications, Salesforce in one instance and Microsoft Office 365 in the other.

Skyfence technology is able to fingerprint both devices and users as well as profiling users' access patterns, which provide a unique advantage for this kind of use case.

In addition, during the quarter, Incapsula launched 2 new services to guard against large-scale denial-of-service attacks. DNS Protocol Protection addresses the shift Incapsula has observed in both DDoS attacks -- in how DDoS attacks are executed. By targeting DNS servers that resolve domain name to IP addresses, attackers can effectively take down websites and cloud application by making them unfindable. This new service protects customers' DNS servers to mitigate these tactics.

Second, Infrastructure Protection protects networks from direct volumetric attacks on IP addresses or ranges, guarding against exploits on internal websites, email service, FTP servers and other applications.

The offerings are powered by our next-generation packet-filtering hardware, which is being deployed throughout Incapsula's worldwide network and are geared towards protecting against terabit-scale DDoS attacks. Given the increasing size and number of DDoS attacks globally, we are very excited about this new offering as it positions us with a comprehensive enterprise-grade DDoS offering that can help organizations protect a very broad spectrum of applications and IT infrastructures from complex DDoS attack [indiscernible].

We also wanted to highlight a few key wins for Incapsula during Q2. The first was a large global insurance provider and an existing Imperva SecureSphere WAF customer that added on Incapsula DDoS protection services. This deal was competitive with Akamai, among others, and we won because of our ability to combine WAF with DDoS and our superior security posture.

The second was a large European bank that selected Incapsula for both Web Application Firewall and DDoS protection. Again, we competed and won against Akamai. The customer made the selection based on our superior architecture for complex attacks as well as better scalability and performance and our overall vision for Web security and DDoS protection.

As a reminder, we continue to believe that we are at the very early stages of a large and fast-growing market of protecting business-critical applications and data in the cloud. And it's our strategy to significantly enhance our efforts to be a leader in this market and further position Imperva for long-term growth. As a result, we will continue to invest in our cloud businesses since they are in the early stages of what we believe are very large opportunities.

Finally, similar to last few quarters, we continue to have success with our channel partners. In particular, our hosting provider partnerships. During the second quarter, we continued to see solid momentum in this channel off of a much larger base, which in part contributed to the new customer growth during the quarter.

Specifically, during Q2, one of our large hosting -- one of our large hosting customers achieved an installed base growth rate of approximately 21% quarter-over-quarter compared to Q1, which was the continuation of a strong growth trend that began back in the third quarter of 2102. In addition to the solid continued growth at this hoster, we added 3 new hosters that sold their first customers with Imperva or Incapsula during the quarter. Overall, our hoster business added more than twice as many new customers in Q2 2014 versus Q2 of 2013.

Before I hand it over to Terry, I wanted also to mention that we are very proud to be the only company positioned in the Leader's quadrant in Gartner's 2014 Magic Quadrant for Web Application Firewall based on the completeness of our vision and ability to execute. In addition, Imperva was named Web Application Firewall Vendor of the Year in Frost & Sullivan's Asia Pacific ICT Awards. Both awards further confirmed the company's proven ability to protect Web applications and critical data within the data center against advanced cyber-attacks.

So in summary, I'm pleased with the Q2 results and progress we made on a number of key productivity initiatives, where we are only in the first quarter of a multi-quarter sales execution improvement process. I remain confident that Imperva is in position to reaccelerate growth long term due to our commitments to innovation, momentum with subscriptions, global growing pipeline of opportunities and comprehensive plan for addressing data center security challenges across physical, virtual and cloud deployments.

With that, let me turn the call over to Terry.

Terrence J. Schmid

Thanks, Shlomo. I will first start with a more detailed overview of our second quarter financial performance and then provide our outlook for the third quarter and full year 2014. Following my closing remarks, we will open up the call to your questions.

As Shlomo mentioned, we're pleased with the company's execution during the second quarter, highlighted by our ability to exceed guidance across multiple key metrics. Specifically, revenue came in at $38.4 million, which is up 23% compared to the second quarter of 2013 and above our guidance range of $33 million to $36 million.

Services revenue, which consists of maintenance and support, professional services and training and subscriptions, increased 39% to $21.9 million and accounted for 57% of total revenue compared to 50% during the second quarter of 2013. The growth in services revenue was primarily driven by the 110% year-over-year increase in subscription revenue to $5.3 million. Subscriptions now account for 14% of total revenue, up from 8% last year.

