Good afternoon, and welcome to the F5 Networks' Third 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, this conference is being recorded. If anyone has any objections, please disconnect at this time. I'd like to turn the call over to Mr. Dennis Melton, Interim Head of Investor Relations. Sir, you may begin.

Thank you and good afternoon, everyone. As the operator said, I am Dennis Melton, F5's Interim Lead of Investor Relations. François Locoh-Donou, President and CEO of F5; and Frank Pelzer, Executive VP and CFO, will be the 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 206-272-6078 or d.melton@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 In addition, you can access an archived version of today's call from our website through October 24, 2018. You can also listen to a telephone replay at 866-511-5155 or 203-369-1955. 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 Frank.

Thank you, Dennis. My name is Frank Pelzer, and I'm very excited to discuss with you today our fiscal 2018 Q3 results and Q4 outlook. Q3 marked a return to product revenue growth, as we had another quarter of solid execution and delivery of results. We continued 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. Third quarter revenue was $542 million, up 4.7% year-over-year and came in above the midpoint of our guided range of $535 million to $545 million. GAAP EPS of $1.99 per share was above our guidance of $1.79 per share to $1.82 per share. This beat was largely driven by strength in revenue, expense discipline and a lower-than-expected effective tax rate. Non-GAAP EPS of $2.44 per share was also above our guidance of $2.36 to $2.39 per share. In Q3, product revenue was $239 million, up 1.6% year-over-year and accounted for 44% of total revenue. Software was approximately 15% of product revenue and grew 24% year-over-year. Systems revenue made up approximately 85% of product revenue and declined 1.5% year-over-year. Services revenue was $303 million, up 7% year-over-year and represented 56% of total revenue. On a regional basis, Americas grew 3% year-over-year and represented 56% of total revenue. EMEA revenue grew 8% year-over-year and accounted for 24% of overall revenue. APAC revenue, which accounted for 15% of total, grew 8% year-over-year. And Japan, at 4% of total revenue, grew 4% from a year ago. Sales to enterprise customers represented 64% of total revenue during the quarter. Service providers accounted for 19% of total revenue and government sales were 17%, including 7% from U.S. Federal. In Q3, we had five greater than 10% distributors: Ingram Micro, which accounted for approximately 17%…

Thank you. We will now begin the question-and-answer session. Our first question comes from Samik from JPMorgan. Your line is open.

Hi. Thanks for taking my question. I just wanted to start off with a question on the restructuring that you announced today. How should I think about the payback on that kind of restructuring? Is it sort of the intention here let's say is to sort of improve margins on the systems product? Or how should I think about impact on the financials longer term? François Locoh-Donou - F5 Networks, Inc.: Thank you, Samik. Well, the first thing I'd say about the restructuring is that I genuinely don't like having to make these decisions because ideally and philosophically we would like to embark every employee that's been part of the journey with F5 into this exciting future that we're building with the company. The executive team has taken immense consideration on this because we know that we are making decisions that impact the lives of many of our colleagues and friends. That being said, we are very focused on the transformation of F5 into a multi-cloud application services leader, and as a result, there is legacy spend that we have that is less relevant for the future than it has been for the past, and we are shifting our focus to the growth areas of F5, and specifically, we are intensifying our investments into software and multi-cloud technologies, in new go-to-market motions, and also in building the necessary digital infrastructure that enables those go-to-market motions. And so today's restructuring is really not about cost-cutting. It really is about realignment of resources towards these areas and accelerating the execution of our strategy. In terms of how you should think about this action as it relates to long-term financial model, it's all very consistent with what we shared at our Analyst & Investor Meeting in March, and so this action has no implied change in our Horizon 1 and Horizon 2 guidance, so this is FY 2019, FY 2020 and also FY 2021, FY 2022.

