John Eldridge - Director of IR John McAdam - President and CEO Andy Reinland - Senior VP and CFO Dan Matte - Senior VP of Marketing

Troy Jensen - Piper Jaffray Jiong Shao - Lehman Brothers Samuel Wilson - JMP Securities Erik Suppiger - Pacific Growth Equities Matt Robison - Ferris, Baker Watts Rohit Chopra - Wedbush Morgan Ranjini Chandirakanthan - ThinkEquity Brent Bracelin - Pacific Crest Securities Jennifer Tennenbaum - RBC Capital Markets Cameron Cooke - Janco Partners Kim Martin - J.P. Morgan Bill Choi - Jefferies & Company Tim Long - Banc of America Securities Gabe Larry - Unterberg Manny Recarey - Kaufman Brothers Steven Freitas - BMO Chan Zhoi - WR Hambrecht

Good afternoon. Welcome to F5 First Quarter Financial Results. All parties will be on a listen-only mode until the question-and-answer session. Today's call is being recorded. If you have any objections, please disconnect. I would now like to turn the call over to Mr. John Eldridge, Director of Investor Relations. Thank you, sir. You may begin.

Thank you Angie, and welcome to our first quarter fiscal 2007 conference call. Speakers on today's call are John McAdam, President and CEO; Andy Reinland, Senior VP and Chief Finance Officer; John Rodriguez, Senior VP and Chief Accounting Officer; Julian Eames, Senior VP of Business Operations and Global Services; Tom Hull, Senior VP of Worldwide Sales; Dan Matte, Senior VP of Marketing; and Karl Triebes, Senior VP of Product Development and our CTO are also with us to answer questions following our prepared comments. If you don't have a copy of today's press release, it is available on our website www.f5.com. In addition, you can access an archived version of today's live webcast from the events calendar page of our website till April 25th, from 4:30 pm today until 5:00 pm Pacific Time January 25th, you can also listen to a telephone replay at 800-284-5340 or 402-998-1028. During today's call, our discussion will contain forward-looking statements which include words such as belief, anticipate, expect, and target. These forward-looking statements involve risks and uncertainties 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 in 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. Before we begin, I want to remind that F5 will host a meeting for analysts and investors at the Grand Hyatt in New York City on Wednesday, February 7th, from 8:00 am to noon. If you would like to attend this event and haven’t already registered, please contact Carolyn Burkhardt at 206-272-6590. If you have any questions regarding the meeting or today's call, please direct them to me at 206-272-6571. Now, I will turn the call over to Andy Reinland.

Thank you John. During the first quarter of fiscal 2007, we achieved revenue of $120 million, above our guided range of $116 to $118 million. This represents an increase of $8.3 million or 7% from the prior quarter and a 36% increase from the first quarter a year ago. Book to bill for the quarter was greater than 1. In the Americas, revenue grew 13% quarter-over-quarter and accounted for 60% of total revenue. EMEA revenue grew 6% sequentially and accounted for 17% of revenue. Japan, which accounted for 12% of revenue and APAC, which accounted for 11% were both down slightly from the prior quarter. Revenue from telcos and services providers was 20%. U.S. Federal accounted for 6%. We had two greater than 10% distributors, Avnet which accounted for 14.1% of revenue and Ingram Micro which accounted for 11.8%. Product revenue represented 77% of the total mix and service revenue was 23%. WAN optimization and acceleration revenue was $2.4 million, security revenue was $9.7 million. Before I go into expenses and margins, I wanted to remind everyone that our results are GAAP based unless specifically defined otherwise. For Q1, our gross margin was 78%. Operating expenses in Q1 were $66.4 million, within our guided range. Included in these expenses are $2.5 million in legal and accounting fees related to our recently completed options inquiry. Also, stock-based compensation expense was $8.1 million in operating expenses and $600,000 in cost of goods sold. Excluding stock-based compensation, our operating margin was 30%. Our tax rate for the quarter was 33%, below our 42% guidance. The difference was primarily due to a one time benefit as a result of the R&D tax credit reinstated by Congress. Our effective tax rate excluding stock-based compensation was 31%. Net income was $22.4 million or $0.53 per diluted share, above our guidance of $0.43 to $0.45 per share, reflecting our strong revenue results, as well as the benefit of our lower tax rate. During the first quarter, we continue to strengthen our balance sheet. Cash flow from operations was $46.8 million and we ended the quarter with $545 million in cash and investments. Reflecting the strong growth of our services business, deferred revenue increased 14% to $68.7 million at quarter end. DSO was 50 days consistent with prior quarters and our Q1 guidance. Inventories were $5.7 million. Capital expenditures for the quarter were $2.6 million, and depreciation and amortization expense was $3.6 million. We added 85 people in Q1, ending the quarter with approximately 1,155 full-time employees. Moving on to the outlook. For the second quarter of fiscal 2007, we are forecasting revenue in the range of $124 million to $126 million. We expect gross margin in the 77% to 78% range, including approximately $0.5 million in stock-based compensation expense. We expect operating expenses between $70.5 million to $73.5 million. This includes approximately $11 million of stock-based compensation expense. The increase in stock-based compensation expense reflects grants to executives and new employees. Annual grants to executives had been differed during the options enquiry. Going forward, we anticipate grants to executives and employees, with the exception of new hires to be awarded on the same day. Our target date for these grants is August 1st. We expect our tax rate going forward to be 39%. Excluding stock-based compensation, our effective tax rate would be 35%. As we stated on last quarters call, we expect to begin paying US federal income taxes during the quarter and estimate a cash payment of approximately $10 million. Our earnings target is $0.44 to $0.46 per share. We will continue to invest in the growth of the business, and anticipate adding between 100 and 120 employees this quarter. We estimate DSOs will be consistent with the quarter just ended, at or around 50 days. We expect inventory levels within a range of $6 million to $8 million. And we believe we will continue to generate cash flow from operations in excess of $30 million. With that, I will turn the call over to John McAdam.

