F5 Inc (FFIV) 2006 Q2 法說會逐字稿

Good afternoon and welcome to F5's second quarter financial results. [OPERATOR INSTRUCTIONS] Today's call is being recorded.

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

Thank you, sir, you may begin.

Thank you.

Welcome to our second quarter 2006 conference call.

The speakers on today's call are John McAdam, President and CEO; and Andy Reinland, Senior VP and Chief Finance Officer;

John Rodriguez, Senior VP and Chief Accounting Officer;

Julian Eames, Senior VP of Business Operations and Global Services;

Tom Hull, Senior VP of Worldwide Sales;

Dan Matte, Senior VP of Marketing;

Karl Triebes, Senior VP of Product Development and CTO are also on hand to answer questions following our prepared comments.

Andy Reinland will begin today's call with a review of the financial results for the quarter, and our current outlook for the third quarter of fiscal 2006.

Following Andy's comments, John McAdam will review the Company's operations during Q1 and add his perspective on the Company's goals and outlook for the current quarter -- I'm sorry, Q2.

We will then open the call up for questions.

If you don't have a copy of today's press release it's available on our website www.f5.com.

In addition, an archived version of today's live webcast will be accessible from the events calendar page of our website through July 20.

From 4:30 p.m. today until midnight Pacific time April 21, you can also listen to the telephone replay at 800-216-4439 or (402)220-3877.

Passcode for the replay is F5 earnings.

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 our actual results to differ materially from those expressed or implied by these statements.

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

Please note that F5 has no duty to update any information presented in this call.

If you have any questions following today's call, please direct them to me at (206)272-6571.

Now I'll turn the call over to Andy Reinland.

Thank you, John.

Revenue and EPS for the second quarter of fiscal 2006 were in line with the guidance we set in our release and conference call on January 19.

Revenue of 94.1 million was within the target range of 93 to 95 million.

GAAP EPS of $0.39 per diluted share was also in line with our guidance of $0.39 to $0.40 per share.

Pro forma EPS, which excludes stock compensation expense, was $0.49 per diluted share compared to guidance of $0.49 to $0.50 per share.

Overall, revenue grew $6 million or 7% over the prior quarter.

Year-over-year revenue was up 26.4 million or 39%.

North America represented 56% of revenue, EMEA accounted for 18%, Japan 16%, and APAC 10%.

Excluding U.S. federal, revenue and bookings were up across all geographic regions.

Product revenue was 77% of total mix and service revenue was 23%.

Security revenue, including approximately 1.5 million from TrafficShield, was $8 million compared to 6.6 million in the prior quarter.

This represented 8.5% of total revenue.

Revenue from our land optimization and acceleration products was 1.4 million compared to 875,000 in the prior quarter.

During Q2 we had two greater than 10% distributors, Ingram Micro which accounted for 12.6% of total revenue, and GE Access which accounted for 11.7%.

Our book-to-bill ratio for the quarter was less than 1.

Pro forma gross margin in Q2 was 78%, above our guidance of 77%.

GAAP operating expenses of 50.6 million were above our target range of 47.5 to 49.5 million.

Pro forma operating expenses were 45.3 million, also above our target range of 42.5 to 44.5 million.

The increase in operating expenses was driven primarily by strong hiring in R&D, sales, and service.

On a pro forma basis, our operating margin was 30%.

Our pro forma tax rate for the quarter was approximately 36%.

On the balance sheet, accounts receivable DSO ended the period up 50 days consistent with prior quarter and in line with guidance.

Inventories at quarter end were $3 million within our guided range.

Cash flow from operations was 35.6 million, and we ended the quarter with 420 million in cash and investments.

Capital expenditures for the quarter were 5.2 million, and depreciation and amortization expense was 2.6 million.

We ended the quarter with approximately 970 full-time employees, an increase of 80 employees over the prior quarter.

Moving onto the third quarter outlook, we have set a target revenue range of 96 to 98 million.

