FFIV - Earnings call 4 2023

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Operator

Good afternoon, and welcome to the F5, Inc. Fourth Quarter Fiscal 2023 Financial Results Conference Call. [Operator Instructions] Also, today's conference is being recorded. If anyone has any objections, please disconnect at this time.

I'll now turn the call over to Ms. DuLong. Suzanne begin. may you Ma'am,

Suzanne DuLong

and welcome. Investor Vice of DuLong, I'm Suzanne Relations. FX's President Hello,

XXXX. FX's and prepared Francois Executive and on the President Locoh-Donou, CEO; are team and call. members also of session. will through to FX today's executive our where fX.com, Vice website Frank CFO, Q&A of today's will press available A version be be audio on questions making remarks XX, answer hand the Other release today's of January at an copy President FX's Pelzer, during is on archived available

The (XXX) available on the to access slide will XX, through or use and XXX-XXXX be of deck XXXXXXXX. our accompanying October XXXX. webcast posted To dial today's call. replay discussion (XXX) telephonic XXX-XXXX of conclusion is be replay ID the will our the midnight meeting viewable today's IR webcast The Time, at site Pacific phone, and by

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

today statements, discussion uncertainties contain forward-looking target. may by risks forward-looking those these statements or to materially expressed words expect anticipate, statements. from cause which and that differ will such and actual involve believe, implied results These Our as our include

the We SEC in may our have press results affect summarized financial release detail results factors our filings. in announcing our that and in

slide this reconciliation earnings addition, information presented today's our press any metrics reference see in call. no Please during non-GAAP appendix duty non-GAAP GAAP FX we has of to in update will our release In today's note in discussion. full to Please the that and deck.

to over Francois. the that, With turn I will call

François Locoh-Donou

for Thank Thank joining you, Suzanne, you everyone. hello, us. and

results FY for details to as Frank speak then about FY 'XX 'XX QX highlights and expectations the as In my well provide some remarks color today, will our our FY additional review our outlook. will and 'XX. our of QX I and

and an from environment offset our financial range. some enterprise near vertical, QX solid additional providers. from of technology the strength high service result saw that revenue including our of end by The stabilization. softness QX We We delivered showed services a in was signs guidance customers,

discipline operating high above continued range. end earnings share well Our per us of the helped our deliver

Our services the price last increases renewals of strong X% maintenance year. team revenue global delivered reflecting growth benefit by announced and driven robust

revenue aided XX% software. In addition, software by in subscription XX%, grew growth

Software of all renewals, a And revenue the QX. picked global lower the remained shipments offset in while down year. first reflects over level in Strength quarters from had software performed year-over-year, the new XX%, subscriptions which some X which saw we have first well of services year, we compared and systems of decline QX backlog-related to half. a for improvement up than

Stepping to fiscal to times. challenges year actions realities the back growth. environmental delivery EPS and demand of pressures environment, and our XX% faced, adjust and at chain normalized the we supply decisive adjusted meaningful resolving our largely margins we operating delivering XXXX, returning improvements model to took We operating looking to the driving to

of to free via shareholders We flow our share also repurchases. XX% returned annual cash

for the our from plan In spend strong software 'XX a this return subscription year. environment, value to are the customers is renewals they solutions. FY that performed tough first, from today's Highlights expect getting largely and include: IT signal

with cloud both existing offerings Second, FX's gaining are services, distributed traction SaaS customers. new and

services increase an more to our than SaaS In XXX on of cloud, FX. distributed of In more XXX% than QX customers of SaaS for total, now are distributed fact, we new last XX% customers since cloud year. have

XXX non-GAAP operating a FY margin in displacing driving ADC traditional having points very competitor factors. improvements, meaningful software from operating hardware good success and basis both finally, 'XX. we are form up And we Third, delivered our

enter seems be to that 'XX stabilizing. environment we ahead, FY look an we As in

is it signs from with we are QX, perspective, too soon what seeing In is if demand early durable encouraging saw a customers say trend. a to fact, though enterprise we in

factors. contemplate of As FY a consider outlook our we number 'XX, for we

we At API by including expect and the macro cases, continued AI. growth and application level, generative fueled new automation use efforts

caution stable. sometime tension between point, customer into to And FY spending reach We growth believe a assets customers' 'XX. also application the we it's but FY likely 'XX, their infrastructure finally, API and reinvest to sweat will persist application expect them causing ability tipping and beginning in in

primarily $XXX FX At an have revenue approximately 'XX's consider, backlog the we from million first, we fulfillment, level, FY in headwind also systems.

be renewal cloud flat as These result distributed trends in software total services single-digit revenue to number growth. revenue FY including positive offset in of modest a price low global will we executing managed will strength subscription by third, our and growth expect we SaaS offerings. growth SaaS a series 'XX are to lap our increases. steady revenue we expect Second, as of and dynamics, continued services return transitions And a we of

the low of result inclusive a headwind from FY 'XX flat single backlog we down shipments. As to of 'XX, our these be FY factors, 'XX to expect revenue related X% digits will FY

mid-single-digit committed also of operating continued expect or we with to profitability, we and manage strong our to the end continue return We driving to low model range, achieve to growth revenue will Whether 'XX. in FY our high discipline. revenue we are

to operating non-GAAP a We in deliver margin range XX% expect XX%. to FY 'XX of

XX% FY to FY at 'XX. to least compared 'XX also on X% tax-neutral targeting growth non-GAAP X% basis EPS reflecting of growth a of We are

continued to Our company the anywhere. that and is of any growth optimize fundamentally applications apps FX deliver, APIs and opportunity linked can those is and secure, and optimize secure deliver only API APIs. need and the to and growth app the

for offer solutions apps. and Our require legacy apps API. than fit solutions custom and security delivery different APIs and each Modern a app

the for right have both. solutions We

of offerings tools the only our software all or and environments, API serve for cloud right app in app API, and public that managed and at edge. the In addition deployable the across hardware vendor data to SaaS combination means and the and are delivering right a we every can service center,

are can much easier to company it infrastructure make customers solutions today. our customers further every of to will who solutions only the the portfolio with who do environments. forward, our and going need multi-cloud of secure of apps and are resonating will be all across And them convergence FX is for deliver their the step this with We integration on able The their power that knowledge today our deploy with journey. converged they