Got it, got it. That's helpful. And then just a follow up, you mentioned that you're seeing good traction on your stand-alone security products. Can you maybe share any kind of metrics in terms of either customer count or anything like that so that we can track your progress on that front? And also, are your leaders thoughts that you can sort of pursue that opportunity organically or are you open to sort of looking at maybe bolt on acquisitions to bolster your capabilities on that front? François Locoh-Donou - F5 Networks, Inc.: Samik, I'll start with the latter part of your question. In terms of acquisitions I think we've touched on this before. I've said that I consider acquisitions to be a potential tool in the execution of our strategy as a technology company. If and when we find that there's an opportunity that makes sense, we will execute on that. And the key for me is that we continue to be disciplined in our investments, whether they be investments in organic innovation or potential investments in inorganic innovation in the future, that we take a very disciplined approach to both. And that's part of what you're seeing in our actions today. In terms of the tractions that we're getting with our new stand-alone security offerings, we don't disclose customer counts, but I can tell you that the new stand-alone security solutions that we have announced we have already won a number of customers with those including a number of customers that are net new customers to F5. And the thing that is for me a significant sign of the traction we're getting there is in a number of these deals we're winning with our SSL orchestration solutions or our Advanced WAF solutions, we are not competing with any ADC vendors. We're really only competing with traditional or next-generation security vendors and our win rate is very strong. As a good example of that is if you take our SSL Orchestration solution we've just released, it really is a use case that is absolutely critical to the security infrastructure, largely because most of the traffic now is encrypted, and sort of traditional security appliances are not very efficient at doing this encryption/decryption work in addition to the security service they have to offer. And so in this case, actually, F5's hardware, security hardware, is extremely efficient than encryption/decryption and we marry that with an intelligent policy-based chaining of security services. And that allows us to provide a service chain across the full security stack and really nobody else can do that. So that's just a great use case for how our stand-alone security solutions are performing and it is absolutely in line with our strategy to be the leader in application security.

Got it. That's helpful color. Thank you. Thanks.

Our next question comes from Sami Badri from Credit Suisse. Your line is open. Sami Badri - Credit Suisse Securities (USA) LLC: Hi. Thank you for the question. I was hoping if you could give us maybe potentially an attach rate of the software and security revenues to specifically hardware sales in the quarter. And if you cannot really specifically answer that question with a tangible number, maybe you could give us an idea of this trend this quarter versus prior year. And then I have a follow-up after that. François Locoh-Donou - F5 Networks, Inc.: Sami, I don't think we can give you an attach rate specifically. What I think we can share with you is two things. One is you continue to see growth in our software essentially in line with what we shared at the investor meeting, that software would grow in the mid-20s for the year and we're confident this is essentially where we're going to land. And that's true across both our software growth in ADC and our software growth in security. I think that has been the consistent trend over the number of quarters. The other thing we can share with you is a large number of deals, even in security, I would say, a growing percentage of our business even in ADC, sorry, is actually driven by security use cases. And so we don't break that out and we don't quantify that, but I'd say the traction in security is growing both in our ADC business as well as in our stand-alone security business. Sami Badri - Credit Suisse Securities (USA) LLC: Got it. Thank you. And then, at the Analyst Day, there were some comments alluding to an as-a-service product and the business model shift, et cetera. And I was hoping you kind of give us a little bit of an update around that and maybe any potential milestones or maybe just like a change of mind or anything like that? Could you just give us some color on that? François Locoh-Donou - F5 Networks, Inc.: Yes. Sami, we offer today a managed service where we essentially redirect traffic from some of our customers to scrubbing centers that are largely in Equinix data centers. And then, we perform a number of services in these scrubbing centers. And that managed service is Silverline and it continues to grow. We've added a number of customers again in the quarter. In addition to that, we did say that in 2019 we would be bringing to market a solution we call F5-as-a-Service, which is a – it's a complete self-serve model that would be hosted in a public cloud and would address all of the DevOps buyers that want to go to a pure public cloud buying motion. We remain on track for that solution in 2019. We haven't announced the date yet, and we will as we get closer to delivering on that. Sami Badri - Credit Suisse Securities (USA) LLC: Got it. Thank you.

