Q2 2025 F5 Inc Earnings Call

Operator: Good afternoon, and welcome to the F5, Inc. Second Quarter Fiscal 2025 Financial Results Conference At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

Good afternoon, and welcome to the F. Five Inc. Second quarter fiscal 2025 financial results Conference call. At this time, all participants are in a listen only mode.

<unk> and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad.

Operator: If anyone should require operator assistance, please press star zero on your telephone keypad. Also, this conference is being recorded.

Also this conference is being recorded.

Operator: If anyone has any objections, please disconnect at this time.

If anyone has any objections. Please disconnect at this time.

Suzanne Dulong: I'll now turn the call over to Ms. Suzanne DuLong. Ma'am, you may begin. Hello and welcome. I'm Suzanne DuLong, F5's Vice President of Investor Relations. We're here with you today to discuss our second quarter fiscal year 2025 financial results. Francois Locoh-Denue, F5's President and CEO, and Cooper Werner, F5's Executive Vice President and CFO, will be making prepared remarks on today's call. Other members of the F5 executive team are also here to answer questions during the Q&A session.

Now I'll turn the call over to MS. Suzanne Dulong.

Speaker Change: Ma'am you may begin.

Speaker Change: Hello, and welcome I'm, Suzanne Dulong, Vice President of Investor Relations. We're here with you today to discuss our second quarter fiscal year 2025 financial results first of all I'll go to new <unk>, President and CEO and Cooper Werner our Fived executive Vice President and CFO will be making prepared remarks on today's call.

Speaker Change: Other members of the executive team are also here to answer questions during the Q&A session.

Suzanne Dulong: A copy of today's press release is available on our website at F5.com, or an archived version of today's audio will be available through July 29, 2025. We will post the spec accompanying today's webcast to our IR website at the conclusion of our call.

Speaker Change: A copy of today's press release is available on our website at F. Five dot com, where an archived version of today's audio will be available through July 29, 2025, we will post a deck accompanying today's webcast to our IR website at the conclusion of our call.

Suzanne Dulong: To access the replay of today's webcast by phone, dial 877-660-6853 or 201-612-7415 and use meeting ID 1375-2445. The telephonic replay will be available through midnight Pacific time, April 29th, 2025. For additional information or follow-up questions, please reach out to me directly at s.dulongatf5.com.

Speaker Change: To access the replay of today's webcast by phone dial 8776606853, or 20161 to 7415 and use meeting I D 13752445, the telephone replay will be available through midnight Pacific time April 29th 2025.

Speaker Change: Five.

Speaker Change: For additional information or follow up questions. Please reach out to me directly that I stopped due long at a five dot com.

Suzanne Dulong: 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 summarized factors that may affect our results in the press release announcing our financial results and in detail in our SEC filing. In addition, we will reference non-GAP metrics during today's discussion. Please see our full GAP to non-GAP reconciliation in today's press release and in the appendix of our earnings slide. Please note that F5 has no duty to update any information presented in this call.

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.

Speaker Change: We have summarized factors that may affect our results in the press release announcing our financial results 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 I've five has no duty to update any information presented in this call.

Francois Locoh: During today's call, Francois will speak to our Q2 highlights and our strategy and growth opportunities. Cooper will then review the details of our Q2 results and our outlook.

Speaker Change: During today's call Francois will speak to our Q2 highlights and our strategy and growth opportunities Cooper will then review the details of our Q2 results and our outlook I will now turn the call over to fastball.

Francois Locoh: I will now turn the call over to Francois. Thank you, Suzanne. And hello, everyone. F5's continuous innovation, technology leadership, and unique ability to solve our customers' hybrid multi-cloud challenges were key drivers of our strong Q2 results. We delivered 7% total revenue growth, including 12% product revenue growth. Systems revenue grew 27% while software revenue was flat with the year-ago quarter. We also delivered Q2 non-gap EPS of $3.42, representing 18% year-over-year growth, 28 cents above the top end of our guidance range. Q2 Strength reflects continued technology refresh momentum and expansion as customers leverage F5 to modernize their data centers, consolidate vendors, and prepare for AI.

Francois: Thank you Suzanne and Hello, everyone.

Francois: <unk> continuous innovation technology leadership and unique ability to solve our customers' hybrid multi cloud challenges were key drivers of our strong Q2 results.

Francois: We delivered 7% total revenue growth, including 12% product revenue growth.

Francois: Systems revenue grew 27% while software revenue was flat with the year ago quarter.

Francois: We also delivered Q2, non-GAAP EPS of $3.42, representing 18% year over year growth 28 cents above the top end of our guidance range.

Francois: This strength reflects continued technology refresh momentum and expansion as customers leverage of five to modernize their data centers consolidate vendors and prepare for AI.

Francois Locoh: We have good visibility into a Q3 pipeline that reflects continued healthy demand in support of data center modernization, competitive take-out momentum, and a large available-to-renew software subscription base. As a result, we expect Q3 revenue in a range of $740 to $760 million, implying roughly 8% growth at the midpoint. In addition, we are raising our guidance for FY25 revenue growth to a range of 6.5% to 7.5%, up from our prior range of 6% to 7%. Our updated range reflects our strong first-half revenue and the dynamics we are currently seeing in the business.

Francois: We have good visibility into a Q3 pipeline that reflects continued healthy demand in support of data center modernization competitive pick up momentum and a large available to renew software subscription base. As a result, we expect Q3 revenue in a range of $740 million to $760 million.

Francois: Implying roughly 8% growth at the midpoint.

Francois: In addition, we are raising our guidance for FY 'twenty five revenue growth to a range of six and a half to seven 5% up from our prior range of 6% to 7%. Our updated range reflects our strong first half revenue and the dynamics. We are currently seeing in the business.

Francois Locoh: Cooper will speak to our outlook in greater detail in just a few minutes.

Francois: Cooper will speak to our outlook in greater detail in just a few minutes.

Francois Locoh: Before he does, I will highlight how we are innovating to address the ball of fire challenges faced by our customers. High cost, crushing complexity, and escalating cyber risk. During Q2, we hosted our App World event for customers and partners, where we announced a number of exciting innovations. The most significant of these was the introduction of the F5 Application Delivery and Security Platform, or the ADSP. The ADSP is the industry's only platform that fully converges high-performance load balancing and traffic management with advanced app and API security capabilities. While they are platforms for endpoints, for network access, and for cloud workloads, there hasn't been any platform that delivers and secures all apps and APIs across hybrid and multi-cloud environments at scale until now.

Francois: Before he does I will highlight how we are innovating to address the ball of fire challenges faced by our customers high cost crushing complexity and escalating cyber risks.

Francois: During Q2, we hosted our uphold event for customers and partners, where we announced a number of exciting innovations. The most significant of these was the introduction of the F. Five application delivery and security platform or the E. S. P E D.

Francois: S. P is the industry's only platform that fully converge as high performance load balancing and traffic management with advanced up an API security capabilities. While they are platforms for end points for network access and for cloud workloads, there hasn't been any platform that delivers and secures all apps and E P.

Francois: He is across hybrid and multi cloud environments upscale until now with the F. I E. S. P. We are enabling consistent policies full visibility and AI driven insights all from a single platform that is flexible to deploy.

Francois Locoh: With the F5 ADSP, we are enabling consistent policies, full visibility, and AI-driven insights, all from a single platform that is flexible to deploy. We are delivering new capabilities that give CISOs the visibility, compliance, and protection they need to deliver and secure any app, any API, anywhere. Crucially, we are providing powerful automation that helps customers manage large, complex digital estates with greater efficiency, reducing manual overhead, increasing agility, and ensuring consistent enforcement across diverse environments. We are solving the ball of fire. The F580SP provides comprehensive delivery and security for every app and API. Seamless deployment across any environment and form factor.

Francois: We are delivering new capabilities that give C stores, the visibility compliance and protection they need to deliver and secure any app any a P I anywhere.

Crucially, we are providing powerful automation that helps customers manage large complex digitally states with greater efficiency.

Francois: Reducing manual overhead, increasing agility and ensuring consistent enforcement across diverse environments.

Francois: We are solving the ball of fire.

Francois: F. I E. S. P provides comprehensive delivery and security for every app in API.

Francois: Seamless deployment across any environment and form factor.

Francois Locoh: Unified Management with a Single, Consistent Policy Framework. Deep Analytics and Actionable Insights. programmable data planes for maximum flexibility and End-to-End Lifecycle Automation.

Francois: Unified management with a single consistent policy framework.

Francois: Deep analytics and actionable insights.

Francois: Programmable data planes for maximum flexibility.

Francois: And end to end lifecycle automation.

Francois Locoh: Just last week, we unveiled broad cybersecurity enhancements to the F5 ADS-B. These enhancements significantly improve organizations' ability to identify and remediate vulnerabilities and threats to AI and other modern applications.

Francois: Just last week, we unveiled broad cyber security enhancements. So the F. Five M. D. S. P. These enhancements significantly improve organizations ability to identify and remediate vulnerabilities and threats to AI and other modern applications.

Francois Locoh: At Upworld, we also unveiled a suite of groundbreaking customer-centric innovations that showcase the power of the F580SP, while also highlighting our commitment to leveraging advanced AI technologies to enhance customer experiences and drive business growth. These innovations fall into two categories. The first is AI for ADC. These are innovations that make it easier for customers to harness the power of F5. The second is ADC for AI. These innovations showcase how we are applying our strength in delivery and security to enable AI-driven applications, particularly inference workloads and model interactions.

Francois: I'll hop World. We also unveiled our suites of groundbreaking customer centric innovations that showcase the power of the F. 580 S. P. While also highlighting our commitment to leveraging advanced AI technologies to enhance customer experiences and drive business growth.

Francois: These innovations fall into two categories. The first is AI for ADC. These are innovations that make it easier for customers to harness the power of our five the second is a b C. For AI. These innovations showcase how we are applying our strength in delivery and security to enable AI driven.

Francois: Applications, particularly inference workloads and model interactions. There are three innovations I will highlight in the AIE for ADC category. The first is our I will call generator, which will be available later this year.

Francois Locoh: There are three innovations I will highlight in the AI for ADC category. The first is our iRule code generator, which will be available later this year. Programmability and flexibility have always been at the heart of F5's success, and iRules are central to that value. The iRule code generator, developed by our F5 AI Center of Excellence, makes this programmability and flexibility more accessible than ever. This solution analyzes existing iRules and configurations to summarize their purpose, components, and structure. It also generates new iRules based on business or application requirements and optimizes existing iRules to boost performance, reduce resource usage, and accelerate delivery.

Francois: Programmability and flexibility have always been at the heart of their five success and I rules are central to that value.

Francois: The IRA World Cogenerator developed by our F. Five AI Center of Excellence makes this pogo mobility and flexibility more accessible than ever this solution analyzes existing eyeballs and configurations to summarize their purpose components and structure.

Francois: It also generates new I rules based on business or application requirements and optimizes existing eye rolls to boost performance.

Francois: Reduced resource usage and accelerate delivery with I will call generator customers can fully leverage F fives, Pago mobile capabilities with greater ease and sophistication.

Francois Locoh: With iRule code generator, customers can fully leverage F5's programmable capabilities with greater ease and sophistication. The second AI for ADC innovation is expanding our AI assistant functionality across our product family. Today, more than 50% of F5 Distributed Cloud customers use our AI Assistant to better understand and operate their environments. At AppWorld, we expanded this functionality, introducing AI Assistant for NGINX One, and we announced the AI Assistant for BIG-IP will launch later this year. These Assistants empower customers with contextual, intelligent guidance that reduces time to resolution, improves operational efficiency, and enhances visibility across the stack.

