F5 Inc (FFIV) 2016 Q1 法說會逐字稿

Good afternoon, and welcome to the F5 Networks first-quarter and FY16 financial results conference call.

(Operator Instructions)

Also, today's conference is being recorded.

If anyone has any objections, please disconnect at this time.

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

Sir, you may begin.

Thank you, Sam.

Welcome to our conference call for the first quarter of FY16.

John McAdam, President and CEO; and Andy Reinland, Executive VP and CFO, will be the speakers on today's call.

Other members of our exec team are also on hand to answer questions following John and Andy's prepared comments.

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

A copy of today's press release is available on our website at F5.com.

In addition, you can access an archived version of today's live webcast from the Events Calendar page of our website through April 20, from 4:30 PM today until midnight Pacific Time, January 20.

You can also listen to a telephone replay at 888-562-6109 or 203-369-3766.

During today's call, our discussion will contain forward-looking statements that include words such as believe, anticipate, expect and target.

These forward-looking statements involve uncertainties and risks 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.

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

Thank you, John.

In the context of our Q1 seasonality, F5 achieved solid revenue results, in line with our expectations.

Revenue of $489.5 million was at the top of our guided range of $480 million to $490 million, up 6% from the first quarter of FY15.

As a result of both disciplined operational management and the benefit from the reinstatement of the R&D tax credit, we achieved GAAP EPS of $1.28 per share, well above our guidance of $1.13 to $1.16.

And non-GAAP EPS of $1.73 per share, also well above our guidance of $1.58 to $1.61.

Product revenue of $234.7 million in the first quarter was down 2.6% year over year, and accounted for 48% of total revenue.

Service revenue of $254.8 million grew 14.9% year over year and represented 52% of total revenue.

Accounting for 55% of the total, revenue from the Americas was up 3.8% from the first quarter of FY15.

EMEA, which represented 26% of revenue, grew 9.3% from the first quarter of last year.

APAC accounted for 15% of revenue and grew 7.5% year over year.

And Japan revenue, representing 5% of total, grew 4.3% from a year ago.

Sales to enterprise customers represented 62% of total sales during the quarter.

Service providers accounted for 23% and government sales were 14%, including 5% of total sales from US federal.

In Q1, we had four greater-than-10% distributors -- Westcon, which represented 19.7% of total revenue; Ingram Micro, which accounted for 14.6%; Avnet representing 13.9%; and Arrow, which accounted for 11%.

Our GAAP gross margin in Q1 was 82.5%.

Our non-GAAP gross margin was 83.9%.

GAAP operating expenses of $272.9 million were within our target range of $268 million to $277 million.

Non-GAAP operating expenses were $238.3 million.

GAAP operating margin was 26.8%.

Our non-GAAP operating margin was 35.3%.

Reflecting the one-time benefit from the retroactive reinstatement of the federal R&D tax credit, our GAAP effective tax rate for Q1 was 32.1%.

Our non-GAAP effective tax rate was 30.6%.

Turning to the balance sheet, cash flow from operations was a record $203.9 million.

In Q1, we repurchased just under 1.9 million shares of our common stock at an average price of $105.94, for a total of $200 million, ending the quarter with approximately $1.175 billion in cash and investments.

DSO at the end of Q1 was 51 days.

Inventories were $33.6 million.

Capital expenditures for the quarter were $13.3 million.

Deferred revenue increased 23% year over year to $837.5 million.

We ended the quarter with approximately 4,275 employees, an increase of 95 from the prior quarter.

Moving on to our Q2 outlook.

With an increasingly uncertain macro environment, we believe it is prudent to take a conservative approach to our outlook for the current quarter.

Our revenue target for the second quarter is $480 million to $490 million.

GAAP gross margin is anticipated to be at or around 82.5%, including approximately $4 million of stock-based compensation expense and $2.7 million in amortization of purchased intangible assets.

Non-GAAP gross margin is expected to be at or around 84%.

For Q2, we anticipate GAAP operating expenses in the range of $272 million to $281 million, including approximately $38 million of stock-based compensation expense and $0.8 million in amortization of purchased intangible assets.

