FFIV - Earnings call transcript Q3 2022

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Operator

Good afternoon and welcome to the F5, Inc.

Third Quarter Fiscal 2022 Financial Results Conference Call. At this time, all participants' lines have been placed on mute to prevent any background noise.

Following the presentation, we will conduct a question-and-answer session and instructions on how queue up will be provided at that time.

As of note, today's conference call is being recorded. objections, at any time. has anyone please this disconnect If call to Ms. I like the over would now turn to Suzanne DuLong. Ma'am, you may begin.

Suzanne DuLong

archived hand A CEO; Locoh-Donou, website Hello XXXXXX. DuLong, of at and CFO, Pacific to fX.com, session. of team available call. available today's The dial (XXX) the call of President ID July the will Francois on prepared (XXX) President FX executive will Other where FX's Suzanne XX, be during today's through Pelzer, conclusion on midnight and accompanying FX's of XXXX. our Q&A the an today's be October Vice available President by on be and are Executive welcome. posted phone, of to XXXX. Investor call. and I at Vice Visuals use questions or meeting and version copy through telephonic press XXX-XXXX To replay Frank audio am members answer the Time, XXX-XXXX will site release IR replay remarks the FX's making our today's Relations. also access XX, of is

For additional to directly out please information questions, s.dulong@fX.com. follow-up reach at me or

over presented Please as call. statements, affect risks in duty that statements in Francois. will that, no the in or in FX may by believe, today are summarized announcing information filings. words the materially those our will financial turn With update differ These from and that our may release Our discussion note any this to call these I Factors anticipate, detail expressed actual implied results target. to which our cause results involve our include to SEC press contain that described forward-looking has expect statements. and such forward-looking uncertainties results to

Francois Locoh-Donou

Thank guidance. of of the everyone. non-GAAP joining and EPS we above QX, delivered revenue and today. for our our above top the Thank you, end midpoint us In hello, guidance you Suzanne, well

drove growth. revenue we offsetting continued XX% revenue chain systems. X% of constraints growth partially supply Software growth product Overall, for X% year-over-year, delivered

continue demand signals remain our While FY to demand our chain remain limit initial ship challenges 'XX ability supply to plan. strong, we of ahead and systems, our

out While and we be on of meaningful months, suppliers ship further calendar as volumes held to today, our in what have result continue up suppliers' see during design the fiscal systems most constrained the QX three fiscal not our likewise point we to capacity low deterioration. also XXXX second will will the XXXX component to our additional supply not ability in a We last seen In to of we XXXX. quarter in seen the the two in our that key quarter revenue. than previous QX our expect improve last better improvement Based quarters. general, efforts of have we continue commitment expect in beginning expect systems in

and secured We QX, fundamentally to continue quarter. with and customers strong and from added, to value. security our their we usage the as for number applications as saw demand the to provider scaled business in heightened increased see vertical, apps our of opportunity growing fueling tied In well as sales applications service demand growth

consumption protecting in QX, the showing engagement to and demand In one drive and fact, both factors threats. In against with largest from of and majority models. across to banking multiple zero-day BIG-IP turned services existing were continue incident insufficiently vendor our revealed hardware form organizations large security when a of customer concerns the and up hardware customer other solutions world's software financial example an one FX XG

over Also and their global provided after retailer immediate a to concept advanced QX, against our defense proof solution. against protection challenges head-to-head partner, strategic current vulnerabilities. with future three-month FX turned experiencing a provider web their large As that during firewall current FX of a demonstrated existing application bot

FX solution their cloud customer risk bought efficacy, demonstrated and deploying now is distributed the and apps higher protect and to significantly Our their customers.

have in latest services traditional Software-as-a-Service volume and to our their FX secure platform. SaaS transactions high architectures of edge-based modern customers which NGINX multinational offering, new to and said I trend, we globally. this Last strategies looking cloud operations. combination encrypted to we multi-cloud their and also selected networking platform, are FX previously simplify increasingly are and BIG-IP In process unite computing on delivering a QX, their launched of American example spotlighted and unified We services, operating February. that critical both With during distributed security, an a quarter, our solutions the this and corporation financial of

