Q1 2025 F5 Inc Earnings Call
If anyone should require operator assistance. Please press star zero on your telephone Keypad also today's conference is being recorded if anyone has if anyone has any objections. Please disconnect at this time I'll now turn the call over to Suzanne Dulong, Ma'am you may begin.
Hello, and welcome I'm Suzanne Dulong.
Vice President of Investor Relations. We're here with you today to discuss our first quarter of fiscal year, 2020 five financial results. So I'll follow go to new <unk>, President and CEO and Cooper Warner F odds executive Vice President and CFO will be making prepared remarks on today's call.
Other members of the F. Five executive team are also here to answer questions during the Q&A session.
A copy of today's press release is available on our website at <unk> Dot Com, where an archived version of today's audio will be available through April 28, 2025, we will post a slide deck accompanying today's webcast to our IR site at the conclusion of our call.
To access the replay of today's webcast by phone dial 8776606853, or 20161 to 7415 and use meeting I D 13749373 to.
The telephonic replay will be available through midnight Pacific time January 29, 2025.
Speaker Change: For additional information or follow up questions. Please reach out to me directly at S don't do long at <unk> Dot com.
Speaker Change: Our discussion today 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. We have summarize factors that may affect our results in the press release announcing our financial results.
Speaker Change: And in detail in our SEC filings.
Speaker Change: In addition, we will reference non-GAAP metrics during todays discussion. Please see our full GAAP to non-GAAP reconciliation in today's press release and in the appendix of our earnings slide deck.
Speaker Change: Please note that <unk> has no duty to update any information presented in this call during today's call Francois will speak to our Q1 highlights and our strategy and growth opportunities Cooper will then review the details of our Q1 results and our outlook.
Speaker Change: I'll now turn the call over to Fastweb.
Speaker Change: Thank you Suzanne and Hello, everyone.
Speaker Change: We're really pleased to share our robust Q1 results with you today.
Speaker Change: Alignment with significant secular trend of more stable it spending environment and our strong execution contributed to another record quarter, we delivered 11% total revenue growth, including 20% product revenue growth software revenue grew 22% and systems revenue grew 18%.
Speaker Change: Sent with strength from all geographies our revenue outperformance also drove Q1 non-GAAP EPS of $3 84.
Speaker Change: <unk> of 43 cents above the top end of our guidance range.
Speaker Change: <unk> strength is multifaceted.
Speaker Change: Reflects a continuation of the trends we observed in the second half of last year.
Speaker Change: We are benefiting from consistently strong expansion of our software subscriptions, many of which have exceeded our expansion forecast circa.
Speaker Change: With a more stable ICU spending environment, new software demand continues to grow as customers resume transformative and modernization project.
Speaker Change: And third technology refresh activities, increasing driving demand for both software and systems.
Speaker Change: Our pipeline shows these hybrids will persist into Q2 contributing to our expectations for Q2 revenue in a range of 705 to 725 million, implying roughly 5% growth at the midpoint.
Speaker Change: In addition, reflecting our Q1 outperformance and are better than expected Q2 forecast, we are raising our FY 'twenty five revenue expectations to 6% to 7% growth up from our initial guidance of 4% to 5% growth Coupe.
Speaker Change: Cooper will speak to our outlook in greater detail in just a few minutes.
Speaker Change: Before he does I will spend a few minutes discussing our five differentiation and highlighting some customer wins from Q1.
Speaker Change: Over the last several years.
Speaker Change: Essentially reshaped at five for the hybrid and multi cloud architectures of the AI era.
Speaker Change: With all its advantages.
Speaker Change: <unk> multi cloud also brings with it new challenges.
Our pipeline shows these drivers will persist into Q2 contributing to our expectations for Q2 revenue in a range of 705 to 725 million, implying roughly 5% growth at the midpoint.
Speaker Change: Teams are being overwhelmed by high costs crushing complexity and escalating cyber risks the set of challenges we call the ball of fire.
Speaker Change: Of AI becomes ubiquitous it will add fuel to the ball of fire requiring more capacity to handle massive amounts of data.
In addition, reflecting our Q1 outperformance and are better than expected Q2 forecast, we are raising our FY 'twenty five revenue expectations to 6% to 7% growth up from our initial guidance of 4% to 5% growth.
Speaker Change: More sophisticated traffic management to deal with complex traffic patterns and enhanced security capabilities to stay ahead of new security threats.
Cooper will speak to our outlook in greater detail in just a few minutes.
Speaker Change: Unlike competitors, who invested solely in cloud or SaaS.
Speaker Change: Before he does I will spend a few minutes discussing our fives differentiation and highlighting some customer wins from Q1.
Speaker Change: Our significantly reduced investment getting their applicability in a multi cloud world over the last several years at five innovated across hybrid SAS and next generation software and hardware as a result, we stand alone with the only complete hybrid multi cloud portfolio for application security and <unk>.
Speaker Change: Over the last several years, we have substantially reshaped by for the hybrid and multi cloud architectures of the AI era.
Speaker Change: With all its advantages hybrid multi cloud also brings with it new challenges.
Speaker Change: I think teams are being overwhelmed by high cost, Washington complexity, and escalating cyber risk the set of challenges we call the ball of fire.
Speaker Change: We are the only player that can partner with a CIO or CFO to secure and deliver all of their applications and Apis across hybrid multi cloud environment.
Speaker Change: AI becomes ubiquitous it will add fuel to the ball of fire requiring more capacity to handle massive amounts of data more sophisticated traffic management to deal with complex traffic patterns and enhanced security capabilities to stay ahead of new security threats.
Speaker Change: We are differentiated across three primary factors.
Speaker Change: Yes.
Speaker Change: <unk> has the most effective and comprehensive application and API security platform in the industry.
Speaker Change: We enable our customers to consolidate point products.
Speaker Change: Getting specific twice onto a single integrated platform with a suite of best in class capabilities.
Speaker Change: Unlike competitors, who invested solely in cloud or theft or significantly reduced investment limiting their applicability in a multi cloud world over the last several years, that's five innovated across hybrid and.
Speaker Change: Notable example of the power of our ability to consolidate multiple security point product comes in the form of a significant Q1 renewal and expansion with a major financial services customer.
Speaker Change: And next generation software and hardware as a result, we stand alone would be always complete hybrid multi cloud portfolio for application security and delivery. We are the only player that can partner with a CIO or CFO to secure and deliver all of their applications and API across hybrid.
Speaker Change: Along with the anticipated renewal and expansion of its sizable big IP and nginx subscription the customer converged multiple security point solutions onto our five adding SSL O and Ddos use cases. The result was a larger than expected expansion on what was already an eight.
Speaker Change: Multi cloud environment.
Speaker Change: We are differentiated across three primary vectors.
Speaker Change: First.
Speaker Change: Figure renewable.
Speaker Change: That's five has the most effective and comprehensive application and API security platform in the industry.
Speaker Change: Second as part of this hybrid multi cloud strategy enables consolidation on a single vendor for App security and delivery only.
We enable our customers to consolidate point products targeting specific twice onto a single integrated platform with a suite of best in class capabilities.
Speaker Change: We have five deliver solutions that extend from customers on premise environment across public cloud to the edge.
Speaker Change: Five simplifies connecting disparate infrastructure environment, and the applications deployed in and across them in.
Speaker Change: A notable example of the power of our ability to consolidate multiple security point product comes in the form of a significant Q1 renewal and expansion with a major financial services customer.
In Q1, a original utility company in North America modernized its big IP application hosting security and remote access infrastructure. The customer also deploy F. Five distributed cloud services to support its modern applications.
Speaker Change: Along with the anticipated renewal and expansion of its sizable big IP and nginx term subscription the customer converged multiple security point solutions onto our five I think that's the cello and Ddos use cases. The result was a larger than expected expansion on what was already an eight figure.
Speaker Change: Placing two five competitors and consolidating their traditional and modern applications and investment on F. Five third that's five solutions streamline customers operations with consistent policies comprehensive automation and rich analytics, we enable customers to simplify their operation.
Speaker Change: Renewable.
Speaker Change: Second as fives hybrid multi cloud strategy enables consolidation on a single vendor for App security and delivery only a five deliver solutions that extend from customers on premise environment across public cloud to the edge.
Speaker Change: Management across all environments, one of the largest private sector banks in APAC offers a great example of this dynamic.
Speaker Change: Customer has deployed <unk> unified security policy, displacing two point security competitors and consolidating on a five four multiple use cases across their on premises public cloud and kubernetes environment leveraging F. Five in SaaS software and hardware deployment models.
Speaker Change: That's five simplifies connecting disparate infrastructure environment, and the applications deployed in and across them in.
Speaker Change: In Q1 original utility company in North America modernized its big IP application hosting security and remote access infrastructure customer also deployed F. Five distributed cloud services to support its modern application displacing too at five competitors and consolidating their traditional.
Speaker Change: <unk> five is vastly simplifying hybrid multi cloud complexity for customers.
Speaker Change: Converging multiple point solutions to address high performance traffic management full web App, and API security multi cloud networking and AI gateway capabilities.
Speaker Change: And modern application and investment on F. Five third that's five solutions streamlined customers operations with consistent policies.
Speaker Change: We are empowering customers with simplicity and choice.
Speaker Change: Prehensile automation and rich analytics, we enable customers to simplify their operational management across all environments. One of the largest private sector banks in APAC offers a great example of this dynamic.
Speaker Change: <unk> enables them to payment the ball of fire with the right mix of hardware software and SaaS.
Speaker Change: Best fits their operating model deploying securely and consistently on premises in the cloud or at the edge.
Speaker Change: Customer has deployed at fives unified security policy, displacing two point security competitors and consolidating on a five four multiple use cases across their on premises public clouds, and kubernetes environment leveraging F. Five in SaaS software and hardware deployment models.
Speaker Change: <unk> differentiated approach to hybrid multi cloud is also driving competitive displacement momentum across a full range of hardware software and SaaS deployment models. In fact in Q1, we achieved a record number of competitive displacements.
Speaker Change: These included a notable win with a home improvement retailer following a series of escalating challenges with its incumbent ADC provider customers, replacing them with F. Five big IP, leveraging big Ips automation capabilities to support their application delivery infrastructure and to streamline operations.
Speaker Change: That's five is vastly simplifying hybrid multi cloud complexity for customers.
Speaker Change: By converging multiple point solutions to address high performance traffic management full web App and API security multi cloud networking and AI gateway capabilities.
Speaker Change: We are empowering customers with simplicity and choice F.
Speaker Change: In another example of a competitive take out in Q1, a leading American insurance provider and longtime big customer chose F. Five distributed cloud services to eliminate its growing security tool sprawl and reduced associated administrative burdens and costs the customers, replacing their <unk>.
Speaker Change: F five enables them to paint the ball of fire with the right mix of hardware software and SaaS that best fits their operating model deploying securely and consistently on premises in the cloud or at the edge.
Speaker Change: At five differentiated approach to hybrid multi cloud is also driving competitive displacement momentum across a full range of hardware software and SaaS deployment models. In fact in Q1, we achieved a record number of competitive displacements. These included a notable win with a home improvement retailer following a theory.
Speaker Change: Prior API protection provider with F. Five distributed cloud services web.
Speaker Change: Application and API protection, our Wap solution.
Speaker Change: In doing so they are enhancing their application and API security, while consolidating tooling.
Speaker Change: The escalating challenges with its incumbent ADC provider customers, replacing them with F. Five big IP, leveraging big Ips automation capabilities to support their application delivery infrastructure and to streamline operations.
Before I pass the call to Cooper.
Cooper Warner: Because I have in prior quarters I will discuss the latest developments, we see emerging with AI in the last year organizations across the globe have embraced AI as a strategic imperative, we expect that within three years, 80% of applications and processes will be infused with AI.
Speaker Change: In another example of a competitive take out in Q1, a leading American insurance provider and longtime big IP customer chose F. Five distributed cloud services to eliminate its growing security tool sprawl and reduced associated administrative burdens and cost.
Cooper Warner: There was evidence of this ramp in our own business with more than 50% of our S. Five distributed cloud customers already leveraging our AI agent, which provides configuration assistance and insight.
Speaker Change: Customers, replacing their prior API protection provider with F. Five distributed cloud services web application and API protection, our Wap solution in.
Cooper Warner: While AI promises to bring massive productivity benefits. It is also creating new compliance infrastructure networking and security challenges for customers.
Speaker Change: In doing so they are enhancing their application and API security, while consolidating tooling.
Cooper Warner: AI is already exacerbating the ball of fire and accelerating the pressure to simplify hybrid multi cloud deployment.
Cooper: Before I pass the call to Cooper.
Cooper Warner: Our early AI opportunities are concentrated on three areas of high performance data delivery and security.
Cooper: I have in prior quarters I will discuss the latest developments, we see emerging with AI in the last year organizations across the globe have embraced AI as a strategic imperative.
Cooper Warner: The dominant AI opportunity for F. Five thus far is delivering and securing data for both AI model training and inference.
Cooper: We expect that within three years, 80% of applications and processes will be infused with AI. There was evidence of this ramp in our own business with more than 50% of our F. Five distributed cloud customers already leveraging our AI agent, which provides configuration assistance and insights.
Cooper Warner: AI model training requires higher performance traffic management to ensure the efficiency speed and reliability of lengthy and expensive training processes customers are you seeing a five big IP to move incredible amounts of data at high speed two and from their data stores provide.
