F5 Inc (FFIV) 2004 Q2 法說會逐字稿

Welcome to the F5 second quarter financial results (OPERATOR INSTRUCTIONS) Today’s call is being recorded.

If you have any objections, please disconnect.

I'd like to now turn the call over to Mr. John Eldridge, Director of Investor Relations.

Thank you sir.

You may begin.

Good afternoon.

Welcome to our second quarter 2004 conference call.

Speakers on today's call are John McAdam, President and CEO, and Steve Coburn Senior VP of Finance and Chief Financial Officer.

Jeff Pancottine, our Senior VP of Marketing and Business Development;

Tom Hull, Senior VP of Worldwide Sales;

Julian Eames, Senior VP of Business Operations and Global Services; and Dan Matt, Vice President of Product Marketing are also present and will be available to answer your questions following the comments.

Steve Coburn will begin today's call with a review of the financial results for the second quarter and our current outlook for the third quarter of 2004.

John McAdam will review the Company's operations during Q2; discuss our current business strategy, market position, recent customer wins and the general tone of F5's business.

We will then open the call up for question.

If you do not have a copy of today's release, it is available on our website, www.F5.com.

In addition, an archived version of today's live webcast will be available from our website through July 20th from 4.30 PM today until midnight Pacific time April 23rd.

You can also listened to a taped replay by phone at 800-308-6785 or 402-220-3835.

The pass code for the replay is F5 earnings call.

Except for the historical information presented our discussion today contains forward-looking statements which include words such as "believe", "anticipate", "expect" and "target".

These forward-looking statements involve risks and uncertainties that may cause the company's actual results to differ materially from those express or implied by these statements.

Factors that may affect F5's results are summarized in our quarterly release and described in detail in our SEC filings.

If you have follow-up questions after today's call, please direct them to me at 206-272-6571.

I'd like to turn the call over to Steve Coburn.

Thank you John.

For the second quarter of fiscal 2004 F5's revenue and earnings exceeded the targets we had set in our January 21st conference call.

Revenue of 40.6 million was above our guidance of 37 to 39 million and represented an increase of 45 percent year-over-year.

Net income of 6 million, or 16 cents per diluted share, was also above our guidance of 13 to 15 cents per share.

This compares to income of 800,000, or 3 cents per diluted share, a year ago.

Quarter-over-quarter we saw sequential revenue growth of 4.5 million or 13 percent.

International sales, driven by seasonal strength in Japan, represented 45 percent of revenue, with North America accounting for 55 percent.

Product sales, including systems and software, were 73 percent of total mix, with services accounting for 27 percent, comparable to prior quarters.

Sales of FirePass were approximately 2.7 million versus the 2 million plus target we had established for Q2.

During the quarter we had one 10 percent distributor, Ingram Micro, which accounted for 16 percent of total revenue.

Moving down the income statement, gross margin came in at 76.8 percent, within our expected range.

Total operating expenses of 25.7 million were slightly above our target range of 24.5 to 25.5 million.

Our Q2 operating margin was 14 percent, up from 11 percent in the prior quarter.

From a business model perspective we saw improved operating leverage associated with our sales and marketing expenditures.

Sales and marketing as a percentage of revenue decreased from 41 percent in Q1 to 39 percent in Q2.

Looking at the balance sheet, Accounts Receivable DSO ended the period at 42 days, slightly better than the 44 days we reported last quarter and below our target of 45 days.

As expected inventories rose from 1.2 million in Q1 to 1.9 million in Q2, reflecting an annualized inventory turn over of approximately 20 times.

10.2 million in cash flow from operations exceeded our guidance and marked the 12th consecutive quarter of positive cash flow from operations and increasing cash and investments to 227 million at quarter end.

Capital expenditures for the quarter were 1.4 million and depreciation and amortization expense was 1.1 million.

We ended the quarter with approximately 550 full-time employees.

Moving on to the outlook, for the third quarter of fiscal 2004 we anticipate revenues in a range of 42 to 44 million.

We expect gross margins to remain at current levels, within a range of 76 to 77 percent.

Operating expenses are expected to be in a range of 26 to 27 million and our expected Q3 earnings are 18 to 20 cents per share.

We estimate that DSOs will remain at around 45 days and inventory is expected to be in a range of 2 to 2.5 million.

We are currently expecting 10 million plus in positive cash flow from operations, comparable to last year.

