Good afternoon, and welcome to the F5 Networks' Second Quarter and Fiscal 2018 Financial Results Conference Call. At this time, all parties will be able to listen only until the question-and-answer portion. 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. Jason Willey, Director of Investor Relations. Sir, you may begin.

Thank you, and good afternoon, everyone. As the operator said, I am Jason Willey, F5's Director of Investor Relations. Francois Locoh-Donou, President and CEO of F5; and Andy Reinland, Executive VP and CFO will be speakers on today's call. Other members of the F5 executive team are also on hand to answer questions following the prepared remarks. If you have any questions after the call, please direct them to me at 206-272-7908 or j.willey@f5.com. A copy of today's press release is available on our website at www.f5.com. In addition, you can access an archived version of today's call from our website through July 25, 2018. You can also listen to a telephone replay at 800-925-8051 or 402-220-3075. In today's call, our discussion will contain forward-looking statements, which 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 on 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. I will now turn the call over to Andy.

Thank you, Jason. Q2 was a quarter of solid execution. We continue to see growing momentum with our software offerings, particularly solutions for multi-cloud architectures, and our Services business delivered another quarter of strong revenue and profit. Second quarter revenue of $533 million, up 3% year-over-year, was above the midpoint of our guided range of $525 million to $535 million. GAAP EPS of $1.77 per share was above our guidance of $1.66 to $1.69 per share. Non-GAAP EPS of $2.31 per share was also above our guidance of $2.24 to $2.27 per share. Product revenue of $238 million in the second quarter was down 1% year-over-year and accounted for 45% of total revenue. Software in Q2 was 15% of product revenue and was up 28% year-over-year. Systems revenue declined 5% year-over-year and made up 85% of product revenue. Services revenue of $296 million grew 7% year-over-year and represented 55% of total revenue. On a regional basis, Americas revenue grew 1% year-over-year and represented 55% of total revenue. EMEA revenue grew 8% year-over-year and accounted for 26% of overall revenue. APAC revenue, which accounted for 14% of the total, grew 2% year-over-year, and Japan at 4% of total revenue decreased 6% from a year ago. Sales to enterprise customers represented 66% of total sales during the quarter. Service providers accounted for 21% and government sales were 13%, including 5% from U.S. Federal. In Q2, we had five greater-than-10% distributors: Ingram Micro, which accounted for 17% of total revenue; Tech Data accounted for 12%; and Arrow, SYNNEX and Westcon, each accounted for 11% of revenue. Moving on to our operating results. GAAP gross margin in Q2 was 83.2%. Non-GAAP gross margin was 84.6%. GAAP operating expenses of $300 million were within our $296 million to $306 million guided range. Non-GAAP operating expenses…

Thank you. We will now begin the question-and-answer session for today's conference. Our first question comes from Jason Ader from William Blair. Jason, your line is now open. Jason N. Ader - William Blair & Co. LLC: Yeah, thank you very much. And, Andy, wanted to wish you my best, and it's been fun working with you over all these years. So, good luck in your next chapter.

Thanks, Jason. Same. Jason N. Ader - William Blair & Co. LLC: So, my question really is on the – I guess it looks like you're seeing some pick-up on the product side. And maybe it's a combination of infrastructure refresh and some momentum in software. I guess, firstly, is that leading to some larger deals? And it sounds like there may be some ELAs that are starting to get pretty chunky. And then, why do you think you didn't see more infrastructure refresh last year when you had iSeries just coming out and the rest of the industry seemed to be experiencing more refresh? Why do you think there has been this lag? François Locoh-Donou - F5 Networks, Inc.: Hi, Jason. Thanks for the question. I'll start with the latter part. I think what we've seen last year is a number of customers who were considering or reconsidering their architecture, especially looking to move towards a multi-cloud environment and trying to figure out how much they would deploy in hardware, how much they would deploy in software, what would be in public cloud and private clouds and so forth. I think we talked about it last year, saying the decision cycle in some cases was causing some pause in their decision-making. I think to a certain extent that still exists, and we still see that dynamic in the marketplace. But I think we see also a number of customers that have kind of made their decisions on their architecture. And therefore, they're moving forward on their decisions. And whether it's ELAs in software or some hardware deployments, they're just moving forward. So I think that's the dynamic we're seeing in the market. I think in a number of cases we also see customers who have waited to make these decisions. But application traffic and the pressures on traffic kind of catches up with them and, at some point, they have to move forward and make their decisions. So, that's the dynamic in the market. In terms of ELAs, Jason, that's an offering that's only been in the market for us for really only a couple of quarters. And we're really pleased with the traction that we're seeing with this mode of consumption. It just gives a lot more flexibility to our customers to deploy our technologies in a frictionless way across on-prem or public cloud. And both the initial traction and the initial deals that we're seeing are, in fact, pretty chunky.

