John Eldridge - Director of IR John McAdam - President and CEO Andy Reinland - EVP and CFO Manuel Rivelo - EVP of Strategic Solutions

Jayson Noland - Robert Baird Ehud Gelblum - Citigroup Kent Schofield - Goldman Sachs Brian White - Cantor Fitzgerald Michael Genovese - MKM Partners Bill Choi - Janney Subu Subrahmanyan - The Juda Group Brent Bracelin - Pacific Crest Securities James Faucette - Morgan Stanley Catharine Trebnick - Dougherty & Company Tim Long - BMO Capital Markets

Good afternoon, and welcome to the F5 Networks First Quarter 2015 Financial Results Conference Call. At this time, all parties will be on listen only and for the question and answer portion, also today's conference is being recorded. If you have objections, please disconnect at this time. I'd now like to turn the call over to John Eldridge, Director of Investor Relations. Sir, you may begin.

Thank you, Brian, and welcome to our conference call for the first quarter and fiscal 2015. John McAdam, President and CEO; and Andy Reinland, Executive VP and CFO, will be the speakers on today's call. Other members of our executive team are also on hand to answer questions following John and Andy's prepared comments. If you have any follow-up questions after the call, please direct them to me at (206) 272-6571. A copy of today's press release is available on our Web site at f5.com. In addition, you can access an archived version of today's live webcast from the Events Calendar page of our website through April 22. From 4:30 p.m. today until midnight Pacific Time, January 22, you can also listen to a telephone replay at (888) 673-3568 or (402) 220-6431. During today's call, our discussion will contain forward-looking statements that 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 in our quarterly release and described in detail on our SEC filings. Please note that F5 has no duty to update any information presented in this call. Now I will turn the call over to Andy Reinland.

Thank you, John. Before I start my prepared remarks, I’d just ask you to be a little patient if pause I have been battling with cough so with that we’ll get underway. Sales in the first quarter of fiscal 2015 reflected the seasonality we normally see at the beginning of our fiscal year. And in general we saw fewer large deals this quarter compared to previous quarters. As a result revenue of $462.8 million was in the lower half of our guided range of $460 million to $470 million reflecting 14% year-over-year growth and down slightly from the fourth quarter of fiscal 2014. GAAP EPS was $1.21 per share, above our guidance of $1.10 to $1.13 per share. Non-GAAP EPS of $1.55 per share also exceeded our guidance of $1.46 to $1.49 per share. Both GAAP and non-GAAP results include a one-time benefit related to the retroactive reinstatement of the R&D tax credit for 2014 resulting in a benefit to EPS of approximately $0.08 per share on a GAAP basis and $0.07 per share on a non-GAAP basis. Product revenue of $240.9 million in the first quarter was up 10% year-over-year, down 6% sequentially and accounted for 52% of total revenue. Service revenue of $221.9 million grew 18% year-over-year, 6% sequentially and represented 48% of total revenue. Accounting for 56% of the total, revenue from the Americas was up 14% from the first quarter of fiscal 2014. EMEA which represented 25% of revenue grew 20% from the first quarter of last year. APAC accounted for 14% of revenue and grew 9% year-over-year and Japan revenue representing 5% of total, grew 3% from a year ago. Sales to enterprise customers represented 63% of total sales during the quarter. Service providers accounted for 23% and government sales were 13%, including 5% of total sales from U.S. Federal. In Q1 we have four greater than 10% distributors Westcon, which represented 17.5% of total revenue; Ingram Micro, which accounted for 16.7%; Avnet at 13.9% and Aero which accounted for 11.4%. Our GAAP gross margin in Q1 was 82.9%. Our non-GAAP gross margin was 84.1%. GAAP operating expenses of $251.1 million were within our target range $245 million to $253 million. Non-GAAP operating expenses were $222.9 million. GAAP operating margin was 28.6% our non-GAAP operating margin was 35.9%. Reflecting the onetime benefit from the retroactive reinstatement of the Federal R&D tax credit for 2014 are GAAP effective tax rate for Q1 was 34% and our non-GAAP effective tax rate was 32.3%. Turning to the balance sheet. Cash flow from operations was $186.4 million. In Q1 we repurchased just under 1.2 million shares of our common stock at an average of $128.70 for a total of $150 million, ending the quarter with approximately $1.17 billion in cash and investments. With the addition of $750 million authorized by the board for stock buyback at our most recent board meeting approximately $931 million remains authorized into the share repurchase program. DSO at the end of Q1 was 50 days. Inventories were $27.6 million. Capital expenditures for the quarter were $10.3 million. Deferred revenue increased 20% year-over-year to $680.3 million. We ended the quarter with approximately 3,945 employees an increase of 110 from the prior quarter. Moving on to Q2 outlook, based on the strength of our current pipeline including the return in the number of large deal opportunities and continued momentum from our key drivers. We anticipate sequential and year-over-year growth in the second quarter of fiscal 2015. Our revenue target for the quarter is $465 million to $475 million. GAAP gross margin is anticipated to be in the 82% to 82.5% range including approximately $3.5 million of stock based compensation expense and $2.7 million in amortization of purchased intangible assets. Non-GAAP gross margin is expected to be in the 83.5% to 84% range. As outlined in during our Q1 earnings call we anticipate an increase in stock compensation in Q2 related to the timing of our employee grand. As such for Q2 we anticipate GAAP operating expenses in the range of $255 million to $264 million including approximately $34 million of stock based compensation expense, and $0.5 million in amortization of purchased intangible assets. For Q2, we are forecasting a GAAP effective tax rate of 38.5% and a non-GAAP effective tax rate of 35.5%. These rates assume no reinstatement of the Federal R&D tax credit for 2015. Our GAAP EPS target is $1.07 to $1.10 per share. Our non-GAAP EPS target is $1.48 to $1.51 per share. We plan to increase our headcount in excess of 100 employees in the current quarter and we believe our cash flow from operations will be at or around $110 million reflecting the impact of two federal tax payments that we normally incurred during our fiscal second quarter. With that I will turn the call over to John McAdam.