With that I will turn the call over to John McAdam who will discuss key operational issues that contributed to our Q2 results and provide further details about our outlook for Q3.

Thanks Steve and good afternoon everyone.

Overall I was extremely pleased with last quarter's performance.

Q2 was our fifth quarter in a row of delivering top line sequential growth and improved profitability.

Similar to last quarter we saw continued sequential revenue growth, strong product and service margins, growing cash flow, reduction in DSOs, increased profitability and improving operating margins.

We experienced strong demand for all the products in the application traffic management portfolio, as well as a growing interest in sales of the FirePass SSL VPN product.

The SSL VPN pipeline continues to grow in each geography, which we believe bodes well for continued growth in future quarters.

Japan had an outstanding quarter, driven by financial year end spending and both EMEA and A-Pac also produced sequential growth over the previous quarter.

North America results were down slightly versus Q1 due mainly to seasonality and the budget flush that occurred last quarter.

The pipeline in North America remains very strong and I expect to see sequential growth return in this current quarter.

Our enterprise business continues to be very solid.

Examples of project wins includes customers like eBay, Oracle, Sprint, Home Depot, Toyota, Merrill Lynch, NTT DoCoMo, Ontario Management Board, Port of Singapore, (indiscernible) Bank, the U.S.

Army, the U.S.

Air Force, and several other government contracts.

Our services business was again very strong, both with new and existing contract renewals.

We believe this is a key indicator of our successes in penetrating large enterprise accounts.

The deferred service revenue backlog continues to increase, and we expect to see growth in service revenue and profitability in future quarters.

From a product development perspective, we made significant progress with the buffalo jump (ph) project.

We started the initial beta phase of the project last month, and have seen strong interest in the products from our partners and customer base with approximately 30 plus customers involved in the beta test.

The beta phase will continue throughout the quarter and we expect general availability of the product in fiscal Q4.

We believe that the new range of traffic management products will increase our technology and market leadership in application traffic management and SSL processing.

We also expect to release major enhancements to our FirePass SSL VPN product range in fiscal Q4, which we believe will increase our already strong competitive position.

As far as our financial outlook is concerned, Steve has indicated our targeted range of top line growth and profitability.

So far April is tracking well.

We expect to deliver sequential growth from all geographies except Japan where they're starting the new financial year and we would expect another strong performance from Japan in fiscal Q4 that ends in September.

Positive trends for our overall business continue.

Growth factors include overall increases in enterprise spending and traffic management, growth in mobile applications, the growth in client list (ph) SSL VPN technology for remote access, our services business growth and the leverage we continue to get from our iControl partners.

We believe these trends all point to quarterly sequential growth continuing throughout fiscal 2004.

So with that I will hand the call over for Q&A.

(OPERATOR INSTRUCTIONS) Sam Wilson, JMP Securities.

Just a couple of small questions for you.

First off, can you talk a little bit about the wireless space?

Historically wireless has been about a 20 percent portion of your business with your relationships with Nokia and Ericsson.

And obviously Motorola was up on the tape today with the impressive performance of their wireless.

Can you talk about what OEMs you work with there and what trends you're seeing on that side of the business?

Last quarter Telco in general was up over 20 percent due to some major projects we had.

It ranged back down around 18 percent this quarter.

Some of that was basically ISP hosting that is included in Telco that we had last quarter.

I can tell you this, that Ericsson and Nokia still are the big resellers of our product in that space, and of course we still ago after some of end-users ourselves.

Nokia became a top 10 reseller during this quarter, which it was not last quarter, as well based on wireless.

Can you give us a little bit of update -- I guess this would be more towards Jeff, because I know you handle kind of this stuff.

In terms of your iControl partners, are you still seeing new applications rolling out where traditionally they haven't had iControl functionality available and with your new version of the application it now becomes available?

Yes, definitely.

In fact, the iControl influenced sales this quarter were approximately 40 percent of our revenues.

And in fact we hit our 1000th developer coming on line with DevCentral, which is our iControl environment for developers.

So partners are continuing to roll out new applications around the world.

In fact, we have a press release that was out a couple of weeks ago about a number of independent vendors putting out products of their own that they're selling in the market based on iControl, so you can reference that.

And in addition, we're seeing many more of our customer solutions using customized implementations of iControl as well.

The last question is just on the competitive landscape.

I know there are some private companies out there who are active in the space.

There's obviously the Nortel-Cisco connection.

Can you just give us an update on the competitive front?

