Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Rob Doherty - F.D. Ashton Partners

Robert W. Shaw - Chairman of the Board, Chief Executive Officer

Thomas Reilly - President, Chief Operating Officer

Stewart Grierson - Chief Financial Officer

Analysts

 

Robert Breza - RBC Capital Markets

Keith Weiss - Morgan Stanley

Phil Rueppel - Wachovia Securities

Israel Hernandez - Lehman Brothers

ArcSight Inc.(ARST) F4Q08 Earnings Call June 19, 2008 5:00 PM ET

 

Operator

 

Good day, everyone, and welcome to the ArcSight fourth quarter and fiscal year 2008 results conference call. Today’s conference is being recorded. And now at this time, I would like to turn the conference over to Mr. Rob [Doherty] of F.D. Ashton Partners. Please go ahead, sir.

Rob Doherty

Thank you, Dustin. Hello and thanks for joining us today for the ArcSight fourth quarter fiscal 2008 conference call. On the call today are Robert Shaw, Chairman and CEO; Tom Reilly, President and COO; and Stewart Grierson, CFO, all of ArcSight.

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 on this conference call. These risk factors are described in our press release and are more fully detailed under the caption risk factors in the final prospectus for ArcSight's IPO as filed with the SEC on February 14, 2008, and the company’s other filings with the SEC.

During this call, we will present both GAAP and non-GAAP financial measures. Non-GAAP measures exclude amortization of intangibles and stock-based compensation expense. These non-GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to our GAAP results and we encourage you to consider all measures when analyzing ArcSight'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 fourth quarter and fiscal 2008 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 June 19, 2008, and any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events.

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

Now I will turn the call over to Robert Shaw, Chairman and CEO of ArcSight. Robert.

Robert W. Shaw

Thanks, Rob, and thanks to everyone joining the call today for our fourth quarter and 2008 fiscal year-end. We had another record-breaking revenue quarter while also significantly exceeding our expectations in sales bookings, resulting in a strong deferred revenue growth.

Our strong bookings number resulted in higher variable operating expenses for the quarter, since we expensed sales commission yet did not realize the associated revenue. Given the increase in deferred revenue, our strong year-end sales momentum allows us to begin our fiscal year 2009 from a position of strength.

Total revenue for the fourth quarter of fiscal 2008 was $29.4 million, bringing our full year revenue to $101.5 million, crossing a major revenue milestone that the company is very proud of. We were profitable on a non-GAAP basis in Q4 as well as for the full year, with non-GAAP net income of $0.6 million for the quarter and $3 million for the year.

We closed five large transactions in the quarter with revenue on these specific deals deferred to future quarters. However, we paid $1.9 million in sales commissions on these bookings, which are included in our operating costs for the quarter.

We are excited to have ended our fiscal year with a bang, not only driving record revenue in our final quarter but also increasing deferred revenue. Our installed base remains strong, having accounted for 62% of product revenue in the quarter. We also achieved strong growth in new customer wins with the help of our channel partners.

We attribute our robust growth to two factors; first, as a platform provider, we have a suite of integrated products that allows us to sell into multiple customer scenarios and allows us to sell back into our installed base the new products and project expansions.

Second, we are experiencing high competitive win rates, as ArcSight is increasingly viewed as the go-to vendor in security information and event management. Despite challenging economic times and tightening of IT budgets in general, our strong results are evidence the company is [inaudible] in areas involving compliance and security management.

We are also fortunate to have a very loyal customer base that sees the value in our platform and continues to give us additional business and provide strong references to fuel new customer wins. We find this customer validation to be invaluable.

That’s also nice when industry analysts recognize our performance and position in the marketplace. As such, we are very pleased to be positioned once again as a leader in Gartner’s Magic Quadrant for SIM, which has been expanded to include log management. This is our fourth consecutive year of being recognized as a leader. Unique to this year is ArcSight's favorable positioning in completeness of vision as well as ability to execute. The Gartner report specifically notes that ArcSight has the broadest product set in the SIM space, has the most visible point solution vendor.