While it seeing traction interest. good is still very customer and interest, we're

model global devices specializing security web or a ensure customizable clinical in multi-region services and During solution rapid API application their support company a global of services to SaaS. medical and provide firewall and our of selected scale policy hybrid via in protection to QX, delivery at deployment

as quarter, expanded network. win, from more functions include XG as offerings and American in XG of and XG cloud, quarter providers moving XG scale automating introduced architecture. In cloud-native cloud-native BIG-IP large drove enterprises customers realize we with customer continue mobile are with to enable XG their the firewall win for to providers NFV with functions we cloud-native benefit and its to business network core. service These move a production. both the for to the service workloads legacy the cores in Cloud-native full carrier-grade traffic. service more perfect operations recently modern expanded simplifying functions scalable service an into secure, APAC-based their they secure to grow one Finally, our demand another provider In and provider our begin cores and North a a

review the our QX will macro Frank I results Before to on I call our outlook, turn environment. and QX to the comment

have saw At more teams noted a sales more As got we same pipeline. QX, and QX demand where in were and strong close instances QX backend to in time, previously, also I deals. we our approvals said strong the we've observed linearity required

today, combination uncertainty inflation the not investments. customers put budgets are and macro and of believe on force to we will eventually pressure we customer seeing reprioritize While it

others, monitor from would customers. more our assessing we the closely that like And we We will the cautious. event turn adjustments customers signals to our make in continue or environment are

We portfolio have models. and and our stronger built by our resilient expanding consumption a solutions more

As systems. distributed a what will result demand FX expect to offerings, our business BIG-IP, transformation, and software of services is from and including positioned FX drivers, SaaS persistent we growth be for both our benefit NGINX, cloud

As successful to stronger a of we growth. have increases revenue earnings model our and that transformation date, efforts sustained business our confidence a result

to will turn I Frank? Frank. the Now call

Frank Pelzer

up subscriptions results outlook. of We delivered our will representing smaller revenue services million, is $XXX product each of revenue, year. is includes $XXX revenue backlog chain and and as Enterprise portion of we million X%, QX that delivered fully the revenue, and in quarter, revenue QX subscriptions, our has a our consumption period. closer supply Revenue QX third high. added from year-over-year our to out of Product growth before a the in customers delays. This another results. distribution software. discussing review operating supply milestone Francois, well XX% but XX% quarter revenue come and services totaled grew X% remind year represented represented QX continue XX% the our reflecting you, XX%, product picture, region. I'll in This at year-over-year contributed not gross guide global utility-based of declined to delivered of Service QX quarter. of a the in declined from from and majority Software-as-a-Service XX% with was models. Taking of our customers at of revenue as revenue year-over-year, of revenue, product of GAAP tens shipment basis, you represented contributions look bookings the from Thank the quarter, share Rounding the now EMEA XX% due XX% to good systems represented revenue Similar subscription in growing for prior quarter revenue over new indicative sources, $XXX will including Software-as-a-Service ago revenue in quarter. is Non-GAAP providers growth our Systems everyone. in regional XX% government afternoon, revenue software total total in On I recurring XX% which X% in the XX% grew gross I million revenue. $XXX QX. growth. X% dollars the XX.X%. for XX.X%. current revenue. millions represented resulting with is term U.S. above software from from our utility challenges margin where XX% of maintenance revenue APAC our our representing a of given of geographic revenue ongoing Federal. million. XX% product of a of was chain margin to and software second QX, Term-based a half revenue total XX% subscription-based row demand us up given constraints, revenue X% represent XX%, revenue. revenue X% software Americas representing of and and quarter

While prices, price some average gross sourcing-related margin QX in in costs, increased improvement experience fees reflects our we component on selling continue to systems expedite quarter. the other and

than were are ready is operating say overall $XXX $XXX million. it's expenses not a direction. the are to were about This GAAP expenses we operating We lower but trend, encouraged Non-GAAP in a anticipation not our dollar. expenses potential range to result guided some strengthening of the the macro materialize delayed related headwinds and investments in did we quarter as lower international that of million.

operating GAAP margin was Our XX.X%.

margin XX.X%. non-GAAP Our was operating

XX%. Our quarter GAAP effective the was for rate tax

nonrecurring per the Our the tax net federal non-GAAP income $X.XX a the GAAP effective was share. million $XX quarter benefit return filing tax driven with rate our for largely by or quarter. associated XX.X%, was of during income

future million operating Similar DSO supply $X back-ended challenges. ongoing for hardware income last balance and resulting end. and from related the million to lower this to of linearity $XX in Capital levels net expedite $XXX up builds payments We XX will QX. quarter is margin from $XXX the component Our securing net and and tax due cash the investments chain This I support quarter in flow $X.XX the to flow better-than-guided inventory and million quarter non-GAAP Cash for share. is $XX historical contributed approximately per million operations partners fees. shipping quarter, from to in more than days. at component totaled now was cash to were quarter gross expenditures million. turn to to of or generated of performance sheet. rate

or During increased growth an approximately and, of million up the approximately $XXX of to by worth revenue $X.XX bookings billion repurchased largely shares shares at year-over-year billion, Deferred share. maintenance. XX% subscriptions $XXX a million $X.XX to deferred service per driven lesser QX, X.X from quarter, price in SaaS FX we and average extent,

our share my now we for quarter. reference Finally, will please outlook with quarter employees. ended non-GAAP note approximately X,XXX stated, guidance that otherwise the the comments fourth I Unless metrics.