Basically it's pretty much the same currently.

Cisco is the major competitor.

Nortel is there mainly in the Telco space;

Cisco mainly in the enterprise space.

There are other players in the market, but those are the two that we see the majority of the time.

There are a number of little players that we see left and right -- private companies -- but it's only on a deal by deal basis, not in any coordinated way.

Thank you.

Jason Ader, Thomas Weisel.

I just had a few questions.

Can you guys give any clarification on how big Japan was in terms of the total international?

No we don't split the geographies rather than just talking about international and North America.

But it had a good quarter.

I thought historically you have talked about how big it was.

We talked about typically the range being at about the 10 to 20 percent.

So you can assume it was toward the high end of that.

And then, Steve, maybe you could talk a little bit about the geographic split in Q3?

I'm guessing it's going to tilt more towards North America.

Yes.

What we said is there were 45 percent international, 55 percent North America, really driven by the strong performance seasonal lift that we saw in Japan this quarter.

That was really the story.

So for next quarter back towards normal pattern?

(multiple speakers) see Japan down quarter-over-quarter coming off this seasonally strong quarter.

And as John referenced in his remarks, we're expecting sequential growth in North America next quarter as well.

Lastly, on the buffalo jump are you at all concerned that because it's coming out in the fiscal fourth quarter that some people might defer purchasing in the third quarter?

What gives you confidence that that won't happen?

You've always got to watch that, the classic Osborne (ph) effect.

Buffalo jump is a similar release in many aspects -- the application switch to be released, and then the big -- the universal (indiscernible) that we did last January with the ASIC on the 2400.

So they were big, big milestones and this is another big milestone.

And you do have to watch it.

We were pretty successful in the past, but we're not in the slightest complacent and I think we probably got it pretty much under control.

Things we've got going for us is our customers are very, very conservative.

These are mission critical applications.

They typically take between three and six-months to test a new technology before they implement, and that's the sort of phase-in we see.

And also, our software, which has got a lot of the functionality that we are adding with buffalo jump -- not all of it, but a lot of it -- runs in the existing platforms as well, so they would get the benefit of a lot of the new features.

Real quick last thing is on the domestic -- if I look at sort of organic domestic revenue in the March quarter it was down around 12 percent.

Is that pretty typical for you guys?

What was it a year ago?

Do you have that on hand?

We weren't down 12 percent domestically, and I think just on a dollar basis we were down about six percent.

And I don't recall what it was quarterly.

Typically that has been typical.

We have seen some seasonality over the last couple of years.

Frankly, we haven't paid much attention to that because of the last couple of years' business climate.

But in reality when you do check it there has been a trend there.

And international besides Japan was strong, Europe was strong and other areas were strong as well?

That's absolutely correct.

Thanks.

William Becklean, Oppenheimer.

Let me ask sort of a market level question.

A couple of the market research firms like Del Oro and IDC are talking about this market growing 14, 15 percent and the split between modular and stand-alone products not changing very much.

So how can you reconcile those sort of overall market figures with continuing to deliver growth at 45 percent a year?

Can you square that for me please?

Basically we're taking market share from our competitors, is what that says to you.

And that's something that's been occurring over the last 18 to 24 months every quarter.

As we come out with new innovations on a more regular basis we hope that that will continue.

You attribute that all to market share gains?

If you're talking about overall revenues for the Company, clearly FirePass plays a part, but if you break it down to traffic management it's basically the market grew last quarter at 12.3 percent sequentially so the market is back growing again, plus we're taking some market share.

Thanks, Jeff.

Chris Sessing, Crowell.

Steve, I was wondering if you could give us a sort of long-term target operating model.

What we have said is we haven't really given a long-term target operating model per se, but what we have said is that we believe that we have designed a business model that's going to yield operating margins in the 20 percent plus range.

We base that on we think operating leverage that will inure to this business model as we grow revenue over time.

And as you can see from our results over the last several quarters, we're making strides towards that.

How long do you envision this taking to get there?

We haven't given time to target estimation.

What we have said is that in the current fiscal year, '04, that we think we're going to make some significant strides towards that target.

How about your relationship with Nokia on the security side?

Basically our Nokia business is on a holistic basis with the whole company today.

It's including the wireless side.

On the securities side the business is basically not what it was before we changed the agreement a year ago June, if you remember.

And so from a security point of view we are not doing a lot of business with them.

Most of the business is being done through the wireless group today.