Let’s talk about competition. We have recently received many questions asking how we compete against the large suite vendors, such as IBM, EMC, and Symantec. The fact is we are in a very fast-growing category, attracting a wide variety of players that range from privately held niche providers to large technology companies that offer suites of IT solutions.

The larger technology suite providers typically lead with their collection of IT products as a strength. However, we have learned that their loosely coupled offerings come at the expense of capability, interoperability, and scalability. The smaller privately held competitors in our space may offer similar sounding point solutions but our successful field engagements demonstrate to us that they are lacking in both capability and product breadth to address the range of challenges any given customer may have, thus limiting them to a much smaller segment of the market.

In our business, we find that companies do not want to compromise when it comes to protecting their critical business asset and therefore, they seek the market leader as their partner.

Our ability to continually outpace our competitors, both large and small, is not only due to our product leadership and core IP; it’s also a result of the knowledge, expertise, and best practices we’ve gained from working with the world’s largest institutions and agencies in protecting their critical business assets.

Let’s talk about why we win. In short, we frequently win in competitive marketplace because of the following four attributes: best-in-class interoperability -- our ability to integrate with nearly 300 different compliance and security products sets us apart from any vendor in this space. We believe the largest suite vendors are disadvantaged in this area, given the fact that they compete at the device layer and don’t offer a vendor agnostic platform.

Second, scalability -- this is a key differentiator in the enterprise and mid-markets, as many of our competitors have failed to effectively scale their offerings to meet the needs of different sized customers.

Third, exceptional correlation technology -- our rich correlation engine provides unique, real-time intelligence, which allows our customers to effectively identify compliance breaches, security attacks, insider threats across their ever-expanding complex IT infrastructures.

And last, product breadth -- increasingly customers are looking to vendors who can solve a range of needs, from basic log manager compliance to sophisticated real-time analysis of information and events across the enterprise. We are the only vendor that has an integrated platform or products that addresses this spectrum of requirements. This gives customers multiple entry ports to our product family and the ability for us to go back and up-sell the customer as their needs evolve.

Last quarter, we listed the following strategies we would be pursuing this quarter in an effort to continue to grow our market share: one, acquire new customers within the mid-market and global 2000, as well as increase our international penetration; two, drive revenue from our existing customers by expanding their use of our platform across the enterprise and selling new use cases; three, launch new innovative applications that address specific compliance needs and use cases and expend our family of appliance products; and four, broaden our distribution capabilities and focus on making our newly acquired channel partners more productive.

I am quite pleased to report that we made important progress in all of these fronts and exceeded even our own expectations for some of them.

I would like to now hand the call over to Tom, our President and Chief Operating Officer and newest addition to our board of directors, so he can provide more detail around the successful execution on our go-to-market strategy, as well as the continued expansion of our product portfolio. Tom.

Thomas Reilly

Thank you, Robert. I am very excited to be joining this call. Our base of over 500 valued customers spans a diverse cross-section of industries, customer sizes, and geographies in both the public and private sectors. In fact, this past quarter we acquired 44 new customers, with representation from nearly every one of the verticals that we track. These customers range in annual revenue sizes anywhere from $23 million to $65 billion, demonstrating our ability to scale from the smallest to largest of deployments.

This past quarter the government sector, and primarily intelligence and defense agencies, remained our number one vertical. We expect continued growth in this sector, both here and abroad, driven in large part by the growing concern of international cyber warfare. Our strong reputation and success within government agencies across the globe, combined with our scalable product portfolio, has us well-positioned for growth in this sector.

The financial services industry has continued to contribute at significant levels, despite the credit problems that have impacted this vertical of late. Fraud is an increasing concern with many high profile breaches hitting the news lately. We expect our solutions for fraud detection will likely be a strong driver for the financial vertical going forward.

The retail community remains focused on protecting consumer information and meeting PCI compliance mandates. Interestingly, the drivers for the projects are shifting from avoiding compliance fines to protecting their brands, which suffer sever damage if breaches occur. It seems every month there’s another headline of major breaches concerning consumer data.