We are targeting gross margin in the 77 to 78% range.

Our GAAP operating expense targets are 50.5 to 52.5 million.

Pro forma operating expense targets, which exclude stock-based compensation, are 45 to 47 million.

Our Q2 earnings targets are $0.40 to $0.41 per share on a GAAP basis, and $0.50 to $0.51 per share on a pro forma basis.

We expect a GAAP effective tax rate of approximately 38%, and a pro forma effective tax rate of approximately 36%.

We estimate DSOs will be consistent with the quarter just ended, around 50 days.

In anticipation of RoHS requirements in the European Union, we expect inventory levels to increase to a range of 6 to 8 million.

And we will continue to generate cash flow from operations in excess of $30 million.

With that, I will turn the call over to John McAdam.

Thanks, Andy, and good afternoon everyone.

Q2 marks our 13th consecutive quarter of sequential growth.

As expected we saw very strong growth in Japan with our best ever sales performance in that region.

EMEA and Asia Pacific regions also delivered solid sequential growth.

Our North America business was down sequentially from last quarter, which was a disappointment.

However, excluding federal, our North America business did deliver sequential growth.

In U.S. federal we experienced delays in budget spending on a number of projects, particularly towards the end of the quarter and this led to the federal business accounting for approximately 2.5% of overall revenue, the most it's been for some time.

Andy noted that the product book-to-bill was below 1 for the first time in several years.

We do not report on specific book-to-bill data as we report our backlog number annually.

However, to give you some perspective the drop in book-to-bill was lower than the actual shortfall in our federal business.

Our service business yet again produced solid growth with another large increase in deferred revenue which bodes well for future quarters.

Another highlight was the recovery in our security business over last quarter with some really good wins with FirePass and TrafficShield.

The availability of TrafficShield as a software module on TMOS is definitely a key differentiator for that product.

Also our WAN optimization business from the acquisition of Swan Labs in October remains on target and the pipeline of opportunities for the WAN optimization product continues to grow.

It's also worth noting at this point that we continue to see a very high win rate for our product and we did not see any significant change in the competitive environment last quarter.

I want to make some comments on our technology road map before commenting on Q3 guidance.

In Q2, we announced our new high end product, the BIG-IP 8400, the first true 10 gig application switch in the industry.

We also announced the availability of our global traffic management product and link control software modules on our TMOS architecture running on BIG-IP.

Apart from the obvious advantages of having these products available as software modules that do not require their own hardware platforms, when running these products as software modules, the customer can also take advantage of other TMOS modules, like rate shaping, compression, annuals, et cetera to learn a much more efficient solution than available on a stand-alone basis.

As we have said in previous calls, we believe TMOS offers our customers a very unique and competitive approach for their application delivery networking requirements.

Our product road map continues to be in great shape.

We recently released WANJet 4.0 with assist capability which we believe should be a major growth catalyst for our WAN optimization business.

We are also very close to moving into beta phase with our Rutherford platform which we believe will significantly increase our performance leadership in all the key areas of application delivery networking, including world class near seven and SSL performance.

While some of our competitors continue to introduce packet-based products that fall well short of our current capabilities, customers continue to show us that what really matters to them is the ability to add intelligence at the application layer.

Solving problems such as decreasing spam, realtime blacklisting, and correcting application issues that would otherwise require changing the APP are only possible when you have an underlying architecture like TMOS.

Along with the ability to work with tools like [Inaudible - highly accented language] and to communicate with APPs from companies like Oracle and Microsoft using an open standard based interface like iControl.

F5 continues to be the only vendor that is delivering on this vision today.

Our Montreal project remains on track for delivery in the first half of calendar 2007.

And our road map for additional software modules on TMOS, for example, our WebAccelerator solution also continues to be on track.

As far as Q3 gains is concerned, Andy provided a target range which should result in continued sequential growth as we move into the second half of fiscal 2006.