So mainly looking forward you should think of that opportunity working with Nokia mainly in the mobile space.

I think that is where you will see it.

And quite frankly in the security space, specifically SSL VPN, there is actually some competitive overlap.

Lastly, just tax rates going forward.

Still 4 to 500,000 per quarter for this year?

That's the planning assumption that we're using now.

And that is, I think, the planning assumption that we're going to use through the quarter.

The one thing on the tax side is because of our strong performance in the first two quarters of the fiscal year, we are working with our auditors known to understand the timing for the reinstatement of the tax provision, which in the past we've said we expected that to be in the first fiscal quarter of '05.

We're in discussions with them now to see if that needs to be moved up a quarter, perhaps in the fourth quarter, as a result of our strong performance in the first half of the year.

For now, my advice would be stay with the planning assumptions that we've used in the past and model reinstatement of the tax provision starting the first fiscal quarter of '05.

And then if we need to update that expectation as we get this issue resolved with our auditors we will provide specific guidance on our next call.

Thanks a lot guys.

Matt Barzowskas, First Albany.

The first question is Dell, what was it a percentage of as a customer and was it through the channel or is it an OEM relationship?

And the second question is competitive but on the SSL space, what's going on out there in that side from the competition?

The Dell business, I don't have the specific percentage.

I don't actually have that for you.

It's pretty good, very strong (technical difficulty) space and it's been gravitating that way for the last year.

They are reselling the F5 branded product.

Actually an interesting little note is that they have started selling FirePass as well and they had a small number of FirePass SSL VPN orders last quarter.

In terms of the SSL VPN competitive space, the answer for that --

In terms of the SSL VPN competitive space, we've seen things progress nicely ever since we made the acquisition and started shipping FirePass back in October.

A lot of the things that we ran into initially in terms of just sort of timing in terms of deals not being first to the table and issues like that have sort of washed through and we're seeing ourselves -- basically, it's an F5 and a Neoteris, NetScreen, soon to be Juniper competitive landscape, is how it's shaping up.

From that SSL VPN -- I don't know if you break it down like this, but the customers were the existing F5 customers or what was the percentage of non-F5 customers?

It's probably about 50-50 on a global basis, I would say -- 50 percent existing; 50 percent new.

It could range a little bit higher depending on the region.

Okay, great.

Thanks guys.

Alex Henderson, Smith Barney.

A couple of questions.

First off, I was just curious have you been seeing any of the NetScreen resumes that are rumored to be running around on the Street as a result of the merger?

I don't know if that is a serious question or not.

No, a serious question.

Have you seen an influx of resumes from them?

You're not going to answer it?

Next question.

Okay, well I'll pass on that one.

Second one, I'm always leery of asking this because the first three times I asked it you said you always ran a book-to-bill at 1.0 and then I didn't ask it and you had a positive book-to-bill.

So I'm curious are you're running a book-to-bill at 1.0 again this quarter or did you continue to have an inability to do that and end up with a book-to-bill slightly above 1?

Book-to-bill was above one.

It was above one this quarter?

It was.

And can you give us -- you said iControl was (indiscernible) 40 percent.

I'm assuming that that is implying that the software channel partners accounted for 40 percent of your revenues; is that what you meant by that?

Yes, they influenced 40 percent of our revenues.

Remember, they do not sell our product, but they recommend our product to their customers because of those interfaces, and that's the 40 percent.

Do you have any sense of where that might go next quarter?

We still see room for it to increase.

We're seeing more and more implementations of custom iControl implementations.

As I mentioned, we have now third party vendors who are out there just building iControl apps to sell to their customers.

So we see some more room.

I don't ever think it will be greater than 50, 60 percent, just because are people who wouldn't use iControl.

But there's still room to run.

Second, on the channel side can you talk a little bit about the (indiscernible) VAR training program and how that has progressed over the last quarter, what you see happening this quarter?

As we go into Q2 how should we be thinking about where we are in that process?

Again, we're continuing to run on a global basis.

We have 269 VARs globally.

And again, we continue to invest more into training our existing VARs than to adding new ones.

We have several programs both from a sales program perspective, as well as technical training, to get these guys up to speed.

Obviously we're focusing intently in the security space in trying to train and educate our existing security VARs and resellers, but also obviously on the recruitment side as well.

And it's going very nicely.

Do you have a tranche?

I think you usually do, what, 40 to 50 Cisco VARs per quarter or per half that you normally try to add?