Thanks Andy, and good afternoon everyone. I was very pleased with our start to fiscal year 2007. In Q1, we saw a solid sequential revenue growth in our three main product lines -- Application Traffic Management, Security and WAN optimization. Our core market, the Application Delivery Controller market continues to be very robust and represented approximately 90% of the quarterly revenue. From a geographic perspective, the America's led the way with a solid 15% sequential increase in revenue. EMEA also delivers sequential increase in revenue. Japan and APAC were down slightly from the previous quarter, though we expect to see a continuation of sequential growth in this coming quarter from Japan and APAC, and I will talk about that later in the outlook discussion. Our overall services business continues to grow from strength-to-strength, with total deferred revenue increasing by almost $9 million to almost $69 million entering the quarter. From a technology perspective, I believe, we continue to increase our competitive advantage, especially in our core Application Delivery Controller market. Our new flagship product, the BIG-IP 8800 has been released from data phase to manufacturing and will be available for customer shipments in this coming quarter. Along with the new high end 8800 platform comes a very significant new release of our TMOS operating system. This new version of TMOS comes with a wealth of new features and improved performance. Formal announcements of these technologies and popular training will take place during this quarter. This is our first release with the software architecture required from Montreal, including clustered multiprocessing technology. Embedding with the new high end 8800 platform, the clustered multiprocessing version of TMOS has enabled us to deliver leading edge performance and throughput, way ahead of our competitors. We have seen improvements such as 50% faster layer 7 performance over our coming high end 8400. We are also seeing SSL and compression throughput improvement of up to 100% with the new 8800. Clearly making it the undisputed leader in the marketplace today. In addition, the new software enables true virtualization allowing customers to create discrete partitions and administrative domain on a single system to manage central applications for multiple business units. I will not go into any more detail on our product roadmap as we intend to provide a comprehensive overview at our Investor Analyst Meeting in New York on February 7. However, I would like to mention another key product milestone that we achieved last quarter. As we have articulated in several previous calls, our overall solution strategy is based on the functionality, performance, and modularity of our TMOS architecture. Over the last year, we added software modules including Global Traffic Manager, Link controller, ASM or Application Security Manager, and WebAccelerator. Previously, these solutions could only have been implemented by purchasing standalone hardware appliances. We have also indicated our intention to add FirePass and WANJet, solutions running on TMOS. All of these solutions are products, which we acquired or developed internally. During the first quarter, we took a major step in a new direction with the introduction of our messaging security module MSM. MSM has been created in partnership with Secure Computing to deliver an anti-spam solution that will blowup unwanted e-mail at the edge of the network. MSM can eliminate up to 70% of spam e-mail before it reaches existing anti-spam systems. The BIG-IP MSM module leverages the reputation data from Secure Computing trusted source identity engine. This is very significant as it is the first time we offer the solution of top of TMOS, most of which was developed externally. We are seeing keen interest for the MSM solution and have already taken orders for the product. As far as the Q2 outlook is concerned, Andy indicated that we continue to see sequential growth in our business. The overall prospect pipeline remains very strong and each geography is forecasting sequential growth with Japan forecasting the strongest growth given the fact that is -- this is the financial yearend. Growth forecasting in Americas and APAC is more modest in line with typical seasonality. Included in the Americas forecast is the federal business, which we do expect to be down sequentially similar to last year. We also expect to see continued growth in our services business. As I stated in the last quarter’s conference call, we believe our core market in application delivery networking is very robust and currently has a number of growth drivers that should maintain growth opportunities throughout 2007. Trends such as data center consolidation, virtualization and service-oriented architectures in the enterprise, combined with the increased traffic with video, mobile and Voice over IP traffic in the service provider segment, all contribute to growth opportunities for our application delivery networking solutions. For that reason, we remain committed to our growth strategy and as Andy earlier, we're planning to add between 100 to 120 new members to the F5 team during this current quarter. I would like to thank the entire F5 team and their partners for their efforts in Q1, and with that will hand the call over for Q&A. Could we have Q&A please?