We are forecasting a GAAP effective tax rate of 36.5% and a non-GAAP effective tax rate of 34%.

Our GAAP EPS target is $1.13 to $1.16 per share.

Our non-GAAP EPS target is $1.61 to $1.64 per share.

We plan to increase our headcount by at least 50 employees in the current quarter.

And we believe our cash flow from operations will be greater than $125 million, reflecting the impact of two federal tax payments that we normally incur during our fiscal second quarter.

We remain confident in the competitive strength of our product portfolio, our expanding footprint in security, and our strategic position for the emerging cloud opportunity.

We expect that these factors, combined with improving sales execution, our upcoming new product introductions and platform refreshes, will enable us to re-accelerate our top-line growth in the back half of FY16 and beyond.

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

Thanks, Andy, and good afternoon, everyone.

I was very pleased with the F5 team's performance in our first quarter of FY16.

We delivered year-over-year revenue growth of 6%, with strong profitability and operating margins, resulting in an all-time high cash flow from operations above $200 million.

From a sales perspective, EMEA, Japan and our Asia-Pacific region all delivered year-over-year sales bookings growth.

EMEA and Asia both delivered record-high sales bookings.

Sales bookings in our Americas region were down year over year in Q1, as we experienced delays in closing several forecasted transactions in the US, especially towards the end of the quarter.

However, I was pleased to see that sales transactions above $1 million remained solid in the Americas during the quarter.

Our services business continues to deliver strong results and excellent profitability, along with a healthy sequential 7% increase in deferred revenue.

Overall deferred revenue grew 23% year over year in the quarter, which should bode well for future business.

Our Good-Better-Best pricing model continues to be a significant percentage of our overall product revenues.

Customer adoption of the Best category remains very strong, and in Q1, we continued to see year-over-year growth in sales across all regions, with the highest GBB growth coming from our EMEA and APAC customers.

I was also encouraged by our software revenue in the quarter.

We continued to see more than one-third of product revenue coming from software sales, driven by security module sales, GBB and software-only VE solutions.

We had several wins in the quarter where customers are deploying our APN security module to ensure access security for their applications that have migrated into the public cloud environment.

With the option to bring your own license or rent utility licenses by the [hour], we offer flexible application services in the public cloud to some of our largest existing enterprise customers, as well as new smaller companies who have never used F5 before.

Security continues to be the key growth driver of our business.

Million-dollar-plus security deals grew year over year in size and volume in Q1, with EMEA delivering a record quarter in security sales.

Deal volume for Silverline, our cloud-based subscription DDoS and [web] security services, was up by double-digits quarter over quarter, and new bookings were up significantly year over year.

We are also starting to see business opportunities for Silverline services across all global regions, with wins in EMEA and APAC this quarter.

Our Silverline cloud-based subscription is clearly in the early stages of adoption, and the revenue numbers are still relatively modest.

However, we believe there are real growth opportunities for Silverline subscription services, and we will continue to invest in this opportunity by adding inside sales resources, and offering more solutions to the Silverline portfolio.

The security team continues to innovate and add significant malware detection capabilities to protect against threats like remote access [flogions], cross-site scripting attacks and phishing attacks.

In Q1, we had some good wins with our WebSafe product, including two notable marquee wins in the banking vertical.

Our client list solution continues to interest enterprise security buyers, and recent attacks such as the pervasive dire malware phishing scheme has received much attention.

We detect and inoculate against this type of threat without requiring customers to deploy client-based applications, and without requiring them to modify their existing applications.

As a result, a much lower cost and faster time to benefit.

Cisco ACE replacements continued to be an important source of product revenue in the quarter, with some large million-dollar-plus wins.

The program also continues to boost our channel, with over a quarter of the deals driven by our partners in Q1.

As far as the outlook is concerned, Andy indicated that we expect to deliver revenue in the range of $480 million to $490 million this quarter.

In the context of several global macroeconomic issues, we delivered solid financial results in Q1.

But as we stated last quarter, we believe it is prudent to remain cautious in the short term.

As I analyze our business and growth prospects, I have absolute confidence in our strategy to meet the current and future demands of the market.