You should note that we have assumed a book-to-bill ratio of 1 in the formulation of this guidance.

Our Japan business is always a challenge as we move into the first quarter of a new fiscal year in Japan.

Historically we have seen significant sequential drop in the Japan revenues in Q3 and we have taken that into account in our target guidance.

That being said, we do expect to see continued sequential growth in North America, including federal, as well as in EMEA and in Asia Pacific.

We also expect to see strong quarter, a strong quarter you in our services business given the strong deferred service backlog and the high service attach rate.

I want to take this opportunity to thank the entire F5 team and their partners for their efforts in the first half of the year and I believe our business opportunities remain in good shape as we move into the second half of fiscal 2006.

And with that, we'll pass the call over for Q&A.

Could we have Q&A, please?

Thank you. [OPERATOR INSTRUCTIONS] Alex Henderson from Citigroup you may ask your question.

Great.

Thank you very much.

So I guess I'm trying to understand a little bit better what happened in the federal piece.

It looks like that was the primary culprit in the quarter.

Can you give us a little bit better clarity on why the federal slowed down, whether that was a just temporary phenomenon and do you expect them to snap back?

And can you go over the metrics there, because I'm not sure I caught them when you ran through them earlier.

Okay.

Well, first of all from a metrics point of view, a couple of points I made I think are significant Alex in terms of transparency of the business, is that we -- it was approximately 2.5% of overall revenue was the federal business.

And to put that in perspective, I think that compares with 6% last--.

What did it decline?

It was 2.5%.

I know, but what was the decline sequentially?

So you can--.

I'm sorry, 6%?

Last quarter.

Okay, thank you.

Okay so that's -- in terms of the quality, qualitative discussion about it, first of all it was towards the end of the quarter, it was in the last month that we started to see slippage.

Basically we didn't see deals being lost, it was nor going into procurement, going into budget cycles and just not coming out.

We saw some real slowness there, that was the major culprit.

The other thing I didn't say in my script that should be said as well, what we did see in North America, we did get sequential growth in the rest of the North America region, however, we did see some projects looking there as well.

The real culprit in terms of the shortfall of target was in federal.

Can you talk a little bit about what you mean by project slipping?

What was the cause nor that or -- or scale or scope?

-- talk to the sales force in some detail and we're not going to go into the actual names of the projects or anything like that.

Let me give you an anecdotal one, where there was a call saying, yes, we have a $1 million budget here, and then a week later we don't.

That type of thing.

So it's a function of budget cutting not a competitive issue or anything of that sort?

No Cisco actions in the field?

No, it wasn't slowness, it wasn't Cisco announcements, which happened after the quarter.

It was absolutely related to budget and procurement cycle.

If I could ask one more question.

I don't mean to stretch my good will here, but you've given basically the same sequential guidance in each of the last eight quarters of 5 to 8% sequential and this quarter you didn't.

Now, I realize the Japanese business sells off sequentially into the June quarter but the rebound in U.S. and Europe is generally a larger factor than the sequential decline, and the guidance is still somewhat softer than I think certainly softer than we would have expected below our forecast.

So the question is why is there a difference now than what you'd seen before?

Yes, from a reported basis first of all, you're absolutely right, it's going versus previous gains.

But remember one of the things that we did see that the book-to-bill was less than 1 in Q2.

So in other words, we expect to see our bookings to be stronger than our revenue in this current quarter.

I see.

So the bookings might be up 5 to 8 but the revenues can't because the book-to-bill's below 1 and you have to make that up?

-- the actual numbers, but you can get to it by--.

Okay.

Thank you very much.

Okay.

Next question comes from Tal Liani from Merrill Lynch.

Your line is open.

Hi, thank you, it's actually Hank Gold for Tal.

Just following up on maybe some growth internationally, I wanted to see if you can give us a little bit more color on what happened specifically in Asia?

It seems like you actually had some nice dollar growth in that region sequentially.