Thanks Andy and good afternoon everyone. ALOHA Red new came in at the lower end of our guidance and I’ll comments on that in a moment. I was pleased with the significant progress we made in all our major initiatives. For example we have some very strategic sales wins in the service provide market. We had a very successful launch of Silverline our key components of our hybrid applications services strategy. We added significant functionality to our orchestration and management product BIG-IQ. Which was key to winning the strategic security wins and is also another component other hybrid applications services strategy. We also continue to make great progress with our SDN partnerships both in technology and in go to market initiative. From a sales perspective the majority of the shortfall are come from the Americas region where we experienced larger than expected drop in million dollar plus deals in both large enterprise and U.S Federal opportunities. We believe this was a seasonality issue due to a very large number of large wins closing during a fiscal year and Q4 drive. On a positive note the pipeline creation rate in Q1 was very strong -- I am sorry -- and was very strong and the time line for the quarter was very good. So I misquote a sentence here from the original. Japan business was also very -- was also below internal forecast but this was not a major factor overall. Both APAC and EMEA delivered year-over-year sales growth. The EMEA region was a star of the quarter and once again delivered an excellent performance with solid year-over-year growth. Our services business continue to deliver solid results and excellent profitability along with the healthy increase in deferred revenue which is now approximately $`680 million and should board well for future business. We continue to experience strong momentum with our Good, Better, Best sales motion in Q1 with customer adoption continuing to be very strong in the Best category highlighting the success we are achieving with our security solutions. I was also encouraged by the continuing strong growth of our software revenue which increased 44% year-over-year. The fastest growing area in our software business is our core virtualization ADC. Our software growth is being driven by the increasing customer demand for hybrid solutions that allow greater flexibility in the deployment of application services within and across datacenters and into the cloud. Our ability to provide our solutions as special software only offerings across all the major high providers combined with our unique orchestration functionality in BIG-IQ is enabling customers to move to software-defined data centers and NFV architectures. We are also seeing growth across the entire portfolio of our software module offerings driven by the rapidly increasing reorganization and ADC is ideal platform to ensure application security. Our security business continues to be a largest growth driver with strong sales across the security solutions portfolio including ASM, APM and AFM. I already made reference to strategic security sales wins in the service provider market. We won’t allow to AFM Gi firewall sales to Tier 1 service provider which resulted in two transactions in Q1 being over $1 million each in value. I have mentioned several times last year that our BIG-IQ security management and orchestration product roadmap was being influenced by our Tier 1 service provider North America. This initiative has proved to be very successful and we are now starting to see some real momentum globally with our Gi firewall solutions and we believe it can be a strong growth driver in fiscal 2015 and beyond. Overall we had a solid quarter in the service provider market in Q1. We had several very strategic wins over and above the Gi firewall deals. For example we when allows 2 million plus software only NFC application with another Tier 1 service provider in North America. Our consolidation strategy and focus on security NFC, Gi 1 services and LTE applications is resonating well with the service provider. As we offer them the opportunity to reduce OPEC while monetizing that added value services with our unique application and subscriber awareness. We