Foundry Networks Q2 2006 Earnings Conference Call Transcript (FDRY)

Foundry Networks, Inc. (FDRY)
Q2 2006 Earnings Conference Call
July 25 2006, 5:00 pm ET

Executives

Quynh Nguyen - IR, Financial Dynamics
Bobby Johnson - President, CEO
Tim Heffner - CFO

Analysts

Mark Sue - RBC Capital Markets
Cobb Sadler - Deutsche Bank
Jeff Walkenhorst - Banc of America Securities
Jonathan Ferguson - JMP Securities
John Mark Duncan - Pacific Growth Equities
Alex Henderson - Citigroup
Ken Muth - Robert W. Baird & Co.
Long Jiang - UBS
Matt Robison - Ferris, Baker Watts
Subu Subrahmanyan - Sanders Morris Harris
Jason Ader - Thomas Weisel Partners
Neil Jacobs - Brodery Capital
Andy Schopick - Nutmeg Securities

Presentation

Operator

Welcome to the Foundry Network's second quarter 2006 conference call. (Operator Instructions) I would now like to turn the program over to Ms. Quynh Nguyen of Financial Dynamics. Go ahead, please.

Quynh Nguyen

Thank you, operator, and good afternoon, everyone. Thank you for joining us for Foundry Networks second quarter 2006 conference call. I'm joined today by Bobby Johnson, President and Chief Executive Officer; and Tim Heffner, Chief Financial Officer of Foundry Networks.

Earlier this afternoon, the Company issued a release reporting its second quarter revenue results. This release can be accessed from the Investor Relations section of Foundry's website at www.foundrynetworks.com.

For reference, we've arranged a taped replay of this call, which may be accessed by phone. This replay will take effect approximately one hour after the call's conclusion today and will be available for seven days. The dial-in access for this replay number is 402-220-1152. This call is also being webcast live, with a web replay also available. These may both be accessed from the Investor Relations section of Foundry's website.

Before we begin, I'd like to make a brief statement regarding forward-looking remarks. The call today contains forward-looking information regarding future events and the future financial performance of the Company. We wish to caution you that such statements are just predictions, and actual results may differ materially as a result of risks and uncertainties that pertain to our business.

We refer to you to our documents the Company files periodically with the SEC, specifically the Company's recent Quarterly Report on Form 10-Q, and Annual Report on Form 10-K for the year ended December 31, 2005, as well as the Safe Harbor statement in the press release the Company issued today. These documents contain important risk factors that could cause actual results to differ materially from those contained in the Company's projections or forward-looking statements. Foundry assumes no obligation to revise any forward-looking information contained in today's call.

Now, I'd like to turn the call over to Bobby Johnson, President and CEO of Foundry Networks.

Bobby Johnson

Thank you, and good afternoon, everyone. Foundry posted revenues of $108.4 million for the second quarter of 2006, an increase of 12% over last year's $96.6 million. We were pleased to have posted the best first half in the Company's history with $222.4 million in revenue. We believe that the investments we've made in the business, will drive improved performance going into the second half of this year and for the long-term.

During the quarter, we did experience some challenges related to two primary areas that impacted our results. The first was a decline in our Federal Government business. This sector contributed approximately 19% of our revenue in the first quarter, but only 13% in the second quarter. As we have reported in the past, it is traditionally difficult to forecast business in this area, as it can be substantial in size, but subject to delays and funding at times. These delays caused orders to be pushed out.

The second challenge we had in the period was Japan, which was seasonally soft as the region began its new fiscal year during the June quarter. We had an exceptionally strong March quarter with the region contributing 13% to revenue, and during the second quarter it declined to approximately 9%. Our business pipeline remains solid, and we continue to grow our relationships with new and existing customers in this region. Despite these challenges, there are a number of financial successes I would like to highlight.