In retail this past quarter we competed against EMC for a PCI compliance project at a major chain with 1,500 stores across North America. Their evaluation started with 12 vendors and was quickly narrowed to ArcSight and EMC. Despite this customer’s pre-existing and high level relationships with EMC, we won this project because we are the only vendor to satisfy the scalability requirements of their distributed network of stores. This was a multi-million dollar win for us.

An important development in our customer profile is our growth in international markets, which contributed 30% of our Q4 revenue compared to just 19% in the prior year quarter. Most of this growth was in the EMEA region, where we saw a 100% increase in year-over-year revenue growth. In Q4, 23% of our revenue was derived from EMEA compared to just 12% in the prior year quarter.

While security management has been the primary driver in the purchasing decision of our international customers, we are starting to see a greater emphasis on compliance initiatives, which we believe will be a strong catalyst for continued growth internationally.

In Europe this past quarter, we competed against Symantec for the global security operations monitoring platform at a large manufacturer of mobile devices and communication equipment.

Despite this customer’s significant relationships with Symantec as a preferred security vendor, we won this opportunity due to the breadth of our integrated product portfolio and our demonstrated domain expertise. This was also a multi-million dollar win and a win for us against Symantec.

While we’ve made excellent progress in EMEA, we are not satisfied with the results from the Asia-Pacific region, where revenue contributions remain constant at 7% of total revenue. To improve our performance in this region, we’ve invested in new sales and business development leadership in both Japan and the larger Asia-Pacific region, and we have forged several new go-to-market partnerships in these regions. We believe that this important progress, combined with an expanded product portfolio, should help drive improvements in this territory in fiscal 2009.

Fortunately, we have a good base of customers to build upon in Japan and the broader APAC region. This past quarter we competed against IBM for JSOX compliance project at a large Japanese auto manufacturer. Despite the fact this company outsources their IT operations to IBM’s global services, they selected ArcSight for this compliance initiative due to our unique ability to scale to their global needs. This initial sale was for just under $200,000, but has significant upside for follow-on business.

Fortunately, our configurable platform of products enabled us to service a wide variety of verticals, each with their distinct needs and deployment environments. This past quarter, we announced our enterprise view strategy in our partner program, which allows us to extend our solutions into high value problem areas such as fraud for financial institutions.

In support of this strategy, we’ll be soon releasing one of the key building blocks, Identity View, that leverages the investments our clients have made in their identity and access management systems, enabling them to monitor user activities across the applications.

We also recently announced our PCI appliance. This is an offering which will be a strong catalyst for growth in the retail sector, both in North America and abroad, as an increasing number of customers require protection of cardholder data against breaches, insider threats, and non-compliance risk.

Our logger family of appliance-based products has also been gaining traction as more organizations have embraced the need to cost-effectively collect, archive, and search across their event log data for compliance and forensic analysis purposes.

We recently announced a global partnership with VeriSign, in which our logger product will enhance their hosted log management service. This provides us with even more growth opportunities for logger in both the U.S. and abroad.

While our solutions have focused traditionally on large enterprise and government agencies, our opportunity is quickly expanding beyond these market segments. We are continually packaging solutions specifically targeted for the middle market, enabling us to effectively move downstream with our channel partners.

Earlier this month, we announced the availability of three appliances designed specifically to serve mid-size data centers, branch offices, and retail stores. These solutions strengthen ArcSight's position as the only full spectrum provider, from historical reporting and log management to complex enterprise level SIM correlation, meeting the needs of mid-sized and large enterprises, as well as government agencies across the globe.

We are very excited about our success this past quarter and our opportunity for continued growth in fiscal ’09. This past Tuesday, Gartner issued a report that the security industry as a whole is growing at 20% annually and is bucking the trend that is affecting the broader IT industry with tightening budgets. In fact, they highlight that the largest driver for this high growth is compliance, and Gartner pointed out that the segments with the biggest gains are actually occurring in the SIM category and one other, which is e-mail security.