And I was wondering if you can touch on -- kind of fading into the carrier vertical, if you can give us that percentage of revenue and talk about trends there.

Thanks.

This is Dan Matte speaking.

From the standpoint of penetration into the carrier space, we came out at about 19%, which was consistent with the last quarter.

And I think some of the trends that we see, the carriers, the types of implementations, so on top of the normal types of things that we'd see, SMS, MMS, some of the uptake we have seen have been in the areas of IMS as well, so as wireless carriers start pushing IP traffic out to their handsets and getting ready for that as well as them supporting or using us in a support function for their Voice over IP traffic specifically in conjunction with their dependents of session border controllers around their networks.

So we've that, that helped boost is in the carrier space.

And certainly within Asia that's been a strong piece as well.

Great, thanks.

Troy Jensen from Piper Jaffray, your line is open.

Just a couple of questions here.

Could you give us an update on the big IP 8400, any charge in this quarter?

Or actually, I'd be interested if there was any revenues.

It was pretty small in terms of actual revenues.

We're starting to see the interest building in it.

We really started shipping in it the March month so it's fairly early days.

But it's clearly sort of high end.

We don't believe there's a competitor out there that really can go against it, and as I mentioned, Troy, also, we're heading pretty rapidly towards beta phase in Rutherford as well.

I think that gives us the high end in the marketplace for certainly at least the next six months.

Hey John does that create any problems?

I mean if you're a customer looking to evaluate the BIG-IP 8400, why not wait a quarter or so and get the Rutherford and get the dramatic throughput increases?

We've not seen that historically that customers wait mainly because of the fact that the products work together, it's the same functionality, and remember, beta phase, most of our customers, and especially when we do big transactions like Buffalo Jump, most of them take oh, anything from six months to a year before they will make any significant transaction from what they're running.

Because of the mission critical side of what they're doing.

So I don't think so, no.

One last question and I'll jump off.

But the Cisco H module, have you guys had any thoughts on kind of evaluating it technically and any thoughts on how it stacks up against the BIG-IP?

Yes, absolutely.

Troy, this is Dan.

So first of all we're anxious to get our hands on one.

It's difficult to say the least, if not impossible to procure it through the channel at this point in time.

What we've done looking at it on paper certainly we don't think that it compares really at all to what we've got in our current products.

It's very packet oriented, layer 4 oriented, and as John said in his script, that really what our customers are saying to us is they want to apply value at the application level.

And my belief is that the architecture they've put forward with that certainly does not put them in a position to do it.

So if you look at anything SSL, there's no layer 7 numbers quoted in any of their numbers.

They're introducing a fraction of what we already have.

So I think that some of the other sources that we've seen that have gone over it have said that they sort of sit on the side, wait for Version 2 of that product and you can only guess when that's going to come.

Got it.

But certainly as soon as we're able to at the time our hands on one we'll do a thorough evaluation, sort of the same type, the broadband type test, where we're completely up-front and we'll reveal all the configurations and tough methodologies in every one so there can't be any question in terms of what we're up to.

Got it.

Good luck going forward, guys.

Thank you.

William McLean from Oppenheimer, your line is open.

Just one quick clarification.

If I use the percentage numbers that you've given for the regional breakdowns before, it looks to me like the Asia Pac revenues of down slightly.

Are they flat?

How much were they up if you use the percentage applied this quarter, last quarter?

It looks like it's down.

Yes, last quarter was 11% and this quarter 10.

Actually in dollars it was up a little bit.

We have some rounding at work there.

They had a good quarter we anticipated them to have, which was up.

Up slightly, you'd say?

Yes.

Another clarification.

You normally tracked BIG-IP revenues for us in the product side.

What percentage?

Overall BIG-IP in our ATM was 90%.

If you're talking about Buffalo Jump as a percent of ATM, that was also at 90%.

Okay.

Fine.

And any particular reason for the slowdown in federal?