Francois: The second AI for ATC innovation is expanding our AI assistant functionality across our product families.

Francois: Today more than 50%, although five distributed cloud customers use our AI assistant to better understand and operate their environments.

Francois: That's the world, we expanded the functionality introducing AI assistant for Nginx won and we announced the AI assistant for Big IP will launch later this year. These assistance empower customers with contextual intelligent guidance that reduces time to resolution improves operational efficiency.

Francois: And enhances visibility across the stack.

Francois Locoh: The third AI for ADC innovation, our new application study tool, addresses the heightened awareness and focus on observability among operators, ensuring they can monitor and optimize performance with unprecedented clarity and precision. In an era where observability is mission critical, our application study tool delivers unmatched visibility into app and API behavior. It offers deep insights into feature usage, application types, quality of service, and system utilization patterns, both average and peak. As one customer put it, this tool has given us insights we never thought possible. It's like turning on the lights in a room we've been navigating in the dark.

Francois: The third AI for ATC innovation, a new application study tool.

Francois: Dresses the heightened awareness and focus on Obziler billety among operators and sharing that can monitor and optimize performance was unprecedented clarity and precision.

Francois: In an era, where opposite 80 is mission critical application study tool delivers unmatched visibility into up an API behavior. It offers deep insights into feature usage application types quality of service and system utilization patterns, both average and peak as one cost.

Francois: Put it this tool has given us insights we never thought possible.

Francois: Turning on the lights in a room, we've been navigating in the dark.

Francois Locoh: Moving to ADC for AI. In Q2, we announced the general availability of the F5 AI Gateway, an offering that is purpose-built to secure and manage the new frontier of enterprise AI. As organizations embed generative AI into critical workflows, they need greater governance, visibility, and control. That's where our AI Gateway comes in. It inspects both prompts and to prevent data leakage, enforce policies, and reduce the risk of unpredictable model behavior. The AI Gateway market is just getting started, but we are seeing strong early interest in our solution, particularly with customers who need to scale AI adoption without compromising on trust or compliance.

Francois: Moving to ADC for AI in Q2, we announced the general availability of the F. Five AI gateway and offering that is purpose built to secure and manage the new frontier of enterprise AI as organizations embed generative AI into critical workflows, they need greater governance visibility and control.

Francois: <unk>.

Francois: That's where our AI gateway comes in it inspect both pumps and responses to prevent data leakage enforce policies and reduce the risk of unpredictable model behavior. The AI gateway market is just getting started but we are seeing strong early interest in our solution, particularly with customers who need to scale.

Francois: Oh, AI adoption without compromising on trust our compliance.

Francois Locoh: F5 is continuously innovating based on rapidly evolving market demands. We are already beginning to see the emergence of an agentic future, one where AI systems don't just respond to prompts, but operate as autonomous agents capable of completing tasks, collaborating with other agents, and adapting over time. This shift is reshaping how applications are built and how infrastructure must respond. To support this evolution, we are expanding our platform with native support for the Model Context Protocol, or MCP, a foundational standard created by Anthropic and now being adopted by leaders like OpenAI and Google. MCP enables agents and models to share memory, context, and objectives across interactions, powering persistent multi-turn reasoning and coordination.

Francois: That five is continuously innovating based on rapidly evolving market demands we are already beginning to see the emergence of in a gentle future one where AI systems don't just respond to problems, but operate as autonomous agents capable of completing tasks collaborating with other agents and adapting overtime. This shift is.

Francois: Shaping how applications are built and how infrastructure must respond to support. This evolution, we are expanding our platform with native support for the model context political or M. C. P. A foundational standard created by Entropic and now being adopted by leaders like opening I and Google M. C. P enables agents.

Francois: And models to share memory context, and objectives across interactions powering persistent multi turn reasoning and coordination.

Francois Locoh: By bringing MCP support to BigIP, we are enabling our customers to route, observe, and enforce policy across agentic workflows, turning BigIP into a trusted control plane for AI agents operating at scale. As AI architectures shift from stateless queries to contextual, autonomous systems, F5 is building the infrastructure foundation to support this next era of intelligent computing. Collectively, these advancements highlight F5's growing role in a hybrid multicloud landscape that is increasingly influenced by AI. Today, we continue to win AI use cases across three areas of high-performance data delivery and security.

Francois: Bringing MCP support the big IP, we are enabling our customers to route observe and enforced policy across a gentle workflows, turning big IP into a trusted control plane for AI agents operating at scale.

Francois: As AI architectures shifts from state less queries to contextual autonomous systems F. Five is building the infrastructure Foundation to support this next era of intelligent computing collectively these advancements highlight S fives growing role in a hybrid multi cloud landscape that is increasing.

Francois: Influenced by AI.

Francois: Today, we continue to win a I use cases across three areas of high performance data delivery and security.

Francois Locoh: 1. Delivering and securing data used for both AI model training and inference. This is where F5 is deployed in front of data stores like our partner NetApp.

Francois: One delivering and securing data used for both AI model training and inference. This is we're at five is deployed in front of data stores like our partner net up to delivering and securing access to AI models for inferencing. This is where organizations are deploying a five in front of AI models like open.

Francois Locoh: 2. Delivering and securing access to AI models for inferencing. This is where organizations are deploying F5 in front of AI models like OpenAI's ChatGPT and AnthropX's Cloud.

Francois: I start GPT and in tropics, Claude and three a factory load balancing both across AIG factories and within AI factories, as a result of partnerships, including a collaboration with Nvidia.

Francois Locoh: 3. AI factory load balancing both across AI factories and within AI factories as a result of partnerships, including our collaboration with NVIDIA. We are winning deals across all three use cases today. In Q2, we secured several new AI wins, including an AI gateway and F5 distributed cloud services win with a service provider in our APAC region. The customer aims to establish central governance controls and robust security guardrails within their AI infrastructure. By utilizing F5, they are protecting their chat GPT interface from prompt injections and abuse, while scaling cost effectively for multilingual customer support and ensuring compliance with government regulations.

Francois: We are winning deals across all three use cases today in Q2, we secured several new AI wins, including an AI gateway and that five distributed cloud services win with a service provider in our APAC region. The customer aims to establish central governance controls and robust security guard rails.

Within their AI infrastructure by utilizing a five they are protecting their chat GPT interface from prompt injections and abuse, while scaling cost effectively for multilingual customer support and ensuring compliance with government regulations. We also secured a win with a north American based REIT.

Francois Locoh: We also secured a win with a North American-based retailer who is leveraging F5's BIG-IP to deliver responsive, real-time, AI-powered consumer voice interactions at scale. BIG-IP ensures fast, accurate, and low-latency performance by optimizing traffic and load balancing across the customer's GPUs, thus enabling seamless, real-time decision-making and response. We are also delivering robust security features to protect sensitive consumer data and the scalability to handle growing AI workloads. In addition, in the second quarter, increased capacity demands with two existing AI customers drove expansion revenue.

Francois: Taylor, who is leveraging F five big IP to deliver responsive real time AI powered consumer voice interactions at scale Big IP insurance fast accurate and low latency performance by optimizing traffic and load balancing across the customer's gpus, thus, enabling seamless real.

Francois: Time decision, making in response, we are also delivering robust security features to protect sensitive consumer data and the scalability to handle growing AI workloads.

Francois: In addition in the second quarter increased capacity demands with two existing AI customers drove expansion revenue.

Francois Locoh: Before I hand the call to Cooper, I will wrap up my prepared remarks with some examples of how customers are leveraging F5 to address their very real ball-of-fire challenges. I will categorize these across F5's three primary differentiators. First, F5 has the most effective and comprehensive application and API security platform in the industry. We enable our customers to consolidate point products targeting specific threats onto a single, integrated platform with a suite of best-in-class capabilities. Second, F5's hybrid multi-cloud strategy enables consolidation on a single vendor for app security and delivery. Only F5 delivers solutions that extend from customers' on-premises environments across public clouds to the edge.

Speaker Change: Before I hand, the call to Cooper I will wrap up my prepared remarks with some examples of how customers are leveraging our five to address the very real ball of fire challenges. Our categorize these across F. Five three primary differentiators.

Speaker Change: First at five has the most effective and comprehensive application and API security platform in the industry, we enable our customers to consolidate point products targeting specific threats onto a single integrated platform with a suite of best in class capabilities.

Speaker Change: Second.

F five hybrid multi cloud strategy enables consolidation on a single vendor for App security and delivery only F. Five deliver solutions that extend from customers on premises environments across public clouds to the edge at five simplifies connecting disparate infrastructure environments and the applications.

Francois Locoh: F5 simplifies connecting disparate infrastructure environments and the applications deployed in and across them. And third, F5 solutions streamline customers' operations with consistent policies, comprehensive automation, and rich analytics. We enable customers to simplify their operational management across all environments.

Speaker Change: Deployed in and across them and third F. Five solutions streamlined customers operations with consistent policies comprehensive automation and rich analytics.

Speaker Change: We enable customers to simplify their operational management across all environments.

Francois Locoh: As an example of a customer win that resulted from our comprehensive app and API security, during Q2, we secured a win with a leading insurance company in our LATAM region. The customer required a modern, flexible, scalable API security solution that could support their rapidly growing API landscape, while also ensuring high availability between their main and secondary data centers. F5's hybrid approach strongly appealed to their needs and they deployed a combination of systems and SaaS deployment models with F5 Big IP and distributed cloud services.

Speaker Change: As an example of a customer win that resulted from a comprehensive app and API security. During Q2, we secured a win with a leading insurance company in our Latam region. The customer required a modern flexible scalable API security solution that could support their rapidly growing API landscape while all.

Speaker Change: So ensuring high availability between their main and secondary Datacenters F. Fives hybrid approach strongly appeals to their needs and have deployed a combination of systems and SaaS deployment models with F. Five big IP and distributed cloud services.

Francois Locoh: A standout example of F5's consolidation power came from a win with a major health insurer in our EMEA region. After initially pursuing a cloud-native strategy, the customer turned to F5 to consolidate and unify its security posture across its hybrid on-premises and cloud environments. The customer deployed Big IP hardware and software as well as WAP via distributed cloud services, resulting in greater operational efficiency and enhanced observability.

A standout example of EB fives consolidation power came from a win with a major health insurer in our EMEA region. After initially pursuing a cloud native strategy the customer turned to a five to consolidate and unify its security posture across its hybrid on premises and cloud environments the cost.

Speaker Change: Deploy big IP hardware and software as well as Wap buyout distributed cloud services, resulting in greater operational efficiency and enhanced observe ability finally representative of that five's ability to automate and streamline we landed a win with a large financial institution in our EMEA region.

Francois Locoh: Finally, representative of F5's ability to automate and streamline, we landed a win with a large financial institution in our EMEA region. The customer is modernizing its network and needed a solution that provided scalability with enhanced security while also enabling them to automate using infrastructure as code. The customer is leveraging Big IP's automation capabilities to remove manual processes and lifecycle risk. In addition, they are taking advantage of F5's Big IP scalability and distributed cloud services' ability to support their multi-cloud strategy.

Speaker Change: The customer is modernizing its network and needed a solution that provided scalability with enhanced security, while also enabling them to automate using infrastructure as code. The customer is leveraging big Ips automation capabilities to remove manual processes and lifecycle risk in addition.

Speaker Change: They are taking advantage of F five big IP scalability and.

Speaker Change: And distributed cloud services ability to support their multi cloud strategies.