Cooper: Well AI promises to bring massive productivity benefits. It is also creating new compliance infrastructure networking and security challenges for customers.
Cooper Warner: <unk> greater efficiency for the training process.
Cooper Warner: AI inference is having a profound effect on infrastructure as well when.
Cooper: AI is already exacerbating the ball of fire and accelerating the pressure to simplify hybrid multi cloud deployments.
Cooper Warner: When customers perform retrieval augmented generation or Reg as a part of influence they see a sharp increase in the number of inquiries going to their data stores. As a result, these data stores experienced congestion and latency slowing overall infrastructure performance.
Cooper: Our early AI opportunities are concentrated on three areas of high performance data delivery and security.
Cooper: The dominant AI opportunity for F. Five thus far is delivering and securing data for both AI model training and inference.
Cooper Warner: By deploying big IP in front of their data storage customers are able to scale to handle the vast and increasing amounts of queries related to rag. The result is improved availability and resiliency for AI workloads.
Cooper: AI model training requires high performance traffic management to ensure the efficiency speed and reliability of lengthy and expensive training processes.
Cooper: Customers are using our five big IP to move incredible amounts of data at high speed, two and from their data stores, providing greater efficiency for the training process.
Cooper Warner: The second AI opportunity, we see today Leverages, our market, leading Wap solution for secure AI inferencing.
Cooper Warner: B is connect the ecosystem and AI Apis are subject to the same security challenges and vulnerabilities as traditional <unk>.
Cooper: AI inference is having a profound effect on infrastructure as well.
Cooper: When customers performed retrieval augmented generation or rag as a part of influence they see a sharp increase in the number of inquiries going to their data stores. As a result, these data stores experienced congestion and latency slowing overall infrastructure performance by.
Cooper Warner: As far as swap solutions protect hybrid and multi cloud applications with functionality that spans from API discovery to API security, which is essential for AI workloads.
Cooper Warner: Customers are leveraging <unk> complete security portfolio to protect their AI workloads, including Big IP Nginx and <unk> distributed cloud services.
By deploying big IP in front of their data stores customers are able to scale to handle the vast and increasing amounts of queries related to rag. The result is improved availability and resiliency for their AI workloads.
Cooper Warner: We expect secure AI inferencing will become a bigger opportunity for F. Five as organizations move from experimenting leveraging AI inferencing at scale.
Cooper: The AI opportunity, we see today Leverages, our market, leading Wap solution for secure AI inferencing.
Cooper Warner: The 30 I opportunity we are focused on is AI factory load balancing.
Cooper: B is connect the ecosystem and AI a P eyes are subject to the same security challenges and vulnerabilities as traditional API.
Cooper Warner: As far as optimizing the performance and scalability of AI factories with advanced traffic management, we're doing this across AI factories and are working with partners towards deploying our solutions within AI factories.
Cooper: As far as swap solutions protect hybrid and multi cloud applications with functionality that spans from API discovery.
Cooper Warner: The cross AI factories customers are deploying big IP to improve the efficiency and performance of data going to and from massive GPU clusters.
Cooper: Security, which is essential for AI workloads customers are leveraging F. Five complete security portfolio to protect their AI workloads, including Big IP Nginx and <unk> distributed cloud services.
Cooper Warner: Within AI factories, and as we described last quarter, we have partnered with Nvidia to ensure big IP next for Kubernetes works seamlessly with Nvidia as Bluefield three <unk>.
Cooper: We expect secure AI in printing will become a bigger opportunity for F. Five as organizations move from experimenting to leveraging AI inferencing at scale.
Cooper Warner: The combination of S five big IP and Nvidia Gpus.
Cooper Warner: Customers with improved performance multi tenancy and obviously the ability.
Cooper: The 30 I opportunity we are focused on is a factory load balancing.
Cooper Warner: While it is early we are seeing growing momentum with AI opportunities I will share just a couple of wins from Q1.
Cooper: Here are five is optimizing the performance and scalability of AI factories with advanced traffic management. We are doing this across AI factories and are working with partners towards deploying our solutions within AI factories.
Cooper Warner: The first is with a net new customer a large mobility platform in APAC, who is using big IP for high performance data delivery.
Cooper: The Crosby I factories customers are deploying big IP to improve the efficiency and performance of data going to and from massive GPU clusters.
Cooper Warner: They selected <unk> to support their robust AI computing stack addressing high velocity load balancing for AI data ingestion, and replacing costly public cloud infrastructure.
Cooper: Within AI factories, and as we described last quarter, we have partnered with Nvidia to ensure big IP next for Kubernetes works seamlessly with Nvidia as Bluefield three D. P use.
Cooper Warner: Fives, SSL performance and compatibility with AI protocols with our cash position was a major factor in winning this customer.
Cooper: The combination of S. Five big IP, and Nvidia Gpus provides customers with improved performance multi tenancy and the ability.
Cooper Warner: Second Q1, AI win I will highlight a leading multinational bank headquartered in our EMEA region.
Cooper Warner: The customer selected <unk> big IP to secure optimize and scale their AI application. They are leveraging big IP for traffic management, and WAF and touring efficient distribution and security of their critical AI and data infrastructure with seamless integration with their existing infrastructure.
Cooper: While it is early we are seeing growing momentum with AI opportunities.
Cooper: We'll share just a couple of wins from Q1.
Cooper: The first is with a net new customer a large mobility platform in APAC, who is using big IP for high performance data delivery.
Cooper: They selected the F five big IP to support their robust AI computing stack addressing high velocity load balancing for AI data ingestion, and replacing costly public cloud infrastructure.
Cooper Warner: Now I will turn the call to Cooper to elaborate on our results and outlook.
Cooper Warner: Cooper.
Cooper Warner: Thank you Francois and Hello, everyone I'll review, our Q1 results before I elaborate on our Q2 and fiscal year 'twenty five outlook is France noted, we delivered an exceptional Q1 growing revenue, 11% to 766 million, reflecting a mix of 52% global services and 48.
Cooper: Fives, SSL performance and compatibility with AI protocols with orchestration was a major factor in winning this customer the.
Cooper: Second Q1, AI win I will highlight is with a leading multinational bank headquartered in our EMEA region. The.
Cooper Warner: <unk> product revenue global services revenue of $398 million grew 3%.
Cooper: The customer selected <unk> big IP to secure optimize and scale their AI application. They are leveraging big IP for traffic management, and WAF, ensuring efficient distribution and security of their critical AI and data infrastructure with seamless integration with their existing infrastructure.
Cooper Warner: Product revenues totaled $368 million up 20% year over year due to a combination of strong software and systems growth.
Cooper Warner: Software revenue grew 22% year over year to $209 million, reflecting exceptional expansion and several large multi year subscription renewals as well as healthy growth in new software projects.
Cooper: Now I will turn the call to Cooper to elaborate on our results and outlook.
Cooper: Cooper.
Cooper: Thank you Francois and Hello, everyone I'll review, our Q1 results before I elaborate on our Q2 and fiscal year 'twenty five outlook.
Cooper Warner: Ascription based software revenue totaled 162 million up 30% year over year, representing 78% of our total software revenue perpetual license software totaled $46 million in Q1 up 2% year over year.
Cooper: As Francois noted we delivered an exceptional Q1 growing revenue, 11% to 766 million, reflecting a mix of 52% global services and 48% product revenue global services revenue of $398 million grew 3% prop.
Cooper Warner: Systems revenue totaled $160 million up 18% year over year. Our systems revenue is benefiting from a number of factors first technology refresh momentum is building as customers refresh aging hardware states.
Cooper: Product revenues totaled $368 million up 20% year over year due to a combination of strong software and systems group or.
Cooper Warner: The refresh activity is now widespread in fact, some of the quarter's most significant demand came from customers outside of our top 1000 customers.
Cooper: Our software revenue grew 22% year over year to $209 million, reflecting exceptional expansion in several large multi year subscription renewals as well as healthy growth in new software projects subscription.
A second factor that has begun to accelerate the pace of refresh for many customers relates to upcoming end of software support dates for our <unk> and <unk> families.
Cooper: Subscription based software revenue totaled 162 million up 30% year over year, representing 78% of our total software revenue perpetual license software totaled $46 million in Q1 up 2% year over year.
Cooper Warner: Having gained clarity on the need for a balance of both hardware and software solutions in hybrid multi cloud environments customers are moving forward with plans to standardize on our next generation hardware offerings.
Cooper: Systems revenue totaled $160 million up 18% year over year. Our systems revenue is benefiting from a number of factors first technology refresh momentum is building as customers refresh aging hardware states.
Cooper Warner: Lastly, our commitment to continuous innovation in both software and hardware is driving increased competitive displacement momentum and resulting in new customer wins.
As we've discussed previously we implemented a price increase on January one.
Cooper: The refresh activity is now widespread in fact, some of the quarter's most significant demand came from customers outside of our top 1000 customers are.
Cooper Warner: And we believe we did see a modest amount of systems orders pulled into Q1.
Cooper Warner: Revenue from recurring sources contributed 72% of our Q1 revenue, reflecting 10% year over year growth.
Cooper: A second factor that has begun to accelerate the pace of refresh for many customers relates to upcoming end of software support dates for our <unk> and ice series families.
Cooper Warner: Our recurring revenue comes from a combination of our subscription based revenue and the maintenance portion of our global services revenue.
Cooper: Having gained clarity on the need for a balance of both hardware and software solutions in hybrid multi cloud environments customers are moving forward with plans to standardize on our next generation hardware offerings.
Cooper Warner: Shifting to revenue distribution by region.
Francois: Francois noted our teams drove growth across all theaters.
Revenue from the Americas grew a strong 15% year over year, representing 56% of total revenue.
Cooper: Lastly, our commitment to continuous innovation in both software and hardware is driving increased competitive displacement momentum and resulting in new customer wins.
Francois: EMEA grew 6% representing 27% of revenue in APAC grew 6% representing 17% of revenue.
Cooper: As we've discussed previously we implemented a price increase on January 1st and we believe we did see a modest amount of systems orders pulled into Q1.
Francois: Looking at our major verticals enterprise customers delivered another very strong quarter, representing 71% of Q1's product bookings Gov.
Francois: Government customers represent 16% of product bookings, including 4% from U S. Federal.
Cooper: Revenue from recurring sources contributed 72% of our Q1 revenue, reflecting 10% year over year growth.
Finally service providers represented 13% of Q1 product bookings.
Cooper: Our recurring revenue comes from a combination of our subscription based revenue and the maintenance portion of our global services revenue shifting.
Francois: We also delivered strong Q1 operating results driven by our robust revenue growth.
Cooper: Shifting to revenue distribution by region. It's Francois noted our teams drove growth across all theaters.
Francois: GAAP gross margin was 81, 7% non.
Francois: non-GAAP gross margin was 83, 9%.
Cooper: Revenue from the Americas grew a strong 15% year over year, representing 56% of total revenue.
Francois: GAAP operating expenses were $421 million, our non-GAAP operating expenses were $356 million, our GAAP operating margin was 26, 8%.
Cooper: EMEA grew 6% representing 27% of revenue in APAC grew 6% representing 17% of revenue.
Francois: Our non-GAAP operating margin was 37, 4% up 189 basis points from the year ago period.
Cooper: Looking at our major verticals enterprise customers delivered another very strong quarter, representing 71% of Q1's product bookings.
Francois: Our GAAP effective tax rate for the quarter was 24%.
Cooper: Government customers represented 16% of product bookings, including 4% from U S. Federal.
Francois: Our non-GAAP effective tax rate was 21, 8% our GAAP net income for the quarter was $166 million or $2 82 per share. Our non-GAAP net income was 227 million or $3 84 per share, reflecting 12% EPS growth from the year ago period.
Cooper: Finally service providers represented 13% of Q1 product bookings.
We also delivered strong Q1 operating results driven by our robust revenue growth.
Cooper: GAAP gross margin was 81, 7% non-GAAP gross margin was 83, 9%.
Francois: I'll now turn to cash flow and balance sheet metrics, all of which remained very strong.
Cooper: Our GAAP operating expenses were $421 million, our non-GAAP operating expenses were $356 million, our GAAP operating margin was 26, 8%.
Francois: We generated $203 million in cash flow from operations in Q1, Capex was $8 million DSO for the quarter was 57 days.
Cooper: Our non-GAAP operating margin was 37, 4% up 189 basis points from the year ago period, our GAAP effective tax rate for the quarter was 24% our non-GAAP effective tax rate was 21, 8% our GAAP net income for the quarter was $166 million or $2 82.
Francois: Cash and investments totaled approximately $1 $1 6 billion at quarter end.
Francois: Deferred revenue was $1 95 billion up 6% from the year ago period, driven by our subscription software screens and very healthy maintenance renewals in.
Francois: In Q1, we repurchased $125 million worth about five shares at an average price of $255 per share.
Cooper: Per share our non-GAAP net income was $227 million or $3 84 per share, reflecting 12% EPS growth from the year ago period.
Francois: As of the end of Q1, we had $1 3 billion remaining on our authorized stock repurchase program.
Cooper: I will now turn to cash flow and balance sheet metrics, all of which remained very strong.
Francois: Our Q1 share repurchases represented 64% of free cash flow. Finally, we ended the quarter with approximately 6440 employees.