Our next question comes from Alex Henderson from Needham. Your line is open. Alex Henderson - Needham & Co. LLC: Great. Thanks. I was wondering if you could just give us some qualified sizing around the growth rate in the security business. I know you don't want to break out the dollar value of it, but it would be helpful if you could at least talk about roughly what the rate of change in that business is. And then second, if you could talk a little bit about what portion of your business is coming from SaaS or cloud-related footprint that would be helpful as well? François Locoh-Donou - F5 Networks, Inc.: Alex, thank you. I'm going to disappoint you on both counts because I can't give you numericals. And it's not just that we won't, but let me start with security. In security, our business is both some stand-alone security use cases as well as security-driven use cases in our ADC business. And sometimes breaking that out is actually quite subjective on our part. And this is one of the reasons that we don't disclose that information. I can, on the other hand, share with you that security as a whole is one of the faster growing areas of our business. So it is growing faster than the aggregate revenue, if you will. As it relates to public cloud, again, we don't today – we may in the future, but we don't today purely break out public cloud revenues. Public cloud is actually the fastest-growing part of our business. And we continue to drive customers to public cloud, both buying their license and instant sharing it in public cloud or buying into our systems on a utility basis. I've shared that we're now billing millions of hours per quarter…

Our next question comes from Rod from Goldman Sachs. Your line is open. Rod Hall - Goldman Sachs & Co. LLC: Yeah, hi. Thanks for the question. I appreciate it. I guess I want to ask kind of a question about the progress of software again. But the real question I have is, when you guys think you might release some KPIs that would help us quantify this so that we can understand either maybe what proportion of product revenue the software sales are or some other KPI that you've got in mind that would help us track actual quantifiable progress on that strategy. So that's, I guess, one question. Another one is related to that, which is deferred revenue, which was flat quarter-on-quarter. And I guess we expect the software products to be pretty small at this point, but that deferred revenue suggests there's not a whole lot of movement in the direction of software yet from the point of view of the overall revenue. So I'm just curious. Is that true or is there a bunch of some more software deferred revenue in there than we think, and if we could see the breakdown, we would see more progress? Thanks.

Sure. Rod, it's Frank. Let me take that one. So, on the KPI question, I would say as the business becomes more material, we'll consider certain KPIs that you can continue to track. At this point we're talking about the growth rates that we've experienced in the business, particularly on the software side, as an indication of the strength that we're seeing in that business. I think on your second question on the deferred revenue, it was actually up I think close to 7%, 1.7% quarter-over-quarter but 7% year-over-year. And we talked about that's really still the continued strength that we've seen in the maintenance on the ELA side, and it's just a smaller portion of our total revenue. And so, it really doesn't have a major move yet in the deferred revenue piece. Rod Hall - Goldman Sachs & Co. LLC: Okay. Frank, can I follow-up? The other thing we noticed is APAC and Japan. The Japanese decline was lower. APAC growth is better. Just curious if you guys have any further color on what drove those continued changes and trajectory there. It seems like things are improving.

I think it's positive market dynamics, particularly in some emerging economies that we haven't necessarily had as much presence in before, particularly China and India. And so we were really excited to report that kind of growth, and I think we've got a really strong team that's executing quite well. Rod Hall - Goldman Sachs & Co. LLC: Great. Okay. I appreciate it.