1. First our book-to-bill continued to be greater than one in the quarter.
2. Second, overall our domestic enterprise business continues to perform well, growing 8% sequentially and 12% year-over-year. Our European business also continues to experience good traction, gaining 9% over the first quarter, and 20% year-over-year. We're pleased that our investment in our sales forces in these regions has delivered good growth. Importantly, the growth in North America and Europe represents increased adoption of our newer products.
3. We added $30 million in cash for the quarter and have a strong cash position of approximately $820 million.

I would now like to review some product and operational highlights from the quarter.

The first highlight would be our MPLS routers, the NetIron XMR and MLX series of MPLS routers continue to be well received, by both service provider and large enterprise customers. Since their introduction in January, the XMR series has received industry recognition and was most recently awarded Best of Show for the Infrastructure Core product category at N+I Tokyo 2006, which took place in June. This is the second consecutive year Foundry has earned a Best of Show award in this category. That demonstrates our leadership in delivering innovative network infrastructure solutions to the world's most demanding enterprise and service provider customers. In addition, our XMR achieved Metro Ethernet certification at both levels 9 and 14.

We also introduced the M2404 a small form factor MPLS-enabled stackable switch to augment our core XMR MLX products for edge aggregation. Overall, we had sequential growth in our service provider market by shipping more XMRs and MLXs in Q2 compared to Q1.

For the enterprise market, our FastIron Super Action BigIron RX continue to accelerate; both families showing sequential growth. We introduced several new products for the enterprise market, including the FastIron SuperX 800 and 1600. These two new chassis are the industry's most scalable convergent solutions, enabling network-wide convergence from edge to backbone with a single architecture. These chassis provide up to 384 ports of Class 3 power over Ethernet, featuring N+1 power redundancy, with dual and independent power over Ethernet and system power distribution, adding greater resilience.

In addition, we introduced the FastIron GS, a new Power over Ethernet ready, 10-gigabit Ethernet edge switch. The GS is a compact 24-port and 48-port triple speed switch upgradable with Power over Ethernet, and 2 ports of 10-gig Ethernet. The platform is ideal for VoIP and wireless LAN deployments.

Finally, we bolstered our wireless LAN offering by introducing the IronPoint mobility series of products for the enterprise. These products deliver leading performance for voice and data convergence over enterprise wireless LANs. The IronPoint mobility series is a new family of wireless controllers and access points that apply advanced RF management, quality of service, security, and core mission control techniques to deliver secure, mobile VoIP and data services.

The third key highlight focuses on our Layer 4 to 7 market sector. We began shipping the previously announced ServerIron GT10G application switch for 10 gig data centers. During the quarter, we also announced a new ServerIron 350, 450, and 850 family, which will ship in volume during this third quarter. All of these products help maintain Foundry's price performance leadership in the Layer 4 to 7 market.

In Q3 2006, we'll be shipping a security upgrade to our ServerIron traffic works operating system with integrated web/firewall, to protect web servers and applications. These capabilities combined with increased performance, should position us well in many security sensitive vertical markets. Additionally in the Layer 4 to 7 market, we experienced strong sequential growth of our Layer 4 to 7 SSL product, which almost doubled sequentially.

Foundry made its largest ever security announcement last month, which included a new SecureIron products and features. While SecureIron contributed to revenue in Q2 2006, we believe that the new products and features will carry the momentum and achieve greater market adoption in the second half of this year. Foundry's SecureIron is the most complete solution that truly integrates networking and security into a hardened switch platform.

The fourth key highlight of the quarter is we added 319 new customers, bringing our worldwide installed base to more than 10,000 in-use organizations.

We continued to invest in our business, introducing new products and solutions to meet the demands of increasingly complex large enterprise and server provider networks. Our goal is to not only fulfill the demands of these customers, but to be a leader in innovative technology, and offer solutions that provide a compelling value proposition.

I will now turn the call over to Tim Heffner, our Chief Financial Officer.