Cooper: We generated $203 million in cash flow from operations in Q1, Capex was $8 million DSO for the quarter was 57 days.
Francois: I will now speak to our outlook for Q2.
With the exception of revenue my guidance comments reference non-GAAP metrics.
Cooper: Cash and investments totaled approximately 1.16 billion at quarter end.
Francois: We expect Q2 revenue in the range of 705 to 725 million, implying 5% year over year growth at the midpoint.
Cooper: Deferred revenue was $1 95 billion up 6% from the year ago period, driven by our subscription software screen and very healthy maintenance renewals.
Francois: As a reminder, and as we noted on our October call U S payroll tax resets and our large customer event in February significantly impact. Our Q2 expenses. This resulted in it being our seasonal low quarter for both gross and operating margins. We expect non-GAAP gross margin of approximately 82, 5%.
Cooper: In Q1, we repurchased $125 million worth about five shares at an average price of $255 per share.
Cooper: As of the end of Q1, we had $1 3 billion remaining on our authorized stock repurchase program. Our Q1 share repurchases represented 64% of free cash flow. Finally, we ended the quarter with approximately 6440 employees.
Francois: 83%.
Francois: We estimate Q2, non-GAAP operating expenses of $362 million to $374 million. We expect Q2 share based compensation expense of approximately $58 million to $60 million, we anticipate Q2, non-GAAP EPS in a range of $3 <unk>.
Cooper: I will now speak to our outlook for Q2.
Cooper: With the exception of revenue my guidance comments reference non-GAAP metrics.
Cooper: We expect Q2 revenue in the range of 705 to 725 million, implying 5% year over year growth at the midpoint.
Francois: The $3 14 per share.
Francois: In light of our strong Q1 results and our Q2 guidance I will also provide an update of our fiscal year 'twenty five full year outlook.
Cooper: As a reminder, and as we noted on our October call U S payroll tax resets and our large customer event in February significantly impact. Our Q2 expenses. This resulted in it being our seasonal low quarter for both gross and operating margins. We expect non-GAAP gross margin of approximately 82, 5% to 80.
Francois: We are raising our FY 'twenty five revenue growth forecast to a range of 6% to 7%. This is up from our initial guidance for 4% to 5% revenue growth and reflects our outperformance in Q1, and our healthy pipeline heading into Q2.
Cooper: 3%.
Francois: Given our strong Q1 performance and continued strong expansion trends, we now expect our software revenue to grow at least 10% in fiscal year 'twenty five.
Cooper: We estimate Q2, non-GAAP operating expenses of $362 million to $374 million. We expect Q2 share based compensation expense of approximately $58 million to $60 million, we anticipate Q2, non-GAAP EPS in a range of $3 two to.
Francois: This is up from the upper single digit range, we spoke to last quarter.
Francois: We continue to expect FY 'twenty five non-GAAP gross margin in a range of <unk>, 83% to 84% and non-GAAP operating margin of approximately 35%.
Cooper: The $3 14 per share.
Cooper: In light of our strong Q1 results and our Q2 guidance I will also provide an update to our fiscal year 'twenty five full year outlook.
Francois: Our FY 'twenty five non-GAAP effective tax rate estimate remains at a range of 21% to 23%.
Cooper: We are raising our FY 'twenty five revenue growth forecast to a range of 6% to 7%. This is up from our initial guidance for 4% to 5% revenue growth and reflects our outperformance in Q1, and our healthy pipeline heading into Q2.
Francois: We are also raising our EPS outlook and now expect to deliver six five to eight 5% non-GAAP earnings growth in FY 'twenty five.
Francois: Up from our prior guidance of 5% to 7% growth.
Cooper: Given our strong Q1 performance and continued strong expansion trends, we now expect our software revenue to grow at least 10% in fiscal year 'twenty five.
Francois: Finally, we intend to continue to use at least 50% of our annual free cash flow towards share repurchases in FY 'twenty five.
Francois: With that I'll pass the call back to Francois.
Cooper: This is up from the upper single digit range, we spoke to last quarter.
Francois: Thank you for Cooper to conclude we are benefiting from our alignment with powerful secular trends most significant among these is our unique ability to address the crushing complexity of hybrid multi cloud unlike competitors, who invested solely in cloud or SaaS or significantly reduced investment we innovated.
Cooper: We continue to expect FY 'twenty five non-GAAP gross margin in a range of 83% to 84% and non-GAAP operating margin of approximately 35%.
Cooper: Our FY 'twenty five non-GAAP effective tax rate estimate remains at a range of 21% to 23%.
Cooper: We are also raising our EPS outlook and now expect to deliver six five to eight 5% non-GAAP earnings growth in FY 'twenty five.
Francois: Across hybrid SaaS and next generation software and hardware, we are reducing complexity for customers by converging multiple point solutions to address high performance traffic management full web App and API security.
Cooper: Up from our prior guidance of 5% to 7% growth.
Cooper: Finally, we intend to continue to use at least 50% of our annual free cash flow towards share repurchases in FY 'twenty five.
Francois: The cloud networking and AI gateway capabilities, we are empowering customers with simplicity and choice.
Francois: With that I'll pass the call back to Francois.
Francois: Tabling them to choose hardware software or SaaS, and so deploy securely and consistently on premises in the cloud or at the edge and we believe we are increasing our opportunity as a result, it's early still but we also see building momentum with AI opportunity.
Francois: Thank you Cooper to conclude we are benefiting from our alignment with powerful secular trends most significant among these is our unique ability to address the crushing complexity of hybrid multi cloud unlike competitors, who invested solely in cloud or SaaS or significantly reduced investment we innovate.
Francois: Our industry, leading ability to rapidly and securely move the large amounts of enterprise data necessary for AI model training and inferencing positions at five and indispensable.
Francois: They'd across hybrid SAS and next generation software and hardware, we are reducing complexity for customers by converging multiple point solutions to address high performance traffic management full web App and API security multi cloud networking and AI gateway capabilities, we are empowering customers with simplicity and Choi.
Francois: To start to implement AI at scale.
Speaker Change: Operator, please open the call to questions.
Speaker Change: Thank you.
Speaker Change: We will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is open. The question queue. You May press star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Francois: This enabling them to choose hardware software or SaaS and to deploy securely and consistently on premises in the cloud or at the edge and we believe we are increasing our opportunity as a result, it's early still but we also see building momentum with AI opportunities our industry leading ability.
Speaker Change: For me please.
Speaker Change: Four questions.
Francois: To rapidly and securely move the large amounts of enterprise data necessary for AI model training and inferencing positions at five as indispensable as businesses start to implement AI at scale.
Speaker Change: Our first question comes from the line of Tim Long with Barclays. Please proceed with your question.
Speaker Change: Thank you.
Tim Long: Just two if I could.
Speaker Change: First of all could you talk a little bit about the.
Speaker Change: Operator, please open the call to questions.
Speaker Change: AI business I don't know if you can scale for us how big it is currently but more importantly, if you could just touch on kind of the breadth of who you are selling.
Francois: Thank you.
Francois: We will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys.
Speaker Change: Into into an AI and what type of customers large data centers enterprises government.
Speaker Change: Combination any any anything there would be helpful. And then second if you can just touch on.
Francois: Please.
Speaker Change: Sustainability of the hardware systems business. It sounds like there might have been a little bit of pull in.
Speaker Change: Four questions.
Speaker Change: Our first question comes from the line of Tim Long with Barclays. Please proceed with your question.
Speaker Change: Into the December quarter, but still a pretty solid number so where do you think we are.
Tim Long: Thank you.
Tim Long: Just two if I could first.
Speaker Change: With with inventory or ability to keep those numbers go in and it sounds like there are some share gains helping thank you.
Speaker Change: Could you talk a little bit about you know the AI business I don't know if you can you know scale for us how big it is currently but more importantly, if you can just touch on kind of the breadth and of who you're selling into.
Thank you Tim.
Speaker Change: Let me, let me start with hardware actually your second question on the sustainability.
Speaker Change: Into into an AI and what type of customers are large datacenters enterprises government.
Speaker Change: Look we think we're going to have a pretty strong year on hardware.
Speaker Change: We're seeing that because we have a strong.
Speaker Change: Should any any anything there would be helpful. And then second if you can just touch on.
Speaker Change: Pipeline on refresh activity.
Speaker Change: That's largely driven by the fact that a number of customers, we're sweating assets for a period of time.
Speaker Change: Kind of sustainability of that.
Speaker Change: Hardware systems business. It sounds like there might have been a little bit of pull in into the into the December quarter, but still a pretty solid number so where do you think we are.
Speaker Change: Their applications have been growing in capacity they continue to deploy in hybrid multi cloud environments and it's creating the need for for more hardware. So we think hardware. This year is likely to be in the double digit growth rate for the year.
Speaker Change: With with inventory or ability to keep those numbers going it sounds like there are some share gains helping thank you.
Speaker Change: Yeah.
Tim Long: Thank you Tim let.
Speaker Change: And in addition to that we own.
Speaker Change: Let me, let me start with hardware actually your your second question on the sustainability.
Speaker Change: In addition to growth within our existing customers in hybrid multi cloud environment. We're also continue being significant competitive displacements and I mentioned earlier.
Look we think we're gonna have a pretty strong year on hardware and we're seeing that because we have a strong pipeline.
Speaker Change: Paul.
Speaker Change: Pipeline on refresh activity.
Speaker Change: One of the Big home retailers was one of the.
Speaker Change: That's largely driven by the fact that a number of customers, we're sweating assets for a period of time.
Speaker Change: Competitive take outs, we had in the quarter and we continue to see more opportunities of that because of the investments. We've made in next generation hardware, where our competitors have not.
Speaker Change: Their applications have been growing in capacity they continue to deploy in hybrid multi cloud environments, and it's creating the need for them for more hardware. So we think hardware. This year is likely to be in the double digit growth rate for the year.
Speaker Change: Yes, Tim one thing I'd also add on the supply front, we feel really good about our ability to fulfill this demand in the near term no no real constraints that we're seeing right now.
Speaker Change: Largely onto newer generation platforms.
Speaker Change: And in addition to that we are in addition to growth within our existing customers in hybrid multi cloud environments. We're also continuing significant competitive displacements.
Speaker Change: We did a lot of work during the supply chain crisis in terms of developing more resilient supply chain and basis of partners. So we should be in really good shape from that perspective.
Speaker Change: Mentioned earlier on the call and.
Speaker Change: Great and then.
Speaker Change: One of the Big home retailers was one of the competitive take outs, we had in the quarter and we continue to see more opportunities of that because of the investments. We've made in next generation hardware, where our competitors have not.
Speaker Change: On the first part of your question on AI.
Speaker Change: So let me let me just frame.
Speaker Change: Frame the opportunity that we're seeing for our size in AI really three.
Speaker Change: Categories of opportunity, we're saying the first one is really.
Speaker Change: Yeah, and Tim one thing I'd also add on the supply.
Speaker Change: <unk>, we feel really good about our ability to fulfill this demand in the near term no no real constraints that we're seeing right now.
Speaker Change: Moving data securely and that speed to and from data storage.
Speaker Change: We're largely on to newer generation platforms, and we did a lot of work during the supply chain crisis in terms of developing a more resilient supply chain and base of partners. So we should be in really good shape from that perspective.
Speaker Change: One model of being trained and need to access data from data stores.
Speaker Change: Or in inferencing, where customers are influencing with which you will augment a generation.
Speaker Change: And the.
Speaker Change: I would say the majority of the deals that we have done to date are really in this first category of opportunity.
Speaker Change: Great and then the same on the first part of your question on AI.
Speaker Change: The types of.
Speaker Change: Deals that we have won are typically large enterprises that are either.
Speaker Change: So let me let me just frame the opportunity that we're seeing for our size in a I there are really three.
Speaker Change: Building AI factories or are deploying aia's applications and <unk>.
Speaker Change: Categories of opportunity, we're seeing the first one is really.
Speaker Change: Typically have data on premise or have repatriated data from the cloud to the role.
Speaker Change: Using data securely and at speed.
Speaker Change: And from data stores, both one model of being trained and need to access data from data stores.
Speaker Change: Mrs to be able to use it in these with these AI models.
Speaker Change: And they are across the board it's really.
Speaker Change: Or in inferencing, where customers are influencing with whichever augmented generation.
Speaker Change: Across Europe Asia and.
Speaker Change: In North America.
Speaker Change: And the I would say the majority of the deals that we have done to date are really in this first category of opportunity.
Speaker Change: So we've had deals across all three geographies.
Speaker Change: The other two categories of opportunities category, two is really security and its really security and inferencing and it's with our API security and API discovery solutions, we're starting to see opportunities there, but it's early days.
Speaker Change: The types of.
Speaker Change: Deals that we have won are typically large enterprises that are either building AI factories or are deploying AI applications and typically have data on premise or have repatriated data from the cloud to their own on premises.
Speaker Change: And then the third category is.
Speaker Change: Is for load balancing traffic for AI factories.
Speaker Change: Both inter cluster and intra cluster inter cluster is really load balancing the traffic in and out of AI factories, we would typically do that with our.
Speaker Change: To be able to use it in these with these AI models.
Speaker Change: And they are across the board, it's it's really.
Speaker Change: Traditional ADC technology.