continue to see strong sales of Cisco ACE replacements last quarter. As we have seen in previous quarters customers continue to take the opportunity to add additional functionality. For example, our AFM and our AFM security module when the implementing new F5 solutions. We have created a sales service web portal for ACE Migration which complements a significant experience and consulting expertise and increases our competitive advantage. Also we intend to step up our market initiatives on the ACE opportunities starting this quarter to take advantage of our current momentum and experience in transitioning ACE customers to F5 ADC solutions. We have experienced a very positive reaction to the launch of our Silverline hybrid application services strategy from our sales force, partners and customers. The initial launch included our subscription based DDoS service and our anti-malware and fishing protection service. These cloud-based offerings delivered flexible best-in-class services and offer a hybrid model complementing F5 on premise products and solutions. We have already seen some excellent orders for both our subscription based DDoS service and anti-malware solutions. We are planning to increase the portfolio of cloud-based subscription services starting with the vast AFM solution in the new few months. From a product perspective, we have a host of new functionality and new products on our control map. We have recently released a new high-end 2U platform the BIG-IP 12000. This platform extends performance of a content those in platform by 25% increases SSL performance by 600% and more than doubles the number of high performance vCMP instances The SSL performance is really important given the SSL effort we are trying to foresee. In the near future, we will be enhancing on management and orchestration capabilities with BIG-IQ release 4.5. This release will include significant enhancements to our datacenter security product, AFM, and ASM as well as comprehensive support for our SDN ecosystem to revise application monitoring capabilities with an SDN enabled network. The BIG-IQ cloud module now supports SDN controller integration with Cisco APIC, VMware, NSX, Alcatel Nuage, Microsoft SCVMM and OpenStack. We will also be adding a new module BIG-IQ ADC. BIG-IQ ADC provides centralized fine-grained application management across cloud-based SDN and traditional network infrastructure. The drivers of our business remain robust and I expect momentum to build in this coming quarter and continue into the second half of the year. Our hybrid application services based on our Synthesis architecture and Silverline Cloud Services is resonating really well with our customers and pop-ups. This strategy combined with the strength of our partner ecosystems in areas like SDN provide F5 with the opportunity to play a very strategic role as customers continue to strive the competitive advantage and maximum agility by moving to new technology architectures. Also our portfolio of application products and cloud services continues to expand aggressively which in term significantly expands an addressable market and increases the type of revenues streams available to our sales force and partner channel. As far as the outlook is concerned and the indications that we expect both sequential and year-over-year growth this quarter. As I mentioned earlier our business pipeline create rate was very strong in Q1 up significantly over the previous year and the pipeline of business this quarter looks very strong. In particular, we have seen a large increase in the number of large deals in the pipeline. We continue to plan for growth in the business by investing in headcount and infrastructure moving forward while delivering world class operating margins. I continue to feel very positive about future business prospects for F5. I believe that their existing product portfolio of hybrid application services strategy and our product roadmap are not only in line with the customer and market trends but are also key to enabling these trends. In conclusion I would like to thank the entire F5 team of partners and customers for the support last quarter and with that I will hand the call over for Q&A.