Based on our Q4 performance, our pipeline, and the continued industry growth in compliant solutions, we have recently made significant investments in our field organization, going from 141 total resources to 165, enabling us to capitalize on this opportunity in front of us.

We have increased the number of direct sales reps, with a large percentage of the new hires being placed in EMEA, where we expect to see continued strong growth. We’ve hired new leadership in Japan and the broader APAC region, where we expect our new products and our new team to perform well.

We have increased the number of global channel reps, with a focus on enablement of our strongest performing partners. And we have expanded our professional services organization to meet the growing needs of our customers.

While these investments are costly in the short-term, we are confident they will position us for continued high growth and will deliver the long-term leverage we are modeling for.

I would now like to turn the call over to Stewart to discuss our financials.

Stewart Grierson

Thanks, Tom. As previously mentioned, for the fourth quarter ended April 30, 2008, we had total revenue of $29.4 million, representing a year-over-year increase of 37% on a VSOE adjusted basis. You will recall that revenue in the fourth quarter of fiscal 2007 was favorably impacted by $4.2 million related to historical VSOE adjustments. This should be the last quarter in which the impact of prior period VSOE adjustments needs to be considered in understanding our year-over-year results.

We recorded non-GAAP net income of $0.6 million, or $0.02 per diluted share. This excludes stock-based compensation expense of $1.5 million and amortization of intangibles of $143,000. We recorded a GAAP net loss of $1.1 million, or negative $0.04 per diluted share.

Our revenue mixes remain consistent, with product revenue contributing 62% of total revenue and the remaining 38% coming from maintenance and services. On a VSOE adjusted basis, fourth quarter product revenue grew 28% year over year. This excludes the impact of $3.1 million of product revenue recorded in the fourth quarter of fiscal 2007 related to VSOE adjustments.

Sales to our installed base remain strong as 62% of our product revenue came from our existing customers. Of note was a sales transaction from an existing government customer that accounted for more than 10% of our revenue in the quarter. Complementing our existing customer revenue growth, we added 44 new customers in the quarter, representing 38% of product revenue.

On a non-GAAP basis, gross margin for the quarter was 84%. This is at the high-end of the long-term blended gross margin targets of 80% to 84% we have previously communicated.

Non-GAAP year-over-year operating costs increased to $23.7 million from $18.6 million, as we significantly increased our headcount across the business to support our sales growth, continued to innovate and introduce new products to market, and increased G&A to support our growth and public company status.

Non-GAAP operating income for the fourth quarter of fiscal 2008 was $0.9 million, or 3% of revenue.

As Robert previously mentioned, our Q4 sales and marketing expenses were greater than anticipated due to higher sales commissions as a result of significantly exceeding our bookings plan, compounded by year-end commission accelerators.

Specifically, we recorded $1.9 million of commission expense on five large deals that were all deferred at the end of the quarter. This incremental variable cost, without the associated revenue benefit had the impact of reducing earnings per share by $0.06 per diluted share.

We overachieved our Q4 bookings plan by almost 40%, which is significantly higher than any other period in our history. A large portion of this overachievement did not come into revenue during the quarter. While this negatively impacted our operating expenses in the quarter as a result of the associated commission expense, it also resulted in the increase in deferred revenue at the end of the year.

For the 2008 fiscal year, we had revenue of $101.5 million, representing a year-over-year increase of 45%. We recorded non-GAAP net income of $3.5 million, or $0.12 per diluted share. This excludes stock-based compensation expense of $4.9 million and amortization of intangibles of $573,000. This compares to a non-GAAP net income of $1.7 million in the prior year, or $0.07 per diluted share, excluding stock-based compensation of $1.5 million and amortization of intangibles of $476,000.

We recorded income tax expense of $1.1 million for the year ended fiscal 2008, $617,000 of which was expensed in the fourth quarter. Income tax expense primarily relates to current taxes on foreign subsidiary earnings, alternative minimum tax and state taxes in the U.S., and deferred tax expense related to the goodwill from the ENIRA acquisition.