Speaker Change: Across Europe, Asia, and North America.
Speaker Change: And then as you know we've announced.
Speaker Change: So we've had deals across all three geographies.
Speaker Change: Announced the partnership with Nvidia for traffic management into our cluster.
Speaker Change: The other two categories of opportunity cheese category, two Israeli security and its really security in entrenching and and it's with our API security and a P. E discovery solutions, we're starting to see opportunities there, but it's early days and then the third category is for load balancing traffic for AI factories.
Speaker Change: Though this is early days and we think that opportunity will develop longer term.
Speaker Change: Okay. Thank you and congrats coupon on the new role.
Tim Long: Great. Thank you Tim.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of meta Marshall with Morgan Stanley. Please proceed with your question.
Speaker Change: Both inter cluster and intra cluster inter cluster is really load balancing the traffic in and out of AI factories, we would typically do that with a or a traditional ADC technology.
Meta Marshall: Great. Thanks.
Meta Marshall: Maybe just on if you could kind of help us size kind of the distributed cloud business at this point I'm just kind of given.
Speaker Change: Then as you know we've.
Cooper Warner: The growth that we've seen kind of in the API security cases, where we're talking about and then maybe second for Cooper, just you've kind of had noted a more back half loaded year.
Speaker Change: The partnership with Nvidia for a traffic management intra cluster Oh. This is early days and we think that opportunity will develop longer term.
Speaker Change: Okay. Thank you and congrats Cooper on the new role.
Cooper Warner: Or frankly, maybe noted a back half loaded year.
Speaker Change: Great. Thank you Tim.
Cooper Warner: Last quarter, just how are you kind of thinking about any seasonality to the ear, particularly with such a strong start to the beginning of the year.
Speaker Change: Thank you our.
Speaker Change: Our next question comes from the line of meta Marshall with Morgan Stanley. Please proceed with your question.
Speaker Change: Great. Thanks.
Cooper Warner: Sure. So I'll take the latter question.
Meta Marshall: Maybe just on you know if you could kind of help us size kind of the distributed cloud business at this point I'm just kind of given.
Cooper Warner: We saw obviously a pretty strong Q1.
Cooper Warner: The tech refresh really picked up speed.
Meta Marshall: The growth that we've seen kind of in in the API security cases that you where we're at.
Cooper Warner: And we're seeing that broadly hybrid multi cloud is just driving an overall inflection in demand having.
Meta Marshall: Talking about and then maybe second for Cooper, just you know you've kind of had noted a more back half loaded year.
Cooper Warner: Having said that the the larger renewal base that we discussed for the second half of the year that that base is still the same base. So really when we're trying to look at the rest of the year. We're looking at how does tech refresh continue to play out and then how to expansion rates play out within that software base Q1 was a very strong quarter for an exception.
Meta Marshall: Or frankly, maybe noted a back half loaded year, you know last quarter. Just how are you kind of thinking about any seasonality to the ear, particularly with such a strong start to the beginning of the year.
Cooper Warner: Really strong quarter for expansion and we referenced as an example, a large eight figure deal where we saw.
Meta Marshall: Sure. So I'll take the latter question.
Meta Marshall: We saw obviously a pretty strong Q1.
Cooper Warner: Even better expansion that we had already anticipated and that was really more to do with that customer choosing to converge multiple.
Meta Marshall: Tech refresh really picked up speed.
Meta Marshall: And we're seeing that broadly hybrid multi cloud is just driving an overall inflection in demand.
Security solutions onto our platform that's a trend we've been seeing across a number of our larger software customers, but having said that.
Meta Marshall: Having said that the the large renewal base that we discussed for the second half of the year that that base is still the same base. So really when we're trying to look at the rest of the year. We're looking at how does tech refresh continue to play out and then how to expansion rates play out within that software base Q1 was a very strong quarter for an exceptionally.
Is that expansion that growth and the expansion rate that we saw in Q1 was fairly.
Cooper Warner: Tied to a number of large customers. It's early in the year, So we wouldnt necessarily.
Cooper Warner: Further increase our expansion rate that we're assuming in the second half.
Meta Marshall: Strong quarter for expansion and we referenced as an example, a large eight figure deal where we saw it.
Cooper Warner: We will continue to engage closely with the larger customers that are in the second half base, but we already took the expansion rate that we were assuming coming out of a strong finish to FY 'twenty forward. So it's something that we'll continue to track, but not necessarily.
Meta Marshall: Even better expansion that we had already anticipated and that was really more to do with that customer choosing to converge multiple.
Meta Marshall: Security solutions onto our platform that's a trend we've been seeing across a number of our larger software customers, but having said that the that expansion.
Cooper Warner: Making an assumption that that expense ratio to continue to go up in the second half.
Cooper Warner: Sure.
Speaker Change: Thanks, Cooper and media.
Cooper Warner: The first part of your question around distributed cloud.
Meta Marshall: And the expansion rate that we saw in Q1 was fairly.
Cooper Warner: As you know we distributed cloud is powered to part of our SaaS and managed services portfolio.
Meta Marshall: Tied to a number of large customers and it's early in the year. So we wouldnt necessarily.
Cooper Warner: Sure.
Cooper Warner: The total for.
Meta Marshall: Further increase our expansion rate that we're assuming in the second half you know.
Cooper Warner: SaaS and managed services was roughly around $180 million at the end of our.
Meta Marshall: We will continue to engage closely with the larger customers that are in the second half base, but we already took the expansion rate that we were assuming.
Cooper Warner: Fiscal year 2024, we haven't broken out distributed cloud within that but it is in there and growing fairly rapidly in fact, we passed an important milestone this.
Meta Marshall: <unk> out of a strong finish to FY 'twenty forward. So it's something that we'll continue to track, but not necessarily making.
Cooper Warner: This quarter, we passed over 1000 customers on distributed cloud.
Meta Marshall: Making an assumption that that expansion rate should continue to go up in the second half.
Cooper Warner: The vast majority if not all of these customers are large enterprises.
Meta Marshall: Things Cooper and meet up to you to the first part of your question around distributed cloud you know as you know we distributed cloud is powered to part of our SaaS and managed services portfolio.
Cooper Warner: Two thirds of them are roughly existing five customers that also adopted distributed cloud and about a third of them are net new customers.
Meta Marshall: We shared that the you know.
Meta Marshall: The total ALR for SaaS and managed services was roughly around $180 million at the end of our fiscal.
Cooper Warner: Trend I mentioned earlier about customers embracing hybrid multi cloud is also visible in the growth we're seeing in distributor because a number of our existing customers who are using our five for hardware or software on Prem are also using us for software as a service.
Meta Marshall: Fiscal year 'twenty 'twenty four we haven't broken out distributed cloud within that but it is in there and growing fairly rapidly in fact, we passed an important milestone.
Meta Marshall: This quarter, we passed over 1000 customers on distributed cloud.
Cooper Warner: Because they get consistency of their security solutions biggest consistency of their app delivery solutions and that's a strength for us having invested in software and hardware and SaaS being able to consolidate spend on on at five in fact this quarter, we passed the milestone where more than 20% of.
Meta Marshall: The vast majority if not all of these customers are large enterprises are two thirds of them roughly existing five customers that also adopted distributed cloud and about a third of them are net new.
Meta Marshall: Customers the trend I mentioned earlier about customers embracing hybrid multi cloud is also visible in the growth we're seeing in distributed club because a number of our existing customers who are using our five for hardware or software on Prem are also using us for a software as a service because they get consistency.
Our top 1000 customers are now using distributed cloud so our largest customers around the world are also choosing our fi for SaaS and that gives us a lot of comfort around the potential growth of the platform.
Speaker Change: Great. Thanks Congrats.
Cooper Warner: Thank you.
Meta Marshall: Of their security solutions, they get consistency of their app delivery solutions, and that's a strength for us having invested in software and hardware and SaaS being able to consolidate spend on a on a five in fact this quarter, we passed the milestone where more than 20% of our top 1000 customers.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Cemig Chatterji with J P. Morgan. Please proceed with your question.
Speaker Change: Hi, Thanks for taking my questions and congrats on the results.
Speaker Change: So just sort of going off your earlier commentary and questions is a clarification.
Meta Marshall: We're now using distributed cloud so our largest customers around the world are also choosing our fight for SaaS and that gives us a lot of comfort around the potential growth of the platform.
Speaker Change: You mentioned the refreshes.
Speaker Change: Largely due on account of customers that makes sweat the assets.
Speaker Change: Is that more as part of a broader refresh of customers doing broader officials of their data centers or is there something more specific.
Speaker Change: Great. Thanks Congrats.
Meta Marshall: Thank you.
Speaker Change: Readiness for AI, that's driving that can you just flesh that out a debate in terms of what <unk> will be.
Thank you.
Speaker Change: Our next question comes from the line of Cemig chatter G with J P. Morgan. Please proceed with your question.
Speaker Change: Illinois customers, if they wanted to consume.
Speaker Change: Oh, hi, Thanks for taking my questions and congrats on the results here I guess front, so just sort of going off your earlier commentary in two questions is a clarification. One you mentioned the refreshes that you're seeing largely on account of customers that makes swift passage.
Speaker Change: As long as they want but.
Speaker Change: At least to some extent so.
Speaker Change: Mr. <unk> sort of in particular, that's driving them to refresh and then secondly, you talked about.
Speaker Change: Over the last couple of days, we've seen a lot of concerns around sort of the compute intensity going into retraining or training.
Speaker Change: I mean is that.
Speaker Change: Australia.
Speaker Change: The more favorable sentiment.
Speaker Change: Part of a broader refresh of customers doing broader pushes up their data centers or is it more spent something more specificity. There readiness for Eni that's driving that can you just flesh that out a debate in terms of what's been pretty good.
Influencing sort of cheap so can you just talk about sort of.
Speaker Change: Do you see your leverage to index sort of overall AI.
Speaker Change: Susan.
Speaker Change: English is influencing how would you sort of quantify that for us. Thank you.
Speaker Change: Customers, if they wanted to consume ethics.
Speaker Change: Long as they want or at least with some extent so he's didn't necessarily sort of a trigger that's driving them to fresh and then secondly, you talked about.
Speaker Change: Thank you Sam.
Speaker Change: Let me start with the first part around the refresh activity we're seeing.
Speaker Change: I think there are a couple of factors there. So the first one is more of a general factor that is not at five specific.
Speaker Change: Over the last couple of days, we've seen a lot of concerns around sort of the compute intensity going into pre training or training.
Speaker Change: Australia.
Speaker Change: The more favorable sentiment.
Speaker Change: I think there is a revitalization of.
Speaker Change: Influencing sort of cheap. So can you just talk about sort of where do you see your leverage too and that sort of overall AI processing. Some exposure to English is influencing how would you sort of quantify that for us. Thank you.
Speaker Change: Data center capacity data center builds.
Speaker Change: That is in part driven by large enterprises preparing for.
Speaker Change: Having the right infrastructure for AI.
And in part driven by larger enterprises also embracing hybrid multi cloud as not just the trends in state, but the destination of where theyre going to operate for the next decade and beyond and I think that that is driving.
Speaker Change: Thank you so let me start with the first part around the refresh activity we're seeing.
Speaker Change: I think there are a couple of factors there. So the first one is more of a general factor that is not at five specific but I think there is a revitalization of datacenter capacity data center builds.
Speaker Change: <unk> strength in data center spend or data center infrastructure and clearly we are benefiting from some of that but thats modify specific there are factors around refreshed that are specific to a size that.
Speaker Change: That is in part driven by large enterprises preparing for them you know, having the right infrastructure for AI.
Speaker Change: That has to do with the fact that our.
Speaker Change: Our customers over the last couple of years, we're very frugal in their refresh activity very cautious trying to sweat their assets as much as possible and because of the application growth and capacity growth that kind of have to proceed with these refresh.
Speaker Change: And in part driven by larger enterprises also embracing hybrid multi cloud.
Speaker Change: It's not just the trends in state, but the destination of where they're going to operate for the next decade and beyond and I think that that is driving strength in data center spend or data center infrastructure and clearly we are benefiting from some of that but that's not a site specific there are factors.
Speaker Change: And there were also some end of end of support dates that are coming into the portfolio in the 2026 timeframe that also customers hub.
Speaker Change: It ahead of and make sure that they do refresh. So those are I would say to two factors driving the refresh pipeline and activity we're seeing.
Speaker Change: Around refreshed that are specific to our five.
Speaker Change: That has to do with the fact that you know our customers over the last couple of years, we're very frugal in their refresh activity, a very cautious tried to sweat their assets as much as possible and because of the application growth and capacity growth. They kind of have to proceed with these refresh and there were also some.
Speaker Change: To your second question on on AI.
Speaker Change: When you look at our opportunity what we see the three categories of opportunity I described earlier for AI. The first one.
Speaker Change: Which is really high.
Speaker Change: Our high performance data delivery to and from data stores.
End of end of support dates that are coming in the portfolio in the 2026 timeframe that also customers have to get ahead of it and make sure that they do refresh. So those are I would say to two factors driving the refresh pipeline and activity we're seeing.
Speaker Change: The vast majority of that opportunity is in retrieval augmented generation, which is in printing for large enterprises.
Speaker Change: And so this one is unaffected by the discussion about how large will be the GPU cluster buildout in AI factories and today, our immediate opportunity really and I would say the majority of the deals that we have won are in that category.
