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F5 Networks (FFIV) John McAdam on Q2 2016 Results - Earnings Call Transcript

F5 Networks, Inc. (NASDAQ:FFIV)

Q2 2016 Earnings Call

April 20, 2016 4:30 pm ET

Executives

John Eldridge - Director, Investor Relations

Andrew Reinland - Chief Financial Officer & Executive Vice President

John McAdam - President, Chief Executive Officer & Director

Karl D. Triebes - Chief Technical Officer & EVP-Product Development

John DiLullo - Executive Vice President of Worldwide Sales

Analysts

Alex Henderson - Needham & Co. LLC

Matt Robison - Wunderlich Securities, Inc.

Vijay K. Bhagavath - Deutsche Bank Securities, Inc.

Sanjiv Wadhwani - Stifel, Nicolaus & Co., Inc.

Ittai Kidron - Oppenheimer & Co., Inc. (Broker)

James Dickey Suva - Citigroup Global Markets, Inc. (Broker)

Mark Moskowitz - Barclays Capital, Inc.

Jayson A. Noland - Robert W. Baird & Co., Inc. (Broker)

Jess Lubert - Wells Fargo Securities LLC

Paul Silverstein - Cowen & Co. LLC

Operator

Good afternoon and welcome to the F5 Networks Second Quarter and Fiscal 2016 Financial Results Conference Call. At this time all parties will be able to listen only until the question-and-answer portion. Also, today's conference is being recorded. If anyone has any objections, please disconnect at this time.

I'd now like to turn the call over to Mr. John Eldridge, Director of Investor Relations. Sir, you may begin.

John Eldridge - Director, Investor Relations

Thank you, Sam. Welcome, everyone, to our conference call for the second quarter of fiscal 2016. John McAdam, our President and CEO; and Andy Reinland, Executive VP and CFO, will be the speakers on today's call. The other members of our exec team are also on hand to answer questions following John and Andy's prepared comments.

If you have any follow-up questions, please direct them to me at 206-272-6571. A copy of today's press release is available on our website 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 In addition, you can access an archived version of today's live webcast from the Events Calendar page of our website through July 20. From 4:30 PM today until midnight Pacific Time, April 21, you can also listen to a telephone replay at 866-474-1441 or 203-369-1499.

During 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 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. With that, I'll turn the call over to Andy Reinland.

Andrew Reinland - Chief Financial Officer & Executive Vice President

Thank you, John. In a relatively challenging environment, F5 delivered year-over-year revenue growth and strong profitability. Revenue in Q2 grew 2.4% year-over-year to $483.7 million, within our guided range of $480 million to $490 million. Non-GAAP earnings per share were $1.68, above our guided range of $1.61 to $1.64 per share. These results exceeded our forecast driven by strength in gross margins and prudent management of expenses, as well as a decrease to our worldwide effective tax rate and the strong buyback of our common stock.

GAAP EPS of $1.11 per share was below our guidance of $1.13 to $1.16 per share due to one-time costs for a patent-related jury verdict and other costs associated with that litigation. The related impact of these one-time costs to GAAP EPS was approximately $0.08.

Product revenue of $225.4 million declined 4% sequentially and 8% year-over-year and represented 47% of total revenue. Service revenue of $258.2 million increased 1% sequentially, 13% year-over-year, and accounted for 53% of total revenue.

Revenue from the Americas accounted for 56% of total revenue during the quarter; EMEA contributed 25%; APAC, 13%; and Japan, 5%. On a year-over-year basis, the Americas were up 1%, EMEA revenue was up 8%, APAC revenue grew 1%, and Japan revenue was down 1%.