Mandiant, Inc.
Q3 2021 Earnings Call Transcript

Published: 4 Nov 2021

[Operator:]

Hello and welcome to the Mandiant Quarter Three of 2021 Financial Results Conference Call. My name is Sam and I will be your operator for today’s call. I’ll now turn the call over to Barry Stern, the Senior Vice President of Finance at Mandiant. Barry, you may begin.

[Barry Stern:]

Thank you, Sam. Good afternoon and thanks to everyone on the call for joining us today to discuss Mandiant’s financial results for the third quarter of 2021. This call is being broadcast live over the Internet and can be accessed on the investor relations section of Mandiant’s website at [e-mail]. With me on today’s call are Kevin Mandiant, Mandiant’s Chief Executive Officer, and Frank Verdecanna, Executive Vice President, Chief Financial Officer and Chief Accounting Officer of Mandiant. After the market closed today, Mandiant issued a press release announcing the results for the third quarter of 2021. Before we begin, let me remind you that Mandiant’s management will make forward-looking statements during the course of this call, including statements relating to the company’s guidance and expectations for certain financial results and metrics, the company’s priorities and initiatives, plans and investments, drivers and expectations for growth and business transformation, expectations, benefits, capabilities and availability of new enhanced offerings, market opportunities and go to market strategies. These forward-looking statements involve a number of risks, and uncertainties, some of which are beyond our control, which could cause actual results to differ materially from those anticipated by these statements. These forward looking statements apply as of to-date, and you should not rely on them as representing our views in the future. And we undertake no obligation to update these statements after the call. For detailed description of the risks and uncertainties please refer to our SEC filings, as well as our earnings released posted an hour ago. Copy of these documents may be obtained from the SEC or by visiting the investor relations section of our website. Additionally, certain non-GAAP financial measures will be discussed on this call. We provided reconciliations on these non-GAAP financial measures for the most directly comparable GAAP financials measures in the financial investor relations section of the website as well as the earnings released. With that I’ll turn the call over to Kevin.

[Kevin Mandiant:]