Speaker Change: So your second question on on AI.
Speaker Change: When you look at our opportunity what we see you know the three categories of opportunity I described earlier for AI. The first one.
Speaker Change: As it relates to them.
Speaker Change: Which is really high.
Speaker Change: The news from yesterday under discussion from yesterday around the size and scale of AI factory build outs in the future that's tied to.
Speaker Change: High performance data delivery, two and from data stores. The vast majority of that opportunity is in retrieval augmented generation, which is inferencing for large enterprises and so this one is is unaffected by the discussion about how large will be the GPU.
Speaker Change: Our opportunity to go into load balance in front of clusters or even go inside of clusters and provide traffic management intra clusters.
Speaker Change: Cluster of build outs in AI factories and today.
Speaker Change: We are not yet.
Speaker Change: Our immediate opportunity really and I would say the majority of the deals that we have won are in that category.
Speaker Change: Early days in that opportunity, we havent yet started too.
Speaker Change: Actually drive revenue from that opportunity, we think it's a very sizable opportunity down the road, but it's very early days and frankly, it's too early.
Speaker Change: As it relates to them.
Speaker Change: The news from yesterday, and the discussion from yesterday around the size and scale of a factory build outs in the future that's tied to our opportunity to go into load balance in front of clusters or even go inside of clusters and provide traffic management intra clusters.
Speaker Change: For us to quantify it in general, though I would say that the stance of EB five is the.
Speaker Change: If in fact, we can have more open source models that allow more enterprises to adopt AI faster and build their applications and it creates a faster proliferation of AI applications.
Speaker Change: We are not yet you're very early days in that opportunity, we haven't yet started to.
Speaker Change: That is really good news for our size because it means that we will have more opportunity to do high performance data delivery for data stores and more opportunity to secure AI workloads.
Speaker Change: Actually drive revenue from that opportunity, we think it's a very sizable opportunity down the road, but it's very early days and frankly, it's too early for us to quantify it in general though.
Speaker Change: And and if in fact, it is cheaper to build.
Speaker Change: And train. These models then we thought it would be that is also good news because it will accelerate adoption of AI so were.
Speaker Change: I would say that the stencil by five is.
Speaker Change: You know if in fact, we can have more open source models.
Speaker Change: At this point, it's early days I think we don't want to get too ahead of ourselves in terms of these opportunities because it's not yet.
Speaker Change: Allow you know more enterprises to adopt AI faster and build their applications and it creates a faster proliferation of AI applications that is really good news for our size because it means that you know we will have more opportunity to do that.
Speaker Change: Meaningful or material to our revenues, but we are excited about the opportunities we're seeing in the engagements, we're having with customers.
Speaker Change: High performance data delivery for data stores and more opportunity to secure AI workloads.
Speaker Change: Okay. Thank you thank you for that.
Speaker Change: Thank you.
Speaker Change: And you know and if in fact, it is cheaper to build and train. These models. Then we thought it would be that is also good news because it will accelerate adoption of AI. So we're we're.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Michael English Goldman Sachs. Please proceed with your question.
Michael English: Hey, good afternoon, and thank you very much for the question I just have two as well.
Speaker Change: At this point, it's early days I think we don't want to get too ahead of ourselves in terms of these opportunities because it's not yet a.
Speaker Change: First I wanted to ask about the <unk>.
Speaker Change: Perpetual revenue in the quarter. This is the third consecutive year, where you had a very strong seasonal fiscal <unk> I was wondering if you could just provide a little bit more color. There is it related to the financials expansion that you.
Speaker Change: Meaningful or material to our revenues, but we are excited about the opportunities we're seeing in the engagements, we're having with customers.
Speaker Change: Okay. Thank you thanks for the color. Thank.
Speaker Change: You talked about is it indeed seasonality or should.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Should we think about this as a run rate and then second I can appreciate U S. Federal is a small part of the business I think you mentioned, 4%.
Speaker Change: Our next question comes from the line of Michael English Goldman Sachs. Please proceed with your question.
Michael English: Hey, good afternoon, and thank you very much for the question I just have two as well.
Speaker Change: Could you just comment Directionally.
Michael English: First I wanted to ask about the.
Speaker Change: Directionally was that.
Michael English: Perpetual revenue in the quarter. This is the third consecutive year, where you had a very strong seasonal fiscal <unk> I was wondering if you could just provide a little bit more color. There is it related to the financials expansion that.
Speaker Change: Truong was it.
Speaker Change: Any any directional color would be helpful. There. Thank you.
Speaker Change: Sure Yeah, Thanks, Mike I'll start on the perpetual question.
Speaker Change: Two our perpetual software.
Speaker Change: Results and Youre right, we have seen stronger results in our Q1.
Michael English: You talked about is it indeed seasonality or should.
Speaker Change: Typically customers that prefer a capex multiple gravitated to our perpetual commercial model and we see that more pronounced in the service provider vertical.
Michael English: Should we think about this as a run rate and then second I can appreciate U S. Federal is a small part of the business I think you mentioned, 4%.
Michael English: Could you just comment Directionally was that.
Speaker Change: Where we tend to see some of that investment coming in kind of near the end of the calendar year.
Speaker Change: Strong was it weak.
Speaker Change: As part of their business model planning.
Michael English: Any directional color would be helpful. There. Thank you.
Speaker Change: So I don't know yet that we're able to say this is kind of the new seasonality, but we tend to see the largest strength in our fiscal Q1 and I think this really does point to the flexibility that we give customers in terms of the commercial models that best fit their business model is.
Michael English: Sure Yeah. Thanks, Michael I'll start on the perpetual question speaking to our perpetual software rich.
Michael English: Our results and you're right, we have seen stronger results in our Q1.
Michael English: Typically customers that prefer a capex model and gravitate into our perpetual commercial model and when we see that more pronounced in the service provider vertical.
Speaker Change: It's something that has really helped to continue to drive differentiation and our software.
Michael English: Where we tend to see some of that investment coming in kind of near the end of the calendar year of as part as part of their business model planning. So I don't know yet that we're ready to say this is kind of the new seasonality, but we tend to see our largest strength in our fiscal Q1 and I think this really does point to the flex.
Speaker Change: And I can.
Speaker Change: Picture question on the federal business.
Speaker Change: Look at the 4%, it's an important of course.
Speaker Change: Out of our business, but a relatively small component.
Speaker Change: Overall, we see our business in Q1, and the fed was pretty solid.
Pipeline looks.
Michael English: The ability that we give customers in terms of the commercial models that best fit their business model.
Speaker Change: Very healthy and so.
Speaker Change: Of course, there for everybody that's doing business with the federal government to some level of uncertainty.
Michael English: It's something that has really helped to continue to drive differentiation and are suffering.
Speaker Change: In time with the change in administration, but generally we had a pretty good Q1 and the pipeline looks healthy.
Michael English: And I can take picture question on the federal business.
Michael English: The 4%, it's an important of course.
Speaker Change: Excellent. Thank you Cooper, Thank you Francois.
Michael English: Part of our business, but a relatively small component.
Speaker Change: Thank you. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from the line of town Leon <unk> with Bank of America. Please proceed with your question.
Michael English: Overall, we are a business in Q1 and the fed was pretty solid.
Speaker Change: Pipeline looks.
Michael English: Very healthy.
Michael English: And so you know there is of course, there for everybody that's doing business with the federal government to some level of uncertainty at this point in time with the you know the change in administration, but generally we had a pretty good Q1 and the pipeline looks healthy.
Leon: Hello can you hear me.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: I have two questions some of them.
Speaker Change: I want to ask it in a different way.
Speaker Change: So you're crazy.
Speaker Change: The guidance for the year.
Speaker Change: Excellent. Thank you Cooper, Thank you Francois.
Speaker Change: By about $40 million to $50 million and beat the number.
Michael English: Thank you. Thank you.
Speaker Change: So this quarter $50 million to the second quarter.
Speaker Change: Thank you. Our next question comes from the line of town Liana with Bank of America. Please proceed with your question.
Speaker Change: $10 million so that.
Speaker Change: The growth in the annual guidance.
Speaker Change: Slightly below.
Liana: Hello can you hear me.
Speaker Change: Q1, Q2, and the question is.
Speaker Change: Yes, Oh.
Speaker Change: Good.
Speaker Change: I have two questions some of them.
Speaker Change: Is there something special in Q1 Q2 is it brings things forward in that or is it just conservatism, but theyre not willing now to make a call on the second half.
Speaker Change: But I want to ask it in a different way.
Speaker Change: So you're are increasing the guidance for the year.
Speaker Change: The second question.
Speaker Change: By about 40 to 50 million.
Speaker Change: Please go ahead.
Speaker Change: Sorry should I should I should I am.
Speaker Change: The numbers of this quarter $50 million.
Speaker Change: Sure go ahead.
Speaker Change: This quarter is it.
Speaker Change: Second question is on software and.
Speaker Change: $10 million so the growth in the annual guidance is in line slightly below.
Speaker Change: I'm trying to separate.
Speaker Change: Software fraud.
Speaker Change: Q1, Q2, and the question is.
Speaker Change: Because when you renew a contract you recognize 2% upfront so.
Speaker Change: Is it is there something special in Q1 Q2 is it brings things forward in that or is it just conservatism to turn now to make a call on the second half.
Speaker Change: The way that the accounting works is between a three year contract between three years a year.
Speaker Change: Three or four which means that renewal.
Speaker Change: The second thing.
Speaker Change: Very big jump in revenues because only the leftovers are left for the third year and then there is upfront recognition in the fourth year.
Speaker Change: Okay.
Speaker Change: Sorry should I should I continue.
Speaker Change: Sure go ahead.
Speaker Change: Second question is on software and.
Speaker Change: So the question is can you separate off the software growth that we're seeing phenomenal softer growth can you separate.
Speaker Change: I'm trying to separate.
Speaker Change: Software from renewables, because when you renew contracts you recognized 62% upfront so.
Speaker Change: How much of it is because of accounting and renewals and how much of it is because because of real growth gross estimate.
Speaker Change: The way that the accounting works is between a three year contract between three.
Speaker Change: Kind of use cases for our products et cetera, I just wanted to because we're talking about renewals I just wanted to have notwithstanding.
Speaker Change: Three of your four which means that there's a very big jump in revenues because only the leftovers are left for the third year and then there's upfront recognition in the fourth year.
Speaker Change: Kind of on revenues versus new growth opportunities.
Speaker Change: Sure I guess I'll, probably take both of them and Francois you can jump in let's start with the software question.
Speaker Change: So the question is can you separate off the software growth that we're seeing phenomenal software gross can you separate.
Speaker Change: So youre right.
Speaker Change: How much of it is because of accounting and renewals and how much of it is because because of gross growth with customers.
Speaker Change: The number one vehicle that we sell software in is what we call. Our flexible consumption program. These are the large multi year.
Speaker Change: Kind of use cases for product et cetera.
Speaker Change: Subscriptions that we sell both us and for.
Speaker Change: <unk> license based offerings are deployable based offerings as well as SaaS based offerings, but the deployable offering is the larger opportunity and that is where you get that upfront revenue recognition of 63% typically if it's a three year deal and then the remainder is recognized as service revenue over time.
Speaker Change: Because we're talking about renewals I just wanted to have the understanding of.
Kind of on revenues versus new growth opportunities.
Speaker Change: Sure I guess I'll, probably take both of them and Francois you can jump in but let's start with the software question. So you're right.
Speaker Change: So that is you are speaking to the dynamic of wire software revenue.
Speaker Change: The number one vehicle that we sell our software in is what we call. Our flexible consumption program. These are the large multi year subscriptions.
Speaker Change: Is not a smooth growth trajectory and so we get a lot of questions around that is that a R.
Speaker Change: Subscriptions that we sell both us and for license based offerings are deployable based offerings as well as SaaS based offerings, but the deployable offering is the larger opportunity and that is where you get that upfront revenue recognition of 63% typically if it's a three year deal and then the remainder is recognized as service revenue over time.
Speaker Change: Speak to the predictability and the visibility we have in software and the reality is we do have pretty good visibility in the software opportunity, but because of the how the revenue is recognized with ASC 606, you do get some lumpiness in the growth rates and so we've had quarters, where the growth rate on the headline revenue number was a bit lower.
Speaker Change: And so that is you are speaking to the dynamic of wire software revenue is.
Speaker Change: The underlying strength of the business and then there are quarters, where you've got large opportunities that renew where you do have an upfront revenue recognition.
Speaker Change: It's not a smooth growth trajectory and so we get a lot of questions around that is that are you know speak to the predictability and the visibility we have in software and the reality is we do have pretty good visibility in the software opportunity, but because of the how the revenue is recognized with ASC 606, you.
Speaker Change: So that's something where when we talk to the longer term software growth opportunities and that's something that eventually kind of smooths out but at any given quarter youre going to see some degree of Lumpiness now having said that looking at what's behind the strength we saw in this quarter.
Speaker Change: Do get some lumpiness in the growth rates and so we've had quarters, where the growth rate on the headline revenue number was a bit lower than the underlying strength of the business and then there are quarters, where you've got large opportunities that renew where you do have an upfront revenue recognition.
Speaker Change: Clearly, we saw upside to the reported revenue from.