Okay. [Operator Instructions]. The first questions comes from Jayson Noland, Robert Baird. Your line is open.

John, any additional color on the large deals -- I know you said fast but is there a certain vertical you could call out and with complexity part of it just a confusion around architectural change or?

No, we obviously checked in a big way and really and this is sounding weird but really there was nothing complex that we could see. We just saw -- the more we looked at the pipeline going through the quarter you could see that the forecast deals weren't moving along as fast as they should -- that was -- this was only in the Americas by the way and the enterprise and then in Federal as well some. No vertical that stood out just generally across the board. And then we were not talking about a significant number of million dollar deals but they obviously make a difference.

And those didn't become smaller deals, they should got pushed out in to Q2.

Absolutely. Yes.

Next question from Ehud Gelblum from Citigroup. Your line is open.

Just one view clarify couple of things, John you talked about software 44% growth that was you were talking about virtual edition software as opposed to software?

So 44% was the total software and within that -- and that includes virtualization and that includes modules and areas like vCMP within the ADC solution. And the other thing I said was that the fastest growing was the virtualization ADC. However, the security module software is a pretty significant part of that growth as well.

Can you give us a sense as to of that how large is the security module part of that?

We don't give out that specific -- why -- because I don't have them to hand anyway but we typically don't give that out. But security you are going to hear me talking again a few times in the call and that still remains our biggest driver and I think that's going to be the case for a while.

Okay interesting I did want to drill down.

Because if you take the Gi firewall for example. You see that these were pretty significant deals and of course the security module ASM associate with it and that's pretty expensive.

I was trying to drill down little bit on some of the Gi firewall wins. You talked about wins in Tier 1 service provider for that. Can you give us a sense as to who you beat out I can guess I mean is this beating of Juniper, SRX or who you are beating out. And was this new opportunity that you brought in for or was this existing opportunity where you replace someone and the sale was if so was up for functionality features, can you give us a sense as to what that opportunity looks like?

Yes. So typically and the one that I was talking specifically on this call and we have seen Gi firewall deals over that one wave, the one I was referring to for U.S Tier 1 providers and nobody mentioned customer names of course. The $2 million plus Gi firewall deals was directly related to frankly I think it's about two years we've been working with this particular service provider on the orchestration road map so that’s easy, the initial orders and that opportunity that can be big obviously is only when we execute properly.

Can you be specific who you’d be down on that or it was an incumbent there?

I mean incumbent typically in the areas in the U.S. as Europe. It’s not always been that, some of the replacements that’s typically incumbent.

Okay. One last thing I want to ask services obviously were very, very strong, there is obviously a renewal period happens but between differ revenue and large company services is there any global connect we can get a sense on as to what meet the jumps that strong in services.

On the revenue side the jump was we’ve seen for a number of years clients go for terminus contracts 1st of January and the 1st of July. This quarter obviously ended with the 1st of January we had a very strong push and we’re able to recognize more revenue within the quarter and as far that push we build out the deferred revenue.

So January 1, haven’t you recognized it again in December quarter?

Because contracts end for January, when you’re trying get them renewal before that date and because the terminus some of the units have not been on support for two, three or four months so we get some back dated revenue there at the same time.

Okay. Next question comes from Kent Schofield with Goldman Sachs. Your line is open.

On the million dollar deal idea can you talk a little bit about it’s just seems like you’ve been talking a little bit more about large deals, is this a function of some of the new products, some of the bundling, is this just something that we should think about more going forward in terms of having these larger deals in the mix?

No, we don’t think so, I mean if you look at last fiscal year 2014 we saw a pretty significant rebound in the large million dollar plus deal every single quarter and obviously we saw a bit Q1 ending in December, and having said that we expect to see that rebound given what we’re looking at A, in terms of some of some of that slipped and B, the creation rate that we’ve done over in Q1 which was pretty solid. So we expect the million dollar numbers that strong again in the current quarter.

Okay. And if some of that closing the deals from the December quarter --

Exactly, some of that and some its new deals with -- I mentioned the pretty strong rate.

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

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

The pipeline is self-shrink -- when you start to see deals sweep you actually see the pipeline create, what we saw was the pipelines that we were expecting to close not quite coming in and then slipping at into the next quarter. And that tends to happen towards the end.