Maintenance and support revenue was $13.5 million during the quarter, an increase of 27% over the same period last year, while our professional services and training revenue was $3.1 million in Q2.

Growth of our combined product and subscription revenues was 20% year-over-year to $21.8 million during the quarter.

Product and subscription revenues combined represent the complete range of our product offerings across physical, virtual and cloud deployments and we believe give the best indication of the growth of our overall product sales.

In addition, as Shlomo mentioned, the number of deals over $100,000 increased to 88 during the quarter compared to 76 last year. In the second quarter, we added 175 new customers, and we now have over 3,300 customers in more than 90 countries around the world.

I will turn now to non-GAAP expenses and profitability, which I'll remind everyone excludes stock-based compensation and amortization of intangibles.

For the second quarter, gross profit was $29.9 million compared to $24.1 million in the same period last year. Our gross margin percentage was 78% during the second quarter compared to 77% last year and in line with expectations.

In terms of non-GAAP operating expenses, sales and marketing expense during the second quarter increased 31% to $21.9 million and represents 57% of revenue compared to 65% during the first quarter of 2014 and 53% during the same period last year.

Research and development expenses for the quarter increased 59% year-over-year to $9.4 million and accounted for 25% of revenue compared to 26% in Q1 2014 and 19% of revenue in the second quarter of 2013.

In addition, general and administrative expense during the second quarter was $4.9 million, up 35% year-over-year. As we mentioned last quarter, we reduced the pace of investment to account for the lower revenue guidance, but we have continued to invest in our cloud businesses since they are in the early stages of what we believe are very large opportunities.

We reported a non-GAAP operating loss of $6.2 million in Q2, which was better than our original guidance range of a loss of $9 million to $11.5 million primarily due to the upside in revenue during the quarter.

During the second quarter, we reported a non-GAAP net loss attributable to Imperva stockholders of $6.4 million compared to $2.3 million during the second quarter of 2013. Non-GAAP net loss per share during the second quarter was $0.25 per share based on 25.8 million weighted average shares outstanding and above our guidance range of a loss of $0.37 to $0.47 per share. This compares to a net loss per share of $0.10 during second quarter of 2013 based on 24.2 million weighted average shares outstanding.

On a GAAP basis, GAAP net loss attributable to Imperva stockholders for the second quarter totaled $15.4 million or $0.60 per share based on 25.8 million weighted average shares outstanding. This compares to a loss of $5.9 million or $0.24 per share based on 24.2 million weighted average shares outstanding in the prior year period.

A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial statement tables included in the press release issued today covering our financial results for the quarter ended June 30, 2014, which can be viewed on our website.

Turning to the balance sheet. As of June 30, 2014, we had $99.5 million in cash and equivalents and short-term investments and no debt outstanding. Our cash balance reflects the usage of $6.8 million in cash flow from operations during the quarter. We ended the second quarter with an accounts receivable balance of $33.6 million, resulting in DSOs of 79 days, consistent with the second quarter of 2013 and down from 82 days during Q1 of 2014.

Total deferred revenue increased 33% year-over-year to $64.1 million during the second quarter, driven primarily by our over 90% renewal rates and the growing success of our subscription-based products.

And I'd like to finish with some thoughts regarding our financial outlook for 2014, starting with the third quarter.

As Shlomo mentioned in his prepared remarks, while we made good progress in the productivity initiatives in Q2, we're only in the first quarter of a multi-quarter sales execution improvement process. As a result, we expect total revenue to be in the range of $38 million to $41 million in the third quarter or a growth of approximately 13% at the midpoint compared with the same period in 2013.

Non-GAAP gross margin is expected to be approximately 78.5%. Non-GAAP operating loss is expected to be in the range of $6 million to $8 million, reflecting our continued investment, particularly in our cloud businesses.

Non-GAAP net loss, excluding the impact of stock-based compensation and amortization of intangibles, is expected to be in the range of $6.5 million to $8.5 million or $0.25 to $0.33 per share. This assumes a provision for income taxes of $200,000 to $300,000 for the quarter and weighted average shares outstanding of approximately 26 million.

From a full year 2014 perspective, we are increasing our estimates to reflect the overperformance during Q2. Consequently, we now expect total revenue to be in the range of $155.5 million to $162.5 million, which represents a year-over-year growth of 13% to 18%. This is compared to our previous guidance range of $150 million to $160 million.