Tim Heffner

Thank you, Bobby. Good afternoon, everyone. For the second quarter ended June 30th, 2006, Foundry posted quarterly revenue of $108.4 million as compared to $114 million in the first quarter of 2006; and compared to $96.6 million in the second quarter of 2005. This was a decrease of 5% sequentially from the previous quarter, and an increase of 12% from the same quarter last year.

During the second quarter of 2006, our federal business decreased sequentially, representing 13% of total revenue, compared to 19% in the previous quarter. Our overall domestic revenue was 68% of our total business, and our international business represented 32% of the total. This was consistent with the prior quarter.

Sales in Japan this quarter decreased representing 9% of total revenue, down from 13% in the prior quarter. This was primarily due to the market seasonality as the June quarter marks the beginning of Japan's fiscal year.

Our enterprise business was again our primary source of revenue. Enterprise customers accounted for approximately 80% of our total revenue for the second quarter. Revenue from our chassis-based products decreased slightly compared to the first quarter representing 68% of revenue in the second quarter of 2006.

As previously announced, a Special Committee of Foundry's Board of Directors has been conducting a review of the Company's practices relating to the granting of stock options. The Special Committee has hired independent, legal and financial experts to conduct the investigation. If any accounting errors are identified by the independent investigation, adjustments to present and previous reported financial statements could be required.

Due to the fact that this review is ongoing and not yet complete, we have not included financial statements in our Q3 release. The Company intends to publish financial statements for the quarterly period ended June 30, 2006, and to file its Quarterly Report on Form 10-Q following the completion of the Special Committee's review. The Special Committee's review will not be completed in time for the Company to file its Form 10-Q Quarterly Report for the quarter just ended by the SEC deadline of August 9th, 2006.

Let me highlight a few balance sheet items. At the end of Q2, our cash and investments totalled $820 million, which is an increase of $30 million from the first quarter. Day sales outstanding were 61 days, down from 67 days in the first quarter, due to better collection efforts. Net inventories were essentially flat from the prior quarter. Our book-to-bill ratio was again greater than one.

We ended the June period with 776 employees. An increase of 35 people, mostly in the sales organization.

With that, I'll now turn the call back to Bobby.

Bobby Johnson

Thank you, Tim. As we marked our tenth anniversary this past June, I would like to thank all of our employees, partners, customers and shareholders for their commitment to Foundry. Our business has grown to 776 employees, serving more than 10,000 customers worldwide. Despite our challenges in Q2, we still achieved the best first half-year ever.

Before turning the call over to the operator for a Q&A period, I would like to remind everyone that we are in the middle of an internal investigation. As Tim mentioned this investigation is not complete. As a result, we will not be answering any questions relating to that subject or provide anymore information that has already been included in the press release. Operator.

Question-and-Answer Session

Operator

We'll take our first question from Mark Sue - RBC Capital Markets.

Mark Sue - RBC Capital Markets

Thank you. This quarter was a little more of nail biter than most. I was trying to get a sense of linearity, understanding the weakness in Japan which is seasonal, and also the Fed business, and whether or not you saw some increased competition, or anything else that was a little bit markedly different this time around?

Bobby Johnson

I don't think we saw anything from a competitive viewpoint substantially different than previous quarters. Overall, we were pleased to have North American and European growth sequentially. Japan, you know, actually was not bad given overall. We had a very big Q1 in Japan, and we did expect some seasonality.

Mark Sue - RBC Capital Markets

Separately, just on the financials. I understand you can't give a lot of detail. Assuming a similar revenue base and the lack of discounting and competition, should we assume that the gross margins were kind of flattish this time around?

Tim Heffner

You know, Mark. We're not in a position to comment anywhere other than the top line. We're going to be able to give you that information today until all of this sorts itself out and the investigation is concluded. I'm sorry about that.

Mark Sue - RBC Capital Markets

Okay. Maybe then just separately, just on book-to-bill and also the pipeline for the September quarter. Any thoughts on your confidence level and how things started in the current quarter?