Thank you.

Thank you.

Troy Jensen, please state your company name and you may ask your question. Troy Jensen - Piper Jaffray: Yeah, Piper Jaffray. Good afternoon gentlemen. A quick question Andy, could you go over some of the guidance numbers again, specifically the stock-based option expense based on the operating lines?

Yeah, in the operating expenses, it is going to be $11 million of stock-based comp, and in COGS, it is going to be $0.5 million. Troy Jensen - Piper Jaffray: Okay gotcha. So if I run these numbers, can I assume it more towards the top-end of the range, so that gets to about $0.65 pro forma, does that sound roughly correct?

Yes, roughly. Troy Jensen - Piper Jaffray: Okay. Okay perfect. And then John, can you talk about the 8800, any sense that customers may have been waiting for that product at all or maybe give us some insight on how the 8400 performed in the December quarter?

Yeah, I mean when I talked last quarter about the beta test was going on. We had approximately 40 beta sites. So there is clearly an interest in the product. Whether they were waiting on not, I don’t think that’s a specific issue actually. And in terms of 8400, we did see good demand for that. We don’t give out the actual numbers by product, but we did see good demand, especially in the sort of Internet cum service providers market as well as the high-end enterprise. Troy Jensen - Piper Jaffray: Got it. Alright, gentleman, keep up the good work.

Thank you.

Thank you. Jiong Shao, your line is open. Please state your company name and you may ask your question. Jiong Shao - Lehman Brothers: Lehman Brothers. Thank you very much. A couple of questions, first question is on the stock comp as well. Could you just remind us how that will work? The vesting period for employees and executives and you say you're going once a year, you does that pro rata into every quarter and exactly how that work? And, you have only $0.5 million stock comp level this current quarter? Is that going to be sort at a level going forward or you think it may trade off or trend up? So, that’s the first question. And second question, I was hoping you can talk a little bit about your progress?

Yeah in terms of the stock comp, the increase -- in fiscal 2006 because of the enquiry, we didn’t give any stock awards, which is by the way restricted stock, I should say that, to executive. So, we actually did -- the Board agreed to do that last quarter, hence you are seeing the increase. We also give stock compensation for new hires, not for every new hire, but depending on the new hire position, so we do that. And that will clearly continue as we hire aggressively. It's typically done on an annual basis, as Andy said; it will be done in August 1st next year. What was the other question?

About, which we don’t update on future quarters John, but I would say that in my comments, I talked about that we anticipate awards going out on August 1, and we will just have to see how that effects the run-rate on the expense because there is number of variables of factor into that as you know as stock price variation, volatility, realization.

Thank you. Samuel Wilson. Please state your company name and you may ask your question.

Hello?

Thank you. Samuel Wilson, your line is open. Samuel Wilson - JMP Securities: Is the line open now? Hello?

It is there, we can hear you now, Sam Samuel Wilson - JMP Securities: Here we go, good afternoon gentlemen. Just, can you discuss linearity in the December quarter and generally how was in versus previous December quarters? And second, just give an update on the telco business, and what you are seeing there, and sort of just color around how that’s been proceeding? Thank you.

Yes so, linearity in the September quarter was 47%. And over the last couple of quarters, that’s been pretty comparable you look at year ago, and that was a pretty big improvement.