Non-GAAP gross margin is expected to be approximately 79%. Non-GAAP operating loss is now expected to be in the range of $21 million to $26.5 million compared to our previous guidance range of $24 million to $32 million.

We expect non-GAAP net loss, excluding the impact of stock-based compensation, amortization of intangibles and acquisition-related expenses, to be in the range of $21.5 million to $27.5 million or a loss of $0.83 to $1.06 per share based on 26 million weighted average shares outstanding for the full year. This compares to our prior guidance of $25 million to $33 million or a loss of $0.94 to $1.25 per share based on 26.5 million weighted average shares outstanding. This assumes a full year tax provision of $0 to $500,000.

We expect capital expenditures for the full year to be in the range of $3.5 million to $4.5 million.

And finally, we continue to expect to generate a negative cash flow from operations in 2014.

So in summary, we were pleased with our execution in Q2 and remain confident in Imperva's ability to reaccelerate growth longer term due to the ongoing global demand for our comprehensive integrated data center security solutions, growing global pipeline of opportunities, commitment to innovation and our ability to execute our plan for addressing the security challenges for the cloud.

And with that, we'd be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] We will go first to Rob Owens with Pacific Crest.

Rob D. Owens - Pacific Crest Securities, Inc., Research Division

Shlomo, I wanted to hit a little bit on the competitive environment specifically on the DAM [ph] side of your business. I know you talked about how some of the larger deals were stalling out last quarter. Maybe update us as to where those are, senior management's involvement in helping push those things through the pipeline at this point as well.

Shlomo Kramer

Yes. So as we said, we continued to see stronger competition and extended sales cycles on large deals, especially on the database side. And I think we are demonstrating better execution against that. But from an environment perspective, it's -- it continues to be as we described it in Q1.

Rob D. Owens - Pacific Crest Securities, Inc., Research Division

And do you have a sense that a lot of those larger transactions are aimed at getting closed this year? Do you see budgets ticking up as a result of what we've seen with major data breaches at the end of last year and early this year?

Shlomo Kramer

[indiscernible]

Terrence J. Schmid

Go ahead. I'll jump in on that just for a second. So I would -- as far as what we're seeing from a budget perspective, and I will just point you back to our guidance, Rob, and just tell you that anything that we're seeing in the environment right now from that perspective, of deals closing and when they're going to close, is reflected in the guidance we gave for the Q3 and for the full year.

Rob D. Owens - Pacific Crest Securities, Inc., Research Division

And then, Terry, the spike in subscription revenue, especially as I look sequentially, maybe just a little bit more color there because it's a pretty good, big sequential number as well. And then, while you didn't give components of the guidance moving forward, I think the assumption is it has to be up into the right from here, correct?

Terrence J. Schmid

You're right. And also the -- yes, the subscription business is doing very well. In particular it's highlighted by Incapsula, which is really, really performing nicely. So when you -- there are a number of components in our subscription revenue. We don't give guidance on each individual one. I can tell you that Incapsula is the fastest growing piece in all of that and it has continued to perform well. And I -- we don't have any reason to believe that, that performance is going to change anytime soon. It's a very, very, very fast growing business right now.

Operator

And we will go next to Nandan Amladi with Deutsche Bank.

Nandan Amladi - Deutsche Bank AG, Research Division

So first question is sort of on the back of the previous one, the mix between your license and subscription growth. Given it's growing so much faster, where might we expect to see that mix, say, by the end of next fiscal year? Or maybe, 2 quarters ahead is still too close, but if you look out 4 to 6 quarters, what might that mix look like?

Terrence J. Schmid

Well, I wouldn't try to give you an idea of where it would be other than, of course, directionally, the subscription business is growing substantially faster than anything else. So it's going to continue to become a larger component of the overall total revenue stream over that period of time for sure.

Nandan Amladi - Deutsche Bank AG, Research Division

Okay. And then on the sales and marketing expenses, I think Shlomo made a reference to the channel becoming a more important piece, and I think you said twice as many new customers this quarter as last year. Does that mean that you are -- you might be able to dial back a little bit on the -- on your own sets of marketing expenses if the channel is becoming a bigger piece?

Terrence J. Schmid

Yes. So specifically, what Shlomo was referring to was success at some of our hosters and bringing customers on board their business model.

Nandan Amladi - Deutsche Bank AG, Research Division

Oh, I see. Okay.