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

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

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

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

So, by there were only guidance in the quarter remember and I know that’s not good because we tend to just to be clear. On the first part you’re absolutely right, if you go back 2013 when we saw a fairly precipitous drop in $1 million deal we did talk about macro, more than once in that case and that because when we look at that the forward-looking pipeline wasn’t anything as strong as it is looking today. So we’re seeing here this is a definite scenario in our opinion but we really believe this was more seasonality link than anything. And a piece of fed as well with us clearly some lack of transparency in fed and will know that budget and there was were the two things that we see. But as we look forward we see a stronger pipeline with the higher percentage of factoring in their pipeline, hence was repairing from actual. Second question was? Yes, translation from the software. No, we don’t see that in fact interesting enough these software deals that we see from the virtualization perspective or from an NFD perspective these are big I mean these are actually pretty big deals as customers are feeling a closer application and buying a lot of instances of the virtualization. So maybe overtime we’ll see that but I don’t believe that was indicator this quarter.

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

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

And remember with these virtualization deals, we have the same concept Good, Better, Best we have modules we have all the competitive functionality we have we have in this software side as well.

Next question Bill Choi with Janney. Your line is open.

So on the larger deals again I guess, I am curious because there are so many things happening between hardware moving to also support virtual editions, timed with SDN, your product becoming more softer, again how much of this might be more products specific, the deal getting more complex. It does seem like the lot of new technology to think about and Cisco did have some weakness in its billings for the October quarter guys like VMware also had some choppy bookings, so I am curious as you look the complexity of products can you really attribute any of that to the complexity?

Really I don’t think we can and I just don’t think we can. It’s based what the deals that they have we understand them. They’re very similar because what we have in Q4 or we had a massive crucial with large deals, and we don’t see any changes in that landscape whatsoever.

And one of the factors that impacts growth rate was -- you’ve refreshed all of your product line little over a year ago so last year we enjoyed quite a bit of acceleration in growth rate with coming off of tough comp, are you seeing any impact from just the pent up demand maybe that was created from the product cycle and to things slowing down after people went ahead and did the refreshes, any thoughts on that as a driver?

You know, we thought but and if you look at the drivers and it's look through them again just to summarize but obviously product refresh we talked about there. It was a low hanging fruit at the beginning, it’s not quite yet at the moment probably, do we still have a very large installed base of products that we can refresh absolutely. So I think that area obviously 1200 with SSL capability I think is clearly at one point a product but it sells its capability that’s a pretty good opportunity to refresh as well. But the big drivers of security was a firewall that we talk about at ASM with I think the wise solution and DDoS on premise and off premise. And then the service provider we feel very good with the drivers there from an NFD from a security perspective TCP optimization. We still feel good about ACE I mentioned of what we’re going to do there. And the FDN partnerships and in general the cloud movement I think is a growth possibility for us. So product refresh probably to some degree but we still think has a big opportunity there.

Okay last question given the growth in pipeline partly the new creation as well as deals slipping, with your guidance that product growth rate is continue to decelerate to somewhere near high-single digits when you look at your guidance, how do you get this back up and what isn’t the guidance for the March quarter better just given the buildup of the million dollar plus project? Thank you.

Historically last quarter you need to be careful with that because it’s always beginning of the financial year for our companies, and we’re assuming, I hope relatively conservative growth rates in the pipeline and we’ll see what takes us.

Okay next question Subu Subrahmanyan, The Juda Group. Your line is open.

Two questions first on the service provider side, if you could talk about given the CapEx backdrop you certainly have some wins and share gain opportunities so how do you think about the service providers vertical for this year as you expected to grow us a percentage of revenues in fiscal ’14? And then in the virtualization side, I certainly here you John that the deals are large but if you do a comparison with the architectural changes, if you had sold all hardware and senses as you might have few years ago versus a mix of hardware and software, what that is doing to the overall dollar value of the deals and also the profitability of the deal that would be helpful?