We are focused on expanding our core ADC and cloud solutions to increase the size of our market in areas like SSL inspection, as well as capturing hybrid and public cloud opportunities.

In security, we will extend our focus in areas like the Gi Firewall application protection, and identity and access management.

We will continue to grow and expand our Silverline platform and subscription revenue.

We will increase our vertical focus on the service provider market and drive repeatability with our Gi Firewall, Gi line services, NFV solutions, and take advantage of our scalability and performance leadership with products like the new 100-gig blade addition to the VIPRION chassis.

We will continue to improve customer experience by delivering comprehensive management solutions with our BIG-IQ management and orchestration platform.

We will leverage our strong partner ecosystem with leading vendors such as Cisco, HP, Microsoft and VMware in areas like SDN, as well as OpenStack environments.

Finally, we will leverage our global services organization to drive product revenue sales, while delivering world-class profitability and world-class customer satisfaction.

We have no shortage of business drivers for the second half of FY16.

Our road map includes several new additions to our system and appliance range of products, as well as significant software deliverables designed to increase our addressable market.

We have the following deliverables currently targeted for next quarter.

We have our new high-performance FIPS appliance based on the BIG-IP 10000 series of appliances.

It uses next-generation technology, enabling an eight-times improvement in the SSL performance of existing solutions.

This product is designed to address core requirements in the financial services market.

We are targeting the release of a new high-performance 100-gig blade for the high-end VIPRION series platform next quarter.

This new VIPRION includes 100-gig interfaces, and more than doubles the performance of the existing cards, to enable the first-ever terabit-class ADC in the market.

The new blade runs all TMOS modules and is targeted at system providers' applications, including Gi Firewall, carrier-grade NAT and Intelligent Traffic Steering.

We have already seen strong interest from the Tier 1 service providers for the 100-gig product, and we are currently testing in Tier 1 customer environments.

We will be delivering F5's next generation iRules, called iRules LX.

iRules LX allows for users to leverage node.js libraries to provide new functionality addressing the needs of the [deb-alts] market, as well as customer applications that need customization and programmability.

iRules LX is based on the LineRate technology, and is now fully integrated into TMOS.

We also plan to introduce IOPS LX, which allows for easy programming of specific use cases for application services leveraging the broadly used web application programming language JavaScript.

IOPS LX also significantly enhances the F5 orchestration and SDN product.

It allows these use cases to be dynamically published via BIG-IQ and to the various SDN controllers such as Cisco Epic, VMware NSX and OpenStack.

This is a really unique feature which should give F5 a clear advantage with our SDN partners.

We plan to release our web application firewall in Azure this quarter -- sorry, next quarter.

This will be available as part of the Azure service catalog, and leverages IOPS LX to significantly simplify [WAP] services management in the Azure public cloud.

We plan to ship release 5.0 of BIG-IQ next quarter.

We have already made significant improvements in the scalability of BIG-IQ in terms of managing hundreds of thousands of users.

Release 5 now includes centralized management for all security products, including APM, ASM, AFM, Gi Firewall and WebSafe anti-fraud.

It adds new device management capabilities, ADC management and application analytics.

Starting next quarter, we plan to extend our product portfolio by adding purpose-built security products which will address new markets.

The initial releases will include an SSL Intercept and an SSL Air Gap solution, followed by a standalone DDoS solution with new behavioral and threat intelligence capabilities, in Q4.

In addition to the product deliverables I have discussed for Q3, we have the following product deliverables targeted for Q4.

A comprehensive appliance refresh will start this summer, replacing all current appliances before the end of the calendar year.

The new appliances, known internally as the Shuttle series, significantly improve price performance and will include our FPGA-based architecture, allowing for all software modules, including vCMP, to run across the entire product lineup.

Furthermore, during FY17, we will enhance the Shuttle series to offer new hybrid capabilities and hardware that allow for seamless connectivity between the data center, private cloud and the various F5-supported public clouds.

We are also working hard to release a 40-gig capable version of our software VE solution to support NFV applications for service providers in high-end enterprises.