of We expect the to million range in QX million. $XXX revenue $XXX

that revenue indicates XX% would target year. our software high pipeline the demand of growth towards end Our for our QX the to put XX%

very more risk cautious as Francois are ago. however, than the As cognizant range at the software was of discussed, broader, see a our environment. a growth we And we there end quarter more result, of top

QX global Given approximately now X% grow to strength year. services, the in X.X% revenue the for we expect to services global

expect We XX%. in XX% a range margins gross to QX of

to next are year. rise will seeing expect higher and continue they still costs We be that component

As a systems approximately X. increase an July XX% in price result, we implemented effective

of We 'XX our an estimate price would at outlook. rate points 'XX our increase manifest into take the benefit the basis for rate million QX from FY will approximately margin Factoring in expect tax it we million, expenses now improvement will improvements. gross some QX, operating sustainable Given FY be of to to effective operating XXX tax $XXX which put quarters expect we approximately margin to $XXX XX%. prior XXX XX%, our backlog, from

share. earnings to QX target is Our per $X.XX $X.XX

to QX expect $XX million We $XX million. share-based compensation

program. million as we an release, in repurchase to This earnings existing our new the in the share Board for press additional the announced remaining authorization authorized $XXX program. billion our incremental $X Finally, is

This other strategic As last two the to you share the of continue cash. repurchases balance to concludes Operator, please expect today. uses would have our with we prepared remarks we call years, to open over Q&A?

Operator

Ladies and begin will sir. gentlemen, session. you, Thank the we now Instructions]. question-and-answer [Operator

Sami Badri Please from Your ahead. comes first Suisse. go Credit of question

Sami Badri

higher reference XQ or least to fiscal XQ the was, Could backlog backlog. was the it more thing, I actually 'XX? was backlog to than adding a First if the there exiting clarify So I wanted you just increasing clarify my revenues where at fiscal is question. first that's think to exiting

the discussed year year look the the second indication trajectory on in of coming And are business. lot you you fiscal like, the or 'XX end investor going is fiscal of of in us rates The could give just question I know there's interest the guys base what at because range 'XX, is but higher a at software significant? growth to around characterize rather growth the

Frank Pelzer

take then Francois let and I'll question, second first speak question. Sami, I'll the to

it So the not backlog QX was than do and exiting that talked year. was that. at that end we quantify yes, of the We did higher in in QX. would fiscal higher We the about significantly

actually as number release of October part it and you'll we'll in the the the call K. So, see

Francois Locoh-Donou

Sami, take part the And second I'll your question. of

XXXX. we in the end meeting XX% where year year are is closer performance we years of software, our XX% the ago November two of obviously, XXXX, about in Overall, top So, that this the now our this we guidance. we of fiscal if range not delivering you at that business time almost -- XXXX. guiding to delivered look and a of first guided the of in are investor And have for to the in

So adoption agreements good of the software multi-year transformations the and are automation. in driven strength FX we drivers feel we with of the modern security seeing in and including that very, digital talked by the growth applications, about, about we very business

because our so say, But pandemic and is fundamental think other our I will the factors it's in behaviors frankly, more course, of through based think talk a point. is globe this business. the will on factors for I of of of software across this specific the factors, October. every and will the And BIG-IP that company in some seen that to effect we about will to macro one, like the frankly, Today, environment too you macro change part the haven't buying we rate. our an the XXXX, growth at have at Sami, look And that, be, would the other XXXX early affect we, say customers I the growth on when

continued seen quickly move that that pretty demand customers we We actually have would to and they had of have for longer. hardware stayed hardware a software number with and declared that seen have hardware to recommitted

customers are demand of So, at the strong very, hardware, expense and that very sometimes software. in moved we resilience strong would've seeing to

affect would continue factor, shift of kind customer a that if top-line the growth that, more that it because shift, behavior. you of XXXX if continue see So mix rate software in affect will it may our in some, be but we to mix shift wouldn't if

Sami Badri

a -- it. follow Could going that of the this type to heavily Got provider why that's to to you on right this what they for see inflection specifics -- even specifics specifically some I portfolio bit or a just little Thank helpful most provider? maybe that FX exactly more on providers customers what And in for us service more seeing the times solution them? relying what's you are of color. on, detail call. couple for give point are because more up us wanted you service just just is up on the at on Could a service specifically give came

Francois Locoh-Donou

dynamics think, well, provider it's service time. at Sami, I result that are there -- investments very series and business kind that are I of of the two right is intercepting, two think of the the market our doing

able evolve to starting invested made XG On that do that us. wins edge. And But want our feel And area that, the number who to we to into in design had and that infrastructure have cloud-native of software it's a both And the we functions environments go revenue. heavily well next-generation with to allow cores providers for the service and deployments to going cloud more this of software have we this build in kind are expectation now service so production, side, of that cycle continue. we quarter, the these core these with of into will positioned production. turning is into more and be in providers at

a before, have on to we've get make think, with land vertical. GI going the demands prepare part really capacity increasing XG to of specifically in their dynamic in hardware meeting been they carrier-grade service result, for XG this providers that's and the to that price in other that for for and we increased firewalls. And demand the service traffic, to high-capacity demand to are execution performance continued able And some I is especially as provider traffic, network points we shared strong in platforms for of the high-scale, like our The we investments that's as environment things deployments, service -- increase provider capacity. driving continue

