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F5 Networks, Inc. (NASDAQ:FFIV)

Citi 2013 Global Technology Conference - (Transcript)

September 3, 2013 09:00 AM ET

Executives

John McAdam - Chief Executive Officer, President and Executive Director

Manuel F. Rivelo - Executive Vice President of Strategic Solutions

Analysts

Stan Kovler - Citi

Stan Kovler - Citi

Hi, my name is Stan Kovler, (inaudible) Communication Equipment and Data Networking team at Citi. And this morning I'm pleased to present John McAdam, the President and [CFO] of F5 Networks and we also have [Zenith Nelson] from the [Finance Organization] and John I think you wanted to state the opening remarks and then call for some questions and we'll open the Q&A towards the end.

John McAdam

Okay. Good morning, everybody. Just take a couple of minutes just to give a brief introduction about how the key things at the moment. I think anybody has been listening to us over the last few quarters realized, number one priority by a mile is product revenues growth acceleration. We're very, very focused in doing that. I think we’ve got a really good scenario going on, but can achieve that based on the business drivers that we have.

We're just finished all the probably the biggest product refresh, it's probably the biggest product refresh we've ever done. I saw it all over the market knows and doing well and we are talking about price performance, gains of about five times that previous (inaudible), we feel good about that.

We have a strong base that we can look at repricing for example, the two, the range of products for two generations ago that was coming out about four or five years ago, I'd say more than that six plus years ago. We have about 33,000 those in the field under contract and so we think that’s a good opportunity that started to [coming up]. Similarly with the ACE replacement, I’ve mentioned a few times recently, we’ve been very, very successful replacing the fiscal ACE products competitive one way, in that scenario was better than it is across the board, and it's pretty good across the board. So the ACE is a big opportunity with we've already replaced hundreds of systems, hundreds of projects of ACE. So we think that’s going to continue – to think as 1 billion plus opportunity there.

And more importantly with the ACE replacement we've been up selling things like application firewall products in areas like that and security is probably our biggest opportunity with the new modules that we've bringing out that have been successful with ASM the firewall application firewall with APM and Access Policy Manager for mobile devices access policy management across applications and then a new application Advance Firewall Manager with the traditional firewalls that runs faster than anything that's out there in than the traditional firewall space and as a software add-on as well we have lot of [pricing diversity] with that.

And then lastly the service providers space with the new modules that we've been bringing out like the DPI policy enforcement module, areas like that (inaudible) agreed on that. And traffic LTE opportunity where we're seeing a growing demand for that opportunity is as LTE has been rolled out and the Diameter protocol is critical to that scenario.

And then finally I feel really good and I think that maybe somewhat misunderstood in the investment community, and I don't often say that but I think yet this is a case. But where we sit with that architecture roadmap, in particular application fluency and the fact that we can basically take advantage of that in terms of linking into SDN-type gateways areas like that, our orchestration and automation roadmap and already what we've produced in that with a BIG-IQ product which I think is -- probably going to be as important too as CMOS was in 2004 where we can basically integrate across software we can integrate the systems, a hybrid of both, and we can manage on premises, in the cloud and a combination of that and we feel really -- this is going to be very, very unique for us.

So generally I feel quite good about things at the moment.

Stan Kovler - Citi

I want to start off just going back over the last 12 to 18 months and talking about high level where the market has been, clearly the market growth has slowed somewhat, it's a really strong cycle in the market from around the time of recovery through 2011, early 2012. And more recently especially on the data center side of the markets growth has been little slow. Where do you think some of the more specific things, there has been a product cycle, I'm just [coming to that] part of it, but the macro side and the data center spending environment, what do you think was the cause of that?

John McAdam

Yeah, this is very subjective answer, certainly not really great answer but the best answer I can give, that certainly believing – actually if you look at the last year, there's no question, I don't think if anybody could argue that data center spending hasn't been great, and that's an across the board, big companies, small companies, you name it.

When we've been talking to customers and we're going to doing that tomorrow as well, a lot of the talk is about the feature architecture and obviously they've done virtualization, they've done data center consolidation and they want to now look at how they can take that step forward. Cloud is always involved in that discussion, software defines everything, it is involved in that discussion and I think that has probably caused some pause.