Subrahmanyan, this is Manny. I am going to answer the service provider. On the service provider there are four major drivers that I think we talked more about them definitely in John’s prepared comments, which is consolidation across the Board from a service provider point of view and that consolidation of services predominately traffic-steering services, care-giving that services and some of other services in there that were consolidating type of environment, that reduces CapEx really for many of the operators throughout there because they’re going from multivendor to single vendor. Second major driver we have a security which is also something we can overlay on that same footprint again through a consolidation point of view, but we call it out as a separate driver because of just the impact from the side associated with that, but there is NFV and the NFV footprint that we’re seeing out there which are still early proof of concepts to some degree and we are in various proofs of concepts across the world. Was trying to see some of those pan outs and that’s what happened in this past quarter and why we got a big bump, also on our software sales. And the last is the LTE of the mobility movement going to 4G networks which we’ve been feeding in the customer environment for the last two years. And was trying to see there also from a driver perspective is that these networks get deployed, get expected usage volume goes up new devices are being enabled meaning additional mobile handset. But also new devices from the perspective of the internet of things that we’re going to see additional software license there. So those are predominately the four major drivers and those are usually either tackling the CapEx line from a consolidation point of view, or the monetization line from something along the perspective of LTE and being able to bring on new services to the market.

And on eventualization say the things which I think the space in [indiscernible] that I get to answer again to a similar question which was basically first of all these are still number. I mean this is still a relatively small market versus overall ADC market. But the deals that we’re seeing are pretty large in nature and we need to market exactly to see the demonstrates of is all hardware waste is but I am not sure we see much difference quite frankly. So I don’t think that’s - if you’re looking for exact platform we’re half in terms of gain to lower end we don’t think so.

And just to add one more comment any get on the software side that we see is we see an expansion of the application needs in the market segment. But I mean by that is historically a handful of applications in the typical enterprise and service provider got the ADC services because there was harder deploy much more complex. As we move toward a much more software based architecture when you see is a broader set of applications getting these services got things to do apply to those services in the environment. So it’s actually to a large degree and expansion in the market.

Next question from Brent Bracelin, Pacific Crest Securities. Your line is open.

Thanks two quick follow up if I could. On the million dollar deals if you look across the broader enterprise we’ve actually seen a trend toward and you did as well up and saw this quarter, an increasing number of larger deals that closed. Do you think what you saw on December was company specific or do you think there were other factors here at play?

That’s a really hard one we don’t know the answer to that right. We just don’t do the answer I think as more company announced that there may be some more news here. I certainly wouldn’t call that’s why we’re not calling as my crew either quite frankly. The other side of the coin is that create rate that we had is probably the biggest create rate we see is not the biggest and certainly one of the biggest. I am talking about large deals, so table tell and tell us whether it’s a bigger issue or not.

Then the follow up question is back to software and as we kind of compare contrast the software growth rate versus your reported product growth rate it was 44% software growth rate this quarter versus 10% product growth. If I look at your Analyst Day you’re talking about I think 41% security software growth rate versus 17% product growth rate. So there is a widening gap their between some of the growth in software versus product to appliance overall. Why shouldn’t we expect slightly more tempered growth going forward with the mix shift to software given the trends over the last couple quarters? And frankly now given some announcements around new products where you’re going to be pricing those products on a subscription basis.

I think if you take a medium to long term due that’s correct, that is absolutely correct you’re going to see is selling more and more software we’ve done that now and we push the salesforce to do that, that’s is a competitive edged is obviously very, very possible. We think when migrate in terms of BIG-IQ orchestration for managing software across close and close across data center et cetera. So you will see that I don’t think it’s going to be a complete revolutionary process I think it’s going to be evolutionary. If you look at the -- it’s interesting if you look at GI firewall opportunities the software content in that quarter is very significant. But still is a obviously the hardware content because it need to call this significant amount of traffic either on the detail side of things or just in pure mobile traffic firewall protection. So I think the trends is going to be there but to pick one quarter from Q4 to Q1 and say that's a trend would be very dangerous. We don't believe that.

Next question James Faucette Morgan Stanley. Your line is open.