Operator

go Fish of ahead. from Sandler. Your Piper James comes Please next question

James Fish

from to either software also, extending to software? the given And question think go there, independent how organizations deal a before. flow some Is software about Wanted you now. agreements way much you're Francois, into unattached off actually duration on multiyear the dependent deal of for or systems out selling some the just already flow Is there the of mentioned is largest there?

Francois Locoh-Donou

part with of start the that question, Jim. latter I'll

pretty Jim, Typically, and I trends no, agreements, seen a there So think steady, haven't the multiyear three-year fundamental change the are in agreement. are we on duration.

cloud and majority I majority business. is dynamics hardware. is BIG-IP, is SaaS services to in -- hardware dynamics the not say attached of business of not any seeing the software terms would question, around attached if part net kind first NGINX services our circle obviously, of attached our you with the business, hardware, and to new of largely modern In of take driven software any a business managed the on the the dynamics applications is the business have Jim, that's by -- not With the you're to distributed part the what your of

are we months, to And number software-first rates. customers of software-first delay an a hardware-first resilience that environment. And who there still XX declared seeing environment. where we are BIG-IP would a this go hardware-first we number where the specifically it's of but stay that not of environment we seen bit seen changes, have I'd in our business, sort very quarter have that's more number a who constantly in little are migrating a of on have -- is seen the area last specifically but have where And of from customers and who them over with I software a would they a -- to say, you're -- effect customers However, a the that growth strong a and have have hardware say sooner. affected you environment

James Fish

during then for want Frank. do a there right. And back the All believe, of that a for net you're way QX. I understand maybe how much for to $XX here, year I versus guide to $XX a bit unpack be from will in to Is supply your The macro essentially versus million Street the prior, the issue the impact guidance? headwind constraints including now chain million

Frank Pelzer

to when Jim, number, release I product than and QX backlog probably a you'll number will that's the is XX% now. the right more about then -- policy, as more revenue, we think backlog see the be actual if in of talk we We've able specifically that our number. expectation fully

to revenue and some for the have in what software that meant And difference revenue or was that out make change so assumptions on I able think the what pull you'll total effectively overall. be the would

So, your can you'll if for months, get I answer. hold off think three you

Operator

go of Marshall Stanley. Meta ahead. Please from comes question next Your Morgan

Meta Marshall

of questions. couple A Meta. is This

point? from then transition question, place quarter chain next second availability is when of is does expectations? for Just to you on that is a rSeries of point piece, versus the And the of complete year, expecting how you're that there that breton that or iSeries as kind redesign bone supply follow-on process take maybe mean just component second that kind at expect the the at by

Francois Locoh-Donou

in so in by two our quarter the of we're Meta, about when talking Meta, shipments second fiscal XXXX, improvements driven factors. that's

our us. some on we first what commitments what constrained suppliers on to is components. are against component from to we they track from they've on The commitments expect see, most be And these made with of execution availability better generally, the based

in doing been constrained around components, So design some number we end towards that's of would which quarter should the design efforts year, complete -- have also most the or redesign is the 'XX. design the components factor quarter or tail ship work number the second with the And us second one. some to two Factor around those of calendar fiscal of new allow to

factors that, driving So those Meta. are the two

of today, are those both on track. of really As factors

to happening second things months we're Now six that talking about half full the and looking nine the XXXX. in are at then next of

saying, would months to what by own better I that say, ton by caveat there's commitments we we from seen track. I'll about delivered ago we're our our and But incrementally come -- be suppliers. on of feel and we we've to generally, commitments three And from a still So, that load. our than did execution suppliers'

we happy are had. very the Xx than As happening than It it the benefits faster new And rSeries. The platform due right platform. relates to to prior introductions. is the actually rent with ramp of rSeries, we've largely fastest-renting platform now of that's the is rSeries new

to an cloud it's environment. to really bring customers their of elements on-premises the years our started the ago of a we investment to few several So

So ability automation the from rSeries, run they're to platforms. benefits getting software tenants lot a of multiple on same the

customers rSeries what multi-tenancy heart the is that platform. they're into not lot platform, get of new And that the transformation, want a a benefits cloud-like you lot and of but digital is price-performance getting hardware automate from which at benefits to the of also from just of their really the those a so automation environments, the for

we next the ramp, think rSeries for the and to good few just business, about -- are a that's going not years. excited year, pretty is this I we're for So what do but

Operator

Tim from comes of question next Barclays. Long go ahead. Please Your

Tim Long

software Just a few on the business.