Terrence J. Schmid

But not necessarily growth in the channel themselves as a larger component of our revenue stream or the deals that we bring in. So I think right now, we continue to make progress in enabling our channel partners to be more productive, but I don't see that having a material effect on how we invest in our own sales and marketing organization for the time being.

Operator

And we will go first to Matt Hedberg with RBC Capital Markets.

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

Terry, I'm wondering, if you could talk maybe about the last week -- the last couple of weeks of the quarter. Obviously, that's when a lot of these deals come through. But I assume that with the improved results, you saw much better execution in those last 2 weeks?

Terrence J. Schmid

In characterizing this, maybe you'll have a better idea in those last 2 weeks of where the deals that were in play actually were, which I think helped us substantially in terms of where we focused our attention and how we got those deals done. We had -- you can see from the DSO improvement over Q1 and the stability of last year that we didn't see a substantial change in the linearity within the quarter. Slightly improved, but it has certainly stabilized.

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

That's great. And then, and I know -- I certainly can appreciate you're not out of the woods yet. This is a multi-quarter transition here. But I think Shlomo mentioned record pipelines entering 3Q. It looks like at the midpoint, guidance is up about 3%, which -- I mean, it's still early, but it does look a little conservative. Can you talk about these close rate assumptions? Are they similar to what you applied for Q2?

Terrence J. Schmid

Yes. So just in terms of our close rate assumptions and what we're seeing in the pipeline, I know we certainly have built our guidance around what's there and the success that we've had in turning around -- in turning the sales organization productivity around somewhat We expect that to continue, but it's early on. So it's reflective of the fact that there's more work to do there. I think it goes right into...

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

Sounds good. Maybe one last quick one. I believe you indicated that cash flow should be negative for the year. Is that -- should that turn positive next year?

Terrence J. Schmid

I wouldn't give any guidance on next year, no.

Operator

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

Jonathan Ho - William Blair & Company L.L.C., Research Division

Can you give us a little bit more detail in terms of some of the changes that you made in the Americas region and sort of the time frame that you for expect for that to have the full impact? I know you guys said multi-quarter, but can you just talk a little bit more in detail about some of the changes in place along with this new head?

Shlomo Kramer

Yes. So we have a new management for the North America region. There has been some kind of upgrading of personnel in the individual contributor level. We've introduced new hypotheses and new systems to address some of the operational aspects of sales execution. So -- and we are starting to see, I mean, the results of this.

Jonathan Ho - William Blair & Company L.L.C., Research Division

Got it. And then can you talk a little bit more about sort of the opportunity around Skyfence? I know it's relatively early, but relative to your Incapsula offerings, it seems to broaden a lot of your capabilities. Can you maybe talk about how you see that from an up-sell perspective?

Shlomo Kramer

So perhaps, I think that -- back and talk about the cloud opportunity in more general. We believe that the cloud will present a significant opportunity for us as data center assets are moving outside of organization premise to the cloud. This really changes, I would call it the codification [ph] of data centers. And also the users of these data centers are moving from within the organization outside, and that -- although magnitude of these users is much different. So this is most like the consumerization of the data center. Both -- that was -- both IT changes represent a big opportunity, we believe, for a security solution that really focuses on these data center assets because the old premises of network security and endpoint security are less relevant. And that's what we do. And Incapsula and Skyfence and the -- our AWS solutions are all elements in addressing this opportunity.

Jonathan Ho - William Blair & Company L.L.C., Research Division

Perfect. And just one final one from me. As you look at sort of the opportunity around the hosting business, can you maybe give us a sense of whether you think this will continue to be a larger and more important channel over time? And are you seeing sort of your customer base more rapidly adopt either infrastructure in the cloud or shift a lot of their Web and database servers into the cloud and sort of the role that you can play to assist in that process?

Shlomo Kramer

Well, we have the most comprehensive strategy that addresses any architectural choices -- many architectural choices of our customers, whether this is a SaaS implementation in the cloud, infrastructure-as-a-service implementation in the cloud, a hosting of their assets in hosters. For any one of these choices, we have the relevant solution. And I believe that we are the only company that has such a broad solution set.

Operator

We'll go next to Robert Breza with Sterne Agee.

Robert Paul Breza - Sterne Agee & Leach Inc., Research Division

I was just wondering if you could comment maybe qualitatively or from a range perspective as you talked about this multi-quarter sales improvement. Do you -- just some color around it. Do you see yourself adding 20% more salespeople, direct quota-carrying reps? I mean, the investment from an increasing channel perspective? Just some color and context around how you see kind of continuing this gradual improvement from a multi-quarter sales execution perspective?