Speaker Change: From software compared to how we guided for the quarter and that was really driven by the very strong expansion, we're seeing at that time of renewal across across those large subscription.
Speaker Change: And so that's something when we talk to the longer term software growth opportunities and that's something that eventually kind of smooths out but in any given quarter youre going to see some degree of Lumpiness now having said that looking at what's behind the strength we saw in this quarter.
Speaker Change: <unk> offerings and this is really customers that are converging multiple solutions onto our platform. So we're winning at a higher rate in the marketplace and we're seeing customers do a lot more with the five across our portfolio and that's really what's behind that strength and it's what has allowed us to take our guide up for the full year for software.
Speaker Change: We saw upside to the reported revenue.
Speaker Change: Software compared to how we had guided for the quarter and that was really driven by the very strong expansion, we're seeing at that time of renewal across across those large subscription.
Speaker Change: Got it.
Speaker Change: And then I would also note that we did also see growth from new software projects.
Speaker Change: Offerings and this is really customers that are converging multiple solutions onto our platform. So we're winning at a higher rate in the marketplace.
Speaker Change: Where we had said going into the year that we were assuming revenue from new projects will be roughly flat year over year, and we saw healthy growth in Q1, and so that's something we'll continue to monitor over the course of the year.
Speaker Change: We're seeing customers do a lot more with that five across our portfolio and that's really what's behind that strength and it's what has allowed us to take our guide up for the full year for software.
Speaker Change: Great to know about the second half question.
Speaker Change: Yes, so so the guide for the full year.
Speaker Change: Got it.
You said that it would be low single digit growth in the first half.
Speaker Change: And then I would also note that we did also see growth from new software projects.
Speaker Change: Mid single digit second half and so we saw strength in Q1 that was both on hardware and software. We did note that there was likely some pull in of demand into Q1 related to the pricing increases we don't think that was.
Speaker Change: Where we had said going into the year that we were assuming revenue from new projects would be roughly flat year over year, and we saw healthy growth in Q1, and so that's something we'll continue to monitor over the course of the year.
Speaker Change: The headline on the hardware growth, but that was some of it. So as we look ahead to the back half of the year.
Speaker Change: And about the second half question.
Yeah. So so the guide for the full year we.
Speaker Change: We are factoring that in a little bit but on the software side as I said on a prior question the base against which we assess that growth opportunity in the second half year. It's the same base and so that's something that if we continue to see exceptional expansion rates on that base, we could see a better outcome from a revenue perspective.
Speaker Change: We had said that it would be low single digit growth in the first half and a mid single digit second half and so we saw strength in Q1 that was both on hardware and software. We did note that there was likely some pull in of demand into Q1 related to the pricing increases we don't think that was the.
Speaker Change: <unk>, but given that it's early in the year and then a lot of that strength was really kind of more pronounced across some of our largest deals in Q1, we think it would be a little bit premature to just assume that same level of expansion in the second half of the year, but we will continue to engage closely with those customers and we certainly see the opportunity.
Speaker Change: On the software the hardware growth, but that was some of it. So as we look ahead to the back half of the year.
Speaker Change: You know we are factoring that in a little bit but on the software side as I said on a prior question the base against which we assess that growth opportunity in the second half year. It's the same base and so that's something that if we continue to see exceptional expansion rates on that base, we could see a better outcome from a revenue perspective.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Amit Dayal.
Speaker Change: <unk> <unk> with Evercore ISI. Please proceed with your question.
Speaker Change: But given that it's early in the year and there are a lot of that strength was really kind of more pronounced across some of our largest deals in Q1, we think it would be a little bit premature to just assume that same level of expansion in the second half of the year, but we will continue to engage closely with those customers and we certainly see the opportunity.
Speaker Change: Thanks, a lot off too as well I guess, maybe just started on the system side, you folks had really good 18% growth year over year on the system side, how much of that do you think was driven by pull ins ahead of the price increases that you're implementing and if you just quantify what the price increases went into that.
Speaker Change: Thank you.
Speaker Change: Got implemented John posed that'd be helpful.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Diana <unk> with Evercore ISI. Please proceed with your question.
John: Sure, Yes, so it was a modest.
John: Kind of hard to fully break that out but as we worked our sales teams.
Speaker Change: Yeah. Thanks, a lot off too as well I guess, maybe just starting on the system side, you folks had really good 18% growth year over year on the system side, how much of that do you think was driven by pull ins ahead of the price increases that you're implementing and if you just quantify what sort of price increases went into Oh got implemented John post that'd be helpful.
John: Our view is that it was a modest amount of Poland. It wasn't super material to the results, but we did want to acknowledge that they are likely with some demand pulled in.
John: Price increases are.
John: Kind of mid single digits across hardware and software. So they are not at the same magnitude.
John: Of previous price increases we saw in the systems business, where we saw a more pronounced pull in of demand.
Speaker Change: Sure Yeah. So it was a modest I mean, it's kind of hard to fully break that out but as we worked our sales teams.
John: Got it and then just to.
John: To go back to that software discuss youre, having a minute ago.
Speaker Change: Our view is that it was a modest amount of Poland. It wasn't super material to the results, but we did want to acknowledge that they are likely with some demand pulled in these.
John: Yeah. The way you folks are guiding at this point it looks like you know 22% growth in Q1, and then you see some <unk>.
John: The only notable deceleration as the year progresses to hit that at least 10%.
Speaker Change: These price increases are.
Speaker Change: Kind of mid single digits across hardware and software. So they are not at the same magnitude.
Speaker Change: Is that kind of deceleration just <unk> because you don't know what the expansion metrics. It looked like the new problems could look like or is there something more nuance thats happening in the next few quarters that we should be aware about.
Speaker Change: Of previous price increases we saw in the systems business, where we saw a more pronounced pull in of demand.
Speaker Change: Got it and then if I just go back to that software discussion you were having a minute ago. Yeah. The way you folks are guiding at this point it looks like you know 22% growth in Q1, and then you see some fairly notable deceleration as the year progresses to hit that at least 10% E is that kind of deceleration just <unk> because.
John: Okay.
John: No I mean, I think you can say that we're maybe we're being prudent the last couple of quarters. The expansion rate has been well ahead of our historical norms.
John: Because it's so early in the year and it tends to be centered around our larger deals.
John: We're just being a little bit.
Speaker Change: You don't know what the expansion metrics could look like with new projects could look like or is there something more nuance that's happening in the next few quarters that we should be aware about.
John: Wanting a little more time to really assess do those expansion rates continue to go up through the year.
John: As I said, it's the same base of opportunity that we see in the second half of the year is when we originally put.
Speaker Change: Yeah.
Speaker Change: No I mean, I think you can say, maybe we're being prudent the last couple of quarters. The expansion rate has been well ahead of our historical norms.
John: Put together our guidance so what you're really seeing is just the strength that we saw in Q1 against what we had previously said would be kind of more flattish to low growth on the software side and given the strong expansion rates. We saw on those largest customers that's where the strength is coming through in Q1.
Speaker Change: Again, because it's so early in the year and it tends to be centered around our larger deals you know I think that we're just being a little bit.
Speaker Change: Wanting a little bit more time to really assess do those expansion rates continue to go up through the year, but as I said, it's the same base of opportunity that we see in the second half of the year is when we originally put together our guidance. So what you're really seeing is just the strength that we saw in Q1 against what we had previously said would be kind of more flattish to low growth on this.
John: Yeah.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Matt Hedberg with RBC. Please proceed with your question.
Speaker Change: Alright, Thanks for the question because I have two as well maybe the first one just a point of clarification on some of the it spend spending trends that you mentioned I guess Francois.
Speaker Change: Software side and given the strong expansion rates, we saw on those largest customers that's where the strength is coming through in Q1.
Speaker Change: Specifically did you see any change in enterprise buying behavior in the U S.
Speaker Change: Yeah.
Speaker Change: Got it thank you.
Speaker Change: The presidential election, I guess is the first question.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Matt Hedberg with RBC. Please proceed with your question.
Speaker Change: I want to say no.
Speaker Change: Yeah.
Speaker Change: Alright, thanks for the question because I have two as well maybe there were some just just a point of clarification on some of the improving it spend spending trends that you mentioned I guess Francois.
Speaker Change: However.
Speaker Change: Our quarter as you know.
Speaker Change: Started on October 1st and then and on December 31, So the presidential election was in the middle our quarter is typically backend loaded.
Speaker Change: Specifically did you see any change in enterprise buying behavior in the U S post the presidential election, I guess is the first question.
Speaker Change: So naturally we would have expected a significant amount of our bookings to come after the presidential election, but we cannot point to that being a factor because the pipeline going into the quarter was.
Speaker Change: I want to say no.
Speaker Change: However, our quarter as you know.
Speaker Change: Was pretty strong.
Speaker Change: And.
Speaker Change: <unk> started on October 1st and then and on December 31st So the presidential election was in the middle our quota is typically backend loaded.
Speaker Change: It was more of a continuation and a bit of acceleration of trends that we actually had seen in the last quarter of fiscal 2024.
Speaker Change: Really around customers embracing hybrid multi cloud and wanting to.
Speaker Change: So naturally we would have expected significant amounts of our bookings to come after the presidential election, but we cannot point to that being a factor because the pipeline going into the quarter was was pretty strong and you know it it was more of a continuation and a bit of acceleration of trends.
Speaker Change: Invest in data center capacity to support application growth.
Speaker Change: Got it Okay. That's helpful. And then maybe just an AI question for me you talked a lot about on the prepared remarks, and I guess digging into a little bit more the other big topic and it didn't come up in this call. It really does feel like a gentex AI is kind of changing the way, we think about your NII and how organizations think about workflow and automation.
Speaker Change: We actually had seen in the last quarter of fiscal 2024.
Speaker Change: Really around customers embracing hybrid multi cloud and wanting to <unk>.
Speaker Change: You guys, obviously have a focus on app delivery and API security et cetera, do you think.
Speaker Change: Invest in data center capacity to support application growth.
Speaker Change: I got it Okay. That's helpful. And then maybe just an AI question for me you talked a lot about on the prepared remarks and I guess.
Speaker Change: And a gen tick AI tailwind could start to emerge is that technology proliferates among amongst customers.
Speaker Change: You get into a little bit more the other big topic and it didn't come up in this call. It really just feel like a gentex AI is kind of changing the way, we think about your NII and how organizations think about workflow and automation.
Speaker Change: Well the in terms of <unk> five.
Speaker Change: Yes, because the more.
Speaker Change: AI applications and agents are part of that.
You guys, obviously have a focus on app delivery and API security et cetera, do you think.
Speaker Change: Exist that means the more data it needs to move between data stores and these agents or are these models and it also means that its way more apis to secure.
Speaker Change: <unk> AI tailwind could start to emerge is that technology proliferates among amongst customers.
Well the in terms of F. Five mm, yes, because the more AI applications and agents are part of that.
Speaker Change: And way more.
Speaker Change: AI modules that require security so.
Speaker Change: The for Us and Egencia World, where also drives more complexity, so I should step back a little bit when we talk about high.
Speaker Change: Exist that means the more data it needs to move between data stores and these agents or are these models and it also means that its way more API used to secure and way more.
Speaker Change: Hybrid multi cloud.
Speaker Change: We frame that before us this ball of fire, meaning cut.
Speaker Change: Customers have more and more applications are components of applications that are distributed across multiple cloud environments.
Speaker Change:
Speaker Change: AI modules that require security.
Speaker Change: And our multiple infrastructure environments and they have to connect all of these application or app components together they have to secure them.
Speaker Change: No.
Speaker Change: You know for us and Egencia World, where also drives more complexity, so I should step back a little bit when we talk about.
Speaker Change: It is complex to do that across multiple infrastructure environment.
Speaker Change: Hybrid multi cloud.
Speaker Change: So we frame that before us this ball of fire, meaning you know customers have more and more applications are components of applications that are distributed across multiple cloud environments.
Speaker Change: And Thats, what we call the ball of fire and that's what's driving customers enterprise customers too sometimes consolidate spend on a player like <unk> five that can provide security and delivery across all of these environments and simplify the process of securing and delivering across hybrid multi cloud.
Speaker Change: And our multiple infrastructure environments and they have to connect all these application or app components together they have to secure them.
Speaker Change: You think about in a <unk> world. This is one where AI applications are going to be calling agents.
Speaker Change: And it is complex to do that across multiple infrastructure environments.
Speaker Change: And that's what we call the ball of fire and that's what's driving customers enterprise customers too sometimes consolidate spend on a player like a five that can provide security and delivery across all of these environments and simplify the process of securing and delivering across hybrid multi cloud now if you think about any gen seek world.
Speaker Change: Of course in a different infrastructure environment, sometimes folks don't even know where that <unk>.
Speaker Change: Application resides and so it creates even more complexity around hybrid and multi cloud environment and it creates even more need to secure those.
Speaker Change: Those applications across all these environments and so that that exponential growth in complexity that could come from and Egencia world is actually tailwind to accompany that solve the qualifier and solve that complexity. So we feel.
Speaker Change: This is one where you know AI applications are going to be calling agents.
Speaker Change: That of course in a different infrastructure environment, sometimes folks don't even know where that energetic application resides and so it creates even more complexity around hybrid and multi cloud environment and it creates even more need to secure those applications across all these environments and so.