Turning to the balance sheet, we ended the fourth quarter with cash and cash equivalents of $71.9 million, of which $45.9 million was raised from our IPO. In the fourth quarter, we generated $2.1 million in cash from operations and we used roughly $0.5 million in capital expenditures and another $400,000 related to financing activities. We are currently investing our cash in highly related conservative investment vehicles, which are earning a yield of approximately 2.2%.

In accordance with GAAP, we net down accounts receivable and deferred revenue for sales transactions that are recognized on a cash basis. As a result, in order to understand the change in accounts receivable and deferred revenue from period to period, one must take the impact of the net down into consideration.

Deferred revenue of $41.3 million at April 30, 2008, was net of $5.5 million of sales transactions that are recognized as revenue on a cash basis. This compares to third quarter deferred revenue of $31.4 million that was net of $9.4 million of cash basis transactions. Accordingly, deferred revenue increased by approximately $6 million from Q3 to Q4.

Accounts receivable was $26.7 million at the end of the quarter, up significantly from $9.4 million at the end of the third quarter. Once again, both these balances are net of $5.5 million and $9.4 million respectively for cash basis transactions.

The increase in accounts receivable is another reflection of the strong finish we had for the quarter and resulted in DSOs of 81 days. This is a function of both higher accounts receivables and growth in deferred revenue.

I will now provide guidance for Q1 and the full year for fiscal 2009. Based on current business trends and the visibility we have from our strong Q4, we expect revenue for the first quarter of fiscal 2009 to be in the range of $26 million to $28 million, which represents growth of 31% to 41% over the prior year. Consistent with the two prior years, we expect first quarter revenue to be sequentially lower than fourth quarter revenue.

Non-GAAP net loss for the first quarter of fiscal 2009 is expected to be in the range of $1.8 million, or $600,000, or negative $0.06 to negative $0.02 per diluted share, excluding stock-based compensation expense and amortization of intangibles.

For the 2009 fiscal year, we are forecasting revenue in the range of $124 million to $128 million and non-GAAP net income of $6.8 million to $9 million, or $0.20 to $0.26 per diluted share, excluding stock-based compensation expense and amortization of intangibles.

We are assuming an effective tax rate of 34% for fiscal 2009.

With that, I will turn the call back to Robert for his concluding remarks.

Robert W. Shaw

Thanks, Stewart. In total, I am very pleased with the progress we’ve made thus far as a publicly traded company. We met several significant milestones in 2008 fiscal year, and are continuing to execute on our growth strategies and solidify our leadership position in this rapidly growing market.

Lastly, I’d once again like to thank all of our employees, partners, customers, and investors for their individual roles in making our company such a success to date. We hope to continue to work closely and build a major enterprise software platform company.

This concludes our comments for today. We’ll now be happy to take your questions.

Question-and-Answer Session

 

Operator

(Operator Instructions) We’ll go first to Robert Breza with RBC Capital Markets.

Robert Breza - RBC Capital Markets

I apologize for the noise in the background here, I’m at the airport. But one of the -- first, congratulations on the strong bookings quarter. Robert or Tom, I would love to get your perspective here a little bit on the five large deals. What are you seeing in these large deals? Is it coming from new customers, existing customers? You know, taking on more product, new modules -- what are you seeing there? Any color would be helpful.

And then Stewart, maybe for you as a follow-up, could you help us a little bit to understand how should we think about deferred revenue going forward, you know, as these large transactions get recognized? Any guidance there would be helpful. Thanks.

Thomas Reilly

I’ll answer the first part of the question. We actually had more than five large deals in the quarter. There was five that were deferred.

What we are seeing in these large deals is many of them are existing customers coming back to us and they are expanding their projects, and so they will be expanding to monitor more systems as well as they are buying new products from us and kind of extending their platform solution. That’s not to say that new customers are also not stepping up. We see a lot of larger organizations making significant investments in their compliance initiatives.

So I would say first and foremost, our strategy is to penetrate an account and then grow that account over a two- to three-year period. And we saw that pay off in our last quarter with a number of our customers coming back to us and expanding their projects.