And how long that will last? Hard to tell, which is why we are focused on drivers of a real and can save money to the customers in the short term, I think that's the biggest reason.

Stan Kovler - Citi

And actually you've talked about this before also that the customers are trying to improve and change the way the consume IT and you mentioned some of that between cloud and maybe software declined. What do you think -- how you think (inaudible) systems to that – equipment?

John McAdam

And I should say, this cloud software defined everything, it's mobile, I should have mentioned that as well and it's security across all that. And when you look at some of the incredibly complex security attacks that are happening and can happen from the lack of controlled use over mobile devices or lack of controlled use over applications for anybody, any business entity, now you can download applications almost at will, and that's where we're really at.

So I think it fits perfectly into that, if you look at where we sit, we can basically, we fit in the data centers, the strategic point of control where incredibly applications (inaudible) more than any other product that's fitting in that data center and what I mean by that is we can tell it to Microsoft that but (inaudible) doing, it's slow we can tell if it's not running properly, we can tell if it could run faster, say in a different part of the globe. So you may get past to this point in the East Coast into West Coast, we've got a lot of capability of understanding that.

And then more importantly we can control it. So we can up move up (inaudible), so that we can move it up to the cloud, we can have firewall in front of that app, we can take it back on premises, we can hide it. I mean this is exactly what the customers are looking for.

From a mobile perspective APM access policy module which has been selling early well over the last couple of years and that has been accelerating. That's again with the absolute control, when all [radio] devices coming from, we know elements of better device, we can actually with the BYOD capability, low cost, certain part of that mobile device and more importantly we fit again in that gateway space, where we can do access to the applications and that's what could problem the customers about all the time in the mobile.

Stan Kovler - Citi

Traditionally, a lot of your software was hosted on hardware that you sold to customers. How much is that changing, how important are software additions and how bigger they become as part of your business?

John McAdam

Yes. We remember this and we don’t review the actual numbers of a [factory] of models [out]. Software is a big chunk of our business today. So we're not talking about any APM module or an ASM and an [AFM] and the category in that, and I could go on and on. They had all the software modules that have of course reduced functionality within the datacenter. So that’s a big chunk. Software of the core [CMOS] system, which is probably what you are referring to. I don't think we’ve given out the actual numbers but it is growing. They are growing at small percentage.

I think if you look at the industry (inaudible) they talked about it being on the [30 million] for I can’t remember if it was the last quarter or the quarter before that type of range. That’s a particular small chunk and of that we’ve got 25% of that market with huge development in to it. So we support all the high providers, all the big high providers. We had the fastest software division out there running on VMware. We are working on goals to get that up to 10 gigabits per second. But the (inaudible), one of those medium sized [bolt] system you can get 140 gig on this. So there is always going to be this hybrid need, but the combination of building orchestration and automation with a big [IQ] will allow us to drive more and more horizontal installations of the software. So it’s going to keep increasing there is no doubt about that.

Stan Kovler - Citi

In that same vein, how do you think that going software in the core business, software only, how does that impact your business model? What are you seeing from customers? Are customers buying just the software or are they buying a mixture of the solutions and if 10 gigabit’s really the sweet spot that you will get to towards the end of the year for this market to kick off in a big way?

John McAdam

No, I don't think the 10 gigabit is the driver. I think that’s a differentiator on the market because it looks, the market is going to happen this way, customers are - (inaudible) is happening. We’ve seen mostly hybrid type sales, mostly, we’ve $1 million plus software-only deal as well. What we’ve done there has been interesting is that instead of having an ADC, an application delivery controller, controlling multiple apps. We are seeing software reduction dealing with maybe one app and then may be scaling that one app. This is a pretty big deal and so at that trend I don’t see any colossal change in our business model as such. I think it will evolve overtime.

Stan Kovler - Citi

You mentioned $1 million deals and that’s something that you’ve talked about as drying up a little bit over the past couple of quarters. How much of that is related to just datacenter spending versus F5 specific product transitions and what can you tell us there?