Speaker Change: That could be significant tailwind, but it's very early days for us in AI and as you know and as we have found out over the last several days, we continue to learn something new every week about AI. So we have to remain.
Speaker Change: That that exponential growth in complexity that could come from and Egencia World is actually tail wind to a company that solves the ball of fire and solve that complexity. So we feel you know.
Speaker Change: Both excited but also humble about the opportunity.
Speaker Change: Great Great perspective, congrats on the results guys. Thanks.
Speaker Change: Thank you.
That could be significant tailwind, but it's very early days for us in AI and as you know and as we have found out over the last several days, we continue to learn something new every week about AI. So we have to remain.
Speaker Change: Thank you alright.
Speaker Change: Alright next question comes from the line of James Fish with Piper Sandler. Please proceed with your question.
Speaker Change: Hey, guys.
Speaker Change: I don't want to dwell on this but.
Speaker Change: I think what we're all trying to get at here.
Speaker Change: Both excited but also humble about the opportunity.
Speaker Change: Our impressive results the largest we've seen out of FY, Inc.
Speaker Change: Great Great perspective, congrats on the results guys. Thanks.
Speaker Change:
Speaker Change: Thank you.
Speaker Change: Can you help us understand.
Speaker Change: Thank you.
Speaker Change: The differences in terms of what's driving that sustainability here.
Speaker Change: Our next question comes from the line of James Fish with Piper Sandler. Please proceed with your question.
Speaker Change: How do we think about you talked about the <unk>.
James Fish: Hey, guys Cooper I don't want to dwell on this but you know I think what we're all trying to get out here.
Speaker Change: Mid single digits on pricing across system software how to think about also the citrix share gain the budget flush or pull in the large hail and refresh us just help us level set what the sustainable kind of longer term vision here is for growth.
Speaker Change: More impressive results the largest we've seen out of that.
James Fish: Ever.
James Fish: Can you help us understand.
Speaker Change: The differences in terms of what's driving that sustainability here.
Speaker Change: Sure Yeah, I mean, I'll start with kind of what the underlying driver is this really.
James Fish: How do we think about you talked about.
Speaker Change: Really kind of lifting all facets of our revenue base and Thats. The complexity that we resolved for customers with hybrid multi cloud environments and so we're seeing that show up in the software business and the hardware business and services business on the software side, but it's really manifesting in expansion.
James Fish: Mid single digits on pricing across systems and software how to think about also the citrix share gains the budget flush the pull in the large deal and refresh us just help us level set what the sustainable kind of longer term vision here is for growth.
James Fish: Sure Yeah, I mean, I'll start with kind of what the underlying driver is this really kind of lifting all facets of our revenue base and that's the complexity that we resolved for customers with hybrid multi cloud environments and so we're seeing that show up in the software business and the hardware business and the services business.
Speaker Change: So and that is something that we do think as durable it's accelerating that rate of expansion across the portfolio that is something that we think is very sustainable and that we think long term is really going to benefit our software opportunity now as we noted when you see strong expansion across large customers with multi year.
James Fish: On the software side, what it's really manifesting in expansion.
Speaker Change: Software agreements.
Speaker Change: See a large upfront recognition of that software opportunity and so that's where it can get a little bit spiky. When you start to see an acceleration in that rate of expansion, but we're also seeing it across the hardware business, where it's Francois noted customers.
James Fish: And so and that is something that we do think it's durable it's accelerating that rate of expansion across the portfolio that is something that we think is very sustainable and that we think long term is really going to benefit our software opportunity now as we've noted when you see strong expansion across large customers with multi year.
Speaker Change: Igniting that hybrid multi cloud is.
Speaker Change: Their destination, that's the environment, they're going to be working within overtime.
Software agreements.
Speaker Change: Has led them to recognize the need to continue to invest in both systems and software solutions and we are the only player that is invested across all form factors and continued in particular to invest in the systems.
James Fish: You see a large upfront recognition of that software opportunity and so that's where it can get a little bit spiky. When you start to see an acceleration in that rate of expansion, but we're also seeing it across the hardware business, whereas Francois noted.
James Fish: Customers recognizing that hybrid multi cloud is.
Speaker Change: And what with what we brought to market and our new generation of appliances, and so thats really whats sustainable about the opportunity now of course, there is going to be some spiking this and whether that's <unk>.
James Fish: Their destination, that's the environment, they're going to be working within over time.
James Fish: He has led them to recognize the need to continue to invest in both systems and software solutions and we are the only player that is invested across all form factors and continued in particular to invest in the systems.
Speaker Change: Some price pull in.
Speaker Change: We may have seen in the current quarter, which we don't think it was a super material, but there was a little bit of that.
Speaker Change: In terms of the timing of the Rev. Rec on the software expansions, but broadly the underlying theme is something that we think will continue to help drive the revenue opportunity for us over time.
James Fish: In in what with what we brought to market and our new generation of appliances, and so that's really what's sustainable about the opportunity now of course, there's going to be some spiking isn't it whether that's you know some price pull in.
Speaker Change: Okay.
Speaker Change: Got it.
Speaker Change: And then you guys used to talk about five years having.
James Fish: We may have seen in the current quarter, which we don't think it was a super material, but there was a little bit of that.
Speaker Change: Roughly 200000 systems.
Speaker Change: And we think about refreshes every five seven years on average obviously the supply chain stuff change a lot of things are we starting to see that call. It 50, 60000 cohort or even more.
James Fish: In terms of the timing of the Rev. Rec on the software expansions, but broadly the underlying theme is something that we think will continue to help drive the revenue opportunity for us over time.
Speaker Change: Create a bigger balls and that's what's giving you guys the confidence around double digit hardware refresh.
James Fish: Got it.
James Fish: And then you guys used to talk about five years having.
Speaker Change: Here I am sorry, dark double digit hardware growth this year.
James Fish: Roughly 200000 systems.
James Fish: And we think about refreshes every five seven years on average obviously the supply chain stuff change a lot of things are we starting to see that call. It 50, 60000 cohort or even more.
Speaker Change: Yes, that's certainly part of it it's not so much that the bulge is bigger it's just that the bulges a lot closer to US now that's why we referenced.
Speaker Change: The Endo software support dates that are pending.
Speaker Change: A bigger balls and that's what's giving you guys the confidence around double digit hardware refresh this year I'm, sorry, dark double digit hardware growth this year.
Speaker Change: In FY 'twenty six 'twenty seven and that those really are associated with two product families that are more than half of our installed base. Today. So customers really look to start planning in advance of those dates and every customer is different some will look to drive those refreshes much earlier like well ahead of those dates other customers may run right up to those day.
Speaker Change: Yes, that's certainly part of it it's not so much that the bulge is bigger it's just that the bulges a lot closer to us now and that's why we referenced.
Speaker Change: The end of software support dates that are pending in FY 'twenty six 'twenty seven and that those really are associated with two product families that are more than half of our installed base today and so customers really look to start planning in advance of those dates and every customer is different some will look to to drive those refreshes much earlier.
Speaker Change: But that's where we're seeing kind.
Speaker Change: Kind of more near term visibility on.
Speaker Change: The size and shape of what that tech refresh opportunity could look like and we think it extends well beyond the current year at least through FY 'twenty six.
Speaker Change: Yeah.
Speaker Change: Thanks.
Speaker Change: Like well ahead of those dates other customers may run right up to those dates, but that's where we're seeing.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Simon Leopold with Raymond James. Please proceed with your question.
Speaker Change: Kind of more near term visibility on.
Victor Chu: Hi, guys. This is Victor Chu.
Speaker Change: The size and shape of what that tech refresh opportunity could look like and we think it extends well beyond the current year at least through FY 'twenty six.
Speaker Change: We're signing people I just wanted to follow up.
Victor Chu: On the earlier question.
Victor Chu: Someone asked around the specific.
Speaker Change: Thanks.
Victor Chu: Triggers around the system refreshes.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Simon Leopold with Raymond James. Please proceed with your question.
Victor Chu: Makes sense.
Victor Chu: These large customers.
Victor Chu: <unk>.
Victor Chu: We have been sweating assets for quite a while but I guess, it's just surprising.
Victor Chu: Hi, guys. This is Victor Chu.
Speaker Change: Assigning people I just wanted to follow up.
Victor Chu:
Victor Chu: On the earlier question.
Victor Chu: Around.
Speaker Change: Is it kind of aligning together so I guess was there some specific dynamics that caused.
Victor Chu: Someone asked around the specific trigger.
Victor Chu: Triggers around the system refreshes.
Speaker Change: That triggered these upgrades to kind of align around the same time and kind of.
Victor Chu: Makes sense.
Victor Chu: You know these large customers.
Speaker Change: What was the Delta I guess versus your expectations previously I guess.
Victor Chu: Have been sweating assets for quite a while but I guess, it's just surprising you know the.
Victor Chu: The timing around.
Speaker Change: Well I would say first of all we had said.
Victor Chu: How does it kind of aligning together so I guess was there some specific dynamics that caused.
Speaker Change: Already at the start of the year and in fact, I think we said during the.
Victor Chu: That triggered these upgrades to kind of a liner around the same time and kind of.
Speaker Change: The summer of 2024 that we expected 2025 to be a stronger year for hardware after a year and a half of our customers.
Victor Chu: What was the Delta I guess versus your expectations you know previously I guess.
Speaker Change: Assets and so we have said we expected growth in hardware this year.
Victor Chu: Well I would say first of all we had said.
Speaker Change: And.
Victor Chu: Already at the start of the year and in fact, I think we said during the summer of 2024 that we expected 20 to 25 to be a stronger year for hardware after a year and a half where customers were sweating assets and so we had said we expected growth in hardware this year and Ah.
Speaker Change: We now expect closely at Hollywood can be actually stronger than we thought at the beginning of the year.
Speaker Change: And that is because the refresh activity and the expansion activity and the takeout rates of competitors is stronger than we anticipated. If you go back to the.
Speaker Change: The root cause of that.
Victor Chu: We now expect to close in Hollywood can be actually stronger than we thought at the beginning of the year end.
Speaker Change: We think it's really driven by customers embracing their hybrid multi cloud architectures, realizing they need more capacity in their data centers and therefore, we're getting expansion.
And that is because the refresh activity and the expansion activity and the take up rates of competitors is stronger than we anticipated. If you go back to.
Speaker Change: The expansion both refresh and expansion on that we're also getting.
Speaker Change: Number of customers consolidating.
Victor Chu: The root cause of that.
Speaker Change: Use cases on our site so we have.
Victor Chu: We think it's really driven by customers embracing their hybrid multi cloud architectures, realizing they need more capacity in their data centers and therefore, we're getting.
Speaker Change: Number of customers this quarter.
Speaker Change: That shows that five to consolidate multiple security use cases and displaced other point security vendors and go onto a five that's driven by the investments we've made.
Victor Chu: Expansion book refresh and expansion on that we're also getting a number of customers consolidating.
Speaker Change: In security and new next generation software and hardware over the last several years all of that is coming to align on the opportunity for us to on both on our systems business and in our software business.
Victor Chu: Use cases on our five but we had.
Victor Chu: Number of customers.
Victor Chu: Quota.
Victor Chu: It shows that five to consolidate multiple security use cases and displaced other point security vendors and go on to a five that's driven by the investments we've made.
Speaker Change: Okay. So given that I mean, just your expectation around systems growth over the long term.
Speaker Change: Change.
Victor Chu: In security and new next generation software and hardware over the last several years all of that is coming to align on the opportunity for us to on a both on our systems business and in our software business.
Speaker Change: Did these dynamics or do you still expect.
Speaker Change: Overtime that systems.
Speaker Change: Contributing to this decline.
Speaker Change: Is that they don't want expectation.
Speaker Change: Okay. So given that I mean, just your expectation around systems growth over the long term.
Oh.
Speaker Change: What we have said what we're not here to give long term.
Speaker Change: Long term guidance, but what we have said is that over time, we expected that more and more customers would move towards <unk>.
Speaker Change: Change you know gift, giving you don't see these dynamics or do you still expect.
Speaker Change: Overtime that systems are.
Speaker Change: Continue to decline.
Speaker Change: Ducting more software in their environment.
Speaker Change: They know what to expect.
Speaker Change: Station.
Speaker Change: Ed I'd say.
Speaker Change: Look what we have said what we're not here to give long term.
Speaker Change: A lot of these customers, but the majority of customers are actually deploying software and hardware in their environment. That's why we're talking about hybrid multi cloud they want the flexibility to deploy the software in different places.
Speaker Change: Long term guidance, but what we have said is that over time, we expected that more and more customers would move towards adopting more software in their environment.
Speaker Change: They continue to deploy hardware so you know overtime.
Speaker Change: Over time the trajectory of the.
Speaker Change: That said you know I'd say a lot of these customers devote the majority of customers are actually deploying software and hardware in their environment.
Speaker Change: The hardware business is we our views on that Havent changed.
Of course, AI and the AI use cases, I mentioned earlier are a bit of a wildcard on that it's too early to know what impact they have on the trajectory of the hardware business, but we are starting to see some opportunities for hardware related to AI and that could.
Speaker Change: Why we talked about hybrid multi cloud they want the flexibility to deploy the software and in different places.
Speaker Change: But they continue to deploy hardware. So you know overtime the trajectory of the the hardware business is we our views on that haven't changed of.