And then, Jason, I'd jump in and add to your question around deal sizes. Overall, we saw our average deal size increase in the quarter over Q1. So, Q1, we were at $113,000, and that increased to right at $123,000. And we also saw in Q2 – for Q2, in particular, a significant step-up in million-dollar deals, which is, for us, a good sign of business, especially this early in the calendar year. Jason N. Ader - William Blair & Co. LLC: Is that contributing to the visibility for the second half? Is that part of it?

Yeah, I think in both François and my commentary, talking about momentum and talking with the salespeople, it's definitely a dynamic that we keep our eye on when we're assessing to make statements like that. Jason N. Ader - William Blair & Co. LLC: Excellent. Thank you, guys.

Thank you, Jason. And our next question comes from Alex Kurtz from KeyBanc Capital Markets. Alex, your line is now open.

Yeah. Thanks, guys, for taking the questions here. So, as the sales organization starts moving towards ELA type of sales processes and, obviously, introducing some multi-cloud products that are new to customers and to the sales org, do you see a need to change or to kind of re-factor how the sales organization goes to market or how it's constituted? Or do you feel like the folks that you have in place can execute like a VMware-type ELA consistently every quarter? Or maybe you just don't see ELAs becoming a big part of the business longer term and it's not an issue? François Locoh-Donou - F5 Networks, Inc.: Thank you, Alex. It's a good question. So a couple of data points, perhaps just to frame the context for this. Software revenues are about 15% of our product revenues today, and largely ELA's applied primarily to our software business. So just to frame how much of a play it has in our current business. In terms of the implications for the sales organization, I'd say, number one, we are largely going after our existing customers so that the same large enterprises and large service providers that have been customers of F5 are the customers that want to consume us in these ELAs. So, it doesn't require for our sales organization to find an entirely new set of customers. We're talking about providing a different consumption model to our existing customers. We have been preparing the sales organization for this, so it's really more about enablement, making sure that the team understands the intricacies of these commercial models, and also making sure we have the right incentives in place. And so at the beginning of this year, we put some incentives in place for our sales organization to make sure that it was attractive for them to sell and market these ELAs. And I think we're seeing the traction as a result of that.

Okay. Thanks. And Andy, it's a pleasure working with you and good luck with what's next.

Thanks, Alex.

Thank you, Alex. And our next question comes from Rod Hall from Goldman Sachs. Rod, your line is now open. Rod Hall - Goldman Sachs & Co. LLC: Yeah. Hi, guys. Thanks for the question. Yeah, first of all, Andy, great working with you as well and best of luck in the future.

Thanks. Rod Hall - Goldman Sachs & Co. LLC: I just had a couple of questions. One is Japan. The revenue rebound there was pretty substantial. So I just wonder if you guys could comment on the sustainability of that. Is that kind of more back to a normal level in your minds, or what's happening in Japan and how sustainable is it? And then the second question I had was just regarding the ex-Federal growth rate. That number kind of is up quarter-on-quarter, which looks a little bit better. So, I'm just curious what you think the trajectory of that non-U.S. Federal Government revenue looks like through the course of the year. Thanks. François Locoh-Donou - F5 Networks, Inc.: Thanks, Rod. I think I'll take Japan and Andy will talk to the Federal piece. Yes, so in Japan, I think generally you should look at that revenue as pretty stable. It's still a relatively small business in the overall picture of F5. So, you may experience a little bit of lumpiness quarter-to-quarter there. But what we're seeing right now, the momentum is pretty stable. I think there were some – cloud providers were perhaps a little late to the Japanese market relative to other markets and we're seeing actually a pickup in demand there with this multi-cloud strategy as well.