Bobby Johnson

Well, book-to-bill continue to be greater than one. Confidence factor goes up and down. I think we're not giving guidance; I think we're optimistic, we have a larger sales force than we've ever have, we have more products than we ever have. We do have market concentrations. But we're very optimistic.

Mark Sue - RBC Capital Markets

Okay that's helpful, thank you and good luck, gentlemen.

Tim Heffner

Thank you.

Operator

Thank you, we'll take our next question from Cobb Sadler, Deutsche Bank. Go ahead please.

Cobb Sadler - Deutsche Bank

Thanks a lot, guys. Questions on the government. Can you talk about maybe who within the government was weak? We understand the Army stopped spending for about three weeks. Was it primarily decentralized, or kind of across the board in the government, the weakness?

Bobby Johnson

Our biggest weakness was in Defense. I think people know that we have a very big [inaudible] in the Army and indeed the supplemental bill got moved out, and didn't pass until I think, late in the quarter for us.

Cobb Sadler - Deutsche Bank

You said the deals have been pushed out. Do you have any idea whether those will be recognized in the September quarter? Or whether it's pushed out longer term than that?

Bobby Johnson

At this moment, I cannot comment on that. We remain optimistic, and we'll just see how all of the funding gets spent and when.

Cobb Sadler - Deutsche Bank

Okay. Great. One last question. On the XMR, I think you said it was up in units quarter-over-quarter. Would it be up in revenue quarter-over-quarter also?

Bobby Johnson

I don't have that data in front of me. I think overall, if we look at all of our SP business, I think it was up over Q1 and our SP business is more than just XMRs and MLXs.

Cobb Sadler - Deutsche Bank

Thank you.

Operator

Next question from Tim Long – Banc of America Securities.

Jeff Walkenhorst - Banc of America Securities

Good afternoon, this is Jeff Walkenhorst dialing in for Tim. In the U.S., have you seen any signs of macro weakening or changes in customer buying behavior? I was also hoping you could provide a little additional detail on the MLX and the XMR router lines, how many trials do you have for these products?

What sense are you getting from service providers, what gives you confidence that you'll be able to penetrate, particularly the core market, as well as the edge, where it's been a very difficult market for anyone other than Cisco and Juniper, really to be meaningful competitors in the past.

Bobby Johnson

There was a lot there. Let me start with the last part. As we've said with the XMR and the MLX, it's not a short-term play for us. It's a Ethernet versus SONET, a long-term adoption. So we're getting lots of wins in cable and metro type environments. We're getting lots of wins in web hosting environments; with the RX, we're getting a lot of wins in Internet exchanges. So overall our SP business is robust. We have a lot of trials going on, in both traditional and new age service providers. We remain optimistic.

But I think I've said, you know what we're really looking for is a real return in the 18-24 month period, not the first six months of '06. The acceptance rate, the price points, the performance, everybody likes. Yes, we are playing catch-up on some features. I think that's well known, but not everybody needs all of those features, and that's why we're shipping more and more units.

Jeff Walkenhorst - Banc of America Securities

So we can expect to see scale revenues from the XMR say sometime in 2007? Then if you could provide an update on the macro environment and any changes you've seen, or signs of weakening, or customer push outs, et cetera.

Bobby Johnson

On your first question, yes, I would expect to see in 2007 significant revenue -- not that it's not significant revenue today -- but you've got to remember, our SP business is not just the XMR and MLXs. They are the core portions of that. But we sell also a lot of RXs and other aggregation products into the service provider market.

As of this moment, we've been pleased with the business rate in North America. North America was up sequentially in Q2 over Q1. So I don't know where the macro environment's going. But overall we've been pleased up until now.

Jeff Walkenhorst - Banc of America Securities

Thank you very much.

Operator

Thank you. We'll take our next question from Samuel Wilson of JMP Securities. Go ahead, please.