And any confidence level in that coming back in the next quarter?

We actually believe that federal will sequentially increase this quarter.

So we believe that.

And that's based on the pipeline of business continuing to increase, and in terms of the reasons, really budget oriented, as I said earlier.

I mean, absolutely where we expected budgets, the end user we're actually dealing with thought the budgets would go through, and we just saw them being delayed, and this was within two or three weeks at the end of the quarter.

The last on the SSL, VPN, some people have seen fairly strong growth in that market, and last time you commented you've seen a lot of small orders and no big ones.

Have you started to see some of those small orders now that were presumably trials turn into large deployments?

We actually saw quite a significant difference in the profile this quarter of the SSL VPN where last quarter, I think we almost negligible orders of above $100,000.

This time we had double-digit numbers and we also had a fairly significant order that was above a couple hundred thousand.

So I think that -- therefore, the portfolio's much better this quarter.

Okay, thanks.

Thanks.

Thank you.

Samuel Wilson from JMP Securities, your line is open.

Good afternoon everyone, just a few small questions.

Overall, I know you had talked about this briefly in reference to Japan, but wireless business, how did that do for the quarter as a percentage?

And what is the general trend there?

And then a question for Andy.

I know interest and other income jumped about 30% quarter-on-quarter.

I just want to know what the reason kind of behind that was.

Is that sustainable or is there some currency stuff going on, et cetera, et cetera?

I'll go first, Sam, this is Dan.

So on the wireless side, again sort of the underlying trends, as a percentage of the business it remains constant with last quarter at about 19%.

In the overall carrier space, wireless is a subset of that, we don't break that number out specifically.

But again, sort of what was going on under the covers there in terms of what people were up to.

It was starting to power the IMS trials and their networks, and that was sort of probably the single biggest trend that we saw that was a change from our typical, our standard SSM, MMS types of implementations out there.

At the deployment stage of IMS, we're still at the trial stage.

Correct.

Oh, absolutely.

The other thing we're seeing, Sam, in the communication space is a lot of [Inaudible] and Voice over IP, that whole area.

Terrific.

And then as far as the interest income, overall our cash balance did go up.

We did see a strong jump in interest income, and as to sustainability, in our modeling we're using 3.5 to 4%.

We have a lot of varied investments as part of our investment policy, and we'll see if it's sustainable or not but we're using 3.5 to 4%.

Got it.

Thank you, Andy.

Thank you very much, gentlemen.

Thank you.

Erik Suppiger from Pacific Growth Equities, your line is open.

Good afternoon.

Few questions.

First off, if you look at the U.S. excluding federal, how did that perform relative to your expectations?

Yes, so first of all, it did show sequential growth, I'm not going to say exactly how much but it was reasonable sequential growth.

What I did his was that we did see some slippage of deals in the U.S. as well.

So from a target perspective, didn't meet what we wanted.

But it wasn't the major culprit in terms of missing target.

I'm afraid that was U.S. federal.

Okay.

And what are you doing in terms of hiring salespeople and can you talk about it in the U.S. and Europe and Japan individually?

Yes, in terms of last quarter we increased 80 employees and 20 of those were in sales.

We had about 30 in R&D, then beyond that, primarily service.

For this quarter, we think we'll add between 20 and 30 heads, that's the plan right now, that's company-wide.

We really don't break down specifically by geography how our hiring goes other than to say really we're hiring in all geographic regions.

You're hiring sales in all geographic regions?

Yes.

Okay.

So it sound like you're guiding for about 3 million of revenue growth this quarter.

Can you give us a flavor in terms of what kind of pipeline or backlog or growth you might anticipate out of the WAN optimization?

No, the only thing we're saying is we're not changing our target range of between 8 and 10 million, plus the other thing I did say in my script was the pipeline in WAN optimization definitely is building.

That's a the only color we're going to give on that right now.

Last question, what was the amount of business influenced by the iRules?

With other software developers?