Actually, that’s 47% in the last month.

In the last month of the quarter. Samuel Wilson - JMP Securities: Got it.

In terms of the telco business?

Yes, Sam this is Dan. From the telco, we saw obviously a change from 25% in the previous quarter down to 20% this quarter, which was something we’d signaled on the prior call, when you are going into the holiday season that the service providers were locking down their networks, from that standpoint. But in terms of the applications that were being used for, we are really, really pleased with the types of penetration we are getting there. Seeing us being used in mobile data optimization applications lots of Voice over IP and its implementations in the cable area. So, overall, quite pleased with our progress in that vertical. Samuel Wilson - JMP Securities: Terrific. Thank you, very much gentlemen.

Thank you, Erik Suppiger, your line is open. Please state your company name, and you may ask your question. Erik Suppiger - Pacific Growth Equities: Good afternoon. Couple of things, first of, just on the stock comp, the $11 million, can you give us a break-out on how that would correlate with the three line items?

We haven’t done that Erik, we are looking to that, and we would make a decision later about how we are going to disclose the breakout, but I don’t have in front of me right now, and we haven’t given that out. Erik Suppiger - Pacific Growth Equities: Okay. Secondly, Europe has been a very strong performer for you in the past December quarters. It was up, but it wasn’t up as much this year. Is there anything going on in Europe?

Yeah, we did see a little bit of a slowdown in the UK actually. Nothing, we don’t think there is anything systemic there and in fact we expect UK to have a fairly strong business result this current quarter. But what we did see was less of the larger deals in the UK, and that did have some more of an impact. Erik Suppiger - Pacific Growth Equities: Okay. And then lastly, on a Telco front. Where do you think, we had was -- should we look at the previous quarter as it normally coming in at 25%? Or where do you think, we might want to start modeling that as we look forward?

There is a tough -- that’s tough to tell because all the aspects of our business are growing. But probably in the range of 20% to 25% is where it’s going to be sitting in the medium term. Erik Suppiger - Pacific Growth Equities: Any thoughts in terms of visibility, as we go into March? Do you think you might have a rebound? You said holidays cause a pause, do that comeback this quarter?

Nobody say by percentage, because that’s a tough call. But we do expect that Telco business to be up sequentially in this current quarter. Erik Suppiger - Pacific Growth Equities: All right, very good. Thank you.

Thank you.

Thank you. Matt Robison, your line is open. Please state your company name and you may ask your questions. Matt Robison - Ferris, Baker Watts: Congratulations guys. Question is how much cash from options?

From options? Matt Robison - Ferris, Baker Watts: Options exercise?

Yeah, it was just over $7 million. Matt Robison - Ferris, Baker Watts: Okay. Usual question. How many DevCentral users? The comparable number I guess is 11,500?

Yeah, Matt, this is Dan. It’s over 13,000 this past quarter, and also we had about 3,500 downloads of the iRule Editor, as well. Matt Robison - Ferris, Baker Watts: Okay. Is there or this maybe kind of a tough question, since you probably have a lot of mixed applications running on your new sales but, if as can you characterize how much your business in the core sales, you would attribute to the server proxy type of role versus more traditional load balancing?

I'll start and Dan can maybe give more detail, but the answer is quite significant. So in other words if you look it with usage model of the customers, as soon as you start iRules, as soon as you have any sort of iControl type capability, you are moving away from simple load balancing and you at looking application optimization and security, so I don't have an exact percentage, but we know it is pretty high.

Yeah, Matt, we did last quarter actually a survey of our DevCentral users and some of the results that came back were some indicators, as John mentioned, whose is using iRules and what percentage of the respondents were using it. And we found that over half had iRules in production on their systems out there. And, so those people certainly would be taking advantage of the higher level functionality and adding more and more value to apps as they flow back and forth across BIG-IP in that case.

The DevCentral guys would almost by definition the iRules uses everything

A lot of it.

Plus the other -- no complication for other extra that takes away from load balancing which is a software modules. So, any BIG-IP is typically running software modules is doing much more than load balancing. Matt Robison - Ferris, Baker Watts: In this part of your commentary, the Secure Computing was an interesting announcement you had in the quarter. What was - where should we expect you to go with other iRules applications like that, that you going to package up and productize to work with complementary equipment?