Thank you very much. Most of my questions have been answered so I want to dig a little bit just around more of the edges if you will. First wondering if you could talk a little bit about what you think what’s happening in Japan and APAC, you called out that Japan was a little bit below your forecast. And then conversely what you think was going right and EMEA in particular with weakness of the Euro seems like that could have been subject to a little more weakness than what you saw in I guess there is a follow up to that is there going to be a point at which you feel like to have to reprise products for that market. And how should we take that into account?

Let me start with EMEA because that’s an easier one. EMEA in my opinion is tremendous execution and we have great management their they’ve been covering their territory really well, selling big deals, selling a software capabilities, internally always had a very strong leaning towards security and very [indiscernible]. So I think we are talking execution. I think in Japan it is different, Japan still tend to go for a smaller type products, where quite competitive there and spending a lot time trying to get direct business app, direct touch I should say still with part of the direct touch. We made some progress but it’s pretty slow and general economy is quite slow. Then APAC we have been doing some changes, some management changes. We actually feel good about the trajectory APAC is on.

So, back to your looking forward is, you feel like you are going to I know for a lot of other vendors they had to or they asked their retailers and buyers to absorb some of the impact of the depreciating euro. But wondering if you feel like you are going to have to change pricing into that market and how take that into account or are you going to be alloy basically effectively price increases to those customers?

Historically when we’ve seen fluctuations in currency because we U.S. dollars principally in EMEA and we have been able to navigate that working with the partners and the resellers conversely they benefit at times when it’s gone the other way. So I am not sure we would have to fairly do a change in price strategy from that, but we will as we execute to the quarters take that into consideration as we look at deals and work with the partners and resellers to close business.

Excuse for interrupting this is John Eldridge we are going to take two more questions and then wrap it up.

Catharine Trebnick, Dougherty & Company. Your line is open.

Can we go back to the service provider for a minute. And any of the NFC, are you see it just to get more color around this. You said proof of concept have you deployed? Has there been any deployment with NFC et cetera. And then the follow on question has to do with the enterprise spending. So first if we get out some color on NFC with carriers.

So yes on the NFC side we have close to 2000 proof of concepts throughout the world just to give you a size of the magnitude of the transactions and those across all of the theaters. The wins that we recently seen which varied across two of the theaters are predominantly security related wins where we are taking our security products from a software perspective and introducing inside that environment. Obviously they expand beyond security, they also are traffic steering type of deployments, but they are going into the concept of beginning to consolidate services on a virtual EPC, and lot of the providers are moving in that direction fairly quickly. So we are doing well in the environment. We are integrating our stock with lots of different SPN providers in the market segment and that gives us a lot of flexibility to work with those operators. So its early days but we are seeing a lot of good momentum a lot of good traction and proof of concepts are going favorable.

Last question then from Tim Long, BMO Capital Markets. Your line is open.

I will try to sneak two in here if I could. First on the Good, Better, Best, I just have an update there you talked a little bit in the past we know the Best option is doing well. Could you talk little bit about the metrics there, how broadly is it through the sales force now is it fully everywhere? How many deals is it influencing? Are we still seeing growth from that or we starting to reach a more full penetration? And then the second one John I think you mentioned something about factoring the largest deals little bit more into next quarter, I guess part of that is conservatism. But I am just curious if given the uncertain macro are you also as a team factoring in the rest of the business, the sub $100 million deals more than normal as well in the guidance?

So on the Good, Better, Best. The metrics are very similar. I mentioned still gravitating greatly towards Best. In fact I think this quarter even higher in terms of a percentage towards Best. And if you look at where we are in the process, North America of the Houston, and they have been pretty aggressive in selling that, we started in a couple of quarters later when the quarters one to two quarters later seeing EMEA starting but if more room to do the job. And then APAC and Japan and particular so tend to lag a little bit with making changes like that. So we expect that to start to rave up in the future as well. In terms of the factoring, actually when we do our factoring we do intend to just factor by size of deal. We look at the overall factor, we look at the fact of timeline and we look at close expectation. So that tends us to runway across the low deals up to the high deals as well.

Okay, thank you very much for turning in. And we look forward to talking with you again next quarter.

Thank you. That does conclude the call for today. You may disconnect your phone lines at this time.