Barry, thank you very much. Thank you to all the investors, employees, customers and partners joining us on our first ever earnings calls of Mandiant. We have never been more excited about our focus, our execution and the opportunity, and we appreciate your interest and support. During this year, we announced our intended divestiture of the FireEye products business. We believe them and we believe even more so now that the separation of the FireEye products from Mandiant Solutions would unlock high growth and improve our operating leverage. Our goal was to remove complexity and create a singular focus on our most differentiated solutions. And to that end, I’m very pleased that we completed the divestiture of the FireEye products business on October 8 and rebranded to Mandiant and changed our ticker symbol to MNDT that same week. But these accomplishments behind us I believe Mandiant is the company’s best suited to close the cybersecurity cap that exists, providing solutions needed to augment security teams in a manner that promotes confidence in their security effectiveness. Our launch of Mandiant advantage SaaS platform has enabled us to deliver our industry leading threat intelligence, our industry leading security expertise, and scale them through software which is rapidly becoming both our growth driver and the majority of our billings. Today I will provide you with a few brief financial and operational highlights to demonstrate our early success in the re-launch of Mandiant. And I will share significant changes we made in the third quarter to accelerate our growth. Please note that my remarks about Mandiant and third quarter performance will refer solely to our continuing operations for the Mandiant Solutions business. Mandiant delivered positive results against all our guidance ranges including revenue, gross margin, operating margin, and earnings per share. While not formally guiding billings, ARR and cash flow Mandiant delivered above our expectations in all of those areas as well. Mandiant’s billings grew 40% year-over-year to $139.3 million led by platform cloud subscription and managed services billings growing 58% year-over-year to $73.6 million. Mandiant services billings grew 24% year-over-year to $65.7 million. This resulted in a business mix of 53% subscription billings and 47% services billings are focused on delivering solutions and services through the Mandiant advantage platform will further accelerate our transition to subscription based services and solutions. Our Q3 subscription billings growth was bolstered by our best ever quarter from Mandiant security validation and our largest validation deal ever. Revenue from Mandiant grew 22% year-over-year to $122 million in annual recurring revenue from Mandiant grew 26% year-over-year to $264 million and Mandiant deals greater than $1 million grew 79% year-over-year from 14 deals a year ago to 25 deals this past quarter. The total value of these deals greater than $1 million almost doubled, growing from $24 million to $47 million year-over-year. As an example of these larger deals we added a new Fortune 50 customer, who in addition to our incident response expertise, asked us to help transform this security program through a powered by Mandiant approach that leverages our full suite of intelligence validation, and a Mandiant advantage platform. We are pleased with these financial results. But we are even more excited by the operational highlights and go to market changes we are making to accelerate our growth. I would now like to discuss some of Mandiant innovation. We continue to make great progress on our Mandiant advantage platform. Mandiant advantage is a multi vendor XDR platform, delivered as a SaaS offering, and it contains modules such as threat intelligence, security validation, automated defense and now added in the third quarter attack surface management. And we are innovating on the platform at great speed. I’m going to highlight four examples for you. First, we now offer multi vendor managed defense. Customers have asked for Mandiant expertise and threat intelligence to back their security teams for years. With the divestiture of the FireEye products business, Mandiant will be supporting more technologies as a multi vendor XDR capability. Previously, to leverage our managed defense, customers also had to rely on and purchase FireEye technology. Now our customers can rely on Mandiant expertise and intelligence to leverage the controls and vendors that they choose. Second, we plan to launch active breach and Intel monitoring the first quarter of 2022. This capability enables visibility into Mandiant threat intelligence in real time. It is the functional equivalent of collaborating with our incident responders in the field, proactively checking our customers’ environment with the most up-to-date intelligence available as respond to the new and novel cyber attacks. Third, we plan to roll out what I consider to be the most comprehensive and reliable Ransomware defense validation solution available in the market. Ransomware preparedness is a boardroom topic, and executives and directors want to know if they can withstand Ransomware attacks that occur every day. Mandiant Ransomware defense validation tests a customer’s ability to defend against the Ransomware attacks we are seeing in the field and provides unvarnished truth about an organization’s readiness to various Ransomware actors. And we have been performing Ransomware assessments for years. But this service is built to be more technology enabled. So we can deliver a high velocity channel ready and competitively priced offering to reach new markets for Mandiant. And fourth, we also innovated in organically in the third quarter by acquiring Intrigue. Intrigue allows Mandiant to deliver attack surface management or ASM as another module in the Mandiant advantage platform. ASM identifies how organizations could be compromised by identifying applications that are visible, vulnerable and exploitable and we point that out net. We have already derived significant value in our services business from this capability, and we plan to integrate attack service management