And then to the Government question, if you set Federal aside, yeah, you're right. It would look like – outside of the U.S. and state and local, it looks stronger, and that's lumpy for us, though, it's hard when we look at non-Federal to really see any determined seasonality, and I think an element of it is lumpiness. Federal, on the other hand, which was okay for Q2, we definitely see the September quarter much stronger with the other quarters kind of around this level. So, that's what I would attribute it to. Rod Hall - Goldman Sachs & Co. LLC: Okay. Great. Thank you, guys.

Thank you. And our next question comes from Jim Suva from Citi. Jim, your line is now open.

Thank you very (27:36) much. Can you talk about how we should think about the quarter linearity for this calendar year, the products and services? Kind of how you think about the linearity of whether it'd be seasonal, up, down, any product launch, transitions? How we should think about the products and services and, I guess, also security for this year?

So, Jim, you're asking just how are we looking at the linearity this year and expectations for revenue through the year? I'll consider that yes. I mean, I still think the way we see our year lay out, and I don't think we've changed our view on this, is Q1, Q2 are usually slower part of the year for us. And then going in the back half, Q3, Q4, which is our June and September quarters, is where we see strength. And a lot of that is how the sales organization is incented, Federal in Q4. And as you can see in my comments, for Q3, we expect to get back to product revenue growth, which is implied in the guidance that we gave and we think that bodes well for going into Q4 as well. So, generally, that's the view of linearity.

Thank you so much for the information, yeah, that's what I was asking for. Thank you.

Thank you. One moment, please. Our next question comes from Simon Leopold from Raymond James. Simon, your line is now open. Simon M. Leopold - Raymond James & Associates, Inc.: First of all, Andy, congratulations. Best of luck wherever you head next. In terms of questions, two things I wanted to see if we could investigate. One is noticing the substantial deferred revenue, is it possible to quantify some aspect of the mix between software and services in that deferred revenue? I'm assuming that software is getting to be more significant within that. Can you help us quantify the mix?

Yeah, when you look at the deferred revenue, the vast majority of it today is maintenance contracts. So, you're right that it is building software and deferred related to that, but still the vast majority is the maintenance contracts. Simon M. Leopold - Raymond James & Associates, Inc.: Great. Appreciate that. And I wanted to see if we could delve a little bit more deeply in terms of the security mix. My impression is that WAF is really where you lead and sort of where you get much of the attention. I'm not necessarily trying to get a strict break down. But is your security-related revenue strongly dominated by the WAF products or is there a good traction in terms of identity, SSL? I'm looking for some idea of how we should think about the drivers. And in terms of the security market, certainly coming out of RSA last week, it sounds like expectations are that this particular market overall is getting better growth. Are you seeing better growth in security than what you anticipated just three months ago? Thanks. François Locoh-Donou - F5 Networks, Inc.: Simon, I'll take that. So first of all, no, I would say our security traction in revenues is not just on Web Application Firewall. It's actually broader than that. We're getting a lot of traction in identity and access management, as an example, in SSL orchestration, which we've talked about; also in DDoS, with the introduction of our DDoS Hybrid Defender. So, there's a broad range of products that we introduced actually in our Q1 that are getting strong traction. We are talking about WAF in part because we introduced an Advanced WAF product that is very differentiated in the marketplace and allows us to extend our addressable opportunity, because it addresses a number of use cases we weren't addressing before, including things like layer 7 DDoS with machine learning and behavioral analytics, or preventing credential theft and abuse, which essentially we're the only vendor who provide these capabilities today. And so, we're highlighting that introduction, but the traction is pretty broad. Overall, in terms of growth in the security space, I'd say, we did expect to be growing in this area. We have said it was a strong driver and it continues to be a strong driver, and will be in the second half of the year. Simon M. Leopold - Raymond James & Associates, Inc.: Great. Thank you for taking my questions.