John McAdam

Yeah. There is no question in my mind that it’s linked to the micro environment. How much is linked to an (inaudible) effect as well I don’t know, and we debate that internally a lot now, I mean in a sense attached to it. There’s got to have been some element of that I know in the past I feel bad that it probably has been. So it’s a really tough one to tell. But we did see and by the way it’s a year ago, it’s actually a year ago we’ve seen, I think only the first quarter of seeing that the number of million dollar revenue from million dollar plus deals going down. No it’s not been – it’s stabilized, it’s stabilized a bit, two or three quarters ago and the good news is from a comparison point perspective we are over that. But I think mostly that’s going to spending. (inaudible) effect is it’s so tough to tell, the customer, the link as we’ve talked about new product of the sales force doing it. There’s got to be some of that, I just don’t what the percentage of it is.

Stan Kovler - Citi

You have three large verticals that you talked about telco, financial and technology verticals that a lot of these deals happen and I am actually surprised that the government is not part of that equation and maybe you can answer part of that. But what’s going on in the technology verticals specifically, and is that where the deals maybe have dried up but they have kept pace in financial and telco. Can you talk about that?

John McAdam

We haven’t seen, we saw some drop in the technology about a year ago and it’s going to be lumpy because these tend to be bigger deals, you will see some lumpiness. But it has been fairly stable over the last three or four quarters.

Unidentified Company Representative

Technology has been quite stable over the last five quarters. One more thing, sorry just to interrupt, when you say that you know why the government’s part of it – can we talk about government sales.

Stan Kovler - Citi

Government’s also a vertical has large $1 million deals because you have talked the other three.

John McAdam

No absolutely Scott, absolutely.

Stan Kovler - Citi

A lot of these technology customers are actually changing the way that some of your perhaps enterprise customers are going to consume IT as well, they have cloud offerings and some of them have developed internal solutions. How has your conversations evolved over the past year with maybe customers that have gone in-house or that are also offering perhaps competing solutions on their own to as cloud services to enterprises.

John McAdam

We haven’t seen any of that. We have seen discussion, we have got a lot of discussions with customers who we will enable those type of architectures, there are a number of architecture where you basically can move resources around at will and optimize the way VMware that dealt with consolidation of server. But what we are talking about are very small, I mean two number of clients that have done their own thing and that tends to be in a non-legacy environment. We haven’t seen that anywhere in the enterprise.

Stan Kovler - Citi

Okay, just turning to your product cycle a bit, you mentioned that there is a vast installed base of products on the older versions and that all the refresh technologies has been out, what would say of the age of the installed based sales and how right are customers to buy them as solution?

John McAdam

If you look at installed base, this is not the equivalent to the old investment, so the previous generation and the generations before that, my mention is over (inaudible) of a generation before that with an average installed base to 6 - 6.5 years and so that’s I’d say (inaudible) that. So that’s clearly we think are up for grabs in terms of (inaudible). When we look at the previous generation and we are talking about an average of that, I think it’s about 2.5 or sort of [70,000] of them as well.

Stan Kovler - Citi

As you’ve been doing the work on your refresh, are you noticing that the length of time customers take to update the products is changing? Are they updating the products in a different way, meaning that they are adding modules [order] that the upgrade may come in software-only format, how is customer behavior changing in this cycle?

John McAdam

The behavior has been pretty typical with previous upgrades, where we see them reasonably quickly moving and we have been saying that as we have been introducing products during the year, we have been seeing (inaudible) happen reasonably well in the first two quarters and what I feel [reasonably] well similar to previous upgrades. We also software modular [pathway] going up too based on that. So it’s typically because of the performance, you can and we’ve even introduced more module as well. The combination of that performance sort of seeing that growing up.

Unidentified Company Representative

And you can write more module as you go down with that now as well. So if you buy our introductory platform in the 2000 at around multiple module, where as before it would only rank with couple.

Stan Kovler - Citi

What are some of the limitations of doing software only? What do customers still not get when they don't take your hardware or are we at a point now where software is fully capable on par of with hardware?