Absolutely, this is Dan again.

Consistent with last quarter we're over 50% again in terms of iControl influenced business.

Erik actually asked about iRules.

Oh, about iRules specifically.

In terms of iRules, wow, we haven't really disclosed the percentage of business based on iRules.

Erik, did you mean iRules or did you mean iControl?

IControl is fine.

Okay, so over 50% again, Eric.

Thank you.

Thank you.

Matt Robinson from Ferris, Baker Watts your line is open.

Hi this is Michelle Huff for Matt Robinson.

A couple questions.

You may have mentioned it on the call already, but I just wanted to double-check the numbers, what percentage did BIG-IP, Security, and WAN products comprise total sales?

What percentage was BIG-IP and what percentage was security.

BIG-IP or ATM as we call it, was 90%; security was 8.5%.

And WAN products?

1.5.

1.5, great.

Also, what percentage did iControl represent total sales and what was the total number of registered DevCentral users?

As far as iControl it was just over 50%, again consistent with last quarter.

And the DevCentral registered user set was over 8,000 this quarter -- or last quarter.

Okay, it was over 8,000 this quarter.

Yes, so it's still increasing.

Yes.

Okay.

And lastly, what percentage of sales did security revenue and service provider revenues?

Can you break that down?

We don't split security between the various verticals but service provider was approximately percent was?

19%.

19.

19%.

And you don't break down--?

We don't do the products by vertical.

Okay.

And lastly, can you tell me what percentage Version 9 software is associated with BIG-IP revenues?

We don't give that data, that data's not available.

Okay, thank you.

Thank you, Brent Bracelin from Pacific Crest, your line is open.

John, I wanted to talk a little higher level here.

Last quarter you had a falloff in the security business that impacted your growth.

This quarter the federal hurt you.

Obviously your June guidance does suggest that things aren't going to improve next quarter.

With that backdrop, are you seeing kind of a pause overall with a head of a new product cycle?

Do you think there's a competitive angle here playing, or is there something structural that you think you need to change to to see a rebound business?

Or is it such where the business is large enough where you're kind of competing with the large numbers?

What's really kind of going on there?

I actually don't think it's any of those.

Okay.

Let me explain why.

So we obviously gave the guidance in the 96 to 98 range, but remember that's, as I said earlier on the first question, that's on unreported revenue.

Our book-to-bill was less than 1 and frankly, we gave you some pretty good guidance in what that really was, if you look at the -- given that it was less than the federal shortfall.

So what we're seeing is that from a bookings point of view, product bookings, we expect a pretty reasonable sequential growth in that guidance to get to that revenue number because it was less than 1 last year.

So I still feel very confident about the market competitiveness and our structure that we're going to keep growing.

Are you worried about any sort of pause in the business ahead of some of the new products coming out later this year and early next year?

Or is that really not something we should really worry about?

I don't think so.

I really don't.

When I look at how we've managed product transitions like Buffalo Jump and VersuSport product transitions which is what the 8400 was, which is what Rutherford will be, Montreal is going to be a different capital in the sense that it will be adjacent to and probably slightly different market in its first six months or a year so it will have a transition but they're totally different things.

And that's the first half of 2007.

So I don't know -- I don't see us facing any product transition issues of any materiality over the next six months.

Great.

And then my last question is really more on the growth driver side.

As you look at your pipeline of activity, obviously kind of wireless content continues to be deployed.

You have kind of the Internet vertical where the Internet customers continue to raise their CapEx forecasts.

What are the hot beds that you see out there based on your pipeline where you expect to see some upside, over the next six to nine months?

On definitely the whole communication, not just wireless, wireless absolutely, but as I mentioned, Voice over IP, IPTD, Triple Play, all that stuff.

We definitely see real opportunity there.

And the product side, the profile of security deals was definitely much better, I think over time it's going to be slow but we'll still see continued traction t the application FireWall and then the one optimization pipeline is building.