into the Mandiant advantage platform in the first quarter of 2022. In addition to these four innovations, we also add a new functionality to our automated defense module and Mandiant advantage that codifies our human expertise into machine learning and analytics. Specifically, in addition to numerous improvements to our machine learning decision models to automate and scale our expertise to more confidently identify security events that matter, we added new functionality to our EDR focused models. These new models allow us to more robustly assess metadata of various attacks and improve our ability to find the proverbial needle in the haystack at machine speed. With each data science improvement we make to Mandiant automated defense I believe we are measurably improving our automated detection and response capabilities and improving our journey to automating our expertise. Now, I like to provide some services highlights. Mandiant professional services continued to be in high demand. We had a record third quarter for Mandiant consulting revenue at $61.7 million representing 20% year-over-year growth while growing deferred revenue to $113.1 million. We now have over 600 professional consultants worldwide and we continue to have great success recruiting talent, as we believe our mission of being trusted advisors to some of the most important organizations in the world attracts great talent. While we continue to respond to very prominent and well publicized security breaches globally, we also continue to maintain a healthy balance across our services portfolio, scheduling proactive and strategic services well into 2022. Our security transformation practice grew revenues approximately 40% year-over-year. We also launched Mandiant Academy, expanding our education offerings with a full range of options designed to close the mounting cybersecurity skills gap. And now I’d like to discuss some steps we have taken to accelerate Mandiant’s growth. Because Mandiant is now vendor agnostic after the divestiture of the FireEye products business, we are in a far better position to eliminate friction with our channel partners, expand technology partnerships, and improve channel relationships. Our goal is to not only deliver dynamic cyber defense to our customers, but also to other security companies that want our Intel and expertise to augment their capabilities. Because of such an immediate broadening of possibilities for Mandiant to partner we established the strategic operations group under industry veteran Rob Potter to bring significant leverage to our business model. And we implemented five main components of this strategy in the third quarter. First, we created a technical alliances group to connect our intelligence expertise and advantage platform to other security product companies. As an example of our efforts, we recently announced a strategic partnership with Splunk that enables Splunk customers to first operationalize Mandiant threat intelligence for adversary detection. Second, interact directly with Mandiant experts for incident response, and third validate their security posture against emerging and novel attacks. The second endeavor we have to leverage our newly gained vendor agnostic position is we created a new group focused on strategic alliances for system integrators, and MSSPs. We plan to enable integrators and MSSP to use the Mandiant advantage platform to deliver security transformation and modernization programs for their customers. And third, we created an industry aligned expert team to help us navigate and deliver tailored strategic services to various industry sectors such as finance, healthcare, defense utilities, among others; addressing their specific requirements based on mission, regulations and the risk profile. Fourth, we hired a new leader to create our strategic alliance program targeting partnerships with global governments. We are leveraging her knowledge, expertise and network connections to focus and expand Mandiant’s relationship with important government agencies. And fifth, we hired a new channel lead to create and manage a channel program that addresses the middle market in an efficient way. And this was purposely timed with the new solutions announced at our cyber defense summit in October. We are combining our technology and talent that deliver relevant solutions to our advantage platform. And these offerings were created specifically to fuel our middle market growth, provide channel leverage and enable a high velocity sales model. Also in the third quarter, we hired Vikram Ramesh as our new Chief Marketing Officer. Vikram has helped us re-launch Mandiant and he has a bold plan to amplify our capabilities and brand. And as you can see, we have made important changes to take advantage of the Mandiant opportunity. We believe our strategy will elevate and accelerate Mandiant’s growth. And we are in the midst of Mandiant’s first quarter as a standalone business. We believe we are uniquely positioned to address an enormous market need. We intend to continue automating Mandiant expertise to create a scalable more effective platform for the next generation of security operations. I believe we are at the onset of the convergence of security automation, managed services, XDR and security consulting. And this convergence is necessary to help deliver the outcome organizations want. They want a comprehensive, effective and efficient security program that instills confidence that the organization is secure from the latest cyber threats. Finally, it is with some sadness that I share with you that our CFO, Frank Verdecanna has announced his intent to retire next year once we select and appoint his successor. I have spent many years working with Frank to transform FireEye. He has been a formidable positive force and unwavering partner for me. Until he retires, Frank will continue to help the team grow Mandiant while also helping us find the right successor for the next leg of the journey. Frank, we are all deeply appreciative of your commitment and contributions. And we all wish you well with your eventual retirement. You will be missed. And with that, over to you, Frank.