Francois Locoh: F5's differentiated approach to hybrid multi-cloud also continues to drive competitive displacement momentum across our portfolio. For instance, during Q2, we successfully displaced a traditional ADC competitor at a leading North American insurance brokerage. F5's superior ADC capabilities and exceptional responsiveness capitalized on the customer's growing concerns about its incumbent provider, allowing us to secure a deal for F5 Big IP to support the customer's internal application and delivery solution.

Speaker Change: That's five differentiated approach to hybrid multi cloud also continues to drive competitive displacement momentum across our portfolio.

Speaker Change: For instance, during Q2, we successfully displaced a traditional ADC competitor at a leading north American insurance brokerage.

Speaker Change: At five superior ADC capabilities and exceptional responsiveness capitalize on our customers' growing concerns about its incumbent provider, allowing us to secure a deal for five big IP to support the customers internal application and delivery solution.

Francois Locoh: Also in Q2, we underscored F5's value as a strategic partner to our customers. A North American-based service provider, already an F5 customer, chose F5 to replace its long-time incumbent DDoS provider. This decision was driven not only by our robust DDoS capabilities, but also by our ability to consolidate multiple functionalities, enabling the customer to streamline vendor management.

Speaker Change: Also in Q2, we underscored at fives value as a strategic partner to our customers in North American based service provider already and that's five customer chose F. Five to replace its longtime incumbent Ddos provider. This decision was driven not only by our robust ddos capabilities, but.

So by our ability to consolidate multiple functionalities, enabling the customer to streamline vendor management.

Francois Locoh: Collectively, these wins highlight F5's growing role in a hybrid multicloud landscape that is increasingly influenced by AI.

Speaker Change: Collectively these wins highlight F fives growing role in a hybrid multi cloud landscape that is increasingly influenced by AI now I will turn the call to Cooper to speak to our Q2 results and provide some additional color on our outlook Cooper.

Cooper Werner: Now, I will turn the call to Cooper to speak to our Q2 results and provide some additional color on our outlook. Thank you, Francois. And hello, everyone. I will review our Q2 results before I elaborate on our Q3 and FY25 outlook. As Francois noted, we delivered a strong Q2, growing revenues 7% to $731 million and reflecting a mix of 54% global services revenue and 46% product revenue. Global services revenue of $394 million grew 3%. Product revenue totaled $337 million, up 12% year-over-year due to strong systems growth. Our software revenue of $158 million was flat, as Q2 had our smallest subscription renewal base of the year.

Cooper Werner: Thank you Francois and Hello, everyone I will review, our Q2 results before I elaborate on our Q3 and FY twenty-five outlook as Francois noted we delivered a strong Q2 growing revenues, 7% to $731 million and reflecting a mix of 54% global services revenue and 46% product revenue.

Cooper Werner: Global services revenue of $394 million grew 3%.

Cooper Werner: Product revenue totaled $337 million up 12% year over year due to strong systems growth. Our software revenue of 158 million was flat as Q2 had our smallest subscription renewal base of the year Q2 subscription based software revenue totaled $138 million down 2% year over year.

Cooper Werner: Q2's subscription-based software revenue totaled $138 million, down 2% year-over-year, representing 87% of our total software revenue. Perpetual licensed software totaled $20 million in Q2, up 9% year-over-year. Systems revenue totaled $179 million, up 27% year-over-year. Our systems revenue is benefiting from a number of factors. First, customers continue to refresh aging hardware estates. Similar to last quarter, we experienced widespread refresh activity in Q2, with strong customer demand across verticals and geographies. In addition, upcoming end-of-software support dates for our BitBrayant and i-Series families are also driving reinvestment by customers. Combined, these families account for more than 50% of our installed base, representing a significant ongoing refresh opportunity.

Cooper Werner: Here, representing 87% of our total software revenue perpetual license software totaled $20 million in Q2 up 9% year over year systems revenue totaled $179 million up 27% year over year. Our systems revenue is benefiting from a number of factors first customers continue to refresh.

Cooper Werner: Aging hardware stays similar to last quarter, we experienced widespread refresh activity in Q2 with strong customer demand across verticals and geographies. In addition upcoming end of software support dates for our <unk> and ice series families are also driving reinvestment by customers.

Cooper Werner: Combined these families account for more than 50% of our installed base, representing a significant ongoing refresh opportunity beyond these are five specific drivers and the mechanics of a normal refresh cycle. We believe there are several durable tailwind benefiting our systems business.

Cooper Werner: Beyond these F5-specific drivers and the mechanics of a normal refresh cycle, we believe there are several durable tailwinds benefiting our system's business. First, customers are building out their future hybrid multicloud architectures as they modernize and expand data. Second, customers are investing to prepare for AI. Third, we are driving continued competitive displacement and new customer wins as a result of our commitment to innovation. We believe all of these factors are contributing to our system's strength and to our opportunity going forward. Revenue from recurring sources contributed 72% of our Q2 revenue. Our recurring revenue comes from a combination of our subscription-based revenue and the maintenance portion of our global services.

Cooper Werner: First customers are building out their future hybrid multi cloud architectures as they modernize and expand data centers second customers are investing to prepare for AI third we are driving continued competitive displacement and new customer wins as a result of our commitment to innovation.

Cooper Werner: We believe all of these factors are contributing to our system strength into our opportunity going forward revenue.

Cooper Werner: Revenue from recurring sources contributed 72% of our Q2 revenue our recurring revenue comes from a combination of our subscription based revenue and the maintenance portion of our global services revenue ship.

Cooper Werner: Shifting to revenue distribution by region, our teams drove growth across all theaters. Revenue from the Americas grew 3% year-over-year, representing 54% of total revenue. AMIA delivered 20% growth, representing 29% of revenue, and APAC grew 3%, representing 17% of revenue. Looking at our major verticals, enterprise customers represented 69% of Q2's product book. Government customers represented 20% of product bookings, including 7% from US Federal. Finally, service providers represented 11% of Q2 product Our continued operating discipline contributed to our strong Q2 operating results. Gap gross margin was 80.7%. Non-GAAP gross margin was 83.1%, up 98 basis points year over year.

Cooper Werner: Shifting to revenue distribution by region, our teams drove growth across all theaters revenue from the Americas grew 3% year over year, representing 54% of total revenue.

EMEA delivered 20% growth, representing 29% of revenue and APAC grew 3% representing 17% of revenue looking at our major verticals enterprise customers represented 69% of Q2's product bookings.

Cooper Werner: Government customers represented 20% of product bookings, including 7% from U S. Federal finally service providers represented 11% of Q2 product bookings.

Cooper Werner: Our continued operating discipline contributed to our strong Q2 operating results.

Cooper Werner: GAAP gross margin was 80.7% non-GAAP gross margin was 83, 1% up 98 basis points year over year.

Cooper Werner: Our GAAP operating expenses were $431 million. Our non-GAAP operating expenses were $374 million. Our gap operating margin was 21.7%. Our non-GAAP operating margin was 31.9%, an improvement of 103 basis points year-over-year. Our GAAP effective tax rate for the quarter was 15%. Our non-GAAP effective tax rate was 18.1%. This reflects a one-time benefit recorded in Q2 related to foreign operations. Our GAAP net income for the quarter was $146 million, or $2.48 per share. Our non-GAAP net income was $201 million, or $3.42 per share, reflecting 18% growth from the year-ago period.

Cooper Werner: Our GAAP operating expenses were $431 million, our non-GAAP operating expenses were $374 million. Our GAAP operating margin was 21, 7%. Our non-GAAP operating margin was 31.9% an improvement of 103 basis points year over year, our GAAP effective tax rate for the quarter.

Cooper Werner: With 15%, our non-GAAP effective tax rate was 18.1%.

Cooper Werner: This reflects a one time benefit recorded in Q2 related to foreign operations.

Cooper Werner: Our GAAP net income for the quarter was $146 million or $2 48 per share. Our non-GAAP net income was $201 million or $3 42 per share, reflecting 18% growth from the year ago period.

Cooper Werner: I will now turn to cash flow and balance sheet metrics, all of which remained very strong. We generated a record $257 million in cash flow from operations in Q3. CapEx with 11 million dollars. DSO for the quarter was 47 days. Cash and investments totaled approximately 1.27 billion at quarter end. Deferred revenue was 1.92 billion, up 6% from the year-ago period. In Q2, we repurchased $125 million worth of F5 shares at an average price of $259 per share. As of the end of Q2, we had $1.2 billion remaining on our authorized stock repurchase program. Year-to-date, we have repurchased shares equivalent to 57% of our free cash.

Cooper Werner: I will now turn to cash flow and balance sheet metrics, all of which remain very strong we generated a record $257 million in cash flow from operations in Q2.

Cooper Werner: Capex was $11 million.

Cooper Werner: DSO for the quarter was 47 days.

Cooper Werner: Cash and investments totaled approximately 1.27 billion at quarter end deferred revenue was 1.92 billion up 6% from the year ago period in.

Cooper Werner: In Q2, we repurchased $125 million worth about five shares at an average price of $259 per share as of the end of Q2, we had 1.2 billion remaining on our authorized stock repurchase program year to date, we have repurchased shares equivalent to 57% of our free cash flow.

Cooper Werner: Finally, we ended the quarter with approximately 6,500 employees.

Cooper Werner: Finally, we ended the quarter with approximately 6500 employees.

Cooper Werner: Before I speak to our outlook, let me touch on the topic of tariffs with respect to potential cost impacts as well as our supply On the cost side, we have low tariff exposure across our systems business, as the majority of our finished goods are USMCA-compliant and are therefore duty-free on import into the United States from our Mexico-based contract manufacturing facility. Outside of our finished goods, we have a small amount of tariff exposure related to peripherals and other internal-use goods imported from various countries. In total, we estimate our FY25 tariff-related costs will be in the low single-digit millions, which we expect to offset through ongoing efficiency gains in our manufacturing and support operations.

Cooper Werner: Before I speak to our outlook, let me touch on the topic of tariffs with respect to potential cost impacts as well as our supply chain.

Cooper Werner: On the cost side, we have low tariff exposure across our systems business is the majority of our finished goods are U S. M. C. A compliant and are therefore duty free on imports into the United States from a Mexico based contract manufacturing facility outside of our finished goods, we have a small amount of tariff exposure related to peripherals and other internal used goods.

Cooper Werner: Imported from various countries.

Cooper Werner: In total we estimate our FY 'twenty five tariff related costs will be in the low single digit millions, which we expect to offset through ongoing efficiency gains in our manufacturing and support operations.

Cooper Werner: From a supply perspective, we do not expect any material impacts to lead times or availability as a result of our resilient and diversified global supply chain.

Cooper Werner: From a supply perspective, we do not expect any material impacts to lead times or availability as a result of our resilient and diversified global supply chain.

Cooper Werner: I will now speak to our Q3 and full year outlook. With the exception of revenue, my guidance comments reference non-GAAP metrics. As Francois noted, visibility into our Q3 pipeline and customer demand remains strong, and we are not seeing any direct signs of near-term demand erosion. Accounting for these factors, we expect Q3 revenue in the range of $740 million to $760 million, implying 8% year-over-year growth at the midpoint. We expect growth will be driven by sustained, strong demand for F5 solutions in support of data center modernization and strong software revenue growth, supported by a substantial subscription software renewal base in Q3.

Cooper Werner: I will now speak to our Q3 and full year outlook with the exception of revenue my guidance comments reference non-GAAP metrics.

Cooper Werner: As Francois noted visibility into our Q3 pipeline and customer demand remains strong and we are not seeing any direct signs of near term demand erosion.