We plan to show a demo of this at Mobile World Congress in February, with the production release at the end of the fiscal year.

We partnered very closely with Intel in this development, and showed an early version last year at the Intel Developer Forum.

I continue to believe that F5 is in a really strong position to take advantage of industry trends and customer requirements.

Our hybrid application services strategy resonates well with existing and prospective customers.

Our hybrid application services strategy was reinforced by a recent survey we did of over 3,000 global customers.

10 or more application services are used by well over half of the respondents, who recognize that slow, unresponsive and unsecured applications can have a substantial negative impact on their business.

In addition, the vast majority of these respondents indicated they plan to implement hybrid cloud architectures in the future, which clearly endorses the F5 hybrid cloud strategy.

The strategy is in place and our focus is on execution of the strategy, with an absolute priority in delivering product revenue growth.

I summarized several business drivers which will be available in the second half of FY16, and we have every intention of taking advantage of these business growth drivers.

In conclusion, I'd like to thank the entire F5 team, our partners and our customers, for their support last quarter.

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

We will now begin the question-and-answer session.

(Operator Instructions)

Our first question is from James of Morgan Stanley.

Please go ahead with your question.

Thanks very much.

I had two quick questions.

First, when you talk about an acceleration in growth that you're anticipating for the second half of the year, as particularly new products start to roll out, et cetera, are you anticipating that, that will be evident on the total revenue line?

Or are we talking about just a re-acceleration in the product revenue?

And then on the most recent quarter, we saw a significant uptick in services and deferred revenue.

I'm wondering if you can give us a little bit more color as to what that may be attributable to?

Is this security products, Silverline, virtual editions or something else?

Thank you very much.

Okay, this is John.

And the first one then I'll hand over to Julian to talk about services.

Our absolute focus is on product revenue growth, but by definition, that will grow the overall revenue.

You've seen the success we've had in the service business with the deferred revenue.

So we feel really good about that, and the visibility of that revenue moving forward.

And Julian can again comment on that.

It's all about product revenue growth.

And clearly, these business drivers, we're absolutely very focused on delivering them so that we'll get that product revenue growth that then will give us total top-line growth.

And then on the services side, the growth is purely in maintenance services revenue and in professional services consulting revenue, which has grown across the globe, mainly as we've expanded working with partners.

Pieces like Silverline and subscription are not included in that services number at all.

And one of the things, Julian, you might want to comment, that I was impressed by, that QBR was -- on a consultancy, [had much for doing] remotely?

Indeed.

As you look back over the last 18 months, the gross margins for services has improved as we've improved the delivery of consulting through remote delivery, which is around 60% of all the consulting we now deliver.

Great, thank you very much.

Thank you.

Thank you.

Our next question is from Simona with Goldman Sachs.

Please go ahead with your question.

Hi, thank you very much.

I just wanted to get a little bit more color on the guidance, which was a little bit conservative.

Was that just your reacting to some of the macro headlines and what we've seen in the markets here, or is that in response to any actual slowdown in purchasing behavior from your customers?

And maybe if you can just comment on any potential influence you think you might see in this quarter as a result of the upcoming product introductions?

In other words, might there be a slowdown as customers are waiting for the new products?

So on the first question, obviously we're looking at macro, and we did take account of that, no question.

We did see -- and I said in my script, we saw some slowdown of forecasted deals that happened towards the -- especially in Americas -- towards the end of the quarter.

We took that to some degree into account.

So it's a combination of all of the above.

We had the whole of sales management -- John DiLullo had his team over and we had meetings, significant meetings last week.

We did our usual thing.

We think we're being cautious; we hope we're being cautious.

And yes, we did take the macro into account.

Did you discern any difference in demand by vertical in terms of your end-demand verticals?

Not really.

If you look at the verticals, the split of verticals, it was pretty similar to what we normally see.

And it was pretty similar, in terms of performance, within the geographies as well.

So not really.

You asked a question as well -- sorry -- about the new products coming.

Obviously you check that, and that's something we'll look at.

I don't think -- we've taken that into account, and we don't think we'll see that.

We have seen a big interest in the 100-gig product from the service provider.