Our next question comes from Jason from William Blair. Your line is open. Jason N. Ader - William Blair & Co. LLC: Yes. Thank you. François, in our VAR checks, we picked up some challenges with ELA pricing with certain large enterprise accounts. Can you talk about how some of the pricing discussions are playing out? I mean, it sounds like you're positive on the progress there. But are there some kinks that still need to be worked out? François Locoh-Donou - F5 Networks, Inc.: Hi, Jason. Let me start with the latter part first. This is the first year of us offering ELAs and subscriptions, and so no doubt there is an element of learning as we go through the first deals and kind of readjust this as we learn more and also as the volume of these deals continues to increase. That being said, there is not a particular challenge on pricing that we've picked up in those deals. In fact, if anything, if we just look at discounting levels, we think the discounting levels in these types of deals are less than in traditional perpetual software deals. So we're pretty encouraged by the early trends around what we're seeing in terms of customer adoption. So there is not a challenge specifically with ELA or subscription deals. Jason N. Ader - William Blair & Co. LLC: Okay. I guess what I was talking about is – what I meant by challenges is, we just heard that in some of the – there were some transactions where customers just pushed back on the pricing. So was that it was too expensive, not – it's consistent with what you said, that there's not as much discounting. So maybe we just maybe picked up a couple of isolated instances, but it sounds like you're feeling good about that learning process and adjusting as necessary. François Locoh-Donou - F5 Networks, Inc.: Yes, we're feeling very good about it, Jason. There's always an element of course of negotiation with our customers, but we're feeling very good about the pricing, but also the consumption model. Our ELAs are unique in that we allow customers to consume and add sort of consumption or throughput to their licenses during a period of time and then we true it up after that. And once our customers really understand the consumption model that we're giving in these ELAs, they realize there's tremendous value in these ELAs and the adoption is pretty strong. So if your question is, are we losing ELA deals because of pricing? The answer is absolutely no. Jason N. Ader - William Blair & Co. LLC: Okay. And then just one quick follow-up, did you say systems were down 1% year-over-year? Is that what I heard, revenue?

Yes, 1.5%. Jason N. Ader - William Blair & Co. LLC: Okay. And how did that compare to your expectations?

It was in line with our expectations. Jason N. Ader - William Blair & Co. LLC: That's it for me. Thank you, guys.

Our next question comes from James Fish from Piper Jaffray. Your line is open. James E. Fish - Piper Jaffray & Co.: Hey guys, thanks for the question. I just wanted to first ask on the competitive dynamics because we didn't hear too much about that outside of essentially the stand-alone security space. Can you just give us an update on the landscape there as related to the last question regarding pricing, and especially as it relates to some of the private vendors like Cloudflare and the recent announcement from Cisco and Avi Networks? François Locoh-Donou - F5 Networks, Inc.: Yes. Thank you, James. So on the competitive landscape we really like where things are going in the virtual ADC space. In particular, we're very happy with the traction we've gotten with our BIG-IP Cloud Edition. It's just been in the market for one month. We already have a substantial number of wins. And what's happening essentially James is we are offering things that have not been available in the market before. For the first time we are enabling applications teams to self-service on their ADC which is opening up new use cases. We're also for the first time enabling app teams to auto scale their solution. So for applications that are bursty, that's a very important capability, one of the companies I mentioned in the script is an online services company in Asia. They really purchased Cloud Edition because they have naturally a bursty traffic. They have a sort of seasonable demand to their solutions, and so our ability to burst the capabilities and for them to really pay for only what they're using is absolutely critical. And all of that we're offering at the lower total cost of ownership than a traditional VE. And so customers have not…

Our next question comes from Catharine from Dougherty. Your line is open. Catharine Trebnick - Dougherty & Co. LLC: Thanks for taking my question. Just one question on the service provider market, François. What are the opportunities you're really targeting in 2019? Your revenue's been hovering about 19% to 21% aggregate. And I'm just curious of what you think the opportunities are going forward in the carrier segment. François Locoh-Donou - F5 Networks, Inc.: Thank you, Catharine. So I'll speak a little bit short-term and longer-term. In the short run, we continue to see a great traction with security, firewall solutions, carrier-grade firewall solutions especially in the service provider market, because the increase in traffic – in mobile traffic in particular, requires the scalability that our hardware, specifically our VIPRION solutions provide. And so that's going to continue to grow. And then, there's a number of use cases that are pretty immediate short-term that are also driving demand for our hardware, things like IoT with their high transactional-type applications drive significant demand for our hardware in the carrier space. If we take a more of a longer-term perspective, a number of carriers are looking to virtualize their infrastructure. And the more they move to virtualization, the more they need solutions for, a) traffic management and, b) security. Those two challenges become more important as they virtualize their environment. And F5 is a leading player in both areas. And so we're taking really more deliberate steps and more strategic investment in these areas as evidenced by us bringing onboard James Feger and some of the announcements we've made around what we're doing in the NFV space really to make sure we are aligned with these 5G architectures, with these virtualized architectures, because our customers are asking for more from F5 as…