Cooper Werner: Accounting for these factors, we expect Q3 revenue in the range of $740 million to $760 million, implying 8% year over year growth at the midpoint, we expect growth will be driven by sustained strong demand for F. Five solutions in support of data center modernization and strong software revenue growth supported by our substantial subscription soft.

Cooper Werner: We're renewal base in Q3.

Cooper Werner: We expect non-GAAP gross margin of approximately 83 to 83.5%. We estimate Q3 non-GAAP operating expenses of $366 to $378 million. We expect Q3's share-based compensation expense of approximately $57 to $59 million. We anticipate Q3 non-GAAP EPS in a range of $3.41 to $3.53 per share.

Cooper Werner: We expect non-GAAP gross margin of approximately 83 to 83, 5%, we estimate Q3, non-GAAP operating expenses of $366 million to $378 million we.

Cooper Werner: We expect Q3 share based compensation expense of approximately 57% to $59 million, we anticipate Q3, non-GAAP EPS in a range of $3.41 to $3 53 per share.

Cooper Werner: I will now speak to our Fiscal 25 Outlook. Balancing the strength we are currently seeing in the business with some prudence in relation to the macro environment. We are raising our revenue outlook for FY25 to 6.5% to 7.5% growth, up from our prior range of 6% to 7%. This view incorporates our expectations that both systems and software revenue will grow double digits for the year. We continue to expect FY25 non-gap gross margin in a range of 83 to 84% and non-gap operating margin at or around 35%. We are adjusting our expected FY25 non-gap effective tax rate to a range of 20 to 22 percent from the prior range of 21 to 23 percent.

Cooper Werner: I will now speak to our fiscal twenty-five outlook balancing the strength. We are currently seeing in the business with some prudence in relation to the macro environment.

Cooper Werner: We are raising our revenue outlook for FY 'twenty five to six 5% to 7.5% growth up from our prior range of 6% to 7%. This view incorporates our expectations that both systems and software revenue will grow double digits for the year.

Cooper Werner: We continue to expect FY 'twenty five non-GAAP gross margin in a range of 83% to 84% and non-GAAP operating margin at or around 35%.

Cooper Werner: We are adjusting our expected FY 'twenty five non-GAAP effective tax rate to a range of 20% to 22% from the prior range of 21% to 23%. This change reflects the onetime benefit recorded in Q2 related to foreign operations.

Cooper Werner: This change reflects the one-time benefit recorded in Q2 related to foreign operations. We are raising our FY25 EPS outlook to growth of 8-10%, up from our prior guidance of 6.5-8.5% growth, driven by the increase in our revenue outlook and the benefit from the tax rate . Finally, we intend to continue to use at least 50% of our annual free cash flow towards share repurchases in FY25.

Cooper Werner: We are raising our FY 'twenty five EPS outlook to growth of 8% to 10% up from our prior guidance of 6.5 to eight 5% growth driven by the increase in our revenue outlook and the benefit from the tax rate change.

Speaker Change: We intend to continue to use at least 50% of our annual free cash flow towards share repurchases and FY 'twenty five with that I'll turn the call over to Francois.

Francois Locoh: With that, I'll turn the call over to Francois. Thank you, Cooper. Today, F5 is delivering the hybrid multi-cloud solutions our customers need. We are alleviating the high costs, crushing complexity, and escalating cyber risks IT teams face in an increasingly AI-driven, hybrid, and multi-cloud world. With the recently introduced F5 application delivery and security platform, we are enabling consistent policies, full visibility, and AI-driven insights, all from a single platform that is flexible to deploy. We are delivering new capabilities that give CISOs the visibility, compliance, and protection they need to deliver and secure any app, any API, anywhere.

Francois: Thank you Cooper.

Francois: Today <unk> is delivering the hybrid multi cloud solutions, our customers need we are alleviating the high costs crushing complexity and escalating cyber risks I T teams face in an increasingly AI driven hybrid and multi cloud world with.

Francois: With the recently introduced at five application delivery and security platform.

Francois: We are enabling consistent policies full visibility and AI driven insights all from a single platform that is flexible to deploy we are delivering new capabilities that give cisco's the visibility compliance and protection they need to deliver and secure any app any API.

Francois: We're at five is also claiming a growing role across the broader hybrid multi cloud landscape and building the infrastructure Foundation to support the next era of intelligent computing operator, please open the call to questions.

Francois Locoh: F5 is also claiming a growing role across the broader hybrid multi-cloud landscape and building the infrastructure foundation to support the next era of intelligent computing.

Operator: Operator, please open the call to questions. Thank you. We'll now be conducting a question and answer session. If you would 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 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Thank you.

Speaker Change: Thank you, we'll now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue. You May press star two to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before Christmas Darkies.

Speaker Change: One moment, please while we poll for questions.

Unspecified Moderator: Thank you. Our first question is from Tim long with Barclays. Please proceed with your question.

Tim Long: Our first question is from Tim Long with Barclays. Please proceed with your question. Thank you.

Speaker Change: Thank you.

Tim Long: Maybe one and then a follow-up if I could as well. Yeah, thanks for the comments here, guys. On the software side, it seemed like a little bit of an underperformance in Q2, maybe that we just had it modeled incorrectly, but pretty big growth in the second half embedded to get to double digits. So could you just give us a little color? It sounds like the subscription pipeline is strong. I'm just curious how that's going to break out between maybe renewals or new business, and given the macro uncertainty, is there any risk to that?

Tim Long: Maybe one and then a follow up if I could as well.

Tim Long: Yeah, Thanks for the commentary guys.

Tim Long: On the software side.

Tim Long: Seemed like a little bit of underperformance in Q2, maybe that we just had it modeled incorrectly but.

Tim Long: Pretty big growth in the second half embedded to get to double digits. So could you just give us a little color. It sounds like the subscription pipeline is strong.

Tim Long: Just curious how that's going to break out between.

Tim Long: Maybe renewals are for new business and given the macro uncertainty.

Tim Long: Is there any risk to that and then on the on the follow up on the hardware side.

Tim Long: And then on the follow-up on the hardware side, Cooper, I think you listed a number of things that are positive. I'm just curious how big of a driver and how the ramp of these replacements will go. Is that currently one of the major things that customers are talking about as far as their upgrades, and that 50 percent, do you expect that to move rather quickly away from the base that's aged?

Tim Long: Cooper I think you've listed a number of things that are positive just curious how big of a.

Tim Long: A driver and how.

How the ramp.

These replacements will go with that.

Tim Long: Currently.

Tim Long: One of the major things that customers are talking about as far as their upgrades that 50% is that do you expect that to move rather quickly.

Tim Long: Away from the.

Tim Long: The base Thats age thank you.

Francois Locoh: Thank you. Sure, thanks, Tim.

Speaker Change: Sure. Thanks, Tim I'll start with the software question, you're right. The growth is really weighted to the second half of the year tied to.

Cooper Werner: I'll start with the software question. You're right, the growth is really weighted to the second half of the year, tied to the pretty substantial renewal opportunity we have across both Q3 and Q4. And that's something we outlined at the beginning of the year. So I think that software really is kind of progressing. With the seasonality that we were expecting going into the year, the mix related to the renewals in the second half is that's a higher weighting. We talked about going into the year, roughly two-thirds of our software business would likely come from renewals, and that renewal component is more weighted to the second half.

Speaker Change: Pretty substantial renewal opportunity, we have across both Q3 and Q4 and that's something we outlined at the beginning of the year. So I think that software really is kind of progressing.

Speaker Change: With the seasonality as we were expecting going into the year.

The mix related to the renewals in the second half is that there's.

Speaker Change: That's a higher weighting, we talked about going into the year roughly two thirds of our software business would likely come renewals that renewal component is more weighted to the second half.

Cooper Werner: And so, and the last thing I'll say on that is Visibility we have within that renewal opportunity is pretty good. So we have good insights as to how customers have been deploying their software that's coming up for renewal. We've seen a continuation of the trend of expansion at renewal across the portfolio.

Speaker Change: And so and then the last thing I'll say on that is.

Speaker Change: Visibility, we have within that renewal opportunity is pretty good. So we have good insights as to how customers have been deploying their software thats coming up for renewal.

Speaker Change: <unk> seen a continuation of the trend of expansion at renewal across the board.

Cooper Werner: So just based on everything that we're seeing across that base in the second half, we think we've got a pretty good insight as to what that growth rate looks for the second half in line with the double-digit guide for the And Tim, I'll take your question on hardware. So, obviously, you saw, you know, hardware was up 27% year-on-year this quarter with strong revenue growth. And as we share in the prepared remarks, you know, a meaningful portion of that, of course, is driven by strong momentum on the refresh cycle. And we think that, you know, that cycle will last into, well, into 2026, given the fact that we had a number of customers that did sweat assets in 23 and early 24, and, you know, are now proceeding with this refresh.

Speaker Change: So just based on everything we're seeing across that base in the second half.

Pretty good.

Speaker Change: Side as to what that growth rate looks for the second half.

Speaker Change: In line with the double digit guidance for the year.

Tim Long: And Tim I'll Oh.

Tim Long: I'll take your question on hardware.

Speaker Change: So obviously you saw hardware was up 27% year on year this quarter.

Tim Long: With strong revenue growth.

Tim Long: As we shared in the prepared remarks.

Tim Long: A meaningful portion of that of course is driven by strong momentum on the refresh.

Tim Long: Cycle, and we think that you know that.

Tim Long: That cycle will last.

Tim Long: Into well into 2026.

Tim Long: Given the fact that we had a number of customers that did sweat assets in 'twenty three in early 'twenty four.

Tim Long: Are now proceeding with these refresh that has to be mentioned.

Francois Locoh: And as Cooper mentioned, there's a significant portion of our install base that is going to be up for refresh, you know, over the next coming two quarters. That said, the strength that we are seeing in hardware, if you dig into it, it's a lot more than just refresh.

Tim Long: A significant portion of our installed base.

Tim Long: That is going to be up for refresh.

Tim Long: And over the next coming two quarters that said the strength that we are seeing in hardware. If you if you dig into it.

Tim Long: A lot more than just refresh.

Francois Locoh: We're seeing some tailwinds in what I would call the non-refresh business that are driven by three factors. One is we are seeing, you know, as customers really embed us in their future forward architectures, those hybrid and multi-cloud architectures, we are seeing more investment in data center modernization and expansion of data center capacity, and customers also, you know, getting ready for AI. So, that's one tailwind to the hardware business. Continuing to displace competitors and that's also creating tailwind on the on the hardware business. And the third tailwind, of course, is AI, where we are seeing growing momentum in a number of use cases around supporting AI workloads.

Tim Long: We're seeing some tailwind in what I would call the non refresh business that.

Tim Long: Driven by three factors one is.

Tim Long: We are we are seeing you know as customers really embedded in that.

Tim Long: In the future forward architectures, those hybrid and multi cloud architectures. We are we are seeing more investment in data center modernization and expansion of data center capacity.

And customers are also getting ready for AI.

Tim Long: That's one.

Tim Long: One tailwind to the hardware business. We're also.

Continuing to displace competitors.

And that's also creating tailwind on the.

Tim Long: On the hardware business.

Tim Long: The third the third tailwind of course is AI, where we are seeing growing momentum in our <unk>.

Tim Long: Number of use cases.

Tim Long: Around supporting AI workloads, so data delivery.

Francois Locoh: So, you know, data delivery for AI workloads, and increasingly also some use cases in security. So those are three tailwinds we're seeing on the hardware business.

Tim Long: For AI workloads and increasingly also some use cases in security so those with retail wins, we're seeing on the on the hardware business.