Thank you. Our next question comes from Ittai Kidron from Oppenheimer. Ittai, your line is now open. Ittai Kidron - Oppenheimer & Co., Inc.: Thanks. And, Andy, let me add my congratulations and good luck to you. It's been a pleasure. As to my questions, I wanted to focus on the software part of your business. Is there a way you can, if not actually quantify, at least qualitatively talk about how much of that revenue is split between Virtual Editions, Silverline, your as-a-service business and cloud consumption? François Locoh-Donou - F5 Networks, Inc.: Ittai, we'll try and give you some pointers here. I would say, first of all, a majority of our software business is in the Virtual Editions. But a growing part of the consumption of the Virtual Edition is across multiple clouds, including consumptions of Virtual Editions in the public cloud. And so today, our customers buy Virtual Editions for on-prem deployments, but they also buy them to instantiate them in Amazon, or Azure, or Google's public clouds. And that's a growing part of the software business. The other factor, which is going to be, I think, an accelerating factor in that, is the introduction of our Cloud Edition today, really makes the consumption of Virtual Editions in the public cloud a lot easier; A, because it provides a lighter weight Virtual Edition to be used on a per-app basis. And a lot of folks who want to deploy in the public cloud want to do it on a per-app basis. And, B, because we provide with the Cloud Edition a centralized orchestration mechanism that allows customers to turn Virtual Editions on and off, or even to scale the deployment of Virtual Editions across multiple clouds, or across on-prem and public clouds. So, it's a big catalyst…

Thank you. And our next question comes from Mark Kelleher from D. A. Davidson. Mark, your line is now open. Mark Kelleher - D. A. Davidson & Co.: Great. Thanks for taking the questions. Andy, congratulations, let me add mine as well. It's been great working with you. I wanted to ask about Silverline, specifically. Can you talk a little bit about how important that is for your sales effort and how big that's growing? And then, along those lines, as your model changes a little bit to more software, more security, how's the competitive environment changing? Who do you see as your challengers there? François Locoh-Donou - F5 Networks, Inc.: Mark, let me start with Silverline. It's actually linked to your second question. What we're seeing is key, both in the Web Application Firewall market and in the DDoS market, which is where the Silverline offering has been focused, is the ability to offer both an on-prem solution and, essentially, an off-prem scrubbing center solution is actually key for a lot of large enterprise customers. And beyond that, the ability for us to signal from an on-prem solution to a customer that they should divert their traffic to a scrubbing center on an automated basis is absolutely a key differentiator. And that's really what Silverline brings to the table, is we have this ability to offer on-prem and off-prem solution and very strong signaling between the two solutions. And that's really the differentiator between us and other vendors that are either purely in a cloud DDoS or cloud WAF space or purely on the on-prem space. In terms of software and security, I think I'd have to separate those two. In security, we compete with basically a number of players and it really depends on the use case and the type of solution. In the space of – in software, really, I think we have perhaps smaller competitors that have an interesting story around nimbleness and agility of deployment. But what we've seen is really what the customer wants is both the agility of deployment and a depth and breadth of features to support critical applications. And I think with the Cloud Edition, we're essentially the only player that really brings both of those things to the market for the first time and we think it's actually going to grow the addressable market for virtual ADCs. Mark Kelleher - D. A. Davidson & Co.: Okay. Great. Thanks. François Locoh-Donou - F5 Networks, Inc.: Thank you.

Thank you. And our next question comes from Jayson Noland from Baird. Jason, your line is now open. Jayson A. Noland - Robert W. Baird & Co., Inc.: Okay. Super. My congrats too. Andy, it's been quite some time. François, a question on stand-alone security and coming out of RSA, any incremental thoughts there. And then, what do you expect to see with the split between on-premise solutions and cloud-based solutions from F5? And then, Andy, as a follow up, job postings at F5 have doubled roughly year-to-date. Should we expect a hiring ramp later this year? And I'll leave it there. François Locoh-Donou - F5 Networks, Inc.: Jayson, couple of things. First, on the on-prem versus cloud offerings for F5, I think overall, the message I'd give you is that on-prem deployment for us is still the majority of the business, though, cloud deployments are growing relatively fast and certainly faster than on-prem deployment. The thing, though, for us that is the catalyst is that we're seeing – I would say, not a single one of the customers that I have spoken to in the last six months has articulated to me a strategy that was not a multi-cloud strategy. And so, every one of our customers has plans for evolving their on-prem architectures and potentially growing their deployment and doing some things in one or multiple clouds, and a lot of times they want to replicate their on-prem environment across multiple clouds. That's a big driver for us, because we're, I think, uniquely positioned as a vendor that supports both across their journey. Andy?