Jonathan Ferguson - JMP Securities

This is Jonathan Ferguson for Sam Wilson. Just a quick question, where are you seeing specifically the service providers, most of the traction geographically for your Ethernet versus SONET story? Are you getting more traction in the U.S., or is this more of an international story?

Bobby Johnson

At the moment the majority of the traction would be international, both Europe and Asia, but we've actually been pleased with the amount of interest, and trials and revenue from North America. I would say the majority right now is international business, but North America is so far, it's been a pleasant surprise with the amount of interest.

Jonathan Ferguson - JMP Securities

When you have more trouble cracking into an account or cracking an opportunity, what are the customers saying? Are they saying, you're not getting in because we like two vendors? When you don't succeed with the XMR story, what is the primary? What's the primary push back you're getting?

Bobby Johnson

Well, first of all, we never have stated that the XMRs or the MLXs will be 100% replacement for some of the previous devices. We don't have some of the legacy interfaces. I mean, we're at this moment an Ethernet-only set of products. So if people have lots of legacy-type interfaces that need to be supported, we can aggregate those, but we're not really a legacy router.

So that's the biggest issue at the moment. Although we will add more and more interfaces, but they'll be more on the rifle shot high-speed.

Jonathan Ferguson - JMP Securities

How is the development going for your SONET interfaces? Is that stuff we should be expecting in the September quarter or more a year end type of thing?

Bobby Johnson

Well, development's going good. You know, when we announce them, we'll let you know.

Jonathan Ferguson - JMP Securities

Thank you.

Operator

Thank you. We'll take our next question from John Mark Duncan - Pacific Growth.

John Mark Duncan - Pacific Growth Equities

Can you give us a sense in terms of what the expenses might look like for the investigation?

Tim Heffner

This is Tim. You know, we're in the middle of it. I can't. It's in process. So I don't have any final numbers, I can't give you any ranges at this moment.

John Mark Duncan - Pacific Growth Equities

Okay. Regardless of that, if we take that out of consideration, do you think expenses overall would have declined for the quarter?

Tim Heffner

Again, I'm going to have to defer to the fact that I can only provide a top line number at this time. Other than that, I can't comment on expense levels or gross margins anything like that.

John Mark Duncan - Pacific Growth Equities

Lastly in terms of Japan, is there any increased competition in that area from local vendors? Is there any reason to expect that to be up or down one way or the other in the September quarter?

Bobby Johnson

We've always had some competition from local vendors in Japan. I don't see anything at the moment that is substantially different. So right now I remain optimistic on Japan.

John Mark Duncan - Pacific Growth Equities

Thanks.

Operator

Thank you. We'll take our next question from Alex Henderson of Citigroup. Go ahead, please.

Alex Henderson - Citigroup

I just wanted to get a little bit more clarity on your sense of what conditions are like. Clearly coming in with numbers that are substantially below Street expectations leaves lots of questions. We were hoping that you might provide us a little bit more granularity, on what you're seeing in terms of U.S. economic conditions impacting willingness of customers to close transactions; whether there's any change in your activity rates or any change in your ability to close transactions, closure rates, things of that sort, that you might be able to share with us. Is there a slow down in the backdrop, or is the backdrop continuing to be about the same as we go from 2Q into 3Q, as you see it?

Bobby Johnson

Well, at the moment as we stated, North America was up sequentially in Q2 over Q1. We're very early in Q3. We're always cautious on every quarter. We're always cautious on the summer quarter. When it comes more to the international markets, we don't at this moment have any data that says that North America is in a substantial slowdown.

Alex Henderson - Citigroup

If I could follow up the second part of that question is, as you look at the Federal Government business, clearly the Defense spending was a clear and obvious problem in the quarter. Is it your sense that that budget has been trimmed permanently? Is it your sense that it's a timing issue relative to whether the government lets those contracts? Is it a concern around competition?

Can you give us a little bit more clarity here? Because, you know, frankly with the stock being cut in half over the last quarter since your statement in April, that you're looking at the best fundamental outlook for the Company in its history, a little bit of clarity would go a long way.

