F5 Networks Inc (FFIV)’s First Quarter 2015 Earnings Conference Call Transcript

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Operator

Okay. Next question Brian White, Cantor Fitzgerald. Your line is open.

Brian White, Cantor Fitzgerald

John, I’m wondering when did the pipeline start to shrink for the quarter? When did you start to see the weakening? Your Analyst Day was obviously pretty upbeat so was this kind of late December phenomenon?

John McAdam, President and Chief Executive Officer

The pipeline itself didn’t shrink. In fact, when you start to see deals sweep you actually see the pipeline it create. What we saw was the pipeline deals that we were expecting to close not quite coming in and then slipping out into the next quarter. And that tends to happen towards the end.

Brian White, Cantor Fitzgerald

And could this simply be the phenomenon? We’re following up fiscal year-ends, we’ve seen this before. Fiscal year-end, you overshoot a little bit in the fourth quarter and then it takes away for the next quarter.

John McAdam, President and Chief Executive Officer

And that’s exactly when I said my script is we believe what happened.

Operator

Next question Michael Genovese, MKM Partners. Your line is open.

Michael Genovese, MKM Partners

Great, thanks very much. John, in the past, in some of the quarters when the million dollar deals have gone down, you’ve talked about that being indicator of macro. But this time what you’re really saying it’s seasonality. So if you can talk about that. Why you’re convinced there? And then secondly, is there an element of meeting a little bit of reset here coming a little bit lower? Is there any element here of this transition to kind of an on-demand, software in virtual model? Does that play any part in the miss from the quarter?

John McAdam, President and Chief Executive Officer

Right, so, by the way, they were in guidance in the quarter remember? And I know that’s not good because we tend to beat it, just to be clear. On the first part, you’re absolutely right. If you go back to 2013 when we saw a fairly precipitous drop in $1 million deal, we did talk about macro — referred to macro more than once in that case. And that is because when we looked at that, the forward-looking pipeline wasn’t anything as strong as it is looking today. So we’re seeing — this is a different scenario in our opinion, but we really believe this was more seasonality linked than anything. And a piece of Fed as well with us clearly some lack of transparency in Fed and will know with a little bit of budget, hopefully that will improve. There were the two things that we see, but as we look forward, we see a stronger pipeline with the higher percentage of factoring in that pipeline, hence I was not referring to macro. Second question was? Yes, translation from the software. No, we don’t see that. In fact, interestingly enough, these software deals that we see from the virtualization perspective or from an NFD perspective, these are big. These are actually pretty big deals as customers are horizontally feeling a closer application and therefore buying a lot of instances of the virtualization. So maybe overtime we’ll see that but I don’t believe that was an indicator this quarter.

Michael Genovese, MKM Partners

We just have one follow-up. With these large virtualization deals though, is there any change in the competitive landscape? Any new competitors that you don’t traditionally see competing for the deals?

Manuel Rivelo, Executive Vice President of Strategic Solutions

Michael, this is Manny. No, absolutely not, I mean what we’re seeing as we’re basically seeing the need depending on being the enterprise or service provider. Of course customers who want to go software-only architectures. In general, there are some newer competitors sometimes in the market but it tends to be the same classic competitors who have offered hardware version and the software version.

Michael Genovese, MKM Partners

Thanks so much.

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