There are many -- so in general we are always looking at what sort of additional appliances we can in essence turn into iRules and execute on the BIG-IP, more on top of TMOS more precisely. So when we look at that, there are lot of different things, how do you measure performance, what additional things can we do for security, there are many, many areas that -- that we're looking at Matt to try and follow-up on that. Matt Robison - Ferris, Baker Watts: Alright. I leave the floor and try to get into some of that stuff later on. Thank you.

Thank you. Rohit Chopra, your line is open. Please state your company name and you may ask your question. Rohit Chopra - Wedbush Morgan: Wedbush Morgan. Just a couple of questions, if you could talk about the competitive environment and pricing? And then, maybe address the issue of use of cash? I think on the last call, you indicated that there was a report going to be presented to the Board and the Board was going to make a decision sometime in early January, so I thought maybe it'll be a good time to ask that question.

Yes. So first of all competitive landscape, really not seeing much change in the competitive landscape. If we are seeing any changes, we believe we are more competitive than we have ever been. I am talking specifically about the application delivery control market. We have -- with the new products we have been announcing, we've been leaving our competitors frankly in the dust. So no big changes there and that has had the impact you may expect in terms of pricing and gross margins as you could tell from the results, Andy talked about a very stable. We have indicated a number of times, but some of them are not labeled because we may want to use the flexibility moving forward. So I feel very good of competitive of our position. Regarding the use of cash, we had a very detailed discussion with the Board at the last Board meeting in January. We looked at number of options. We have actually decided certainly for the medium term not to take any action right now. The main reason is that we are really in a very, very fast moving market here. We think that continued expansion opportunities and growth opportunities and we want to keep maximum flexibility so that we can take an opportunity if it presents itself. So, we actually haven’t decided really not to take any action. Rohit Chopra - Wedbush Morgan: Thank you.

Thank you. Ranjini Chandirakanthan, your line is open. Please state your company name and you may ask your question. Ranjini Chandirakanthan - ThinkEquity: Good afternoon, from ThinkEquity. Just curious on the feedback of integrating FirePass and WANJet in the TMOS, what are customers saying?

The response we have gotten has been very positive with FirePass on TMOS because it improves its performance significantly in a number of ways from concurrent user count to raw throughput. So -- and we are not talking about like 2x, we are talking about order of magnitude. The feedback has been very positive with regards to that. Their main question is when do I get it. Ranjini Chandirakanthan - ThinkEquity: Got it, what about WANJet?

WANJet same thing. It does enhance performance. It also gives it a lot of capabilities to work with our enterprise management system. And, so that’s been very positive as well.

And we are going to pursue a lot of detail at the February 7 meeting. Ranjini Chandirakanthan - ThinkEquity: Okay great. And I guess just one last thing on the service provider market and competition. I know you have several partnerships with other telco vendor providers. I am curios if your competitors are doing the same thing, are they partnering with other or is it really just Cisco and Nortel with their own equipment in that area?

This is Dan. So I think it's still a primarily Cisco and Nortel in that area. We have really haven't seen any significant moves. Certainly in the past year with changes in partnerships and with other players out there, there are some older ones that have existed for sometime, but frankly we see those sort of dwindling in accordance. Ranjini Chandirakanthan - ThinkEquity: Thanks a lot.

Thank you.

Brent Bracelin your line is open. Please state your company name and you may ask your question. Brent Bracelin - Pacific Crest Securities: Pacific Crest Securities. Wanted to dig a little bit into the security business, it looks like this was a second quarter you saw a good sequential growth there. It looks like the best year-over-year growth in over a year. What do you think kind of is driving that? And could you talk a little bit about the pipeline in that market? And why you’re starting to see a rebound there?

Well first of all it’s mainly FirePass that is the growth factor, and we are slowly but surely starting to see more moves toward SSL, VPN and an access technology, which is obviously a good sign. And do you want to add any more specifics?

Yeah, absolutely Brent, so I think to follow on what John said FirePass certainly product improvements have driven a lot of the changes that we’ve seen just in terms of market adoption, in terms of where we are from a market share standpoints, and we’ve improved that significantly over the past four quarters, we are quite pleased with that. So, things keep margin along from that standpoint, as well as with some of the Application Security module coming on to that certainly helped us in the overall security areas.

Yeah. And mobile as I have actually mentioned this in previous quarter, mobile is definitely a big driver of the FirePass solution. Brent Bracelin - Pacific Crest Securities: Okay. Great. So, you won’t attributing the change to kind of a industry changes or changes in pricing? It sounds like those are all specific things to associate with the FirePass product itself?