[Frank Verdecanna:]

Thanks, Kevin. I appreciate the kind words. It has been a privilege to work with you and the entire Mandiant team. I’m very proud of our mission and what we’ve achieved over my nine years here. For today’s discussion, I will focus on our continuing operations and take you through the walk from our Q3 results for continuing operations and how the divestiture which was completed on October 8 is expected to impact our Q4 results. Our guidance for the third quarter focus on continuing operations and I’m pleased to say that we met our guidance ranges, draw metrics and our revenue was at the top end of our guidance range. In addition, we had very solid performance in our last full quarter of discontinued operations. As always, I will be referring to non-GAAP metrics except when discussing revenue and cash flow. Our non-GAAP measures exclude stock based compensation, amortization of intangibles, non-cash interest expense on our convertible debt and convertible preferred equity, restructuring charges, accretion of series A convertible preferred stock and other non-recurring items. Now let’s look at the reported results for continuing operations for the Mandiant Solutions business. Mandiant billings increased 40% from Q3 of 20 with strong performance in platform cloud subscription and managed services and professional services. We ended the quarter with record deferred revenue of $315 million. The platform cloud subscription and managed services category grew billings by 58% year-over-year in the third quarter. We achieve this with a slight one month decline in average contract length which is approximately 22 months for the quarter. Growth in the platform cloud subscription and Mandiant services billings was driven by solid demand for Mandiant Intel, managed defense and validation subscriptions. Mandiant validation had its best quarter ever. While we encourage you to look at revenue as the best metric to evaluate our professional services performance, it is still worth noting that professional services billings were up 24% year-over-year in the quarter. Last quarter, I indicated that we expected to see annual recurring revenue accelerate during the second half of 2021 to the mid 20% levels. I’m pleased to report that ARR for Mandiant solutions increased 26% from the end of Q3 of 20 to $264 million. ARR will be an essential metric for Mandiant solutions as we continue to transition to more of a SaaS business model. For continuing operations, we added 212 new logo customers up 14% from Q3 of 20 and closed 25 transactions greater than $1 million compared to 14 in Q3 of 20. Turning to the translation of our strong billings and ARR performance into revenue, Mandiant revenue increased 22% from Q3 of 2020 with a strong performance in platform cloud subscription and managed services and professional services. Our revenue of $122 million was at the top end of our guidance range we provided in last quarter’s earnings release. The platform cloud subscription Mandiant services category grew revenue 24% year-over-year in the third quarter. Professional services revenue increased 20% year-over-year in the third quarter. Given Q3 has significant seasonality due to summer vacations we saw professional services sequentially flat compared to Q2 as we had anticipated. Now let’s look at our gross margin and operating margin. Our 60% gross margin for the third quarter slightly exceeded our guidance range, and operating margin of negative 27% for the third quarter was at the top end of our guidance range. The platform cloud subscription and managed services gross margin was 70% in third quarter, up from 66% last quarter and 62% from Q3 of 2020 driven by increased scale in our subscription business. Professional services gross margin was 51% in the third quarter, down slightly from 53% last quarter primarily due to increased vacation during the summer months. As a reminder from last quarter accounting for discontinued operations related to the sales of FireEye products business requires aggregating all revenue and directly attributable costs into net income from discontinued operations which is what you see on the face of our financial statements. Expenses for shared resources and shared programs including nearly general and administrative and IT employees as well as shared events and marketing campaigns are included in the expenses of continuing operations even if they support for benefit, discontinued operations. Included in Q3 operating expenses of continuing operations are approximately $15 million in expenses incurred to support the FireEye products business. And a further $3 million in expenses for shared programs and other overhead that would have been allocated FireEye products business under segregated reporting for the combined company. The $80 million swing has the effect of reducing the operating margin for the Mandiant solution business by approximately 15%. As a result our operating margin for continuing operations was negative 27%. The allocation these cash expenses to continuing operations also reduced the reported cash flow for continuing operations. Now that the transaction is closed, most of the cost of shared resources incurred to support the FireEye products business will be reimbursed to Mandiant under the transit services agreement. Now let’s turn to our current outlook for Q4. For Q4, we expect revenue to be in the range of $129 million to $133 million. On a year-over-year basis the midpoint of our guidance range implies revenue growth of approximately 19%. We are expecting to mix between SaaS and services to be approximately 50/50 and year-over-year growth rates for both SaaS and services could be in the range of 18% to 20%. Similar to Q2 and Q3, we expect an increasing percentage of new validation deals to be cloud versus on-premise in Q4, relative to last year. This is expected to reduce the Q4 year-over-year SaaS growth rate by approximately five percentage points. As a reminder today, any cloud validation deals those are 100% radical recognition and any on-premise deals are recognized with a significant portion of the revenue recognized upfront. This is expected to change in January of 2022 when even our on-premise validation deals will be 100% ratable. This is a result of changes to on-premise validation deployments which will enable customers to receive real time Intel updates as part of the Mandiant advantage platform. This change will provide customers the benefits of more real time access to the latest breach Intel which we believe will further increase the efficacy of our validation platform. The change will also simplify our financial model going forward because 100% of our platform cloud subscription and managed services category will be ratable. This change will create a headwind in 2022 for recognize revenue but will dissipate in 2023 as the buildup of deferred revenue amortizes into 2023. Our best estimate at this point is that the headwind will be approximately $30 million of recognized revenue in 2022. We expect gross margin between 61% and 62% in Q4, which is up both sequentially and year-over-year as the SaaS portion of our business scales up. We are expecting an operating margin of negative 20% and negative 22% implying approximately $2 millions of potential increases in operating expenses, primarily due to the Mandiant branding re-launch costs in Q4 and increase commissioned expense related to typical seasonal increase season bookings for Q4. This will be partially offset by the reimbursement for G&A and IT costs attributable to continue operations that support the far right products business during the portion of the quarter following the closing of the divestiture. We expect earnings per share between negative 12% and negative 13%. While we are not providing 2022 guidance until our Q4 earnings call. I’d like to discuss a few items which will help you understand our expectations of the Mandiant business exiting 2022. We expect we will exit 2021 with year-over- year ARR growth rates at the mid 20% level and expect our year-over-year growth rates to progress throughout 2022 and exit the year near 30% year-over-year growth rates. From an operating margin perspective, we expect to see some leverage in 2022. The non-significant amount given 2022 will include approximately $30 million headwind from moving to ratable recognition for validation. Additional branding because for the Mandiant re-launch and some tragic costs relating to IT facilities and the expected wind down of the TSA operations. For 2023 we currently expect to be non-GAAP operating margin positive. I look forward to planning our 2022 expectations in more detail as part of our Q4 earnings call and laying out the bridge to our long term model as part of Analysts Day we plan to hold in the first quarter of 2022. In closing, I’d like to reiterate the sales of FireEye product which was completed on October 8 will enable us to constantly trade our efforts on growing the Mandiant business. We remain more confident than ever that the focus will result in financial and go to market changes that we believe will make Mandiant stronger and drive value for our customers and investors. I’ll now turn the call over the operator for questions. Operator?