John McAdam

No, it's not, it really isn’t. Performance is the number one thing unless you have a pretty complex horizontal scaling module which is non-trivial to do, you need all orchestration and automation capability as I talked about there and you do limit yourself somewhat in terms of which applications are controlled by which ADC controller. So the performance is probably the big thing and then that performance bleeds in to areas like SSL encryption if you are doing that, to do that in software is much, much slower. I mean massive scale [distance] and if you look at how much of SSL what we do and our base is very significant.

So, there – who wants to go there, but I don't want to give the impression that we find the [resistance] or not. We have to find it to lead it, and we think that especially in orchestration and automation space, because in all our modules I talk about is not just team of all these modules that you will hear us talking about, you can buy them as a software-only as well as running on a specific hardware.

Stan Kovler - Citi

Are you not worried that some of the performance you are delivering, that’s a very low [edge], you mentioned that you can run multiple instances now in some of the lower app solutions and that performances to increase 5x in some cases on some of those. How much are you seeing of a cannibalization effect, if any that customers are substituting product versus before they design [higher]

John McAdam

By definitions when you do that you will see some kind of cannibalization in that (inaudible) I think that’s what we do. The trick is to make -- well, the trick is possible to have more solutions in the portfolio to [Denis’] point, a little more modules on the book and because each modules are not cheap, I mean this is real value add to the customer.

The other thing is as long as you got growth drivers like security, like a mobile traffic, then that tends to balance as well. Yes, you are always going to see some of that. In vCMP we can talk about it right. vCMP is going to run on the 5000 platform and above, but it doesn’t run all the way down as fast as well. So those customers want vCMP capability in the 5000, or 7000, or 10,000 platform and vCMP, there is multiple instances within the one book. So I think we are [virtualizing] our own product, the VMware with [Virtualization 7].

Stan Kovler - Citi

Is that what you’re seeing customers would like to take up across the borders or is the customers said like cloud only?

John McAdam

That’s a very popular, especially as you go up the higher range, whether they are filling architecture where you can have instead of having [100 Series] effectively got [100] sitting with (inaudible).

Stan Kovler - Citi

The telco business was something that was challenging for you in Q1 and then it came back, 31% growth, last quarter, quarter-over-quarter, but it was a bit flattish year-over-year, and you talked about this being a growth area. First of all, maybe, we can talk a little bit more detail on some of the drivers in the modules that you mentioned and how traffic has been, how much of that is driving the business at this point versus what the outlook is? And you just mentioned a little bit about the seasonality of the business, do you think that the performance in Q1 indicated that maybe the seasonality of the business is getting more pronounced as you become bigger in this protocol and maybe that was a factor for it?

John McAdam

Let me start with seasonality, because I am not sure that’s the case as always because it tends to be (inaudible). In fact, if you did the seasonality argument last quarter, did you talk in the last quarter when you say Q1?

Stan Kovler - Citi

Yes.

John McAdam

Yeah. So that was clearly a tough one in telco, but the year before was actually strong as we’ve seen one payment for the 3%, 7% of revenue, so it does not really seasonality. What you do see is projects on closing and we saw that in March. They started closing in April and hence you saw the good growth there. The reason what’s calling as a driver is the traffic, and traffic by the way still as the percentage of revenue is small, the bookings are growing. So that with traffic because it’s fairly long projects, there is milestones in the new business that we are effectively building backlog there, but the product is very competitive and we are winning some really nice deals in that space.

So I think that’s more forward looking. The strategy in (inaudible) now very clear, we basically -- it’s a consolidation strategy so we will basically go into service provider and say that instead of having a box for DPI, a box for grade, a box for traffic speeding, and a box for the firewall security products, we can do that within the one chassis.

We can reduce the number of boxes which you have. As you take the firewall functionality alone with the performance increases that we’ve got best traditional firewalls that set in the telco because I think security is probably the biggest opportunity for us in telco in the short term. We can talk about replacing multiple cabinets with just once chassis because of the performance of that product.