Yes. No changes in pricing, but as Dan said, definitely changes in our competitive features. Brent Bracelin - Pacific Crest Securities: Okay. Great, and then, just one quick follow-up on the software module. Obviously, you spent some time to talk about kind of the MSN module growing interest in that. How would you gauge the interest in third-party software modules? Obviously, you don’t have to work with a lot of the third-party vendors. I mean, how willing are they to deport the TMOS and how much -- how long would it take to deport some of those modules to TMOS?

So again, this is Dan, Brent. From answer about the length of time question first. We’ve actually seen some examples where people frankly have been very surprised with how quickly they are able to get something across on to TMOS. Just the quality of the API that we have to be able to work with us, the software development kits, and all those types of stuff; you would have people say, I have budgeted a month, and it only took me about three or four days to get it done. So, that's great, in terms of the willingness to actually get something on top of it. So, lot of times people have solutions that are out there that customers will come back and say and like what your product does, but installing yet another appliance my data center is going to complicate my life, and make troubleshooting that much more difficult as another hub to my network, et cetera. So, we have actually a great vehicle to market, where some of these solutions and of course in those cases as well, there is a revenue sharing opportunity for them as well. So, I think lots of the incentives for them to cooperate with us. Brent Bracelin - Pacific Crest Securities: Great. Will look forward to ask you more questions next month.

Great. Thank you.

Thank you. Mark Sue your line is open. Please state your company name and you may ask your question. Jennifer Tennenbaum - RBC Capital Markets: Hi, this is Jennifer Tennenbaum for Mark Sue, RBC Capital Markets. Just the house-keeping question, the 8 million stock compensation, will you break that out between three line items on operating expenses or you are not going to do that?

Yeah no, we are not going to do that. Jennifer Tennenbaum - RBC Capital Markets: Okay. And then just could you talk about the federal government during quarter, what you saw there obviously it was up sequentially?

Yes, well federal government was 6% -- contributed 6% of the revenues which is pretty positive that’s sort of higher and especially after the financial year end in another words, 6% in the December quarter is a pretty good number. I did say by the way that we expect the federal business to be down in this current quarter. But overall, we think it’s a good market, it’s a strong market as probably very under penetrated actually, and we would over time expect it to be similar to the growth of the enterprise business. Jennifer Tennenbaum - RBC Capital Markets: And then, just in up on Europe, which countries did you see kind of perform the strongest, in this current quarter?

In Europe Jennifer Tennenbaum - RBC Capital Markets: Yeah.

Yeah. So, I mentioned that UK had a little bit of a hick-up mainly with some of the big deals. Germany was pretty strong, Scandinavia this countries was pretty strong, southern Europe was good as well. Jennifer Tennenbaum - RBC Capital Markets: Thank you very much.

Thank you. Cameron Cooke, your line is open. Please state your company name and you may ask your question. Cameron Cooke - Janco Partners: Hi, I was wondering if you could just, the $11 million on the stock comp was that pre-tax and then the $8 million was tax affected, is that correct?

The $8 million was the actual in our Q1; the $11 million is the expected in Q2. Cameron Cooke - Janco Partners: Okay. And then are those above the tax affected numbers?

No, they are pre-tax. Cameron Cooke - Janco Partners: It's okay. And average deal size in the quarter?

Pretty consistent with what it has been like approaching 160. Cameron Cooke - Janco Partners: Okay.

Averaging wise. Cameron Cooke - Janco Partners: Thank you very much.

Thank you.

Thank you. [Kim Martin] your line is open. Please state your company name you may ask your question. Kim Martin - J.P. Morgan: Kim Martin for Ehud Gelblum with J.P. Morgan. First, I wanted to ask about now that you are rolling out introducing I guess 8800 and also migrating the WANJet and FirePass on to TMOS. Are you seeing any customers delayed purchases, any lay in demand building there?

No, we really haven’t seen much of that and that’s a pretty historically we have been -- we have been good enough mainly because if you look at product line 8400 was best of breed in -- from a competitive nature. So, I don’t think that’s a significant fact in terms of delays. And certainly, we with WANJet to some degree, you could argue there is a belief in the sense that is not quite as competitive and not very clear last quarter. So, we are missing some competitive functionality that we will get with TMOS that Karl talked about like management capabilities. But I wouldn’t really call it delay more of the fact that we get more competitive. Kim Martin - J.P. Morgan: Okay, and then when you actually start rolling out the 8800, is that going to cannibalize the 8400, or do you think that allows you to penetrate a new market segment?