[Operator:]

Thank you. Our first question comes from Brian Essex of Goldman Sachs. Brian your line is now open. Please go ahead.

[Brian Essex:]

Great, good afternoon and thank you for taking the question and I guess, Frank congratulations on retirement. Finance of the first note ever wrote so you’re making me feel old. Maybe if we could just kind of start on transition expected ahead as you’re shifting from on-prem to cloud from a revenue recognition perspective and also from an operations perspective, how has this handled with customers? Is this a forced migration and what is the structure of the contracts are those on-premise customers and how’s it going to be viewed from their perspective?

[Kevin Mandiant:]

I think the vast majority of customers upon renewal and upon release of the new software will be getting real time updates from the many in advantage platform. So those real time updates really increase the ongoing efficacy of the deployment and get it to a position where we could recognize that ratably rather than upfront.

[Brian Essex:]

So it will be a rolling migration as they come up for renewal throughout the course of the year?

[Kevin Mandiant:]

Well, for any customers that have already on-premise in the first place we’ve already recognized the majority of that revenue at the time of the sale and so when they come up for renewal rather than recognize another year or two upfront, it will just go ratable from that point forward.

[Brian Essex:]

Got it. That’s helpful and what is the, I guess, is there a decision not to do it and stay on the current platform or are there certain customers that prefer to have a revenue recognition or earliest pay all upfront?