It years you maybe of other those been look Could to it's are some do renegotiations you're would deals, retention? And them pivotal what a And of of deals, going software this the then renewals a maybe could running specifically be talk should above Frank, first-term large update when of at so, the first in deals. how related more those deals talk the us seeing get renew numbers where think. the those to then and we're growth on kind bit a be the how First, of a dollar Love three how see a renewals last an I get you. color getting could the first one if bit deals, consistent think about be here, and it, run working would that potentially quarter? to not or those maybe you work so RPO, little set we of anniversary time -- the just into those on we larger that really metrics the like little any some on Francois. Maybe about three-year to you Thank could can on jump update is business now. rates, of is ARR to initial true-forwards, little software? more of potentially a kind and for New little contracts? than coming model? you, We're up aspect nice --

Frank Pelzer

question. for over much so and then to I'll Thanks start Tim. Sure, it the Francois. turn I'll

as in of to of take split business the on of we this where we're talked to just hit metrics, ongoing, out second terms a lot off. So about software the started the term starting

can we past, do data We're of come And as question Francois, be know on some predictive they release make in are sure to you tracking more of for these used be said are and so get 'XX. over next we quarters, business. they more metrics, FY as outlook release renewals. ready to want and that the future them if, of that points the on the we internally. more it's I've going another the expect Again, metrics of do in externally. not we specifically the to the a more right in when, not I And still for those way so we had coming and to these

Francois Locoh-Donou

growth on application is early those revenue opportunities. seeing Yes. what's of expansion Tim, in the these we're -- What agreements. in on of on good usage, driving Generally, renewals, large these part and the indicators that's some really opportunity are expansion the continued multiyear the a on

portfolio So, difference. both we're driver that it's say allows early of across their a security. quarter, say, a We strong security very renewals security. what is to but customers well. other in put new again, it's really you going seeing the is and we've the our I I as would that environment agreements together days, very had And is that multiyear put would making capabilities said, --

So this NGINX security. quarter, second with very all with wins we very security. row we And across our had had quarter strong a over quarter BIG-IP, was and strong had in of we in fact, WAF. XXX BIG-IP with and on factors security form WAF and a of the quarter This a where NGINX

under all to strong a to policy same applications. push cloud that is all SaaS console allow customers security over you of We will our offering protecting offering, have debut, their bringing for distributor if our offering will, environments the time services for very single we're WAP which our SaaS on of their these And security.

both competitive are if driven expansion agreements seeing differentiation, the our that, we're software. that you new as that security will, existing agreements of in So as terms of of well by benefit

Tim Long

Frank, talked follow you've a just deals I In bit And little to software true-forwards on in up Okay. if could, the pipeline. by and/or subscription the growth past, about being metrics. the business driven in is the new the

a little deal of give of us true-forward mix could contribution new of growth and you contribution? color kind between just kind So of

Frank Pelzer

Yes.

split So out in not to going we're the quarter. that

we the true-forward at quite a split When along I look to expectations, I'm new call. take with were have not of but growth in both contribution think for the going it them in and in been I past, resulted also was line business. in That the software our the healthy. where our the was expectations a the between growth, two XX% give for specific

Operator

Please ahead. of Your next Needham. from question Henderson Alex go comes

Alex Henderson

of across So to made behavior the point references a you've buying at said number one behavior, buying specifically changed. presentation, haven't that patterns

activity economy. said whether you're deal But within point, is guide into for weighed orders? terms a And where And expectation signatures there's the impact chasing, longevity; the of you you've of activity concern whether the price number about might continued pipeline any the increase whether particularly of some year? the can the that this little robust you time would that Another of sizes in there's broader than less of your softness the increase you more are bigger, robust, in cancellations that required. and talk bit backlog, smaller, of you expect around how the are in

Francois Locoh-Donou

of Alex, part let the me last your question. start with

a pick. that's ordering willing in haven't platform than been at lead fact, have we elongated, So other some times, no, to because of whilst also, which the networking on of because into has orders others. any XX are still absolutely of our FX of months customers relative And players, some And seen orders. times networking times, we time of to depending were gear lead that trend we from still seen lead you backlog, some any. less the had our concerns with months. no delayed their about to our have number only There months four six And about are before of And cancellations hasn't lead hardware get cancellation. -- two that

about at So we're not worried all. cancellations

to the talk Let other me dynamics.

behavior, the implications of increases. buying You mentioned price of customer sort

have we're at, with So in not take behavior. and I'll where back in global come picture the a we of a moment, say, right if buying Europe specifically, level, that now, haven't we seen seen change a exception a of would to Alex, fundamental I I on no,

strong. we rates, the we a this globe little overall our That seen we didn't I is, would in change were affecting they quarter. you very have definitely the the true. demand the pipeline. some across Europe did in the fundamental of back-ended if in looked deals Europe will, think little But quickly very quarter, had macro specifically, linearity say, some close today. from is terms approvals. buying we yes, see more of number And see is back-ended And a a already softness And signals We when in at behavior In that continued linearity. and