Bobby Johnson

At this moment, I can only say I remain optimistic. I don't know about all of the Federal Government spending patterns. I think the competitive landscape remains approximately the same today as it has historically the past several years for us, with the Federal Government. We continue to try to put one foot in front of the other. We've had many ups, we've had a few downs. So we just keep at it, and hopefully the spending levels have, will or have returned.

Next question.

Operator

All right. Thank you. We'll take our next question from Ken Muth of Robert Baird. Go ahead, please.

Ken Muth - Robert W. Baird & Co.

You guys have continued to be on a hiring path here. The first question would be, how long before you see these kind of new hires contribute to your revenue line?

Bobby Johnson

The majority of them take at least six months, in some cases 12-plus months.

Ken Muth - Robert W. Baird & Co.

Are you still going after the direct 4-7 market, where you've kind of done a disproportional amount of hires in that 4-7 vertical? Or are they now more generalized and are selling the full product suite?

Bobby Johnson

Well, from time to time we do shifts. I would say today and more recently we focus more on generalists to sell the entire product, that does not mean that we are not still also hiring Layer 4-7 specialists.

Ken Muth - Robert W. Baird & Co.

Is it possible, Tim, just to get a breakdown of the products and services on the revenue side?

Tim Heffner

Sure. On our product revenues, we did of the $108 million, it was $89 million and we did $19 million in service. So service was up a little over $1 million.

Ken Muth - Robert W. Baird & Co.

Okay, thank you very much.

Tim Heffner

You're welcome.

Operator

Thank you, we'll take our next question from Long Jiang of UBS. Go ahead, please.

Long Jiang - UBS

Good afternoon. Can you just provide a little bit more detail about specific information about how many trials are you working on right now? How does it compare to the previous quarter? For XMR and MLX, are you able to mention how many units you have shipped so far?

Bobby Johnson

I don't think I've got that data in front of me. In terms of a number of trials, I don't have a specific, but I would say probably at any one point in time, we're somewhere between a dozen and two dozen evaluations at this moment ongoing for the XMR MLX families.

Long Jiang - UBS

So you mentioned during the call that trials and interest levels so far surprised you on the up side. What's really the inflection point? Are you targeting late this year and first half of next year still for a meaningful ramp up of this product category?

Bobby Johnson

As I always said, I think the most meaningful period will be the second half of '07.

Long Jiang - UBS

Second half of '07, got you. Okay, thanks.

Operator

Thank you. We'll take our next question from Matt Robison of Ferris, Baker Watts.

Matt Robison - Ferris, Baker Watts

Good afternoon. A couple cash accounting questions for Tim. Cash from options in the quarter, CapEx, depreciation, amortization, and deferred revenue.

Tim Heffner

Well, CapEx would have been nominal. We don't have a big CapEx spending pattern. On the option side of things, it was very minimal. We did get $8 million from interest of the cash, and the rest was pretty much from operations.

Matt Robison - Ferris, Baker Watts

Okay. Deferred revenue?

Tim Heffner

Yes. Again, I'm going to have to defer back to what we provided already. I'm not going to be able to comment much further than I have until the investigation is completed.

Matt Robison - Ferris, Baker Watts

Well. There's no options effect on deferred revenue, but I'll let you pass on that.

Tim Heffner

Thank you.

Matt Robison - Ferris, Baker Watts

I presume that unlike your peers that got named and backdated before you, that you can't get into that expense because you got named after the quarter ended, or right around then, right? So you really didn't have any expenses related to it during the quarter, right?

Tim Heffner

No, that's not true.

Matt Robison - Ferris, Baker Watts

I don't remember the date.

Tim Heffner

Yes, we were, originally named in the CFRA report, and that occurred some time in the quarter. We began an internal investigation and then it went into the external.