But having said that, we feel that we've got a reasonably good pipeline of existing business in the service provider pipeline anyway.

Okay, got it.

Thank you.

Thank you.

Our next question is from Mark with Barclays.

Please go ahead with your question.

Yes, thank you.

Good afternoon.

A couple questions.

I wondered if you could drill a little deeper into what was going on with the slowdown in the forecasted sales in the US, and talk a little about those drivers?

And maybe even quantify the revenue that slipped maybe into the current quarter, and how much that revenue is?

Okay, well, basically it's very straightforward.

The sales force believed that we were going to get some closed deals, and they didn't happen.

And they can happen for all sorts of reasons.

It could be the CFO stopping at the last minute.

It could be optimism from the sales force.

These things happen, and you try and take account of that.

In terms of talking about metrics, remember, we did right at the top of our range in terms of last quarter, from a revenue perspective.

So clearly, any small number of deals above that is a very good thing to have.

But we're not talking about massive amounts of slowdown.

But yes, when you're at the top of the range and you could go over, and you see some slowed deals, they're all important.

Okay.

And then as we think about the second half of this year, with respect to the vertical mix, is there any one mix that you're more dependent on in terms of these new products really taking off and achieving some good adoption right out of the gate?

Or is it more balanced across enterprise and service provider and government?

I think it's pretty balanced, personally.

Anybody else can chip into this, but I think it's quite balanced.

There's one or two obvious things, like the 100-gig boards.

That's clearly service providers, mainly.

But the big drivers remain security, the product refreshes across the board.

We did mention our FIPS solution for finance.

But yes, I don't think that will change the dynamics of the vertical.

So not really.

No, I don't see that.

It's more horizontal.

Okay, thank you.

Thank you.

Our next question is from Catharine with Dougherty.

Your line is now open.

Thank you for taking my question.

Could you talk a little bit, John, on your service provider market, and you how that's doing?

Two years ago, it was -- opportunities seemed to be with Traffic X, and now the commentary seems to be around security, Gi Firewall.

Just a little insight on what you're seeing there in the carrier environment?

Thank you.

That's true.

And the Traffic sales have been reasonable -- still low numbers, to be frank -- but reasonable over the last couple of quarters.

We've got a lot of customer base.

But no, the thing that gets us excited at the moment, and the Gi Firewall has done very well.

Before I retired, I talked a number of times about the Gi Firewall sales in the Tier 1 in the US.

The good news is, we're starting to see that globally now, with sales in EMEA and sales in Asia, and Asia/Japan as well.

So we feel very good about that security in general.

NFV is another big area for us.

We think we're in great position there with NFV.

We talked about where we're looking to get our leading performance of 10 gig up to 40 gig.

That will make a big difference in NFV.

So yes, they're the hot buttons for us right now.

Okay, thank you.

Thank you.

Our next question is from Rohit with Buckingham Research.

Please go ahead with your question.

Thanks.

I had a couple questions for you, John.

The first one, if you could talk a little bit more about the competitive environment?

Just want to get a sense of what you're seeing in the traditional ADC market, and from traditional vendors, but also cloud vendors.

And then could you also address what you're seeing in the security marketplace, the competition that you're facing there?

The second question was on the standalone security products.

I just want to get a sense, is that a response to customers demanding something from you, something new from you?

Or is it more of a defensive move to better-compete with products from other vendors?

I'm going to pass this over to Karl.

He's going to do this in a sort of Scottish accent.

(laughter)

Let me address the second question first, on these kind of purpose-built security offerings.

Because one of the challenges we've had with our current offering, which addresses some significant security issues out there, both with anti-fraud and web application security, as well as just network-level security.

Is that as it's included on the ADC platform, it tends to be targeted more towards the network buying centers versus the security buying centers, even though we do get good access to those.

What we wanted to do was to take our functionality, help differentiate that by essentially packaging it ways that's more consumable by these centers.

So for example, DDoS, we provide a comprehensive DDoS solution both for on-premises, as well as in Silverline, and we now connect these.

But we want to make it easier now for someone then to take that on-prem solution, configure it, and get the benefits of it, without having to do the full ADC configuration.