Francois Locoh: Now, if you pull way off from your question, which was part about software and hardware, the overall strength we're seeing on the business is really driven by these hybrid multi-cloud architectures, where we have more and more customers that want to have applications on-premise, want to have applications in public cloud, are operating across multiple infrastructure environments, really want the flexibility to be able to deploy in software, in software-as-a-service, or in hardware, don't necessarily know what model they will deploy at what time, but really look at F5 as a partner that really is the only company that can serve all these models and deploy across all these environments.

Tim Long: If you if you pull way up from your question, which was part about software and hardware.

Tim Long: The overall strength, we're seeing it on the business is really driven by these hybrid multi cloud architectures, where we have.

More and more customers that want.

Tim Long: Want to have applications on premise once a obligations in public cloud.

Tim Long: Operating across multiple infrastructure environment really want the flexibility to be able to deploy in software and software as a service or in hardware.

Tim Long: Don't necessarily know what models they will deploy at what time, but really look at X. Five is a partner that really is the only company that can serve all of these models.

Tim Long: And deployed across all these environments. So that's that's driving both the strike I think we're going to see this year in software and the strength in hardware.

Francois Locoh: So that's driving both the strength I think we're going to see this year in software and the strength in hardware.

Tim Long: Okay, thank you. Thanks, Tim.

Speaker Change: Okay. Thank you.

Tim Long: Thanks, Tim.

Ryan Koontz: Our next question is from Ryan Koontz with Native & Company. Great, thanks for the question, and congrats on a great quarter there, and nice to be on the call. I want to ask about your competitive displacement opportunity here.

Speaker Change: Our next question is from Ryan Koontz with Needham <unk> company.

Speaker Change: Great. Thanks for the question and congrats on a great quarter, there and actually on the call.

Speaker Change: It's about your competitive displacement opportunity here.

Speaker Change:

Ryan Koontz: How would you characterize where you are in that cycle, or do you feel like you've got that's a critical mass here in terms of really sizeable winds in displacing and how long do you think that cycle can last? Thank you, Ryan.

Speaker Change: How would you characterize kind of where are you.

Speaker Change: You are in that cycle or do you feel like you've got.

Speaker Change: Okay.

Speaker Change: Critical mass here in terms of really getting sizable wins.

And how long do you think that cycle can last.

Speaker Change: Thank you Ryan.

Francois Locoh: You know, I'll put it in two categories. The first category is You know, essentially going into, you know, new accounts or accounts where we have not been the main provider, specifically in ADC, and displacing competitors that are not performing. You know, we still think we are in early innings in that opportunity, and that the majority of the opportunity there still is ahead of us, and we think we'll continue for multiple quarters. We have won, you know, several hundred accounts in that category, but in the vast majority of these accounts, when we are winning the initial lending, we are winning, you know, less than half of the install base up front.

Speaker Change: You know I'll put it in two categories. The first category is.

Speaker Change: Essentially going into.

Speaker Change: New accounts or accounts, where we have not been.

Speaker Change: The main provider specifically in ADC and this.

Speaker Change: Placing competitors that are not performing.

Speaker Change: We still think we are in early innings in that opportunity and that the majority of the opportunity. There still is ahead of us.

Speaker Change: And we think will continue for multiple quarters.

Speaker Change: We have won several hundred accounts.

Speaker Change: In that category, but in the vast majority of these accounts when we are winning the initial lending.

Speaker Change: We are winning.

Speaker Change: And half of the installed base upfront.

Francois Locoh: And therefore, you know, there's opportunity to expand within the accounts where we have already made a displacement. And of course, there are a lot of other accounts we'll be going after over the next several quarters. So, I think it's early innings, and the majority of the opportunity is ahead of us.

Speaker Change: Therefore, there's opportunity to expand within the accounts, where we have already made a displacement and of course there are a lot of other accounts will be going after over the next several quarters. So I think it's early innings in the majority of the opportunities ahead of us.

Speaker Change: The second category of displacement, which is where we are already present in an account, but we are consolidating increasingly consolidating functionality into <unk> at five typically displacing a competitor that also has a point product.

Francois Locoh: There is the second category of displacement, which is where we are already present in an account, but we are consolidating, increasingly consolidating functionality onto F5, typically displacing a competitor that offers a point product, be it in security or in app delivery, and we're consolidating on F5. Now, that motion has been in place now for several quarters. You may have seen that we announced, you know, earlier this quarter, the launch of our application delivery and security platform, which really converges more delivery and security functionality into a single stack and brings a lot of analytics and insights to make it way easier to manage, to visualize, to provision app delivery and security services.

Be it in security or in App delivery and we're consolidating on a five now that motion has been in place now for several quarters.

Speaker Change: You may have seen that we announced.

Speaker Change: Earlier this quarter the launch of our application delivery and security platform, which really converge is more delivery and security functionality into a single stack and brings a lot of analytics and insights to make it way easier to manage two.

Speaker Change: To visualize supervision App delivery and security services.

Francois Locoh: And so, we expect that with the launch of that platform, our ability to consolidate functionality and take share from consolidating vendors out will accelerate. And when you combine those portfolio capabilities, if you will, with the commercial flexibility that we offer our customers to consume in hardware, to consume in perpetual license, in hardware or software, in subscription model, and in a software as a service model, and the fact that we've brought these consumption models under the right commercial vehicle, that accelerates our ability as well to consolidate functionality into F5 and to our large accounts.

Speaker Change: So we expect that with the launch of that platform, our ability to consolidate functionality and pick share from consolidating vendors out well.

Speaker Change: To accelerate and when you combine.

Speaker Change: Those portfolio capability, if you will with the commercial flexibility that we offer our customers to consume in hardware to consume and perpetual license in hardware software.

Speaker Change: In subscription model and.

Speaker Change: In our software as a service model and the fact that we block these consumption models under.

Speaker Change: The right commercial vehicle that accelerates, our ability as well to consolidate functionality into a five and two on our larger accounts. So those would be the two categories of displacement. Both opportunities. We think are still largely ahead of us.

Francois Locoh: So, those would be the two categories of displacement. Both opportunities we think are still largely ahead of us.

Ryan Koontz: Super helpful color there, quick follow if I could around the platform, how fully featured is this? It's around big IP right? The platform?

Speaker Change: Super helpful color, there quick follow if I could around around the platform.

Speaker Change: How fully featured as this big IP rate the platform play.

Francois Locoh: No, the platform play is, it's really bringing our three product families together. So you have, you know, Big IP, F5 Distributed Cloud, and NGINX, all coming under the single umbrella of the application delivery and security platform. Got it.

Speaker Change: No other part of the platform play is it's really bringing our three product families. Together. So you have big IP.

Speaker Change: Five distributed cloud and nginx, all coming under the single umbrella of the application delivery and security platform.

Speaker Change: Got it Super Thanks for the color.

Ryan Koontz: Thanks for the call.

Speaker Change: Thank you.

Amit Daryanani: Our next question is from Amit Daryanani with Evercore. Thanks a lot. Good afternoon for taking my question. You know, I guess, Francois, if I can just start off with, you folks obviously are seeing very good growth on the hardware system side in the front half, first half of the year, it's up like 22%.

Speaker Change: Our next question is from Amit <unk> with Evercore.

Speaker Change: Thanks, a lot good afternoon sticking my question.

Speaker Change: Frankly, if I can just start off with you folks I'm sure seeing very good growth on the hardware system side in the front half close to half of the year, it's up like 22%.

Amit Daryanani: You know, just given everything you've talked about, both from a displacement side, plus the refresh cycle, can you just talk about why the embedded assumption that this growth would decelerate to, I think you're implying high single digit growth in the back half of the year, maybe just help understand like what's decelerating to that magnitude on the hardware side? On the hardware side in the back half of the year? Yeah. So, look, essentially, you will have seen, Amit, that we raised our total revenue guidance from six to seven to six and a half to seven and a half percent, you know, for the full year.

Speaker Change: You've just given everything you've talked about both from a displacement side plus a refresh cycle.

Speaker Change: Can you just talk about why the embedded assumption that this growth would decelerate to idea implying high single digit growth in the back half of D. R. <unk>, maybe just help understand like whats diesel right into that magnitude on the hardware side in the back half of the year.

Speaker Change: Yeah.

Speaker Change: So essentially you will have seen Amit that we raised our total revenue guidance from six to 7265 to seven 5%.

Speaker Change: For the full year now when we look at the second half of the year.

Francois Locoh: Now, when we look at the second half of the year and the revenue, the guidance raised on the revenue, we were appropriately conservative in that raise, largely because of the volatility we see in the macro. Now, I want to be very clear about this. We are not seeing today any change in the buying behavior or demand patterns of our customers as a result of the macro. We have been looking at this very closely. We are looking at pipeline creation. We are looking at close rates on pipeline. We are looking at linearity. We are looking at the time it takes to close deals.

Speaker Change: Revenue the guidance raise on the revenue.

Speaker Change: We were appropriately conservative.

Speaker Change: That rate.

Speaker Change: Largely because of the volatility we see in the macro.

I want to be very clear about this.

Speaker Change: We are not seeing today any change in the.

Speaker Change: The buying behavior and demand patterns.

Speaker Change: Our customers as a result of the macro we have been.

Speaker Change: Looking at this very closely we are looking at pipeline creation. We are looking at close rates on pipeline, we are looking at linearity.

Speaker Change: We are looking at the time it takes to close deals.

Francois Locoh: You know, and we haven't seen any change, frankly, over the last quarter with our customers.

Speaker Change: And we haven't seen any change frankly over the last quarter with our customers that they had when we were projecting to full year guidance.

Francois Locoh: That said, when we were projecting to, you know, full year guidance, we decided to, you know, whilst raising guidance, we decided to be appropriately conservative, you know, given what could come to be seen later on in the year if the macro environment deteriorates from where it is today. Got it. That's perfectly helpful.

Speaker Change: We decided to what's raising guidance, we decided to be appropriately conservative.

Speaker Change: Given what could come to be seen later on in the year, if the macro environment deteriorate from where it is today.

Speaker Change: Got it that's perfectly helpful. Al and then if I could just follow up you talked about sort of three use cases on AI that is starting to ramp up from what you folks see can you just talk about at least quality quantitatively you know which of these three use cases, you think is the largest opportunity from a dollar basis for the company and then where are you seeing better traction.

Francois Locoh: And then, you know, if I could just follow up, we talked about sort of three use cases on AI that are starting to ramp up from what you folks see. Can you just talk about at least qualitatively, you know, which of these three use cases you think is the largest opportunity from a dollar basis for the company? And then where are you seeing better traction right now versus not? Yeah, that's, you know, a really important topic. We are the largest use case for us today in terms of where most we're seeing most of the dollars is in data delivery for AI models.

Speaker Change: Right now we're just not.

Speaker Change: Yeah.

Speaker Change: You know.

Speaker Change: A really important topic we are.

Speaker Change: The largest use case for us today in terms of where most of what we're seeing most of the dollars is in data delivery for AI models. So this is where we are.

Francois Locoh: So this is where, you know, we are, you know, big IP is typically actually in hardware is being inserted in front of data stores to enable the rapid movement and secure movement of massive amounts of data between data stores and AI applications in training or in inferencing, frankly. So that is the, I would say the lion's share of the opportunity today. Then when we go to the next two, we think they're largely ahead of us. We are starting with security and securing and Web App Securing AI-Powered Applications, both without WAP solution and with the AI Gateway that was just recently announced, which is a new solution that's purpose-built for AI that went GA this quarter, and we're starting to see early traction with that.