Matt Robison - Ferris, Baker Watts

So you're proactive to get going on the basis of what Howard [Schulott] had to say, rather than waiting for the Federal Government to come after you.

Tim Heffner

Waiting, I don't know if I like that term. But we certainly are a Company that's very proactive and so we did start with an internal investigation.

Matt Robison - Ferris, Baker Watts

Bobby, you're going to confirm that you haven't seen any change in tone of business from Federal since the supplemental budget?

Bobby Johnson

I'm not quite sure of your question. My Federal sales people are optimistic, but I'm not quite sure I know the exact standing of all of the different programs and their funding.

Matt Robison - Ferris, Baker Watts

Okay. Thanks, guys.

Operator

Thank you, we'll take our next question from Subu Subrahmanyan, Sanders Morris Harris. Go ahead, please.

Subu Subrahmanyan - Sanders Morris Harris

Thank you. I have two questions. One could you talk a little bit more about your Layer 4-7 business, what it's representing as a percentage of revenues and given kind of the new product introductions, especially Security? . What Security is getting to as a percentage of revenues?

Then on the hiring front, I just wanted to get a clarification; given the business sell levels you're seeing currently and what is in your projections, what you're expecting in terms of pace of hiring over the next couple of quarters?

Bobby Johnson

Your first question on Layer 4-7 revenue contribution. It fluctuates between about 10% and 12% per quarter.

Subu Subrahmanyan - Sanders Morris Harris

Is it meaningful as a percentage of that total?

Bobby Johnson

Excuse me?

Subu Subrahmanyan - Sanders Morris Harris

Is security a meaningful piece of that 10% to 12%?

Bobby Johnson

Not at this moment. We've really just started shipping specific security products in the last 60 to 90 days arena. The question on hiring. We will continue to hire. We can't predict specific levels at this moment, but we will certainly continue to hire. What was your other question?

Subu Subrahmanyan - Sanders Morris Harris

Those were my only two questions. Security Layer 4-7 and hiring. Just wondering in terms of hiring in any specific areas. Is there more focus on sales and marketing right now or R&D? Just given the fluctuations in the business, I'm wondering what's happened all through your hiring plan, any changes in the plan at all?

Bobby Johnson

We will continue to hire in all areas. But our specific focus will be still building out our sales force and our field support force.

Subu Subrahmanyan - Sanders Morris Harris

Thank you.

Operator

Thank you. We'll take our next question from Jason Ader of Thomas Weisel. Go ahead, please.

Jason Ader - Thomas Weisel Partners

Thank you. I think what people are trying to figure out, Bobby and Tim, is you guys were at a conference, I think in mid-June and you talked about the enterprise market feeling a little -- I think the word you used was, skittish or something like that.

Then you come out, you come out here with these numbers, which look pretty decent on the enterprise side. So there seems to be a bit of a disconnect there.

Secondly on the federal side, if you're saying that the reason the Federal was weak was because the supplementary budget was delayed, and now that it's been passed; I mean, why can't you just say that it's likely to get better? I guess I don't understand why it wouldn't get better.

Bobby Johnson

On the Federal Government, I can only say I'm optimistic. Hopefully it will get better, but I don't know the status of every program.

Jason Ader - Thomas Weisel Partners

But on a whole, wouldn't it be logical to think that if the supplementary budget was the issue in Q2 and it's no longer an issue in Q3, and it tends to be the stronger quarter seasonally, that it's likely to be better? If you wanted the use logic here?

Bobby Johnson

That's the logic. That makes me optimistic, but I don't have all of the data and Q2 came a little bit as a surprise. So I'm going to have a little bit of guarded optimism. On the comments you're referring to earlier, I wasn't at that conference so I'll let Tim answer to what he said.

Tim Heffner

Well, I think it's our cautious nature, Jason, and during the course of a quarter sometimes we feel better than others, and maybe at that moment we didn't feel so great; however it turned out that the quarter our domestic enterprise business ended up being relatively strong outside of the Federal Government.