Same thing for things like SSL Air Gap and our forward proxy services, that we see that these things are difficult to configure sometimes when you start looking at the full sphere of what an ADC you does.

We want to make that's easier to consume, and target these applications.

There's other ones we'd like to be able to do that with.

And we want to increase the value of this by including analytics and other things that we can differentiate, say, from our Good-Better-Best offering.

It just allows us more precise, better targeting.

It also allows us to contrast and differentiate this against existing solutions in the market versus trying go have this larger conversation around ADC-level security.

So it's really more just being able to build on top of what we've already done, but differentiate it with the platform.

In terms of the first question on competition, we haven't really seen a big change there in terms of our traditional competitors.

Citrix is still kind of sitting in there.

We didn't see any real change in terms of loss-wins, or anything like that.

In fact, in the field, we generally hear that the competitiveness is down.

There are -- same with [eight tenants] and the other smaller competitors -- they pop up here and there.

They mainly still compete on price and in lower functionality, and they may target specific accounts.

But in general, broadly, we haven't really seen any changes there.

There's kind of the next generation of these kind of cloud-based ones that are coming up here and there.

Really haven't seen much there.

Some noise out in the market, a little bit here and there that we see.

But in terms of account wins, there's been a number of large customer accounts we've been in where we've actually seen them pop up and then leave.

We've been able to win those.

So it hasn't been a real change for us in terms of business.

Obviously with cloud -- Amazon, for example, they have kind of a very low-end load balancer that they use to provide very basic services.

But Amazon's a big partner of ours, and we do quite a bit of business with providing so much our product into their cloud.

Same with Microsoft Azure.

So with the cloud, there's opportunities and small threats.

But quite frankly, we don't see anything different in the environment than we've seen in the past.

Thanks, Karl.

This is John DiLullo.

I would just add that we did have a lot of energy in the competitive trade-out space -- in particular, some of the legacy environments versus the greenfield.

So it was a very good quarter for that.

Thanks, John.

Thank you.

Our next question is from Mark with D.A. Davidson.

Please go ahead with your question.

Great, thanks for taking the question.

Could you tell us what percent of product revenue is subscription?

What part of that's coming in from cloud and Silverline?

And is that creating a headwind or do you anticipate that to create a headwind as buying patterns shift?

We actually don't disclose it.

It's still, as John said in the script, early days, that we like the traction that we're seeing, we like the customers that we're winning, and expect that to continue.

In terms of providing headwinds, I'm not sure what you mean by that.

Do we think it displaces appliances?

No, we don't.

We think it's complementary to our current offerings, and actually is part of our differentiation.

So if the customer purchases something that is subscription-based, you don't see that as detracting from current sales, in the current quarter?

No, especially -- if you look at the DDoS wins, a lot of them, we'd never had other customers, and maybe had an emergency.

It allows us to actually get into new customers.

That's one of the reasons we say, we're really going to pump up the resources in Silverline.

Because we think we're onto a winner there in terms of inside sales specifically, and obviously more resources in the portfolio, as well as we have increased -- we've put quite a lot of investment into the data centers globally.

Okay.

Can you just talk about the ACE replacement market, where that is?

Are we losing steam in that?

Is that kind of playing itself out?

Yes, I mentioned in my opening remarks that it's still a pretty material number in terms of millions of dollars that we're booking there, and we saw some nice new big ones as well.

But in truth, if you look at it from a year-over-year perspective, it certainly doesn't have the tailwind that it did last year and the previous years.

But it's still an important part of our business.

The other side of it not to lose sight of -- because we don't count it this way when we talk of ACE replacements.

But when we win, say, a Fortune 50 company -- we've done a few of those -- because of ACE, we get more and more business like security.

We don't actually call that ACE replacements moving forward.

It's been great for us.

It's not the tailwind that it was last year, having said that.

Okay, thanks.

Thank you.

Our next question is from Paul with Cowen and Company.

Please go ahead with your question.

Thanks.

John -- and if this was asked and answered, I apologize -- but relative to your comment about record bookings in Asia-Pac and EMEA, if I heard you correctly, and then on the guidance, which you characterize as conservative, we all recognize the macro backdrop.