Stewart Grierson

I’ll handle how to think about deferred revenue. So the large part of these -- for these deals, anyway, is we are going to see the benefit throughout fiscal 2009. We are not expecting to see a significant piece of this in the first quarter, and so there’s different reasons why these deals got deferred but it’s really throughout the year we are going to see these come off.

But the revenue will be recognized in fiscal 2009 from the --

Robert Breza - RBC Capital Markets

I’ll jump back in the queue. Thanks.

Operator

(Operator Instructions) We’ll go next to Keith Weiss with Morgan Stanley.

Keith Weiss - Morgan Stanley

Thank you for taking my question, guys. Again, a good quarter; I was wondering we could just run through some details. Did you guys mention what you guys ended the year at as far as headcount is concerned? And perhaps if you could give some color on what your hiring plan is or what you are looking to sort of expand headcount for going into FY09.

Robert W. Shaw

We didn’t mention it, Keith, but we ended the year with about 335 employees. As Tom mentioned, a significant amount of hiring in the first quarter. We’ve continued to ramp the sales organization, the service organization, our partner team. And so we’ll add I would say 40 to 50 people over the course of fiscal 2009.

Keith Weiss - Morgan Stanley

That was 40 to 50?

Robert W. Shaw

Yes.

Keith Weiss - Morgan Stanley

And then perhaps this one’s for Stewart; could you help us, walk us through a little bit the variance in the growth in accounts receivables versus the variance in the growth in deferred? Accounts receivables was up like $17 million quarter over quarter, versus about $10 million in the total deferred. Is part of that just a function of 4Q just being a more back-end loaded quarter in general? Could you just help us explain that variance there?

Stewart Grierson

Sure. The first way to look at it is look at it on a gross basis, obviously, and I gave you those numbers but you are right; even so, what we experienced in Q3, obviously, was we had excellent collection efforts and we also had slightly better linearity. With the strong finish to the end of the year in Q4, there was a lot of deals done in the last month of the quarter which are sitting in accounts receivable. And so that’s really the biggest driver.

Keith Weiss - Morgan Stanley

Okay. Do you have a target range for DSOs of where you try to keep them around?

Stewart Grierson

So on the last quarter call, we talked about DSO being in the 60 to 70 day range, which is historically where they’ve been. Obviously they fluctuate up and down. Beyond that, really the 81 days is -- you know, that gets heightened because of the fact that you’ve got a lot of these receivables sitting in deferred revenue at the end of the quarter.

Keith Weiss - Morgan Stanley

Got it. And then if I could maybe just sneak one last one in; should we -- how much can we take away in looking at that five large deals versus the $1.9 million in commission expense? Should we not go too far and assume say like a 10% or 15% commission rate and back into how large those deals are? Or is that -- do we not have enough information to really do that?

Stewart Grierson

It would be hard for you to do that, Keith, to try and back into that because obviously the nature of those deals and how they are structured, you’ve got varying commission rates and it really depends on whether the reps who are doing those deals, where they are from an [accelerator] perspective and so probably not worthwhile.

Keith Weiss - Morgan Stanley

And when you are talking about bookings exceeding your targets by 40%, are you talking about bookings as in revenues plus change in deferred, or like overall contract bookings, some of which might not be on the balance sheet?

Stewart Grierson

The latter.

Keith Weiss - Morgan Stanley

Okay. And does that also have an impact on that commission expense?

Stewart Grierson

Correct. We pay commissions on booking.

Keith Weiss - Morgan Stanley

Okay, very good. Thank you very much, guys, and very good quarter.

Operator

(Operator Instructions) We’ll go next to Phil Rueppel with Wachovia Securities.

Phil Rueppel - Wachovia Securities

Thanks very much. With the mid-market push and especially with the increase of hiring in EMEA on the sales side, are you going to see a change in product mix more towards the appliances over the course of ’09? And how was that in the fourth quarter? Was that about as expected?