I think it’s more a new market segment. Kim Martin - J.P. Morgan: Okay.

Because it's part of a product range that’s already in place, it goes from a 1500 upwards 3400, 64, 68, 84, and now 88. Kim Martin - J.P. Morgan: Okay and then one more question on distribution. I think, I heard you say that Avnet was 14% of revenue, I haven’t heard Avnet on the distributor list before, and I also heard that I think GE Access come off, so can you talk a little bit about your distribution channels and how that’s changed?

There is a very simple reason for that. Kim Martin - J.P. Morgan: Okay.

So, this time, Avnet acquired GE Access recently. So that’s the reason for the change there. Kim Martin - J.P. Morgan: Thanks for reminding me of that. Thank you.

Its, alright.

Thank you. Bill Choi your line is open. Please state your company name and you may ask your question. Bill Choi - Jefferies & Company: Okay, it’s Jefferies & Company. First a clarification on the tax rate going forward. Is that 35% excluding stock options on a quarterly basis going forward or is that for the full fiscal year?

It’s the quarterly rate that we think will hold through the year. Bill Choi - Jefferies & Company: Okay. So, the annual might be more like 32, 33 something around that rate?

When you net -- it will be lower because of the one-time benefit we had this quarter, but I don’t know, I haven’t figured out exactly the annual rates. Bill Choi - Jefferies & Company: And so the rate that we still also use for fiscal ‘08 would be 35%?

Yeah, '08? Yeah. Bill Choi - Jefferies & Company: Okay. Now the 8800, just wanted to dig into that a little bit more here. You anticipate the Telco business to be up sequentially. I would imagine that Telco segment you are also including the general service providers web hosting companies. Is that largely due to 8800 becoming generally available?

Yeah, I think it’s larger than just what driven by that specific product. So the growth in that segment is, it would happen with whether the 8800 is there or not?

Now, having said that the 8800 is an ideal solution for that market.

Absolutely.

But we think the market -- the growth is there anyway for our solutions. Bill Choi - Jefferies & Company: Have you guys noticed you’ve been beta testing it for a while, so everyone has been anticipating the GA of this product, noticed any pent-up demand, order rate so far into it and then just looking at this product overall, what kind of pricing premium are you anticipate getting here as you said the pricing and generally what percentage of the enterprise will need this kind of high-end box? How important is it versus just having a good enough box and perhaps what happen to prices going forward in 8400 or you going to reduce it at 8800 as it comes on board? Thanks.

First of all what we’ve said is it finished beta is released to manufacturing, but we haven’t made the formal announcement of the product yet and we have a date for that, but that’s a date that will be made public when the day arrives and that's when we start training the press and we will also talk about pricing on, so we haven't done that yet. So, really we are not answering the question because that's all eminent and it's going to happen this quarter just we haven't specifically released the date. Bill Choi - Jefferies & Company: Any comment on the kind of the pent up demand you would anticipate on this product?

Look, it’s our flagship product. It's at high end of the range and we expect it be into the high-end enterprises and high-end Telco and we will make sales of that product, and I think it will pool the rest of the engine to the accounts well. But we're not, in terms of specific numbers, no, we are not going to give that. We have not done that in the past. Bill Choi - Jefferies & Company: Yeah, okay. Thanks

Okay, thanks.

Thank you. Tim Long, your line is open. Please state your company name and you may ask your question. Tim Long - Banc of America Securities: As we are going from 72-73 to 65, so could you just talk a little bit about -- is that all the head count addition that we should think about?

Interrupt, but we didn't hear the beginning of your question. Tim Long - Banc of America Securities: Sorry, I am sorry. The -- looking at pro forma numbers from December quarter to March quarter, it looks like 73 or so to 65, could you just quantify a little bit, is this is all pretty much all head count related or expecting a change in gross margin, first. And then, if you could just maybe just give us an update on status of Montreal as well, that will be great?

Go ahead. In terms -- when you say 73 the number that you dropped, are you talking operating expenses or-- Tim Long - Banc of America Securities: I am talking pro forma EPS and for taking out the stock option expenses from the GAAP EPS.

Are you also backing out legal from that, when you are looking forward? Tim Long - Banc of America Securities: No.