Stan Kovler - Citi

Just a follow-up on traffic, where do you think we need to be in the cycle of LTE deployment for traffic to really have sweet spot of revenue drivers?

John McAdam

I mean we’re there in terms of the opportunity, but obviously these have been installed over the next 12 months, two years probably, maybe longer. The way we price it is quite often linked to performance of transaction as you say. So as the transactions increase we see more revenue in that space, but as I say we have significant number of tenders going in right now and feel very good about the competitiveness of the product.

Stan Kovler - Citi

Some carriers were talking about adapting network function virtualization and new technologies and even software-defined, how is that impacting your business specifically with this vertical?

John McAdam

That fits really well into software strategy that we’ve gotten, orchestration is quite the one we talked about, the BIG-IQ product how can orchestrate across modules, across systems. Then the other area is that interesting enough is consolidation strategy that we have fits right into it. What they want to do is reduce the number of boxes, that’s effectively what they want to do and they are running just bare metal and they love to do that and that’s not yesterday but a consolidation strategy is so that resonates pretty well with them.

Stan Kovler - Citi

I think we can start getting for questions from the audience. I am going to ask one more, what are your ambitions in security, we’ve talked about security and telco and lot of other areas, but the biggest part of your security business now correct me if I am wrong is the application security module and that market tends to be a relatively smaller part of the overall multi-billion dollar security market, firewall market being the larger sweet spot of that. How do you fit into that larger piece of security market there, vendors who are primary security vendors, secondary security vendors that are use for other functions where do you see us how can react?

John McAdam

Yes, so at the highest level we see ourselves protecting the application, again (inaudible) application moved into, but we also believe that the ADC, the application delivery controller architecture is ideal for driving security, saving security threat. What we are seeing denial of service is a big opportunity for us. We won multiple deals in that space over the last six to nine months because our products can actually manage to protect against this fantastic performance effect that’s happening. And that’s clearly unique for the traditional firewalls just can’t with the aided performance that these numbers connect for second that this attach can happen, so we have been replacing firewalls in that space.

(inaudible) module has been very successful. I actually think the market is massive, it’s really linked by the fact there is really only two idea of sales and in parallel. I think it’s biggest company and had bigger market quite frankly because of what it does to protect against the application against very, very complex application attack. And so that’s been a great market for us. The APM, I mentioned the access we think that’s going to be strong for us and we continue as mobile devices and that more and more saving protection.

And the big one for us in the short term is Advanced Firewall Manager for, we reached the $2 billion opportunity in the traditional firewall space because we can, a, that will cost a lot less because we are softly running and we are getting eight to ten times of bonus and now we look and feel like the traditional firewalls so easily can sell product.

Stan Kovler - Citi

And do we have any questions from the audience?

Question-and-Answer Session

Stan Kovler - Citi

So I will keep going with the follow-up on security, what did it take for you to get to where you are today in advanced firewall module? And are there specific elements that you still need to add to go from $2 billion opportunity to maybe $6 billion opportunity?

John McAdam

What happened there was we started, as we were seeing denial of service attacks and it was back to areas like WikiLeaks when that was happening, the firewalls are falling over and we were putting our products in ADC products using iRules to actually protect the customer and that works extremely well. That became just it is a great market opportunity for us because performance will go up. So we basically have been developing, taking these iRules and the making it look what can actually firewall, what iRules are doing with protecting, basically iRules are creating access into ACL with that's in the product looks like a firewall. So that was the development.

We need to do a lot more development to increase capability, that’s a gain in our situation. So, most of that we've been driven by some customers at the moment to do that. So we've got passes a high, high priority just with everything that high priority for those going, those were on BIG-IP platform for automation. That's probably the main area that we're looking at.

Stan Kovler - Citi

And in terms of specific management of the system, are there areas, do you feel it's important go into more application oriented space on the side of the enterprise that sort of outward spacing. In other words, do you need to protect the certain web threats, something like your partnership with Websense, is that something that you want to continue to partner with on those types of specific features or do you think that over time that there's a need to build those into some of your core --

John McAdam

I think specifically on the Websense capability, we're happy partnering. I don’t know why we'd go up and develop something that’s fairly straight forward and not straight forward, but it's out there, exits. When we add more and more capability in terms of more, say like next generation type capability, everyone will do that and that’s definitely our plan overtime.