QX, for pipeline to what start look today our pipeline. you QX and what we for we we in strong expect about Now will as let's is of around coming it when think forward see with have months, our is would

currently what specifically We said, quarter we with about the the largest is combination is, that have against of macro to in And deals. the I we environment. have the cautious of And we course, in cost customers up being calls a being that foreign the their software. in in That will QX outside think those elsewhere America making guidance. Europe, and pipeline on are deal and the large of expensive deliver exchange, number we inflation result deals, always to dynamics and also out force to customers of prioritization ends may make our a large investment. our them that, U.S. And increases we some a what in are different see think to in expecting. prioritization projects pushed than deals or of more U.S., which Latin some of Asia, deals

networking us, other given increases some not is that have including and that budgets made they'll We any But to-date. at sign haven't calls. make that exponentially, up these our every to going point, there prioritization seen are their vendor has customers in prices, out view of

I the few see think effect we likely months. we think the next to macro that's that in are

Operator

Chatterjee comes JPMorgan. question Your Samik from next ahead. Please go of

Samik Chatterjee

you're from increase drive wanted the what the terms hearing like can thinking extent. cautious you of changes or you you're if software environment towards levels do or internally some for you've also of sort as order Francois, that about seen? starting the I you behavior Like on mean talked -- because or since to changing are to reprioritization security? sales or incentives pull about business levels have start you're more of you the you of sort systems, the And more sounds internally. been on how it what I customer thinking focus but you're mean XX% with customers in Would quick more I to the about curious in, FX -- already the just privatization your prepare the increase spending price then can macro? that on you've of follow-up, trends just the a the see

Francois Locoh-Donou

of the price Samik, was about just your what increase, about question last part question XX% that? your the

Samik Chatterjee

-- price increase? through the in on increase pushing stating order trends color the the Any price -- since

Francois Locoh-Donou

Okay.

with that of part me just So let the question. start

by on orders a took number for that out it out So early X. July effect look -- Samik, a strong orders, be demand customers to these very of the strong price not was we have in. order would result yes, normalize our -- third When to at that, increase. these orders we increase quarter by you had we were quarter. that price to of were pulled even into And a that And strong we QX, actually did a I demand pulled signals as for wanting normalize that affected say, if we

is the being first -- order the in see what terms the really we are post we're In for in the we're your transpire of than month seeing the how the early first the cautious. we To increase, and the linearity around macro, not of question quarter. will what part quarter, may we different we see you are today of in preparing that that would trends price

some we're -- we So, month to everything kind any There clearly last that's if transpire signals to not. going of that with delayed going investment clear, in functions. or what's across out demand date. in have significantly want and the these down to not investments macro change given more of were have, in slowed forward push hiring the be But we see see macro, we to initiatives seeing our we're in the not else caution, on I

and OpEx run will, readiness. Samik, now, on preparation our if our OpEx rate right it's that of the we you focused -- and So our more have management

are having the our hopefully, they're to software in that strong. software continue and pretty we're seen growth And remain results Our going incentives for our on rates. for strong, you've to teams

Operator

of next Your Sachs. ahead. Rod Goldman comes go from Please question Hall

Rod Hall

come back are back guys drivers the about it Was I but something quarter the whether how characterize nature saying that? what down quarter? the I quarter? you you're back-end was loaded to made I mean and wonder wanted of think, drivers about I I guess to of of kind quarter DSOs. impacts, the the I curious loading. the the Francois, comment, back-end you -- not seeing you you the of I'm promotion, end for selling curious back of again. of product the there DSOs nature And the come the like a type a there in next might Was were also back-end-loaded those you would more on think particular the demand

Frank Pelzer

DSO it. yes, the the Rod, So of let Francois linearity with start then and me side back-end about some let talk of the of question

linked the bookings your it's go be to bills little that, of So in components then out. not with AR but the think balance, the but lot in, out and the that, is just when going in things came the more a a increase had go back frankly for shipped the can is DSO, to that be half associated I but the can drove calculation shipments that The DSO. which and

increase, that So, haven't quarter. when it's half and to come quality to likely after seen to we're going it that happens, will any of get you receivables that's of DSOs of aging I going into down. return see the the the note the normalcy to when back come a FY those 'XX, we end see just back

down shipping in So, will FY in that coming expect 'XX Francois back going down. of to and when AR the DSOs, the I that coming that's see to mentioned, half side start as balance