If you are looking at the increase in stock comp it has about a $0.20 effect on the EPS, so. Tim Long - Banc of America Securities: Yeah.

Yeah, so the guidance is -- our guidance is 44 to 46 on a GAAP basis so. Tim Long - Banc of America Securities: Okay. So on -- I guess the question is there on the GAAP basis, the downtick from this quarter is it all stock-option or is there anything on or is the headcount effecting the pure operating margin of the company?

Yeah and it’s primarily tax base, if you are looking it on a GAAP basis it’s the tax which is about $0.04 on stock-base comp. Tim Long - Banc of America Securities: Okay. And then on just Montreal?

I just call, I can give you quick update on last conference call, we had stated that Montreal would release manufacturing at the end of the calendar year and we are on schedule for that right now. So, we continue to make progress against that goal.

And we'll give you a much more detailed update on February 7th.

Thank you. Gabe Larry, your line is open please state your company name and you may ask your question. Gabe Larry - Unterberg: Thank you. Unterberg, nice quarter. My questions have all been answered. Thank you.

Okay. Thank you.

Thank you. Manny Recarey, your line is open. And please state your company name. Manny Recarey - Kaufman Brothers: Kaufman Brothers, good afternoon. Just one question, if I remember correctly on the -- your last conference call, you spoke about investments that you are going to make or did you see opportunity in the WAN optimization market and the effect it was going to have is lower your pro forma operating margin to from over 30% to under 30%. And this quarter the operating margin -- pro forma operating margin was about 30%. Just wondering if you can give any update on that? Do you still expect that to negative impact to happen?

Yeah, it’s our expectation that over the course of the year, we trend down to the high 20s, but I would clarify it by saying that it wasn’t specifically attached to WANJet specifically, it was broad opportunity across the organization our core market what will be WANJet as well as FirePass.

And obviously hiring a lot of sales and service people as well. Manny Recarey - Kaufman Brothers: Okay and then to big out performance in that in this quarter would be attributed to I guess the higher revenue?

Yes.

Yes. Manny Recarey - Kaufman Brothers: Okay. Thanks.

Thank you, Steven Freitas your line is open. Please state your company name and you may ask your question. Steven Freitas - BMO: Hi good afternoon it’s BMO. If my question is with several virtualization becoming more prevalent now, in enterprise data centers, I was wondering if you could discuss the complexity of load balancing virtual servers versus physical servers and in that Dane does the big IP natively load balance virtual servers today?

We actually, the big IP has been load balancing virtual servers for many, many years, I mean the fact that we are now applying this terminology virtualization, is independent of the capabilities the FirePass so, we don’t care if it’s a server, application, virtual servers it looks all the same to the big IP. And the fact to the matter what we are doing now is actually extending management capabilities to big IP the way to manage these different virtuals and virtual servers on the back end by different groups, as John mentioned in the administrative domains capabilities in his entry speech so. So, yeah -- so it’s something we natively have done, and continue to do very well. It’s one of our core competencies . Steven Freitas - BMO: Okay, very good. And then I guess on new platforms with lot of capacity coming on stream. Do you virtualize a partition capacity, can be a platform to that today?

We have capabilities like rate shaping that can virtualize by virtue or by different capacities or whatever you want to -- how you want to divide up the resources in the system. We can manage it based on again this rate shaping functionality. Steven Freitas - BMO: Okay. Very good. And then just finally on the security revenue. Could you break that out or if you haven’t already between FirePass and APP Firewall?

So, FirePass was 7.9 million this quarter and 1.8 the Application Firewall products. Steven Freitas - BMO: Okay. Thank you.

Thank you. [Chan Zhoi], your line is open. Please state your company name and you may ask your question? Chan Zhoi - WR Hambrecht: Hi, this is Chan Zhoi, calling in Ryan Hutchison from WR Hambrecht. Just wondering if you can breakout worldwide government versus U.S. government?

Yeah, worldwide was -- while total was 12% and federal was 6, so there is a little bit of state and local in that other six that is clicking in there. Chan Zhoi - WR Hambrecht: Thanks a lot.

Thank you. That concludes today question-and-answer session. I’d now like to turn the call back over to John McAdam for closing remarks.

Okay. So thanks everybody and hopefully, we’ll see a number of you in February 7th and if not, we’ll talk to you next quarter. Thanks a lot.

Thank you. That concludes today’s conference. You may now disconnect from the audio portion.