Speaker Change: <unk> have some impact down the road on the long term trajectory of the business.
Speaker Change: Of course, AI and the AI use cases, I mentioned earlier are a bit of a wildcard on that it's too early to know what impact they have on the trajectory of the hardware business, but we are starting to see some opportunities for hardware related to AI and that could.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Matt.
Speaker Change: Needham <unk> company. Please proceed.
Speaker Change: Good question.
Speaker Change: Great. Thanks for taking the question and congrats on the results guys I guess.
Speaker Change: You know have some impact down the road on the the long term trajectory of the business.
Speaker Change: Francois on the on that AI opportunity you were just talking about I guess, what visibility do you guys have to those initial opportunities where are we at in the rollout of those can you talk a little bit about your go to market for these AI opportunities, whether that's requiring any incremental investment in <unk>.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Matt.
Speaker Change: With Needham <unk> Company. Please proceed with your question.
Matt Hedberg: Great. Thanks for taking the question and congrats on the results guys I guess.
So on the on that AI opportunity you were just talking about I guess, what visibility do you guys have to those initial opportunities where are we at in the rollout of those can you talk a little bit about your go to market for these AI opportunities, whether that's requiring any incremental investment in Harrow you're winning.
Speaker Change: These opportunities are you seeing thanks.
Speaker Change: Thank you so.
Speaker Change: There's a bundle of questions there.
Speaker Change: Try and hit all of them.
Speaker Change: <unk>.
Speaker Change: Let me start by saying.
Speaker Change: I am.
Speaker Change: <unk>.
Speaker Change: I am very cautious when I speak to our opportunity G&A, because I feel things are developing very quickly and theres always.
Matt Hedberg: These opportunities who are you seeing thanks.
Matt Hedberg: Thank you so Ah theres.
Matt Hedberg: There's a bundle of questions there I'll.
Speaker Change: Learnings and frankly, there is the body of data that's available to us to make.
Matt Hedberg: Try and hit all of them Deane.
Matt Hedberg: Let me start by saying.
Speaker Change: Pattern recognition and long term projections, if those samples are very small today.
Matt Hedberg: I am.
Matt Hedberg: I am very cautious when I speak to our opportunity in AI, because I feel things are developing very quickly and theres always.
Speaker Change: That said.
Speaker Change: We we are the kinds of deals that we are winning right now are generally large enterprises.
Matt Hedberg: New learnings and frankly, there is the body of data that's available to us to make.
Speaker Change: And as you know <unk> five as a company that is focused on large enterprises. So this is where our account teams are already working in having relationship with customers.
Matt Hedberg: Pattern recognition and long term projections, if those samples are very small today that said.
Speaker Change: We are typically winning these opportunities either because our traditional customers are deploying the infrastructure for AI or because the folks deploying AI infrastructure.
Matt Hedberg: We we are the kinds of deals that we are winning right now are generally large enterprises.
Matt Hedberg: And as you know at five as a company that is focused on large enterprises. So this is where our account teams are already working in having relationship with customers.
Speaker Change: Get to know about five from their internal stakeholders, who deploy a five.
Matt Hedberg: We are typically winning these opportunities either because our traditional customers are deploying the infrastructure for AI or because the folks deploying AI infrastructure.
Speaker Change: We haven't had to make.
Speaker Change: A very significant departures from our existing products to date, because our existing products are ideal for securing and moving significant amounts of data at speed in this environment and so it's a fairly straightforward go to market motion for our existing.
Matt Hedberg: You know get to know about it five from their internal stakeholders will deploy a five.
Matt Hedberg: We haven't had to make.
Matt Hedberg: A very significant departures from our existing products to date, because our existing products are ideal for securing and moving significant amounts of data at speed in this environment and so it's a fairly straightforward go to market motion for our existing accounts.
Speaker Change: <unk> book to find these opportunities and to prosecute these opportunities with our existing solutions.
Speaker Change: No.
Speaker Change: Going forward as we learn more about these environments, we may make some targeted.
Speaker Change: Customization development as such offer these opportunities.
Matt Hedberg: <unk> booked to find these opportunities and to prosecute these opportunities with our existing solutions.
Speaker Change: But that will come that will come down the road in terms of the competitive landscape.
Matt Hedberg: No.
Speaker Change: Again, we stand alone in having made the investment in both software and hardware for.
Matt Hedberg: Going forward as we learn more about these environments, we may make some targeted.
Speaker Change: For hybrid multi cloud environment. These AI architectures are inherently hybrid and multi cloud because you have data that can reside on prem or in the cloud you have AI models that.
Matt Hedberg: Customizations development, it's a trough for these opportunities.
Matt Hedberg: But that will come that will come down the road in terms of the competitive landscape and again we.
Matt Hedberg: We stand alone in having made the investment in both software and hardware.
Speaker Change: Largely in in Pablo.
Speaker Change: Public clouds today, but some enterprises are starting to deploy AI applications on Prem and so you do need the ability to connect these environments together and solutions that operate across them, we're very uniquely positioned to serve those needs and that is why we.
Matt Hedberg: A hybrid multi cloud environments.
Matt Hedberg: I architectures are inherently hybrid and multi cloud because you have data that can reside on prem or in the cloud you have <unk>.
Matt Hedberg: <unk> that.
Matt Hedberg: Largely in in in public clouds today, but some enterprises are starting to deploy AI applications on Prem and so you do need the ability to connect these environments together and solutions that operate across them, we're very uniquely positioned to serve those needs and that is why we have a good window.
Speaker Change: We have a good win rate on the opportunities that we have engaged to date.
Speaker Change: Yeah.
Speaker Change: How about yourself.
Speaker Change: So all of the elements of the question.
Right on the opportunities that we have engaged to date.
Speaker Change: Yeah. Thanks, Thanks, Francois and then I guess on the on the competitive environment. It sounds like things are really opening up for you guys anything you can give us on the pipeline of opportunities there.
Matt Hedberg: Yeah.
Matt Hedberg: How 'bout addressed all of the elements of the question.
Speaker Change: When rates trending for hardware as well as in cloud with Nginx in Dcs do you anticipate any changes to that.
Speaker Change: Yes, I think thanks, Francois and then I guess on the on the competitive environment. It sounds like things are really opening up for you guys anything you can give us on the pipeline of opportunities there.
Speaker Change: The competitive opportunity is as you take out price this year in January.
Speaker Change: Okay.
Speaker Change: We don't anticipate changes to our competitive opportunity as it relates to prices.
Speaker Change: Our win win win rates trending for hardware as well as in clad with nginx in Dcs do you anticipate any changes to.
Speaker Change: Especially the first part of your question I would say in the software and hardware ADC market.
Speaker Change: The competitive opportunity as you take out price this year in January.
Speaker Change: We feel very very good about our competitive position.
Speaker Change: Yeah.
Speaker Change: We don't anticipate changes to our competitive opportunity as it relates to prices.
Speaker Change: She is the result of several years of investment in next generation software and hardware.
Speaker Change: As it relates to your first part of your question I would say in the software and hardware ADC market.
Speaker Change: Going against competitors that chose not to do that.
Speaker Change: And so large customers as you know adcs are extraordinarily sticky as a technology.
Speaker Change:
Speaker Change: We feel very very good about our competitive position.
Speaker Change: Yeah.
Speaker Change: Which is the result of several years of investment in next generation software and hardware.
Speaker Change: And despite that we are able to take out.
Speaker Change: So many states that are pretty significant in large fortune 500 companies.
Speaker Change: Going against competitors that chose not to do that and so large customers as you know adcs are extraordinarily sticky as a technology.
Speaker Change: So we continue to feel very good about that and we think that opportunity a lot of it is still in front of us.
Speaker Change: And despite that we are able to take out so.
Speaker Change: And we will continue in a distributed cloud services.
Speaker Change: So many states that are pretty significant in large fortune 500 companies.
Speaker Change: We are early we are an attacker we were very happy that we've just passed 1000 customers. There we went from zero to a 1000 customers.
Speaker Change: So we continue to feel very good about that and we think that opportunity a lot of it is still in front of us.
Speaker Change: Roughly 30 months.
Speaker Change: All enterprise customers all paying customers of course.
Speaker Change: And we will continue in a distributed cloud services.
Speaker Change: And are.
The majority of our platform is growing every quarter and we expect it to become more and more competitive over time and increase our win rate overtime.
Speaker Change: We are early we are an attacker we were very happy that we just passed a thousand customers. There you know we went from zero to a thousand customers in roughly 30 months all.
Speaker Change: All enterprise customers all paying customers of course.
Speaker Change: Fantastic Thanks, guys Congrats again.
Speaker Change: And you know are the maturity of our platform is growing every quarter and we expect to become more and more competitive over time and increase our win rate overtime.
Speaker Change: Thank you Keith.
Speaker Change: Thank you.
Speaker Change: It was our last question will have Sebastien <unk> from William Blair. Please proceed with your question.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Fantastic Thanks, guys Congrats again.
Speaker Change: Thanks for squeezing me in I think a lot of my questions have been sort of a.
Speaker Change: Thank you Kim.
Speaker Change: Asked and answered so maybe just one for me and somewhat of a pointed question could you perhaps update us on your CDN product that came out of the lilac cloud acquisition, and maybe talk a little bit on how much success, you're having here.
Speaker Change: Thank you.
Speaker Change: And that was our last question will have Sebastien <unk> from William Blair. Please proceed with your question.
Sebastien: Oh great.
Sebastien: Thanks for squeezing me in I think a lot of my questions have been sort of asked and answered. So maybe just one for me and somewhat of a pointed question could you perhaps update us on your CDN product that came out of the lilac cloud acquisition, and maybe talk a little bit on how much success, you're having here it seems to be a space that is growing very fast right now.
Speaker Change: To be a space that is growing very fast right now and I'm. Just wondering if this is a part of that Dcs business that can be inflicting or.
Speaker Change: <unk> grown more rapidly here in the near future.
Speaker Change: Okay.
Speaker Change: Well, thank you Sebastian.
Speaker Change: Yes.
Speaker Change: Let me bring a clarification here.
Speaker Change: Did bring lack can now CDN capability into our overall distributed cloud services platform Youre, absolutely right about that.
Sebastien: I'm just wondering if this is a part of that Dcs business that could be inflicting or.
Sebastien: You know growing more rapidly here in the near future.
Sebastien: Yeah.
Speaker Change: We did that not because we want to go and compete in the CDN market as a principal in the CDN market. We feel that is well served with <unk>.
Sebastian: Well. Thank you Sebastian we are yes, we are.
Speaker Change: Let me bring a clarification here.
Speaker Change: We did bring lilac and now CDN capability into our overall distributed cloud services platform Youre, absolutely right about that.
Speaker Change: Strong players in.
Speaker Change: In the market like Akamai.
Speaker Change: But we did that rather because we have a number of customers that want the security capabilities from a size like web App firewall API security.
Speaker Change: And we did that not because we want to go and compete in the CDN market as a principal in the CDN market. We feel that is well served with strong players.
Speaker Change: Ddos protection things like web App scanning et cetera.
Speaker Change: In the market like Akamai.
Speaker Change: But we did that rather because we have a number of customers that want the security capabilities for my side like web App firewall API security.
Speaker Change: At times want that bundled with some cashing capability.
Speaker Change: So we felt it was important that we'd be able to offer the entire bundle to them and I mentioned, we have passed a 1000 customers earlier.
Speaker Change: Ddos protection things like web App scanning et cetera.
Speaker Change: Number of these customers actually took a full bundle that includes our CDN capability into the solution that they're purchasing from our five but generally customers don't come for a five looking for a CDN. They come for a five looking for a bundle of capabilities security of course.
Speaker Change: At times want that bundled with some cashing capability.
Speaker Change: So we felt it was important that we'd be able to offer the entire bundle to them and I mentioned, we have passed a thousand customers earlier.
Speaker Change: Of these customers actually took a full bundle.
That includes our CDN capability into the solution that they're purchasing from our five but generally customers don't come for a five looking for a C D and they come for a five <unk> looking for a bundle of capabilities security of course that includes our CDN and on that we're doing.
Speaker Change: That includes our CDN and on that.
Speaker Change: We're doing well with the.
Speaker Change: The solution that we got from lilac.
Speaker Change: Yeah.
Got it it makes lot of sense congrats on the quarter again thanks.
Speaker Change: Thanks, so much.
Speaker Change: Thank you.
Speaker Change: And there are no further questions at this time I would like to turn the floor back to CEO Francois.
Speaker Change: Well with the the solution that we got from lilac.
Speaker Change: Closing remarks.
Speaker Change: Got it makes sense and congrats on the quarter again thanks.
Speaker Change: Well. Thank you for joining us we look forward to seeing many of you during the quarter and to discussing our hybrid multi cloud and API opportunities. Thank you.
Speaker Change: Thanks, so much.
Speaker Change: Thank you.
Speaker Change: And there are no further questions at this time I would like to turn the floor back to CEO Francois Nickelodeon for closing remarks.
Speaker Change: Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Francois Nickelodeon: Well. Thank you for joining us we look forward to seeing many of you during the quarter into discussing our hybrid multi cloud and AI opportunities. Thank you.
Francois Nickelodeon: Thank you. This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Francois Nickelodeon: [music].
Francois Nickelodeon: Okay.
Francois Nickelodeon: [music].