But I guess my question is, given the strength in bookings abroad, but not in the US -- a little bit counterintuitive to me -- how much -- it feels like that guidance is incorporating an element of conservatism, given the bookings numbers.

But I guess I'm trying to -- I'm really trying to understand what you're seeing in terms of in-demand, as it's developing.

Yes.

And I hope it's got a lot of conservatism, because that's what it should have, I think, in this environment.

First of all, it's not abnormal for EMEA to have a very strong sales quarter at the end of a calendar year.

It's happened in the past.

Having said that, they tend to have a tougher next quarter, this current quarter we're in, and we've taken account of that.

APAC -- we've seen a lot of changes in APAC.

We put new management in there over a year ago.

He is doing a tremendous job, and we're really starting to see the benefits of that.

So that wasn't that surprising either.

In terms of Americas, one of the things we did say -- we haven't said this yet -- but we did say that from a vertical perspective, service provider was pretty strong.

We did see a little bit of a drop in Americas.

We actually feel better about that this current quarter as well.

So no big trend there to latch onto.

But John, on the Americas piece, where we saw weakness.

How much of that was the pause in those large deals, the delays, and how much of it was broader in terms of just a down tick, downturn in demand?

I would call it more of a pause.

We actually were -- we were reasonably confident moving into this closing stages, and obviously that confidence was misplaced in Americas.

But it was more of a pause at the end.

What we have done -- we just checked, actually, today -- we've basically seen a number of those deals that didn't close, actually close already.

All right, thank you.

I appreciate it.

Okay.

Thank you.

Our next question is from George with Jefferies.

Your line is now open.

Hi, guys, thanks very much.

I guess I wanted to go back to the deferred revenue growth, 23% year on year.

Obviously that number is going up quite a bit faster than now either product sales, which are declining, or services, which are, I guess mid-teens in terms of year on year.

I would imagine some of the deferred revenue outperformance is maybe Silverline, certainly maybe more longer-term services contracts.

But can you give us a sense, again, why the diversion, and what are the big contributors to that deferred revenue growth relative to the other metrics?

Thanks.

So on the deferred revenue balance, the first statement to make is, Silverline is not in that at all.

So that's a completely separate balance in the product number, not in the services piece.

The reason for the services deferred acceleration versus the revenue is -- yes, you're right, some of it is support contracts are taking out for year two and year three.

And we saw some of that in the BRIC countries, where they're trying to guarantee the price out into the second and third year.

So Brazil actually was quite strong for us there.

And then the other piece is, our consulting revenue has grown.

But the consulting bookings has grown faster, as we've sold more consultants for a year at a time, which you cannot obviously take the revenue in the short term.

Got it, okay.

Great, that helps.

And then just separately, I wanted to ask about the share repurchase this quarter.

It looks like you bumped it up to $200 million.

Had been $150 million a quarter.

Andy, I guess I'm kind of wondering what's going on there?

Thanks a lot.

I'm sorry, I missed the question.

Share repurchase.

Yes, when the Board decides to move forward with the share repurchase, we put it against a 10b5-1 plan that has tiering at different pricing levels, and we saw that kick in.

Great, thanks.

Thank you.

Excuse me, Sam.

This is John Eldridge.

We're going to take two more callers, and then call it quits.

Okay, thank you.

And our next question is from Jeff with Nomura.

Please go ahead with your question.

Thanks very much for taking the question, I appreciate that.

I have one question for you, John, and then Andy, one for you.

I think, John, could you help us and maybe feel for any sub-seasonal -- should we be worried about sub-seasonal revenue growth ahead of these product transitions over the next several quarters?

Or do you feel that your pipeline is efficient and full enough that seasonal is a prudent way to go?

To the extent that you can comment on that, of course.

Yes, and obviously you have to be very careful about that.

If you look at the time a few years ago, or three years ago I think it was, when we did the last product refresh, we frankly took a year to do the refresh, and I think we paid for that.

We will not take a year this year, we will do it quicker.

But when we look at the pipeline, we think we're okay.