Francois Locoh-Donou

Rod, Yes. was the back very quarter. demand back-end-loaded of but strong on first quarter, yes, all, it on very, more ended And a

a mentioned have we the in doing at And some attributed of being the increase. order QX. customers earlier We in that felt that I saw think should to came I that QX that quarter some of come some end are we ahead -- price of so orders very

that if out normalize would that more quarter. of think linearity normalize little I the a you the

linearity. do macro also was, want approval these if you I that around scrutiny more And had there. orders. Europe, factor of was the that normalize think is out more in in We an which to to with see factors, the element started Europe in other and cycles we there The their fact, two probably that back-end say to customers, loaded outside

third it of may so, in may in And the the we that have second orders expected pushed but quarter. month have month some the happened

Rod Hall

just the Okay. And the most Francois, you're increases. saying ahead kind follow of way saw thing where on Is type seen have of end kind on orders of of of I so the right the you systems one of to back characterize you types could there? would the pricing that the -- The up were or...

Francois Locoh-Donou

been than orders about had more kind price avoid a of the we systems think late phenomenon very more software, quarter where Yes. linearity. normal around the in That to for have sort would of the increase I

Operator

go next comes Your of Daryanani Please Evercore. Amit question from ahead.

Amit Daryanani

onetime ELAs on guess to of think in there if the XX% as that is have with on time? I rate or 'XX, software maybe slower you have in business 'XX, higher software year, at up you your you environment does nature something? software out big growth more call even you helped end right, would this well. growth see two start the or to that's anything side, macro I the And in in help that over deals fiscal end or do a XX%

Frank Pelzer

I'll question. that, your the back start take and with let of let Francois half Amit, me

note we potentially activities -- did happened themselves is will the ago on repeated that that volatility what have repeated to to going I this of itself larger year. there's nothing were. that So, normal have abnormal expectations we be and reasons deal three part that numbers. years our quarter-to-quarter even that's large process And why that

would Horizon thought But what aim in that of this these always some in going and our November will muted even activity back in about of talked year, increase and it's been when 'XX large again As deal fluctuation that FY expectations, part numbers to a the be XXXX about be. outlook repeated X denominator, we decrease. we've itself

Francois Locoh-Donou

well, of about the or this. question Yes. help give think that hurt And second I does your on some whether in software recession question, I are about XXXX, just then a the will business, is so in Amit, how you part our we -- if thoughts

not thing On start one doing. one seen we've is been hand, hunker continue past I down things people do recessions things to the in think that the new and they've but

continue where to if are And customers start to a would that rather there's the this you our so haven't decide our done less than way, hardware business what And favor customers new that look and BIG-IP on for hardware, some our if that new at hardware just opportunity stay a project of that would these it business in that they for that would and it's whole systems. train architecture, between mean hardware software likely already. is

than step vast that large On to prefer majority we of software to resilient look and form factors, built think new number But a from more in hand, subscriptions, are software our have business rather is form because model hardware perpetual business. subscription that move is there would managed would quite the CapEx and of you this our that think if services with the form factors, factors. back they the that at favor at we customers even way OpEx other it customers now environment model software is our of and we And business outlays. we or a actually we I think SaaS term a meet it, can where are

offerings we are that expense get very pay-as-you-go that they our model, rapidly. going a security would lower traction if And that add with on want favor already are, a their in to want XXXX. and to customers so have to but environment They start to capabilities SaaS

the economic we be in sense model customers environment. So them that in a overall, able for recessionary we've the got the most resilience that feel meet in model makes to to

Amit Daryanani

just Perfect. side. system the follow if And then up I on could

low is You revenue already QX Was if or of in look you're year? hardware stuff And next the your why increases signal comments a price the the statement will then on the you don't business fiscal see over 'XX with from have there? pent-up demand, on side reason a backlog peak that growth absolute there I be revenue. the some made point systems all at that the we positive declining have really system an and show you

Frank Pelzer

let and that with Francois. start me let yes, So

terms our when ship are value needed absolute would comings we low dollar a schedules the revenue. in revenue those were is of giving of an point components in. result in see when that to we QX that be truly the systems for So, And

that, what volatility the experienced been we the have has from in that commitments that produce gone will volume. low down to will point Francois having what with the That said, As we of mentioned, actually associated have, can we that quarters. be show decommits recent

And a low to dollar why we QX on basis, so be point. the that's expect

Francois Locoh-Donou

in would second part question, the your have our show of next that whether talked expectation hardware to have are next -- second growth your Amit, we supply to expect growth we would part the profile to show year, our would recovery year of positive able our hardware availability about. positive And yes, be if, that course, we

is if year are are profile would our too we that's supply to they track yes, a be next that greater higher revenue now. we're for And demand we stage, if to Even this this ship this backlog, than not large environment. there macro with be and the But for to year. demand that we revenues the business able speak we're our the this printing. revenues confirmed, so we're more demand to At on is than much is to less, certainly there. this many expect less not unknowns, speaking -- I So, I year would than is are And be be hardware going because going know if we today was to on our it hardware because hardware to was to I'm hardware year frankly, hardware assuming be next into be, say, would the specifically could demand that what year. even than year, clear, a environment recessionary revenue in have