The key driver for those I think is unchanged, which is the value add, the ROI that we can produce on application optimization and delivery in the enterprise, that's -- we don't see that decreasing at all.

Okay, great.

Thank you.

Thanks.

Thank you.

Ehud Gelblum from JP Morgan.

Your line is open.

Hi, thank you very much.

A couple questions just to start off with grounding a little bit.

You guided 93 to 95 million, you hit 94.

You guided $0.50 to $0.51, you hit 51.

I understand how guidance works, we all know how the stock works, but let's start off with why are you disappointed in your results?

You hit your guidance.

Well, first of all, we didn't say we were disappointed, the thing we were disappointed in was the federal shortfall and to some degree we saw some slowness in North America towards the end of the quarter.

You actually said you were disappointed, you said the shortfall, you said disappointed, you said certain things, I'll find the exact words later, but you expressed yourself as though this were--.

Very pointed towards federal and very pointed to the fact that we saw some budget constraints at the end of the quarter.

That was pretty clear.

So you were expecting more.

I also made the point when we talked about the outlook, that we expect some pretty strong bookings growth and that's what's involved in the guidance moving forward?

Bookings growth you mean that is not going to be included in revenue growth?

Well, we've given the reported revenue guidance.

And bookings you expect to be stronger?

It has to be mathematically.

Assuming book-to-bill is greater than 1.

What we said in the script.

We actually said equal to 1.

Right.

That is your assumption.

How do you feel confident with that assumption, is that from looking at your order flow and from your sales finalists?

Same as we've done -- I started my presentation by saying 13 quarters of sequential growth so we have a system that has proved well, which is looking at the pipeline, doing in-depth sales reviews.

You know, classic stuff.

Okay.

All right.

We'll leave that alone for a second.

If we look at North America X federal, it sounds as though, it was up sequentially to that several times, but it didn't sound it was up very much and it sounded like you were again certainly unhappy or disappointed with it.

No, I said the real culprit was federal and the miss.

I said that North America apart from federal was up sequentially.

And a reasonable up.

And I also said that we did see some slippage in deals at the end of the quarter.

Right, so you -- without the slippage what do you think revenue would have been?

I'm not going to comment on that.

Can we assume that those deals just slipped forward in time as opposed to slipped away from you so we could still--?

Oh, yes, you can never -- when you get slipped deals, you don't always get them all in, but we would expect to see a bunch of the slipped deals come in this quarter, no question about that.

Do you have any reason or rationale as to why they were slipped.

It's usually budget spending.

In March?

Yes.

Okay.

Back to federal for a moment, did you see any impact from the federal government budget that was perhaps passed late in the quarter?

Or do you think it had nothing to do with that because the federal budget wasn't passed until I don't know.

We've talked a bit, it's so hard for us to work that out because remember our federal business is pretty small.

So to extrapolate it to the bigger picture in federal is so difficult for us to do, it tends to be more project oriented so I couldn't really comment on that.

Okay.

That's actually a good point, the difference in size.

Yes.

Lastly, if you look at slippage and you look at federal, you don't have project oriented types of things but they do appear to be things that are more universal than just a component shortage or something that would be very specific to F5, I'm not quite sure exactly what components you have shortage of anyway.

One of your major competitors [Citrix Neskaya] had very good numbers.

When you correlate what they had versus what you had, how do you think the market is -- what do you think was different about your results versus theirs or the customer base that you were selling into versus the customer base that they were selling into?

How should we kind of look on the competitive environment?

You said there was no change in the competitive environment, but just looking at these two factors it is just hard to correlate as to why you saw maybe slowness in federal and they didn't?

Or maybe they're not as much--.

I have -- I don't know what business they did in federal, I don't know if they talked about it, I have no idea.

But I assume even if they did it would be a very small number because they're doing -- they do less than a quarter of our revenue.

Sure.

I suspect their federal number's pretty small.