In line with our commentary about expectations for the back half, returning to product revenue growth, momentum in the business, yeah, the hiring is ramping up a bit. And we'll continue to manage it as we always have and watch the quarters unfold against our expectations on a week-by-week basis and adjust as we need to. But if all goes according to expectations, we should see hiring pick up. Jayson A. Noland - Robert W. Baird & Co., Inc.: Thanks, guys. François Locoh-Donou - F5 Networks, Inc.: Thank you, Jayson.

Thank you. And our next question comes from Jeff Kvaal from Nomura Instinet. Jeff, your line is now open.

Yes. Thank you very much. And I guess, François, to begin with you, could you help us understand a little bit with a little bit more resolution what the cadence of new products may be across the course of the year? We've got some now. You talked at your Analyst Day about some through 2018 into 2019. And then that may segue into the second part of that, which is you'd talked about share gains in both physical and virtual, and if you could update us on that, that would be wonderful. Thank you. François Locoh-Donou - F5 Networks, Inc.: Thank you, Jack (sic) [Jeff] (43:25). So, what you should see in terms of new products is – so we did announce some of the products in our App Protect portfolio and campaign in February, including the Advanced WAF. We are going to release the Cloud Edition at the end of May this year. In the second half of this year, you should see more security, new stand-alone security products from our portfolio come to market and we'll talk about that at the right time. And then, you will see also from us in the first half of 2019 some exciting announcements, generally, in the software space and cloud solutions. So I think over the next 12 months, we're bringing to market some new solutions that essentially extend our addressable market into new use cases. In the hardware space, we have released a new variant of our iSeries, I think both at the low end and at the high end, first iSeries with 100 gig capabilities, and we're seeing quite a bit of traction with that capability coming up because moving to 100 gig in data centers is – not just in our ADC category, but across a number of…

And repeating the software break out you gave at the beginning, we literally had a fire drill happening here. I just couldn't catch that. François Locoh-Donou - F5 Networks, Inc.: You couldn't catch the part on software, Jack?

The software split at the beginning. I'm so sorry. François Locoh-Donou - F5 Networks, Inc.: So, the software was 15% of product revenue and the growth rate for Q2 was 28% year-on-year growth.

Great. Thank you.

Operator, I think we'll take one more question.

Thank you. Our next question comes from George Notter from Jefferies. George, your line is now open.

Hey. Thanks very much and, Andy, best of luck to you. I wanted to ask about the product growth rate. Obviously, it's been a real improvement here from December to March to your guidance for June and the back part of the year. I guess the question, is there a way to sort of apportion that improvement in growth rate by the different variables here, the product refresh, growth in Virtual Editions, maybe it's ELAs or Silverline? Just bigger or smaller than a breadbox type of question, like where do you think the growth is really coming from? Thanks. François Locoh-Donou - F5 Networks, Inc.: Thank you, George. Well, if you recall, George, I think it was in our Q4 – at the end of our Q4 in the October earnings call, we shared at the time that we felt pretty good that we would return to product revenue growth in 2018. And at the time, we said the reasons were, number one, we had put the number of initiatives in with our sales organization in terms of some restructuring and some better alignment of our teams against some opportunities. And I feel John and his team have been executing very well against these initiatives and we're seeing that. Number two, we were also expecting to see traction with some new offerings we had put in place, including ELAs and subscriptions. And we are actually seeing that, and that's contributing. And then number three, the offerings that you're hearing, iSeries, what we've done on iSeries and the refresh, some of these new security offerings that we've put in place, all of these are catalysts for enhancement in product revenue growth. And we now have better line of sight to this than we did six months ago. So, all of the above are actually contributing, frankly, in line with what we felt would happen throughout the year.

Got it. Okay. Thank you very much. François Locoh-Donou - F5 Networks, Inc.: Thank you, George.

I'd like to thank everyone for participating today, and we look forward to speaking with you again over the coming months. Thank you, and have a good afternoon.

Thank you. And that concludes today's conference. Thank you all for your participation. You may disconnect at this time.