Frank Pelzer

will last quarter. what a Francois QX point. will I said be low Amit, And just reconfirm will -- I

a as We there and become available. in components will QX some more from the build see of redesigns

curve by still for a backlog systems, And of next to ramp platforms. up availability. start production expect down higher to We QX, to we're it to on on actually be QX -- the begin able we But more of the do may take revenue yet ultimately, linear expect new because year. because even to then bring we

Operator

next Please Suva comes Your ahead. Citigroup. Jim go of from question

Jim Suva

bit kind the to the allow deals back I'm contemplation Francois, is to little of of in CTOs allow virtual to at question. whiteboard of time, the wondering, buying little as be one I'm Or solutions or get does they're instances, signatures and does expect? of additional VM more have what cadence you? that do the take software, also they're it just what looking wondering this a a and from production bit mentioned kind closing approved. look you a more kind from type about the more you just of I step to more more you? And elongated actually time orders your prepared time completely kind of at comments, it them

Francois Locoh-Donou

Thank you, Jim.

or a today, our Jim, with So to great of combination of creating their happening early capabilities a multiple a for I the where cycle. of able want in customers the portfolio all our having, where addressing nature of or to on offering at are they but strategic we offering, hardware for SaaS software engage above applications we're architectural in the environments, are think that offering that's kind different look conversations with customers, expanded our a they

and a approval a don't project a a it's CTO into quarters that's saying, a now the such decision, coming was approvals And it's it's few the that make an reconsider and perhaps add around -- So a into think by making by a the think more stepping they're approving as orders just we and of the they time -- and rush time. as there "Let exist take the they scoped I and people go. I especially right back the an a first their in me teams sure getting cycle, organization with queue. I in maybe capacity corners, been question that." all in get of levels there's of into defined knowing pandemic, think that recession were soon And people when full of were they to

it's Jim, think technical on step happening architecture, technology I than around early our which effect, and upfront, a does back customers' happen, more the it's that -- teams. So teams of with but own our

Operator

James. Please go Leopold take from due gentlemen, to constraints, our and last Simon Raymond question will ahead. of Ladies we time

Simon Leopold

quick broader and to question. a I then get clarification wanted a

of software business the indicated On for just And get the year. systems better the to supply quarter. Francois, want high I if And business constraints for somewhat September want because imply chain the end growth the I verify why like better think from I clarification same. are that decline to towards that the the in sequential you it front, might sequentially, a a down sounds is it or understanding

more exposure So a might broader if the a would unpacking question, of see that not wanted to little you. to about light no customers Thank enterprise profile vertical enterprise think get that in help the very a the you where within your sense these understanding about some have I potential of to better little it to market recession, enterprise to sure and SMB your be. vulnerabilities enterprise the past, more I detail that customers. in on the And you point. could your concerns you used verticals. the of of And talk disclose composition about In bit

Frank Pelzer

I'll pick back and up start question. your Francois on me Let let the of half

as our systems the specific supplier So QX revenue. we don't of know, you guide QX point that actually the either within I of purely to be expect or we mixes components say really last could ship. low quarter to due we as and a policy, product to our commitments revenue did what --

in down to specifically correct. QX the And revenue. so be were relation to what I chain QX directionally, low I in The so, points. quarter But QX QX the and and specifically be -- I'm of lower what dollar terms QX. we now dynamics, supply are -- to not QX. quarter-over-quarter than be was saying on saying feel We're that last QX that may saying wasn't are is address you going going sequentially going to still supply

to bit building be components. have associated you continue seeing few that we constrained. stabilization the constrained our have everything meaning obviously do to to there we and components on We the a Golden of to that are are are it. builds with most a still But of what have a And Screw call do component boxes,

not efforts reason, do a you. -- better that's still expectation, up, those most There for suppliers improvements back go not will could specific of to We if the more supply are better, we fiscal because our the us QX. not that components. which builds the still because will in better likely are the set know able ship getting are our are than these, in the for that want so expectation we those There's few us more help talked constrained. with in effect to that about half QX our QX. of for in is being is redesign but chain That And whatever build broadly, freed but into fiscal

Francois Locoh-Donou

the of second to part the SMB question, no And to your exposure -- virtually no segment. have we

So our service and it's large exposure serve. providers And enterprises. the the but around verticals enterprise world. we enterprises And are really is course, really those large the the base, in government, of three

Operator

ask you concludes your Ladies participating lines. and like and call to please you that would afternoon. We for thank disconnect all this for gentlemen, this conference your

F5 (FFIV) 26 Jul 222022 Q3 Earnings call transcript