So again, I don't know what you would expect me to comment on that.

Okay.

Finally, if book-to-bill had not been less than 1 this quarter, would you be therefor guiding revenue for next quarter on a percentage relative basis to be more in line with what your idea for bookings is, which would again be somewhere in the high single-digit percent range?

I'm not going to speculate.

Okay.

Thanks, John.

Okay, thanks.

Thank you.

Gabe Lowy from Lowy Research, your line is open.

Good afternoon.

Just a question for you, John.

In terms of the feedback from the channel, Citrix of course, has been very aggressive with this entire access platform, strategic approach.

Probably with a lot of the overlapping channel partners.

What type of feedback are you getting from the channel on that strategy as opposed to the TMOS architecture that you've been going with?

Is it something that's sort of a complementary?

Is it more of a competitive head-to-head?

Or is it more of a depending on the individual customer's need?

First of all, we see very small overlap on the channel.

So your assumption doesn't agree with what we see.

We're seeing a very small overlap with our partners and their partners.

That's almost -- given that assumption, it's almost impossible to answer.

Okay.

All right, that's it for me.

Thank you.

Okay, thanks.

Thank you.

Our next question comes from Jiong Shao from Lehman Brothers.

Your line is open.

Hi, I have three quick questions, if I may.

John, could you first talk about the lead time and linearity through the quarter?

Yes, this is Andy, Jiong.

Lead times, they've been pretty consistent.

I don't think we've characterized them too much specifically, but our lead times are consistent.

Linearity actually improved a little bit.

You could look at that and say with the slipping of deals we saw it was probably about the same.

Just a quick follow-up on this, what was the percentage on revenue in the last month for linearity?

50%.

Okay.

And the second quick question, would you be able to share with us how much revenue you got from 8400?

Yes, we -- no, we got very little from the 8400, but we wouldn't break that out.

Okay.

And the last question is somewhat on the softer factor, I don't know, John, would you be able to comment a bit on some of the departures from some people, leadership, in the sales leadership roles, would you be able to talk about -- is that just because of natural growth phase where the Company is, requires different talents or?

Can you comment?

This is John, it's probably worth commenting on it, within the field, we basically had a couple of departures.

One a Vice President in Japan actually indicated to us around October last year that he was going to move on, in fact, I think he was going to take some time off before making a business decision.

We filled that position, the transition is over.

We actually have internally, [Inaudible] is the name of the guy that's running it, he was running our sales operation there for five years.

And of course Japan had an awesome quarter last quarter.

And then in Europe, we had a resignation in January, again we filled that position with a very, very strong internal candidate, and we had a pretty good quarter.

That happened in January.

So those transitions are really over.

And you don't -- as far as you can see now, you don't think that that may cause some sort of transitional issues going forward?

I don't think.

Pretty much over now?

Absolutely.

Okay.

Thank you.

Okay.

[OPERATOR INSTRUCTIONS] Paul Ridgewell from OTR, your line is open.

Hi, just a quick question about North America again.

You've given some indication how sequential revenues excluding federal turned out, but are you able to give more hard data in that area?

What sort of--?

I'm afraid not, we're not giving the exact number.

Are we talking single digits or?

It was single digits but it wasn't a lot, so that's it, no more on that.

Okay.

Just a quick follow-up.

Can you tell me what percentage of your federal sales supply the channel as opposed to direct?

It's mainly all channel?

Right, so it pretty much corresponds with regular sales?

Yes.

Okay.

And one very final question, any changes to deal sizes compared to the previous quarter or quarters?

Yes, really -- perhaps a little bit, but not a major jump.

So fairly comparable.

Okay.

Right, thanks very much.

Thank you.

And I am showing no further questions.

I'll now turn it over to John McAdam for closing remarks.

Okay.

Well, thanks for coming on the call and obviously we'll talk to you next quarter.

Thank you.

Thank you.

This does conclude the conference call.

You may disconnect at this time.