Speaker Change: Big IP.

Speaker Change: Typically actually in hardware is being inserted in front of data stores.

Speaker Change: To enable the.

Speaker Change: Rapid movement and secure movement of massive amounts of data between data stores and AI applications.

Speaker Change: In training or in Inferencing, frankly, so that is the I.

Speaker Change: I would say the lion's share of the opportunity today.

Speaker Change: Then when we go to the next two.

Speaker Change: We think they're largely ahead of us we are starting with security and securing and.

Speaker Change: What about securing AI powered applications.

Speaker Change: Both without Wap solution and with the Gateway that were just recently announced which is.

Speaker Change: Our new solution that's purpose built for AI.

Speaker Change: That went a G. Eight this quarter and we're starting to see early traction with that but again that opportunity is very early in the third opportunity is also early which is AI factory load balancing again big IP will play an important role in that.

Francois Locoh: But again, that opportunity is very early. And the third opportunity is also early, which is AI factory load balancing. Again, big IP will play an important role in that load balancing traffic in front of AI factories or within AI factories. Thank you very much.

Speaker Change: Load balancing traffic in front of the eye and factory or within the factories.

Speaker Change: Got it thank you very much.

Speaker Change: Thank you.

Samik Chatterjee: Our next question is from Samik Chatterjee with JPMorgan . Hi, thanks for taking my question. I guess, Francois, if I can start off with the going back to the hardware revenue that you're seeing. In terms of sort of overall giving investors comfort that it's not driven by any pull-forward of hardware purchases by companies because of sort of pre-anticipating some of the tariff-led price increases, can you just talk a bit more about which products you're seeing this hardware sort of acceleration in? Is it just products end-of-lifing this year or is it more broad-based across the sort of hardware portfolio?

Our next question is from Sumit Chatterji with Jpmorgan Chase.

Sumit Chatterji: Hi, Thanks for taking my question.

Speaker Change: I guess a friend so I, if I can start off with the going back to the hardware revenue that you're seeing.

Speaker Change: In terms of sort of overall, giving investors comfort that it's not driven by any pull forward of hardware purchases by companies because of sort of be anticipating some of the tariff led price increases can you just talk a bit more about which products you're seeing this hardware sort of exploration in is it just product end of life Ing this yield or is it more.

Speaker Change: Broad based across the sort of hardware portfolio. It would be just interesting to know and sort of how are you driving your own confidence that it's not a bit of a pull forward ahead of tariffs and secondly, if I can just ask more on the software perpetual revenue if I look at the trends last quarter relative to sort of this quarter, where you had a step down can you.

Samik Chatterjee: It'll be just interesting to know and sort of how are you driving your own confidence that it's not a bit of a pull-forward ahead of tariffs. And secondly, if I can just ask more on the software perpetual revenue, if I look at the trends last quarter relative to sort of this quarter where you had a step down, can you just highlight what did you see in terms of the customer sort of overall lower engagement on the perpetual side this quarter? What drove that and any insight that you're drawing in terms of what the overall customer engagement or pipeline looks like from that perpetual revenue?

Speaker Change: Just highlight what did you see in terms of the customer.

Speaker Change: Sort of.

Speaker Change: Overall lower engagement on the perpetual side this quarter, what drove that and any insight that you're drawing in terms of what the overall customer engagement pipeline. It looks like from that perpetual revenue. Thank you.

Francois Locoh: Thank you. Yes.

Cooper Werner: So let me start with the hardware. I think Cooper will answer your question on software. I mean, we did not see any hardware pull-ins in Q2, and we looked at, you know, with our customers, any, and I should go back a little bit. If you recall, in our first quarter, we had announced a January price increase, and during the December quarter, we mentioned that we had seen some level of pull-ins from customers looking to avoid that price increase in January. And so we kind of recognize the patterns of when customers do that. In this quarter in Q2, we did not see any of these patterns of customers pulling in orders prematurely in, you know, in order to avoid the tariff impacts or anything else like that.

Speaker Change: Yes.

Speaker Change: So let me start with the hardware I think Google will answer your question on software.

Speaker Change: <unk>.

Speaker Change: I mean, we did not see any hardware pull ins in Q2, we looked at.

Speaker Change: With our customers any.

Speaker Change: I should go back a little bit.

Speaker Change: If you recall in our first quarter.

Speaker Change: We had announced a January price increase and during the December quarter.

Speaker Change: We mentioned that we had some seen some level of pull ins from customers looking to avoid the price increase in January and so we kind of recognize the patterns of when customers do that in this quarter. In Q2, we did not see any of these patterns of customers pulling in orders for materially in in order to.

Speaker Change: Tariff impacts or anything else like that.

Francois Locoh: So, we didn't see any push out of demand, but we didn't see any pull-in of demand either in Q2. The only place where perhaps we think that may be the case, that it would be more of a Q3 effect, is in the U.S. federal government where, with the disruptions from The efforts from those customers may get a little nervous about budgets down the road. So that's where we might see it. I remind you that the federal government is in high single digits in terms of total amount of our business. So it would be a limited effect anyway, but we did see it in Q2 across the business.

Speaker Change: So we didn't see any push out of demand, but we didn't see any pull in of demand either in Q2.

Speaker Change: The only place where perhaps we think that may be the case that it would be more of a Q3.

Speaker Change: FX is in the U S federal government weather disruptions.

Speaker Change: The airports from dose.

Speaker Change: Customers may get a little nervous about budgets down the road. So that's where we might see it I remind you that the federal government is in high single digits in terms of total total amount of our business. So it would be a limited effect anyway, but we didn't see it in Q2.

Cooper Werner: Across the business. So that's on the overall hardware demand our Cooper.

Francois Locoh: So that's on the overall hardware demand.

Cooper Werner: I'll have Cooper answer your question on software. Yeah, and I'll just add to that, I mean, broadly in the quarter, I would say we would characterize it as very orderly. So we track all the signals around things like price pull-ins, related pull-ins, or, you know, other kind of unnatural demand behaviors. We look at things like just the weekly close rates against our weekly commits and linearity. And it really kind of just tracked to our expectations throughout the quarter, both on hardware and our software. Now, speaking to perpetual software, it was really kind of in the range that we typically would see for a Q2, just as a reminder, most of our customers prefer to buy in a subscription model for software.

Speaker Change: That answer your question on software.

Cooper Werner: Just add to that.

Cooper Werner: Broadly the quarter I would say, we would characterize it as very orderly. So we track all the signals around things like price pull ins related pull ins or other kind of unnatural demand behaviors. We look at things like the weekly close rates against our weekly commits in linearity and it really kind of just track to our expectations throughout the quarter.

Cooper Werner: On hardware and our software business.

Cooper Werner: Speaking to perpetual software it was really kind of in the range that we typically would see for Q2, just as a reminder, most of our customers prefer to buy in a subscription model for software. We do have a handful of customers that may have a capex need particularly in service provider.

Cooper Werner: We do have a handful of customers that may have a CapEx need, particularly in service provider, that is tended to align more to our fiscal Q1, tied to service provider budgets. So the kind of sequential decline that we saw in perpetual software was really kind of in line with our expectations going into the quarter and what we've seen in prior years. So basically it's pretty much in line with our expectations through the core of both hardware and software. Got it. Great. Thank you. Thanks for the taking the questions. Thank you.

Cooper Werner: Has tended to.

Cooper Werner: Aligned more to our fiscal Q1.

Cooper Werner: Service provider budgets, so the kind of.

Cooper Werner: The sequential decline we saw in perpetual software was really kind of in line with our expectations going into the quarter and what we've seen in prior years.

Cooper Werner: So.

Cooper Werner: Basically it is pretty much in line with our expectations for the quarter for both hardware and software.

Cooper Werner: Got it great. Thank you thanks for taking the questions.

Cooper Werner: Thank you.

Cooper Werner: Yeah.

Cooper Werner: Yeah.

Unspecified Moderator: Thank you. Our next question is from Michael <unk> with Goldman Sachs.

Michael Ng: Our next question is from Michael Ng with Goldman Sachs. Hey, good afternoon. Thank you very much for the question. I have two as well.

Speaker Change: Hey, good afternoon. Thank you very much for the question I have two as well first just on systems. I was wondering if you could talk a little bit more about the.

Michael Ng: First, just on systems, I was wondering if you could talk a little bit more about the I-series DIPRION install base being 50% of the total systems install base. I guess, first, how big is the install base in nominal terms? Could you talk about the typical price increase or price mix increase that you see when you transition to, I guess, it would be R-series and VELOS, respectively? Thank you.

Speaker Change: I series, the Purion install base being 50% of the total system install base.

Speaker Change: I guess first like how big is the install base.

Speaker Change: Harmony terms and could you talk about the typical price increase or price mix increase that you see when you transition to two I guess it would be our series and Validus respectively. Thank you.

Cooper Werner: Yeah, I'll take that. So, we've discussed in the past some upcoming end-of-software support dates for the Viprion and i-Series families. And just as a reminder, the Viprion family goes end-of-software support in April of 26, and i-Series is in January of 27. And combined, those 2 product families are well over half of our install base today. So, we think that that represents a pretty durable opportunity over the next couple of years. And i-Series is the larger of those 2 in terms of mix of our installed base. And then in terms of pricing, we increased our pricing generally 5% across the portfolio, although the price increase is a little bit larger on the R-Series, just accounting for the price performance advantage that our newly introduced R-Series appliance family has against the prior generations.

Speaker Change: Yeah, I'll take that so as we've discussed in the past some upcoming end of software support dates for the debris on a nice series families and just as a reminder, the debris on family goes into software support in April 26, and I series in January of 27, and combined those two product families are well.

Speaker Change: Over half of our installed base to date.

Speaker Change: We think that that represents a pretty durable opportunity over the next couple of years.

Speaker Change: And I series is the larger of those two in terms of mix of our installed base.

Speaker Change: And then in terms of pricing, we increased our pricing generally 5% across the portfolio, although the price increases a little bit larger on the R series, just accounting for the price performance advantage and our newly introduced our series appliance family has against the prior generations and so that will start to see that.

Cooper Werner: And so, we'll start to see that flow through the model. We didn't really see a big pickup in Q2 just because we just introduced the price increases, and it takes a couple of quarters for those to kind of flow through into the deals that we're quoting. But broadly, that's kind of the mechanics of our pricing. Great, thank you.

Speaker Change: Flow through the model, we didn't really see a big pickup in Q2, just because we just introduced the price increases and it takes a couple of quarters for those to kind of flow through into are the deals that we're quoting.

Speaker Change: But broadly that's kind of the mechanics of our price increases.

Speaker Change: Great. Thank you and just for my second question just on software you talked about the <unk> subscription renewal base picking up as we head into the second half of the year that drives the acceleration in software growth.

Michael Ng: And just to my second question, just on software, you talked about the subscription renewal base picking up as we head into the second half of the year that drives the acceleration in software growth. Just wondering if we'll be largely through that renewal by the end of this year. Said differently, is the renewal base in 26 going to be smaller than 25? And how should we think about the implications for growth? Thank you. Thank you, that's a great question. So the our software business is weighted towards renewals, because we've been doing subscription for several years now, and our renewals, our lead commercial vehicle for our software subscription business is what we call our flexible consumption program.

Speaker Change: Just wondering if we'll be largely through that renewal by the end of this year.

Speaker Change: Said differently is the renewal base in 'twenty six going to be.

Speaker Change: Smaller than 25, and how should we think about the implications for growth. Thank you.

Speaker Change: Thank you yeah, no. It's a great question so our software.