Thomas Reilly

I’ll answer that question, Phillip. The answer is yes. The push into mid-market is specifically -- we are going to fulfill that with our appliance form factor. We are seeing increasing demand for appliances being the preferred way of purchasing our solutions, so we are continually delivering new offerings there. This past quarter we had three new appliance offerings kind of geared at the mid-market.

Our channel partners prefer the appliance form factor, and so we expect to see that continue to grow. And that was the case in Q4 as well. Our appliance did very well for us in Q4.

Phil Rueppel - Wachovia Securities

Okay. Staying on the sales front, you mentioned the up-tick in hiring in the first quarter. Is the strategy to sort of front-end load the hiring so that we see some of the benefit of those reps by the time we get to the end of fiscal ’09, or do you expect to kind of continue on an accelerated ramp throughout the year?

Thomas Reilly

Phillip, our approach is to front-end load our hiring, so from a sales perspective, I have hired and brought on board pretty much the sales organization I need to deliver on the full-year number. And then if we see continued growth exceeding that, then we can always add later. But our goal is to get the team on board, get them trained. We invest a lot in Q1 on training and ramping up and we have the team in place pretty much to deliver on the full year.

Phil Rueppel - Wachovia Securities

Okay. And then you also talked about some changes, structural changes in Asia-Pacific. How long do you think is it going to take before you start to see reacceleration in that region? Is there anything product wise or market wise that might suggest it would be longer than we’d see elsewhere? Or do you think the management changes and renewed attention is really what is needed?

Robert W. Shaw

I think it’s a combination of both, really. First of all, it’s our experience that we think the form factor expansion more into an appliance mode really works better in the Asian market. They are more interested in pre-baked, you know, already loaded capability on a box rather than installing software. So we think that’s going to be much more amenable to our channel over there. In fact, we’ve had a very good rapport with them since they know what we have now and what’s coming in the coming months.

But we can’t ignore also just having better capability and more capability in the key areas of Asia-Pac and Japan, where we’ve had great success with some large companies. We just haven’t expanded as quickly as we’d like, so that is partially management coverage and I think the product itself is going to have a huge impact.

Phil Rueppel - Wachovia Securities

Great. Thank you very much.

Operator

We’ll take our next question from Israel Hernandez with Lehman Brothers.

Israel Hernandez - Lehman Brothers

Congrats also on a great fiscal year. I’m also at the airport, so I apologize for any background noise. But my question is for Robert; Robert, [inaudible] in the markets as well, or do you think you are capturing a disproportionate share of the market opportunity? And if so, if the markets are really starting to expand here, does that mean you may have to increase your sales capacity to get a bigger share of that?

Robert W. Shaw

Israel, we missed the whole first part of your question because you were cutting out.

Israel Hernandez - Lehman Brothers

It was around the market opportunity. Do you feel that what you are seeing out there, the market, [inaudible] among your competitors or do you feel you are capturing you are capturing a disproportionate share of the opportunity? And if so, does that mean that perhaps that you may have to increase your sales capacity to capitalize?

Robert W. Shaw

I think you have to segment that into kind of two markets. The high-end of the market, we clearly dominate the high-end of the market. We rarely lose if we execute properly and it’s a fair playing field.

In the mid-market, investments we have made over the past year, and we expect a lot of leverage out of that, is really equipping our resellers to be successful. So not only is it product oriented but it’s training and certification. We expect great results from the mid-market with that combination.

So do we see every deal in the mid-market? No. Do we see every deal on the high-end of the market? Probably yes, because they go for the market leader.

Israel Hernandez - Lehman Brothers

Okay, great. Thanks, guys.

Operator

And at this time, there are no further questions. I would like to turn the conference back over to management for any additional or closing comments.

Robert W. Shaw

Just a great quarter, we’re very excited. We are looking forward to an awesome 2009 and look forward to talking to you individually or however we see you in the near future. Thank you.

Operator

That does conclude today’s conference call. Again, thank you for your participation. You may disconnect at this time.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: ArcSight F4Q08 (Qtr End 4/30/08) Earnings Call Transcript
This Transcript
All Transcripts