Jason Ader - Thomas Weisel Partners

Was that something that came in strong at the end of the quarter, Tim? Where, you know it's possible you weren't feeling great mid-June and then there was a strong push at the end of the quarter, above normal?

Tim Heffner

I think we've commented before that we always see that third month as the strongest month of the quarter, and it usually represents approximately half of our business for the quarter. Yes, I think in the last several weeks, we saw it a little stronger than we might have expected.

Jason Ader - Thomas Weisel Partners

Okay. Thank you, guys.

Tim Heffner

Thank you, Jason.

Operator

Thank you. We'll take our next question from Neil Jacobs, Brodery Capital. Go ahead, please.

Neil Jacobs - Brodery Capital

Good afternoon. You highlighted in your introductory comments that one of the highlights of the quarter was the $30 million in cash that you generated. I know this has come up numerous times in the past, but you now have $5.63 or thereabouts in net cash per share.

I know you've been growing your workforce; but is there any thought to using your net cash position on the buyback front, once the options investigation is complete?

Bobby Johnson

There are several different things that the Board of Directors is considering. Obviously, the internal investigation is taking time and energy, but there are multiple considerations in front of the Board. A stock buyback consideration is one of many things to be considered.

Neil Jacobs - Brodery Capital

Just a quick follow-up, to me is a change from what you said in the past. Is that perceptive on my part or not?

Bobby Johnson

Well, we actually did a stock buyback once before. So I'm not so sure it's a change. We're just saying that there are many things we are considering doing with the cash. We are actually considering multiple different options.

Neil Jacobs - Brodery Capital

Thank you.

Operator

Thank you. We'll take our next question from Andy Schopick of Nutmeg Securities. Go ahead, please.

Andy Schopick - Nutmeg Securities

Two quick ones. Tim, did I understand you to say that you do expect to be able to file by the normal reporting date in August?

Tim Heffner

No, Andy, sorry; I think I said it correctly, but maybe not. We will not, we're pretty confident at this moment in time that we will not be able to file on a timely basis. We're not that far along.

Andy Schopick - Nutmeg Securities

Thanks. Also for either one of you, any general comments about what you're hearing or seeing concerning IT spending trends going forward? Is there any sense of any change, anything coming back to you that looks a little different?

Bobby Johnson

At this moment, I don't have any specific data that says otherwise; we will monitor the large customers and the sales force along the way.

Andy Schopick - Nutmeg Securities

Thank you.

Operator

Thank you. We'll take our final question from Cobb Sadler of Deutsche Bank, go ahead, please.

Cobb Sadler - Deutsche Bank

Thanks, just had a quick clarification on Japan. Could you tell us was it enterprise or carrier that was more weak? Or can you even tell us that?

Bobby Johnson

Well, I wouldn't want to characterize either sector as weak. It was weaker than Q1. We had some very good wins in both sectors.

Cobb Sadler - Deutsche Bank

Got it. On the carrier side, the wins that you do have, any idea when they may start producing? What's a normal timeframe, I guess, is the probably the best way to ask it?

Bobby Johnson

Well, many of them are already producing. You know, we can get production in the first three months, the first 12 months in many of these wins.

Cobb Sadler - Deutsche Bank

Okay. Great, and these would be traditional Ethernet products, or XMR type products?

Bobby Johnson

That's correct.

Cobb Sadler - Deutsche Bank

So it's both?

Bobby Johnson

That's correct.

Cobb Sadler - Deutsche Bank

Okay, thanks a lot.

Operator

Thank you, this does conclude our Q&A session. I'd like to turn it back over to our moderators for any closing remarks.

Tim Heffner

Thank you, Andrea, and thanks everybody for taking time to participate with us on this conference call today. We look forward to updating everybody next quarter on Q3 results. Once again, thank you for joining us.

Operator

This does conclude today's conference call. We thank you for your participation, and you may now disconnect.

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

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