Terrence J. Schmid

Yes, sure. So not surprisingly to any of you, I'm sure, I'm not going to give you any quantitative answer to that. But I will qualitatively tell you that as we continue to see success in making these improvements and the productivity changes starts to take hold, those are -- the areas in which those take hold, we will invest more in. So we're going to continue to hire salespeople. We're going to continue to ramp up our quota-carrying capacity. But we're going to do that behind the impact of these changes. And I'm really most specifically talking about the U.S. here. We haven't necessarily changed our hiring plans in EMEA or in APJ. So when we talk about a multi-quarter process, some territories within the U.S. have very, very new management. And at the same time, they've got new tools and new processes that we're working through. So some of those, we may invest in a little more slowly. And some of the ones where we've got more experienced management, then the turnaround is taking hold. So I think the best thing I can tell you is that we will continue to increase our sales capacity over the course of this year and will be reflected in the guidance that we give in terms of the operating income we're going to have. It's at a slower pace than it would have been had we not run into some of these productivity issues that we have. But we're going to continue to add headcount over the next several quarters. I know there is a -- the number in Q1.

Robert Paul Breza - Sterne Agee & Leach Inc., Research Division

Okay. And then maybe, just one for Shlomo. As you think about it geographically and you look around the world, where do you see the biggest, I guess, need? I mean, obviously, it's a worldwide issue for security, but where are you seeing kind of the biggest pickup maybe in the urgency and need for security and I think where that maybe isn't being addressed from a fundamental need perspective?

Shlomo Kramer

I believe that the demand is global, and it's pretty well balanced now globally. So I don't see any one area particularly different than the other.

Operator

[Operator Instructions] And we'll go next to Ken Talanian with JPMorgan.

Kenneth R. Talanian - JP Morgan Chase & Co, Research Division

This is actually Ken Talanian in for Sterling Auty, and I was wondering if you could talk about your changes in sales leadership and whether -- are you done there? Is there anything left to do? Just your thoughts on that.

Terrence J. Schmid

I think the specific changes that we needed to make, we've made it right now. So right now, hoping we'll be successful.

Kenneth R. Talanian - JP Morgan Chase & Co, Research Division

Okay. And I guess second to that, can you give some color on your -- the acquisition of Tomium and whether that's helped your database deals in recent quarters?

Terrence J. Schmid

I don't know. And so the acquisition of Tomium wasn't really -- I wasn't meant to impact deals in the short term. The work that we'll do with Tomium there in improving our database project and the [indiscernible] that run on mainframes is something that's a little more longer term. So having them as part of the product portfolio that we own 100% of, I don't know that it's made a -- any impact yet on deals that were in play in the short term.

Operator

And we'll go next to Michael Kim with Imperial Capital.

Michael W. Kim - Imperial Capital, LLC, Research Division

Can you talk a little bit more about with the follow-on sales to existing customers? And if there's any shifts in the trends there, what's sort of the common kind of crossover case if you see that continue to increase as a percentage of the existing base?

Terrence J. Schmid

I mean, I haven't seen a change in it per se. About 30% of our customers own more than one of our products, and there isn't a typical pattern for going into an accounting of cross-selling or up-selling and bringing the next product. And some people start with Web application security and some people start with database auditing and move their way in some other direction. So there's nothing typical I can tell you other than we have seen consistent -- it's been fairly consistent in the number of customers that are adding another product in -- outside of the one they originally bought.

Michael W. Kim - Imperial Capital, LLC, Research Division

Okay, great. And then switching gears. Can you talk a little bit more about SecureSphere WAF for AWS? Are you seeing primarily a shift on the part of existing customers to the public cloud? Or is it an opportunity for you guys to capture new customers who you haven't accounted before on either your data or application side?

Terrence J. Schmid

It is both. There are customers of ours who are moving their infrastructure to AWS and we need to be there for them. So we're there with our Web Application Firewall now working on a database product currently. And then there are customers who are not customers of Imperva yet that aren't going to move there and they aren't going to have as many choices, frankly, when they get there. So we need to be there when they arrive. So there is a demand from both sides of what you just said.

Operator

There are no further questions in the queue. I'd like to turn the call back over to management for any additional or closing remarks.

Terrence J. Schmid

I want to thank all of you for joining us on the call today. We appreciate your continued support and interest in Imperva. Thank you.

Operator

That does conclude our conference. Thank you for your participation.

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