Do you have a tranche coming up soon?

No.

We're actually really trying to invest our time right now in basically getting the existing VAR and distributor network really up to speed and selling more of our products.

So we're recruiting, but selectively I would say.

Can you talk a little bit about the pricing fronts on your product, both the SSL side and VPN side, as well as on the core business?

Pricing has been very stable, Alex.

Again we haven't seen any pressure in that sense and we think that going forward with buffalo jump we might see a little bit in terms of price increase because of the more capability, but relatively the same.

How about component strengths?

There are commodities like memory that have gone up and things of that nature, but not significantly.

You can see the margins have held quite nicely.

How about availability?

Are you concerned at all about lead times?

And what do the lead times look like?

That's still something we're monitoring very closely on that.

We will buy down some lead times if we start seeing type (ph) on certain components, but so far we've been able to land the components in a time frame that's acceptable to us.

Obviously monitoring the supply chain at this time is something that you have to do and keep an eye on it.

I will cede the floor.

Thank you very much.

Denise Fiallo, Merrill Lynch.

Just drilling down a little bit more on the VAR question, did you say that you already have security-centric VARs in place or is that still something to be put into place for next quarter?

No, we have them in place.

Again, probably between 40 to 50 percent of our existing channel already have sold security before we picked up the FirePass product.

So again, they are out and selling FirePass as we speak.

And we will sign up new VARs as well in security.

That's a major focus for us.

I think that's what Tom was saying earlier.

My second question just relates to BIG-IP.

I don't know if I missed this, but did you mention how much BIG-IP was as a percentage of total or product revenues?

Of product revenue, our switch products -- this sets aside the appliances -- were about 65 percent of our product revenue, consistent with previous quarters.

Do you give out the appliance number?

We are trying to find it right now as you speak.

It's actually fairly low.

It is a low percentage.

We can come back to you on that.

But there has been no big change in it.

It's just under 20 percent, which is where it's been the last several quarters, right around 20.

Twenty percent of product?

Yes.

Quick and painless.

Thanks a lot guys.

Alan Davis, McAdams, Wright and Ragen.

Nice quarter gentlemen.

Just a couple of quick follow-ups.

I wondered if you could give us a more granularity on your vertical markets, just in terms of growth in the quarter and kind of the growth anticipated in your guidance?

And then secondly, curious if you can share with us either quantitatively or qualitatively kind of the improvements expected in the buffalo jump product lines and if that has changed at all for the positive or negative over the last couple of months?

From the vertical comparison point of view, our top four verticals are Telco, financial services, government and technology companies.

And basically we saw a nice bump on the government side and we had some government wins there.

We saw our Telco business go back to around 18 percent, based on some ISP hosting wins we had last quarter and we saw some specific increases in areas like Nokia coming into the top 10 relative to selling mobile wireless solutions.

Financial services has been very stable in the low to mid-20s on a regular basis, as well as technology.

From the point of view of buffalo jump, the statistics around buffalo jump are the same that we've been planning on for quite awhile.

It's a multi-gigabit throughput type box.

It's going to have the highest performance at Layer 4 and Layer 7 in the industry, and the most functionality for sure.

None of that has changed.

We will have a range of product there to sell like we do today in the switch products we currently sell.

Any way to kind of place that against the competitors' product as they exist now?

The only way to do that is to have an apples-to-apples kind of benchmarking comparison.

We believe that when that's done that we will shine very, very nicely.

We're looking at doubling the performance from our current products, if that gives you any indication.

That's great.

Thank you.

Brent Bracelin, Pacific Crest.

If you back out telecom revenue over the last couple of quarters it looks like enterprise revenue had a sharp acceleration and growth this quarter.

Could you talk a little bit about the drivers of the enterprise business?

Is there anything unusual that you're seeing there?

Would you attribute the growth just solely to market share gains or are you benefiting from a replacement cycle or continued server consolidation?

I think it's just a continued trend.

If you go back a few years ago we were load balancing, and then we started doing more of traffic management, now we're doing application traffic management with the emphasis being on optimizing the application, saving money for the customer and increasing security.

And that's getting more and more sophisticated.

In other words, over time we're seeing more application work being done in our space that used to be done previously in the servers.

And that saves the customer a lot of money in doing that.

And they're becoming more knowledgeable about it and sophisticated, and of course we're giving more feature sets.

I think it's a trend that is going to continue.