[Kevin Mandiant:]

The payment actually won’t drive whether it’s recognized ratably or upfront and they will really be, they’re being to the Mandiant Advantage platform and getting real time access to the intelligence and it should be a huge win for the customer. So that our expectation is that upon renewal the vast majority of customers will move over and that’s how we’ve modeled it assuming that they’ve all kind of moved over to Mandiant Advantage. There may be one or two government customers that for whatever reason cannot have ongoing access to real time Intel. But the vast majority and from the modeling perspective I think we feel very comfortable that the headwind won’t be more than the 30 million that we have projected.

[Brian Essex:]

That’s helpful and then I guess with regard to the support costs for the product side of business, I guess to skip that. With regard to the re-launch costs, how persistent are they and at what point might we kind of hit a regular stride where we will have a very, I guess predictable migration with better scale of platform, where we can envision a pathway to better profitability?

[Kevin Mandiant:]

Yes it’s really in 2023 and that’s why we felt very confident saying that we are going to be operating margin positive from a non-GAAP perspective in 2023 because there is significant Mandiant’s re-launch costs that happened in Q4 and carried through 2023. We also have a lot of the TSA operations that we have to keep up and running for a period of time as well, running our old ERP and new ERP system. We also do have stranded costs for some facilities that we’re exiting as well. So there’s a little bit more noise in 2022. But 2023, we feel very good that you will start seeing pretty significant leverage each and every quarter going forward.

[Brian Essex:]

Got it. That’s helpful. I have more but I’ll step back in queue.

[Operator:]

Our next question comes from Jonathan Ho of William Blair. Jonathan, your line is now open. Please go ahead.

[Jonathan Ho:]

Hi, good afternoon and congratulations, Frank on the retirement. We will definitely miss working with you. I just wanted to maybe start out with a little bit more color on what’s giving you the confidence that we can see this acceleration back to 30% by the end of 2022? Can you just maybe help us kind of bridge the gap between the beginning and end of the years?

[Kevin Mandiant:]

Well, Frank and I just alternate question. So I’ll take this one a Frank. Couple of things, one tremendous advantage having a sales team going from selling nine things down to really one, the Mandiant Advantage platform. So with that focus we automatically come better efficiency with the sales force less to train them on and way more alignment as to how to deliver the message and get that done. Second thing you’re going to get is, we are building towards technology enabled services as well, where you get more leverage from the consultants. What that means is, as our consultants use the platform more and more to deliver things like Ransomware assessments or as we learn to scale managed defense with other products through our own platform, you get to see the margins increase, gross margin will get better. And at the same timeframe you just see more leverage there and more scalability. We can deliver things quicker and faster, which leads to growth. And then that’s why I talked about five go to market changes Jonathan, during the earnings call. We were surrounded as FireEye. We were email security, network security, we had a SIM, we had an endpoint. We had services, managed services, Intel, we were in every single business and it made it very hard to have frictionless partners. So we have a very aligned strategic operations group to get leverage from partnerships that historically, we haven’t had any. So that’s a big advantage for Mandiant. When its vendor agnostic, I can’t emphasize how important Mandiant being vendor agnostic is, it literally allows us we are getting inbound calls to partner for the first time since about 2015. So now we’ve got leverage from partners that are possible. We get leverage from technology enabled services, which is possible and we are only talking about going from 26% to 30%. And our whole go to market was aligned to about appliances three months ago, six months ago. So I’m very confident in that top line.

[Jonathan Ho:]

Fantastic. And just to build on your point around the partnerships, now that you are vendor agnostic, when can we expect to maybe see some of these new partnerships or opportunities emerge and how much can it accelerate?