Stan Kovler - Citi

What do you think the timeline is for that?

John McAdam

Certainly, yeah -- we actually don’t have a specific timeline. We keep looking at priorities and make decisions based on opportunity.

Stan Kovler - Citi

I wanted to talk to you about the services business, I would say it's been growing, it grew about 30% in the fiscal 12. And the products were up 13% so far based on your guidance for fiscal 13, that's sort of looking it [will]. (inaudible) looking at consensus numbers what you are growing, but the services business is up over 20% this year as well and going in to next year, how do you think the slowdown in your product business can – is going to affect the services business? How coupled are they in terms of attach rates together?

John McAdam

They're very coupled, (inaudible) product revenue [excel] rate and is critical. We add some more cushion in our service business and I'll give you statistics like 6.5 average year and that gives you an idea of how it important all the products have still much incredible the customers, but now, it's critical for us that we increased our product revenue acceleration so that we see less of a decline in the services business and that’s our goal to do that.

Stan Kovler - Citi

So, in terms of your installation, I'd call it from following the same curve have products how much of that services businesses is tied to that six and half years average life base versus you've sold products every quarter and then those are tied to?

John McAdam

Well, you've mentioned that's pretty complicated but I mean, clearly that things to look at of the of the fed revenue balance which has been growing nicely and that’s very, very important. So I don’t think we're going to see a massive drop-off in our services business I mean the fed revenue is a key metric there and but we do need to get product revenue growth [going, yeah.]

Stan Kovler - Citi

Any questions from the audience, [second], among the front? Let's wait for the microphone for a second.

Unidentified Analyst

John can you just remind investors what's your current financial mile targets are and where the leverage is in the operations?

John McAdam

Yes. And I mean typically beginning on the October call, we will talk about next year’s financial target. And so we did that last year and we get some feeling on operating margin, what rings up and on GAAP operating margin what rings up within a stock compensation.

Unidentified Analyst

What was that range?

John McAdam

What did we actually say last October? The best advice, because we don't actually give as a number in terms of our guidance but what we do give on a quarter basis, and we've done it for this quarter, is we give a range of OpEx, we give rage of our product gross margins and we give the product revenue and so you can get it from that. But it's pretty much in range that you've seen over the last two quarters.

In terms of leverage, the leverage us is frankly is affected by hiring and so is more or less to the rate of hiring we do tends to have the given that we believe we can do a product revenue number from our service revenue numbers hiring tends to be the biggest dial in on that one. This quarter basically as we stated at the beginning of the quarter that we are going to be pretty aggressive in hiring and we will give an update on that in October.

Unidentified Company Representative

And we think (inaudible) reach [78] to 388 for revenue and if you look at the implied non-GAAP op margin it is a slight improvement from last quarter. So when you are new model that should improve a bit.

Unidentified Analyst

Where do you think you stand from a competitor standpoint versus Radware and just talk a little bit more about the competitive landscape as you guys shift from Cisco to others?

John McAdam

Yeah I mean we do intend to compete a lot with Radware especially in North America where we have a pretty dominant position there. Yeah I can understand that they have quite a good security DDoS type solution, but in terms of our core business the competition in not significantly. If you look at our competitive landscape, it’s basically most of our engagements come from Citrix competing with them. Our win rate is pretty high, it’s a high 80%, sometimes low 90%. I mentioned in the ACE opportunity that’s higher. Next is probably Radware, but it’s quite a big drop. In terms of competitors like [ADS] we compete with them and put down - for example in India they seem to do reasonably well there, but generally it’s not that significant to. I am not dissenting about [F5], it just doesn’t, we don’t see a lot of engagements with them.

Unidentified Analyst

There is actually a primary competitor of yours, A10 that settled their lawsuit with Brocade beginning of the year. Have you noticed any increasing competitive engagements there?