Speaker Change: Business is good.

Speaker Change: Weighted towards renewals because we've been doing these subscription for several years now and our renewals are lead commercial vehicle for our software subscription business is what we call our flexible consumption program and those tend to be three year contracts and so you can kind of get these.

Cooper Werner: And those tend to be three year contracts. And so you kind of get these, they're not the same as a refresh cycle, but it's a renewal cycle that tends to wait to a three year cadence. And so the one kind of way that you can track the pace of that is to look back at what we did in software in prior years. And so that's where you'll see that we have a lot of strength in that renewal base in the back half of this year. And again, the visibility on that is really good. It's a highly, we have very high renewal rates, and we've had a really good track record of expansion.

Speaker Change: They're not the same as a refresh cycle, but it's a renewal cycle that tends to wait two or three year cadence and so.

Speaker Change: One way.

Speaker Change: The way that you can track the pace of that is to look back at what we did in software in prior years and so that's where you'll see it is that we have.

Speaker Change: To strengthen that renewal base in the back half of this year and again the visibility on that is really good.

Speaker Change: It's a highly we have very high renewal rates and we've had a really good track record of expansion and so that's what's giving us the confidence in the software growth for the year as we look ahead to FY 'twenty six again on that three year renewal cycle. You can look back to FY 'twenty, three where software it was flattish over 'twenty two there was some growth in the subscription component.

Cooper Werner: And so that's what's giving us the confidence in the software growth for the year is we look ahead to FY26. Again, on that three year renewal cycle, you can look back to FY23, where software was flattish over 22. There was some growth in the subscription component of that software revenue outcome. But that will be a bit of a math headwind in FY26. And then you can look ahead to the next year in FY27, and you'll see more of a math tailwind just tied to that three year renewal cycle. So having said that, well, that's a little bit of a headwind in FY20.

Speaker Change: That software revenue outcome, but that will be a bit of a headwind in FY 'twenty six and then you can look ahead to the next year in FY 'twenty seven youll see more of a mouth tailwind just tied to that three year renewal cycle. So having said that while that's a little bit of a headwind in FY 'twenty six we're continuing to see increased rates of expand.

Cooper Werner: We're continuing to see increased rates of expansions across the portfolio. And so we think there is an opportunity to continue to drive growth just in terms of the adoption of software by our customers. And that's what we're most focused on. And so those are just some of the things that we're thinking about as we look ahead beyond FY25. Great. Thank you. That's all very clear. Appreciate it, Cooper.

Speaker Change: Across the portfolio and so we think there is an opportunity to continue to drive growth just in terms of.

Speaker Change: The adoption of software by your customers and that's what we're most focused on.

Speaker Change: And so those are just all the things that we're thinking about as we look ahead beyond FY 'twenty five.

Speaker Change: Great. Thank you that's all very clear I appreciate it Cooper.

Matthew Hedberg: Our next question is for Matthew Hedberg with RBC.

Unspecified Moderator: Our next question is from Matthew Hedberg with RBC.

Matthew Hedberg: Hey guys, this is Mike Richards on for Matt. Thanks for taking the question. You know, you touched a little bit earlier on maybe seeing some polling from Fed in Q3. Just any other color around how Fed performed relative to expectations and your assumptions for Fed moving through the year and, you know, yeah, any other color on Doge impacts that would be helpful. Thanks.

Speaker Change: Hey, guys. This is Mike Richard on for Matt. Thanks for taking the question.

Speaker Change: You touched a little bit earlier on maybe seeing some Poland from fed in Q3.

Speaker Change: Any other color around how fed performed relative to expectations in your assumptions.

Speaker Change: For fed move into the year and yeah, yeah any other color on Joe's impacts there would be helpful. Thanks.

Francois Locoh: Thank you, Matt. You know, generally we have a strong you know, quarter in the Fed performed in line with our expectations or a little better. So we didn't see any disruption really in Q2 to our Fed business. That said, you know, when we, you know, when we spoke with our customers in the Fed, you know, towards the end of the quarter and looking into, you know, Q3 and Q4, I think they were starting to feel a little more nervous about the potential disruptions that would come from DOGE. It's a very dynamic situation. It's different, you know, from one agency to the other.

Matt: Thank you Matt.

Speaker Change: Generally we had a strong.

Matt: In a quarter in the fed performed.

Matt: In line with our expectations were a little better.

Matt: So we didn't see any disruption really.

Matt: In Q2.

Matt: So our fed business.

Matt: That said no.

Matt: When we.

Matt: When we spoke with our customers in the fab.

Matt: So at the end of the quarter and looking into Q3 and Q4 I think they were starting to feel a little more nervous about the potential disruptions that would would come from those.

Matt: Very dynamic situation is different from one agency to the other so it's difficult to say exactly whether the disruption will be some push outs some pull ins.

Francois Locoh: So it's difficult to say exactly whether the disruption will be some push-outs or some pull-ins. But, you know, I think we're going to start to feel more of the DOGE effect in the second half of the year. That said also, we are, you know, generally the projects that we are associated with are security projects that tend to be prioritized and are pretty important for the agencies that we work with. So, you know, in terms of their overall budget envelope, the, you know, the feedback we do get is that they will tend to prioritize the work that they're doing with FI.

Matt: But I think we're going to start to feel more of the the dose effect.

Matt: In the second half of the year that said also we are generally in the projects that were associated with our security projects that tend to be prioritized and a pretty important for the for the agencies that we work with so.

Matt: In terms of their overall budget envelope.

Matt: The feedback we do get is that they would tend to prioritize the work that they're doing with EFI.

Matthew Hedberg: Great, thanks for the color.

Speaker Change: Great. Thanks for the color and then and then maybe just from a geographic perspective anything to call out it looks like EMEA was pretty strong in the quarter.

Matthew Hedberg: And then and then maybe just from a geographic perspective, anything to call out, looked like Amiya was pretty strong in the quarter. So just any commentary there.

Matt: So just any commentary there thanks again guys.

Francois Locoh: Thanks again, guys. Thank you, Matt. No, I think, you know, things geographically landed as we, you know, as we expected. The international business was actually pretty strong. Both EMEA and Asia performed largely within, you know, our expectations. And North America was pretty strong. So there was nothing really out of the ordinary to note. Of course, we had an easy comp with EMEA because the revenues a year ago were not strong there. So it, you know, grew substantially in the quarter, but overall in line with our in line with our expectations.

Matt: Thank you Matt No I think you know things geographically landed as we.

Matt: As we expected.

The international business was actually pretty strong.

Matt: Both EMEA and Asia performed largely within our expectations.

Matt: In North America was pretty strong so there was nothing.

Matt: Really out of the ordinary to note of course, we had an easy comp with EMEA because the revenues.

Matt: A year ago and were not strong there so it grew.

Matt: Grew substantially in the quarter, but overall in line with our in line with our expectations.

Meta Marshall: Thank you.

Unspecified Moderator: Thank you. Our next question is from meta Marshall with Morgan Stanley.

Meta Marshall: Our next question is from Meta Marshall with Morgan Stanley. Yeah, maybe kind of following up on a couple of questions. Understanding that you didn't see any pull in in fiscal Q2, but I guess just, you know, we are a month into the quarter.

Meta Marshall: Yeah, maybe kind of following up on a couple of questions understanding that you didn't see any pull in in fiscal Q2, but I guess just you know we are a month into the quarter as the linearity that you're seeing in fiscal Q3 any different than you would have traditionally kind of seen and in fiscal Q3 versus expectations and then.

Meta Marshall: Is the linearity that you're seeing in fiscal Q3 any different than you would have traditionally kind of seen in a fiscal Q3 versus expectations? And then second, you know, just on the last question about kind of international, you know, the dollar has weakened a little bit in the last month. I guess has that changed your expectation or changed the behavior of international customers where that business has actually gotten stronger as the dollar has weakened slightly? Thanks.

Second you know just on the last question about kind of international.

Meta Marshall: Dollar has weakened a little bit in the last month, I guess has that changed your expectation or it changed the behavior of international customers for that.

This has actually gotten stronger as as the dollar has weakened lately. Thanks.

Cooper Werner: Yeah, thanks, Mita. So on the pull-in question, You know, we didn't we didn't really see any any material pull in. I think as we're looking at the first few weeks of the quarter, we're seeing really strong results hitting our weekly commits. Again, that's the first thing, leading indicator that we look at, and it's been very healthy. Linearity is right where we would expect it to be for the quarter. I mean, clearly in this environment, we're being extra mindful and focused on any indicators that we could see if there was any erosion. We just have not seen any thus far.

Meta Marshall: Yeah. Thanks so.

Meta Marshall: So on the pull in question.

Meta Marshall: You know, we Didnt, we didnt really see any any material pull in.

Meta Marshall: Yeah, I think as we're looking at the first few weeks of the quarter, we're seeing really strong results hitting our weekly commenced again, that's the first thing leading indicators that we look at it and it's been very healthy linearity is right, where we would expect it to be for the quarter I mean, clearly in this environment, where we're being extra mindful in focused on any indicators.

Meta Marshall: We could see if there was any erosion, we just have not seen any thus far so.

Cooper Werner: So, you know, we feel pretty good from where we sit. On the international side, yes, the weakening dollar does provide a little bit of a benefit just in terms of the street pricing. But having said that, the dollar had strengthened early in the year, so I think it's just kind of balancing out. Nothing that we've really seen that's driving any kind of increased velocity around sales cycles. We're kind of operating just within a relevant range that we've been at over the last several quarters.

Meta Marshall: We feel pretty good from where we sit on the international side, yes. The weakening dollar does provide a little bit of a benefit just in terms of the street pricing, but having said that the dollar had strengthened early in the year. So I think that's just kind of balancing out nothing that we've really seen is it's driving any kind of increased.

Meta Marshall: Velocity around sales cycles, we're kind of operating just within a relevant range that we've been out over the last several quarters.

Meta Marshall: Okay, great. Thank you.

Meta Marshall: Okay, great. Thank you.

Meta Marshall: Okay.

Tal Liani: Our next question is from Tal Liani with Bank of America. There you go. I was on mute. You can hear me now? Can you hear me now? Yeah. Yes, sorry, I wasn't here.

Meta Marshall: Our next question is from Tal.

Meta Marshall: Tal Leone with Bank of America.

Speaker Change: Alright, guys.

Meta Marshall: You can hear me now.

Meta Marshall: Can you hear me, yes, yes.

Meta Marshall: Yes, yes, sorry, I was on mute.

Tal Liani: Um, I want to go back to the first question we had by Tim Long and The question is, if I'm trying to learn from a quarter where you have no growth in software, because that's when we can see the drivers. And if you had no growth because of renewals, it means that when you have growth, it's always coming just from renewals. So the question is, why don't we see growth from new products, new markets, new drivers that you have? In a quarter that renewal is weak, why don't we see the other drivers? And does it mean that when it grows, is it mostly about the accounting of renewals?

Meta Marshall: I wanted to go back to the first question, we had by team Logan.

Meta Marshall: The question is.

Speaker Change: I'm trying to learn from a quarter, where you had no growth in software because that's when we can see the drivers.

Speaker Change: And if you had no growth because of renewals. It means that when you have growth, it's always coming just from renewals. So the question is.

Speaker Change: Why don't we see growth from new products new markets.

Speaker Change: New drivers that you have in the quarter that renewal is weak why don't we see the other drivers and does it mean that when it grows.

Speaker Change: Is it mostly about the accounting of renewables and that's kind of the first question.