We think we're going to manage through that quite well.

And we -- obviously we will start most of the -- a lot of the new products this next quarter, and some of them definitely brand-new areas, so that we should be safe with that.

And then the larger product refresh we see happening in the sort of Q4 time scale.

And again, I think we'll manage through that.

Okay.

And then my second question for you, Andy, is, you look like you're adding about 50 employees in the March quarter.

Which, if we go back historically, that seems on the low end of the range, or even below the low end of the range for you.

Can you talk a little about what's happening there, and should we be expecting you to pick that up?

I'm wondering if there's a change in view on how you're managing your OpEx and your margin structure over time.

Thanks.

There's no change in how we're managing.

And I said at least 50, meaning it could be higher.

We're just going to balance that as we watch the quarter roll out.

But it directly ties to our guidance.

So we brought on 95 last quarter, we're absorbing them this quarter.

And with our guidance and wanting to hit our targets that we put out there, 50 is the right number to start with.

Okay, all right.

Thank you both very much.

Thank you.

Thank you.

And our last question is from Brent with Pacific Crest Securities.

Please go ahead with your question.

Thanks for squeezing me in.

And John, welcome back.

Two questions, if I could.

I guess one strategically -- you've lived through several cycles.

And as we think about kind of the next cycle and the next kind of -- your philosophy on what you do with $1 billion-plus in cash investments, cash flow remains very strong, really good margin structure.

As you think about kind of the current environment and uncertainty we're in, do you have a change relative to your appetite to maybe get more aggressive with the buyback, more aggressive with acquisitions?

Any change in your strategic positioning around being a bigger Company with bigger cash flows, and your appetite to invoke change more?

One.

And then I have one follow-up.

Yes, okay.

I wouldn't see a change.

So I don't see -- I think you'll still see the conservatism that we've hopefully always had in the M&A space.

Frankly, valuations look a little bit better these days, which -- good news, bad news.

But they do.

We may broaden the lens somewhat.

Obviously we're very interested in increasing our security business, and that might be an area.

But we will be conservative.

But we are getting bigger.

I'm saying we're not changing, but the Company's getting bigger.

So to some degree, we may look at some other stuff that we wouldn't have looked at five years ago.

Very helpful.

And then my last question really is around kind of the logic behind the announcement here on the call that you're kind of looking at purpose-built appliances.

The reason why I ask, it is a little bit of a departure from the past.

Historically, obviously if you look at the fastest growing parts of the business, it's kind of software-only, it's add-on security modules on top of BIG-IP.

Now you're talking about coming out with purpose-built appliances.

I guess, one, why now?

And two, how encompassing will you have a purpose-built appliance portfolio?

So this is not a move to purpose-built appliances in general.

It's not that.

However, we see some real opportunities with things like SSL Intercept, with SSL Air Gap, with specific DDoS behavior analysis-type capability.

We see opportunities.

I mean, it's -- Karl will kill me for this -- but it's a fairly easy technology road map to move forward to.

We're going to take advantage of that.

It's not that we've sat back and said, oh my goodness, we need to move away from our TMOS platform approach.

We haven't done that at all.

In fact, if you look at what we're doing with the way we're building VIPRION with 100 gig, it's almost the opposite, on the other side.

And then when you look at the overall refreshes, they're very much in the same vein as they've been before.

Yes, I mean, the big push that -- Brent, this is Karl -- is really to target the buying centers, the security buying centers with this.

We're not killing off TMOS.

This is all still a part of that.

But it's to have more application-specific implementations that are easier to deploy.

And we're leveraging iApps and other technologies to help create that packaging, to make it easier to get in there, so that they can realize the full value of it.

Because quite frankly, a lot of times, some of the security functions would get buried in the mass quantity of ADC features and functions we provide.

We want to make sure that it's very obvious and easy to go take to market.

Thank you so much.

Okay, thank you very much for joining us, and we look forward to the prospect of seeing many of you in the conference circuit and at Mobile World Congress during the coming quarter.

Thank you.

Thank you, speakers.

And this does conclude today's call.

Thank you for joining.

All parties may disconnect at this time.