John McAdam

No we haven’t actually, as I am obviously well aware of that event that happened. But we haven’t seen - where they have been successful is Japan specifically with one of the large service provider company there. They definitely compete a lot on price, but we haven’t seen any significant rise in the competitive landscape there over the last nine months.

Unidentified Company Representative

Yeah and we see them with (inaudible) appointments, but we feel like our technology has definitely caught up to them and we are (inaudible).

Unidentified Analyst

I just wanted to follow up on competition. Can you may be vertical by vertical say in carrier and technology and some of these other in government perhaps, are there different competitors in each and what does it take to win a deal in these types of?

John McAdam

To some degree, yes, but not so significant way, so for example [Dennis] mentioned here about A10 had quite a good [notch], functionally (inaudible) we caught up to it, but they did well in Japan with that specific product. But if you look at technology is pretty much like the enterprise from a competitor point of view, you don’t see much difference there. The one difference – there is probably a significant difference as service provider and the reason for that is [sales prices] tend to be looking to intensify (inaudible) systems, so that is distance specific, distances A10 rather than have a chassis, some basic chassis about, you know its not a chassis that wants you to do the [vCMP] capability to redo it where we can basically do half an hour in one blade alone, half in another blade, move out to our own blade fields to keep running. So we get quite a significant high end strategic advantage in the service provider.

Unidentified Company Representative

Any more questions.

Unidentified Analyst

I just wanted to follow up on your common stock fiscal 8, what’s the behavior of customers as they upgrade to the solution we’ve talked about is for while and you did mention that there are hundreds of deals, but it seems like lot of the opportunity is still ahead. So how are customers actually going about these upgrades?

John McAdam

It depends. I mean some of the customers are doing it just by say project. So in other words, with the large organizations let’s say 40 and 50 organization and one of the projects is up to replacement to replace the project. And over time if you do that, the chance of that you replacing all that you have put that high. And then we have numerous examples for the customers of taking the decision that they are going to replace it and that could be pretty significant. Typically in the large customer, that’s what been happened overnight. We have scenarios where we are giving windows of opportunities says that we can or that may be opportunity to see okay, we're going to be replacing this geography or this application at this point. And then that we would have consultants to do that. So it's a fairly elongated process, which is a good thing I think, because especially we know we can see a flow business coming from that for a reasonable time scale.

And the other thing is based upon as well with simply more low downs and anything else so we had modules on. It takes a bit longer, because they maybe having AFM functionality on parts of those deployment.

Stan Kovler - Citi

And they do those upgrades as their deployment system or they deploy the basic functionality and they will take them a quarter or maybe a month to add some of the modules have the work approved.

We have three questions that everyone is interested and the reason for that all companies. How would you characterize your visibility versus a year ago or quarter ago? Is it better, worse or the same in both periods?

John McAdam

I think the visibility wasn't much because actually it was a tough quarter for us and it was a tough quarter for a lot of people, but I think it was exaggerated because since we have (inaudible). So from that, but I mean that's probably best time you get and we basically focused in the quarter and we don’t update the quarter and we do base and close rates. I think we said close rates that we're assuming for this quarter were near similar to Q2 and the Q3 (inaudible).

Stan Kovler - Citi

And the other question was in terms of the potential for productivity gains versus year ago or quarter ago, is it better, same or worse, you mentioned that you’re hiring?

John McAdam

More importantly from a productivity perspective when we introduced, when we do a major product refresh and we do, we introduce much more functionality, we're looking for productivity again and so we do that. History has shown we will get that. so I think it's better basically happy answering that question.

Stan Kovler - Citi

And final question, any update on your potential use of cash, what's your priority of buyback, dividends, acquisitions?

John McAdam

Yes, we discussed this on every Board’s agenda. We actually do a 10b5-1 each quarter that the Board agrees to as being buyback. So probably is what the way is going to continue.

Stan Kovler - Citi

Alright, that’s it for us. So thanks for coming. Appreciate it. Thank you.

John McAdam

Thanks.

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Source: F5 Networks's CEO presents at Citi 2013 Global Technology Conference - (Transcript)

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