Tal Liani: And that's kind of the first question. The second question is, we talk a lot about AI and you have a great position in AI. And I, you know, this is enterprise AI, right? So the question is about timing. When do you think AI starts to be a meaningful driver or a notable driver to growth?

Speaker Change: The second question is you we talk a lot about AI and you have a great position in AI.

Speaker Change: And.

Speaker Change: Enterprise AI right. So the question is about changing.

Speaker Change: When do you think AI starts to be a meaningful driver or a notable driver to growth. Thanks.

Francois Locoh: Thanks, Hal. I'll start on the renewals and new components of our software growth. So we do believe that the renewal motion is going to be the driver of growth over time. But let's be clear, this isn't just a, a refresh or a repeat buy. This is the maturity of the subscription model where every year when you sell new that then adds to that renewal base. So over time, the renewal base growing in size year in year out is what's going to drive our renewal revenue. And then especially important is the ability to expand on that growing base.

Speaker Change: Hey, Thanks, I'll start on the renewals.

Speaker Change: New components of our software growth. So we do believe that the renewal motion is going to be the driver of growth over time, but let's be clear. This isn't just a <unk>.

Speaker Change: A refresh or a repeat buy this is.

Speaker Change: Maturity of this subscription model, where every year when you sell new that's been added to that renewal base. So over time, the renewal base growing in size year in year out is whats going to drive our renewal revenue opportunity and then especially important is the ability to expand on that growing base and so that's what we expect to happen over time.

Francois Locoh: And so that's what we expect to happen over time. It's what we've been seeing in any given quarter. Again, there's going to be some lumpiness on the reported revenue just because they come on these three-year refresh cycles where you have the upfront revenue recognition. And so we said that last quarter when the growth was very strong on a reported basis, and we'll say it again this quarter when it's flat. And then we said in the second half of the year, we expect to see healthy growth again on that renewal base. So when we look at the new projects, that's really an opportunity for us to engage with new customers, and that's an important part of our model.

Speaker Change: It's what we've been seeing in any given quarter again, there's going to be some lumpiness on the reported revenue just because the lead time on these three year refresh cycles, where you have the upfront revenue recognition and so we said that last quarter. When the growth was very strong on a reported basis and we'll say it again this quarter when it's flat and then we say.

Speaker Change: In the second half of the year, we'd expect to see healthy growth again on that renewal base. So when we look at it the new projects, that's really an opportunity for us to engage with new customers and that's an important part of our model, but it's not going to be the driver of the overall growth over time, it's really just an opportunity for us to continue to add to that renewal base from which we drive our revenue growth.

Francois Locoh: But it's not going to be the driver of the overall growth over time. It's really just an opportunity for us to continue to add to that renewal base from which we drive our revenue.

Speaker Change: Yeah.

Francois Locoh: And Tal, on your question on AI, look, we are already driving revenue from AI today. And I mentioned earlier that there were really three areas where we were driving and seeing growing momentum in AI. And those are specific use cases that our customers identify as AI use cases. There are certain, you know, we also believe that some of the strength we're seeing in AI, sorry, in hardware, even in hardware refresh from customers, is actually driven by some of our customers getting ready for AI and increasing capacity and driving expansion in their data centers for AI, even though they don't necessarily target to that at the time of a transaction with us.

Tom: And Tom on your question on on AI.

Already.

Tom: Driving revenue from AI today, and I've mentioned earlier.

Tom: That there were really three areas, where we were driving and seeing growing momentum in AI.

Tom: And those are specific use cases that our customers identify as AI AI use cases there.

Tom: There are certain.

We also.

Tom: <unk> believes that some of the strength, we're seeing in the I mean, sorry in hardware even in Hollywood refresh from customers.

Tom: It's actually driven by some of our customers getting ready for AI and increasing capacity and driving expansion in their data centers for <unk>, even though they don't necessarily tie it to that.

Tom: At the time of a transaction with us and those things are happening today.

Francois Locoh: And those things are happening today. And we think it's early days, but it is going to grow over time. We're also very excited, Tal, by the innovation that we are starting to bring to market in AI. So I mentioned earlier that we just launched an AI gateway, which we think is going to gain traction in the market with the need to secure AI applications to secure large language models. And we're also driving innovation with AI inside of our own portfolio that will further our differentiation and competitiveness in the market. We just launched our application delivery and security platform.

Tom: And we think it's early days, but it is going to slow over time. We're also very excited about.

Tom: By the innovation that we are starting to bring to market in AI. So I mentioned earlier that we just launched any other gateway, which we think is going to gain.

Gain traction in the market with the need to secure application to secure lost language models.

Tom: And we're also driving innovation with AI inside of our own portfolio that will further our differentiation and competitiveness in the market. We just launched our application delivery and security platform, we're leveraging AI in that platform to bring analytics to bring insights to customers to make it way easier for them to deliver on secure their applications and that.

Francois Locoh: We're leveraging AI in that platform to bring analytics, to bring insights to customers, to make it way easier for them to deliver and secure their applications. And that is, you know, a catalyst for growth over time as we consolidate more functionality onto F5 and extending to existing customers. So the AI opportunity, when you look at it in terms of the future, we're very happy with where we are. It so happens that the big challenges in AI are moving data and moving data securely. And we happen to have, you know, the best technology in the industry, you know, to move data securely and at real speed for customers.

Tom: As you know a catalyst for growth.

Tom: Overtime as we consolidate more functionality onto a fire then extending to existing customers. So the AI opportunity when you look at it in aggregate.

Tom: Really happy with where we are.

Tom: It so happens that.

Tom: The big challenges in AI are moving data and moving data securely and we happen to have.

Speaker Change: The best technology in the industry.

Speaker Change: To move data jewelry and speed for customers. So the opportunities in front of us and I think will be will be durable over time.

Francois Locoh: So the opportunity is in front of us, and I think will be durable over time.

Francois Locoh: Great. Thanks, Renshaw.

Speaker Change: Great. Thanks, John.

Francois Locoh: Thank you, Tom.

Speaker Change: Thank you Tom.

James Fish: Our next question is from James Fish with Piper Sands. Hey guys. Francois, for you, going back a bunch of questions ago, you gave four sort of rankings on the hardware side.

Speaker Change: Our next question is from James Fish with Piper Sandler.

Speaker Change: Hey, guys Francois for you gone back a bunch of questions ago, you gave for sort of ranking on the hardware side is there a way to either ranker given mixes to what's impacting between that refresh data center modernization competitor displacements in AI.

James Fish: Is there a way that you either rank or give a mix as to what's impacting between that refresh, data center modernization, competitor displacements, and AI?

Cooper Werner: And then Cooper, for you, you know, to get to your software number in the second half, given what you have disclosed, and even in kind of mapping out the renewals and all that, it would suggest a new recurring business or even assign it to the perpetual side of things. Is it, you know, that new piece would be up year on year versus what you're doing today for the second half? So I guess what's giving the confidence that we're going to actually see growth on the new business side or either or an expansion on the expansion?

Cooper Werner: And then Cooper for you.

Speaker Change: To get to your software number in the second half given what you have disclosed.

Speaker Change: Even in kind of mapping out the renewals and all that.

Speaker Change: It was suggested new recurring business or even assigning to the perpetual side of things is it.

Speaker Change: That new piece would be up year on year versus what youre doing today for the second half. So I guess, what's giving the confidence that we're going to actually see growth on the new business side or either or an expansion on the expansion rate.

Francois Locoh: Jim, I can start on the first part of your question, which was ranking the drivers of, you know, the strength we're seeing in systems demand. I would say that tech refresh is the number one driver today of that demand. I would probably put You know, DC modernization and expansion, but it's really these hybrid multicloud architectures as really number two in what we're seeing in the strength in demand. Now that, we believe, includes customers also getting ready for AI, so you could say there's an element of AI that is into that, but it's a broader theme than just AI.

Speaker Change: And Jim I can I can start on the first part of your question, which was ranking the drivers of the strength, we're seeing in systems demand.

I would say that tech refresh is the number one driver.

Speaker Change: Today of that of that demand.

Speaker Change: I would probably put it in.

Speaker Change: You know DC modernization and expansion, but its really this hybrid multi cloud architectures as really a number two in what we're seeing and the strength in demand.

Speaker Change: Now that we believe includes customers also getting ready for AI. So you could say, there's an element of AI that is into that but it's a broader themes ingesting ice data center modernization and capacity expansion.

Francois Locoh: It's data-centered modernization and capacity expansion. Third would be competitive displacement, and fourth would be AI, would be the ranking, meaning by that, direct AI use cases that we are winning today. So that would be the ranking that I would put to that.

Speaker Change: Third would be competitive displacement.

Speaker Change: Fourth would be that it will be the ranking meaning by that direct AI use cases.

Speaker Change: That we are winning today, so that would be the ranking that I would.

Francois Locoh: But overall, we're seeing refresh motion very strong and significant tailwinds as well that are building up and hopefully will grow over the next several quarters.

Speaker Change: But to that but overall, we're seeing refresh motion very strong and significant tailwind as well that are building up and hopefully will go over the next several quarters.

Cooper Werner: Yeah, and then just to speak to software, we actually don't. We're not assuming strong growth from new. The growth is really coming from the renewal. And again, We've got strong visibility as to how customers are using our software within their existing contracts. And for these large contracts, we engage early with the customers just to do the sizing and plan that next renewal. And we've got a really good handle on what that expansion rate will look like for the second half of the year. And so that's where we feel very good.

Speaker Change: And then just to speak to software we actually don't.

Speaker Change: We're not.

Speaker Change: Assuming strong growth from new.

Speaker Change: Growth is really coming from the renewal and again this is.

Speaker Change: We've got strong visibility as to how customers are using our software within their existing contracts.

Speaker Change: These large contracts, we engaged early with our customers to do the sizing.

Speaker Change: And plan when that next renewal.

Speaker Change: Got a really good handle on what that expansion rate will look like for the second half of the year and so that's where we feel very good now theres an opportunity to to grow on new that could be upside to our expectations for the year for software, but we went into the year, saying that software, we emphasize as being kind of flat year over year ended the growth was stronger renewal.

Cooper Werner: Now, there's an opportunity to grow on new. That could be upside to our expectation for the year for software. But we went into the year saying that software we decided was being kind of flat year over year and that the growth was coming from renewal. We had very strong expansion in Q1 on a couple of our larger deals. And then the rest of the renewal base, really, that's set going into the year. So we've got that visibility. And then what we track is what the consumption is within that renewal base. And that's what we see as being very healthy and gives us that confidence in the second half for software.

Speaker Change: We have very strong expansion in Q1 on a couple of our larger deals.

Speaker Change: The rest of the renewal base really does set going into the year. So we've got that visibility and then what we track is what the consumption is within that renewal base and that's what we see as being very healthy and it gives us that confidence in the second half for software.

James Fish: Got it. Thanks, guys.

Speaker Change: Got it thanks guys.

Operator: Thank you.

Unspecified Moderator: Thank you there are no further questions at this time I would like to hand, the floor back over to Francois Lakota new for any closing remarks.

Francois Locoh: There are no further questions at this time.

Francois Locoh: I would like to hand the floor back over to Francois Locoh-Denue for any closing remarks. Thank you for joining us today. We look forward to seeing many of you during the quarter and to discussing F5's growing role in the broader hybrid and multi-cloud landscape. Thank you.

Speaker Change: Thank you for joining us today, we look forward to seeing many of you during the quarter and to discussing at fives growing role in the broader hybrid and multi cloud landscape. Thank you.

Unspecified Moderator: Oh.

Unspecified Moderator: Okay.

Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Unspecified Moderator: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.