[Frank Verdecanna:]

Yes. So great question. So we had Microsoft kind of was our first supported endpoint in managed defense. We added a Splunk partnership in Q3, but I expect, you’ll see one or more virtually every quarter that we announced and you’re going to see him and go, Hey, that makes total sense. So we’re going to be the timeframe for all this to contribute will be multiple quarters out. But we are laying the foundations now to get the upside later. And realize we could not do this 90 days ago. So this is pretty exciting. So you’re going to see most of the uplift and leverage beginning, we’re already getting deals with the Microsoft endpoint partnership that we just announced in Q3, we’ll see how that pans out. But without a doubt by the second half of 22, we are going to start seeing a contribution to the things that we’re announcing. And we’ve got a couple of strategic partnerships in line right now that you’ll see announce between now and the end here that I’m confident are going to move the leverage for us.

[Operator:]

Our next question comes from Hamza Fodderwala with Morgan Stanley. Hamza, your line is now open. Please go ahead.

[Hamza Fodderwala:]

Hi, guys, good evening. Thank you for taking my question and congrats Frank on the retirement. Just had a question about the sales force execution and the hiring trend. Obviously, you’ve been in Mandiant now for 90 days. Can you talk about some of the improvements you’ve seen in the go to market front now that you don’t have your salespeople distracted by selling any multiple products, I understand some of them likely went to what’s now the products business. But there’s been any sort of efficiency improvements there?

[Kevin Mandiant:]

So couple of thoughts. First and foremost, efficiency of sales starts with maniacal focus. And that’s what we have now. So for the first time ever, instead of going to sales force with, here’s the nine products you got, and here’s and by the way, selling endpoint versus selling network, it’s pretty darn different. In fact, you’re talking to a different fire, you’re talking to network ops on one side or the desktop folks on the other or maybe the security professionals. So you’re talking about something that will take a couple quarters to see the efficiencies grow. So I’m starting with looking at our PMS, looking at our training, looking at our enablement and recognizing the company is 100% aligned. This is what we’re building. This is who we are. This is our resource. And for the first time in our history, we can actually invest in everything we’re doing because when we had nine products, we were funding three at the expense of the other six sometimes and tradeoffs with resourcing. So it’s too soon to tell and measure the efficiency and again until the end of the year, the sales folks that went with FireEye products are still incented to sell Mandiant and vice versa. Mandiant sales folks are still unscented, and we’re holding the comp plan together till the end of the year. So that will also skew a little bit of the performance. But we have an aggressive plan for our January sales kickoff with training and we’ll measure that efficiency and it can’t go backwards when you’re this focused period. You will now have a dedicated sales force with one message, one platform that is absolutely advantages and better than nine.

[Hamza Fodderwala:]

Just a quick follow up for Frank. Can you tell us how much of the bookings were influenced by incident response services this quarter?

[Frank Verdecanna:]

So it’s been pretty consistent this year on the services of the pure services revenue, it’s been in that 35% to 40% range really for the last three quarters.

[Operator:]

Thank you. We have a follow up question from Brian Essex with Goldman Sachs. Brian your line is now open. Please go ahead.

[Brian Essex:]

Thanks for circling back. Frank, I had a number of questions on this over the past couple of quarters, but I guess now that this, now that the products business is spun. Do you have a good sense of what the total dilution could be if you are profitable given that you probably had some options paid out, some transfer employees wanting to go to the product company, just trying to get a sense for what dilution rate might be within the share count?

[Frank Verdecanna:]

Yes. And well, I guess it’s always point at time and depending obviously on stock price for the treasury method ray. Yes we can go through a bunch of different sensitivity analysis that we can walk through, but we can probably take that offline and I can kind of walk you through a couple different scenarios and different dilutions. It’s probably easier.

[Brian Essex:]

Yes. I mean we walked through that. Thank you. Appreciate it.

[Operator:]

There are no further questions. I will hand back to management team for any closing remarks.

[Barry Stern:]

Thank you, Sam. I want to thank everybody for joining us on this call today. We are very excited about the path in front of us and I look forward to speaking to all of you over the next few days and 90 days from now within the share count update. Until then thank you.

[Operator:]

This concludes today’s call. Thank you for joining. You may now disconnect your lines.