Just a follow-up question would be on based on your success with uRoam where are you at in looking at other companies that can help accelerate your growth here?

We will keep doing that.

We will just keep doing it.

We basically have said before that our main interest in looking at that type of thing is that small companies that are technology-based that would accelerate our product roadmap, and if we can find a company like that that has got similar characteristics to what we saw with uRoam we would definitely make a move.

So that's an ongoing thing.

It sounds like you're opportunistic but not necessarily aggressive.

I did not say that.

Fair enough.

Thank you.

Tim Luke, Lehman Brothers.

Actually it's Drung Chow (ph) pitching in for Tim afternoon.

Could you talk about what should we expect from the FirePass revenue in the second quarter?

Our internal target is 3.5 million for Q3.

I also want to ask you about linearity.

It seems the DSO was down by 2 days to 42 days.

Should we assume the quarter was pretty linear?

With regard to our bookings linearity, which is really the metric that we measure linearity on, we saw some improvement from what we had seen last quarter, so a continued improvement.

But I think the reality is -- and we're going to have time to play this out a little bit -- but I think the reality is that we're going to see over time probably 50 percent or so of our business booked in the last month of the quarter, which is improved from historically where we've been.

But that something we're going to watch.

Remember that is bookings that Steve talked about (indiscernible).

I'm sorry.

Steve, I remember -- in December I remember you did 45 percent of the sales or booking in the month of December.

Yes, that was bookings.

So 45 percent of the bookings in December and it sounds like you made of further improvement.

Did I hear that right?

Yes.

But you sort of anticipate maybe going forward it will go back --?

I think longer term.

For example, we had a very strong, seasonally strong quarter in Japan, and we saw a lot of that order flow come in early in the quarter.

Okay, great.

One last question is on the federal.

I think Jeff just mentioned you saw some growth in federal vertical.

Could you remind us how big is that vertical to you?

It was 16 percent this quarter.

Sixteen percent, okay.

What's your expectation for the current quarter?

We don't have a specific number for that.

It's very project oriented.

I can tell you typically that fiscal Q4 because it is the federal year is always a good one.

But we haven't given a specific target number.

And the federal 16 percent for March quarter; could you remind us how much was for the December quarter?

It was approximately 10 percent -- 9 to 10 percent.

Okay.

If I could, one last follow-up on the deferred revenue on the balance sheet.

It was up nicely.

Could you remind us what is the mix between service and the product in the deferred revenue?

The majority of that is deferred service revenue.

And again this quarter most of the increase in there came from deferred service revenue as well, primarily on renewal sales.

So yes, we're pleased that has continued to grow nicely.

Thanks guys.

John Duncan, Pacific Growth Equity.

Can you guys give us a sense how much of your carrier business was wireless this quarter?

We haven't gotten all of the analysis back yet on that specifically so I prefer to give you the right number to you.

Can you tell us if it grew this quarter?

I can tell you that for instance Nokia went into the top 10 of our resellers, which is one of the major resellers along with Ericsson.

I don't have the specific details on hand, though, unfortunately.

Guessing, is probably flat (multiple speakers) a guess.

Okay.

Thanks a lot.

Larry Petrone (ph), Decision Economy.

That is Decision Economics.

Just two quick questions.

Steve, can you comment on the share count direction now that we're past the lockup?

And my other question is for John.

I just wondered if FirePass sales are tracking as you expected or are they in fact exceeding your expectations at the beginning of the year.

With regard to share count, we ended the quarter with 34.2 million actual shares out.

With regard to weighted average, we had 33.8 on basic and 36.9 on fully diluted.

So our share count is up.

We now have a full quarter from the follow on offering, which was responsible for that.

On an ongoing basis it's likely going to be stock option exercises that's going to take the share count up.

That's a little difficult to predict.

Internally we would be using 500,000 or so shares per quarter.

But we will keep an eye on that and if we need to update that we will.

As far as FirePass is concerned, just to recall, we said when we did the transaction we said we reckoned we would do between 8 and 12 million for the financial year.

If you add up the numbers we did in Q1 -- 1.5 -- and then 2.7 in the -- we're expecting 3.5 this quarter, then clearly we're either going to be at the top end -- if we keep tracking that way I believe we can get there or maybe above it.

So very happy with it, and, yes, it's clearly been a good deal for us.

At this time I showed no further questions.

I would now like to turn the call back over to covert John McAdam for closing remarks.

Thanks for calling in and we will talk to you next quarter.

Thank you.