Our next question comes from Mark from D.A. Davidson. Your line is open. Mark Kelleher - D.A. Davidson & Co.: Great. Thanks for taking the questions and congratulations on the year-over-year product growth. I want to ask about that. Have we reached an inflection point where that number should now be increasing each quarter? Another way to ask that, is the software growth now sufficient to outgrow the decline in the systems business? François Locoh-Donou - F5 Networks, Inc.: Well, Mark, a couple of things. One is I think we are – our view is unchanged from what we shared with you in March that our expectation is that in 2019 what we will see – 2019 and 2020, it was said we would see low to mid single-digit growth overall that will most likely be low in 2019 and mid in 2020, in part, because of a, I'd say, small decline in the systems business and continued strong growth in the software business. All the indicators we've seen since March tend to validate that that is what I think we'll see in 2019. One needs to be careful about taking too much sort of conclusions from a single quarter because now that we're disclosing our software number, which is still a relatively – it's only 15% of product revenue, so it's still a relatively small number. Quarter-to-quarter that can be lumpy. We can see a high software growth quarter and a low software growth quarter, but when you look at it on an annual basis, the trends that we've talked are really going to continue. Mark Kelleher - D.A. Davidson & Co.: All right. And just as a follow up to some of the growth numbers, if we look at Enterprise, Service Providers and Government, if I did the math right, you had a very strong Government quarter, kind of offset the weakness in the other two, which is a reversal of the March quarter. What can we expect in terms of seasonality from those three segments going forward? François Locoh-Donou - F5 Networks, Inc.: So, Mark, again, I wouldn't take too much from the quarter-to-quarter iterations. Federal has a sort of natural cycle where we see typically stronger Federal in the latter half of the year and less in the first part of the year. Service Provider generally is a segment that's fairly lumpy for us, and I think not just for us but for most vendors that are in that space. I think North American CapEx in particular this quarter was a little soft. I think we're seeing that in our Service Provider numbers, but I wouldn't be able to predict to you where we're going to see seasonality in the Service Provider space. Mark Kelleher - D.A. Davidson & Co.: Okay. Great. Thanks.

Operator, can we do one last question, please?

Our next question comes from James from Morgan Stanley. Your line is open. Meta A. Marshall - Morgan Stanley & Co. LLC: Great. Thanks. This is Meta Marshall for James. Sort of following up on Catharine's question in the Service Provider business, typically that's been around 20% to 25% of the business. With kind of the enhancements that you've made, is there a target percentage of the business that you see being Service Provider? And then just second question, the EMEA business was kind of particularly strong. Do you think that that was some of getting past GDPR? Or was there a particular trigger? Or just weak compares? Thanks. François Locoh-Donou - F5 Networks, Inc.: Thank you, Meta. I'll start with Europe, we're pleased with the growth we had in Europe year-over-year. I think some of that – if you recall, we said last fall that we were making a realignment of our resources in Europe to address where we thought there was better growth opportunities, and I think to some extent we're seeing the benefit of that play out in the growth. And the team in Europe actually has executed very well over the last few quarters. We are cautious about Europe because we're still seeing – the macro uncertainty is not gone completely, specifically with the UK and Brexit. So we don't want to get too carried away with what we're seeing in Europe, but we're pleased with the performance this quarter and specifically the execution of our teams. In the Service Provider space, Meta, we don't have a specific target for a percentage of our business because over time we expect our Enterprise and Fed business to continue to grow, and we expect our Service Provider business to grow as well. The one thing I would say is in the Service Provider space, especially as you go through architectural changes, changes in the amount of business happen over a period of time. And right now we're making I think strategic and deliberate investments in that space that will play out over our Horizon 1 and Horizon 2, especially as it relates to NFV. Meta A. Marshall - Morgan Stanley & Co. LLC: Got it. Thanks. François Locoh-Donou - F5 Networks, Inc.: Thank you.

Thank you, everyone.

Yes, I'm sorry.

Oh, no. I was saying that's our last question. Thank you. Operator?

Thank you. That concludes today's conference. Thank you all for your participation. You may now disconnect.