Before I each pass the call to highlights our families. from will of Frank, I to customer some product speak

next-generation proposition into traditional performance, to and with environments FX QX continue family applications plane against we win representing on-premises, a cloud differentiate cloud seamless in continues environments. the than our to platforms public data with customers platform, serves Our XX% platforms, capabilities BIG-IP of co-located bookings. resonating hardware or either automation integration and perspective, and more the our value rSeries systems is competitors. VELOS From with BIG-IP's

competitor customer to displaced mission-critical we and to customer. In one BIG-IP a provider's handle health on care The portal. road The of as a selected arose incumbent care at BIG-IP from American physician in confidence our North map. win a advanced the a secure example inability customer's result opportunity QX, with FX capabilities, their a its records upgrade application health delivery the management, our platform based partnership access of

environment cases all needed mission-critical functionality customer, to their of and providing application future-proofing the competitors we replaced urgently, with data customer their the addition the use simplifying centers. the In

applications container serves strong QX. a NGINX microservices-based NGINX delivered very and native modern APIs. and FX

well. to Kubernetes seeing are and applications as those for workloads, scale, our and continue we opportunity as We large see cloud scale enterprises NGINX adopt their NGINX

also In layer for addition, containers. app customers are leveraging for NGINX security

security needed layer As the selected global to of division customer app with to card NGINX security the QX, a App in an data example, processing Protect when credit implement new e-commerce comply containers consumers' technology to they data. standards,

are excited to for inorganically services, build transitions cloud. cloud We we distributed the a future and organically Apart managed our mentioned, have the invested offering services. FX of and about SaaS portfolio both distributed from I really

We growth web app WAP categories, API X and or will exciting for distributed secure drive services. MCN intercepting are networking cloud protection emerging and future or secure that multi-cloud growth

came one the us the to of bot DDoS foreign an WAP evolve APIs. we application that that multiple web companies' offering, by when as a major Against posture protect comprehensive customer quarter, ability a WAP our protection, traditional firewall from attack EMEA-based its as In solution API win more encompasses defense including security protection. for and X This banking Layer existing their to under customer superiority are not approached handle. payment well our competitors, demonstrated they WAF successfully WAF could WAP actor malicious we helping

our traction that offerings America Early secure for includes win offers also financial with services multi-cloud a of in retailer customers. QX networking a range Latin to its a large

them of customer on-premises a They its needed efforts, enable expanding to their grow to solution selected to cloud-native move to existing our to As machines users proof footprint applications. of customer the to body both multi-cloud a part of and appliances large, the thorough consumers. networking to transparent migrate virtual their because of also manage the concept, our plan digital and of transformation make customer secure cloud. solution use and edge the XXX% the internal After ability

We and highlights during that of we to also win operating the traction financial multifaceted and to APAC-based constant a stopping to barrage needed also enable consolidate an handle traffic of with product with synergies multiple a environments, win scalability FX automated customers provider. cross-portfolio a QX, services modernization exponential help attacks. applications are choosing in They deploy launched project are hybrid a factors. who growth. designed form seeing The In add our families, across secured customer

and applications The BIG-IP ML-based simplify and and combination are Cloud and in with Bot of cases engine. the enabling hybrid These a FX their customer use we unpredictable bid, to operating life real secure, a how growth, posture to security won competitive of their optimize view In enhance APIs manage traffic multi-cloud enables for AI a customize world. how to Defense out. the our manage Distributed customers challenges each application and deliver, services complex combination offer we our

Now will turn call the Frank? Frank. to I

Francis Pelzer

results everyone. our 'XX Francois, I FY shared. will and afternoon, elaborate you, the QX Francois Thank before outlook good I and review on

million services introduced reflecting QX revenue of continued year. X% we totaled high Product a delivered services XX% growth strong due as X% of million, $XXX global price revenue to increases maintenance a mix with and $XXX revenue year-over-year X% last renewals the year-on-year. product million, XX% $XXX of down revenue. well Global grew as We

over lower historically. grew million a and demand had revenue that of the XX% software some seen high total quarters of at million, In than shipments we in record revenue. QX albeit representing new stabilization we $XXX software of to revenue reflecting have software software of declined Systems period of XX% prior XX% Perpetual million than lower million. revenue Subscription-based license backlog-related of year contrast, year-over-year, of signs levels showed XX% level another grew $XX XX% ago revenue. year-over-year $XXX represented a high, $XXX QX's to sales

a regional high. representing Revenue all-time XX% EMEA the includes XX% XX% grew of of services QX's maintenance another from X% of representing revenue revenue revenue. subscription-based XX%, revenue, our On revenue. Recurring Americas basis, recurring revenue, XX% and as of sources of total representing well revenue as APAC year-over-year, X%, from revenue. portion down was contributed grew

major our Looking at verticals.

enterprise customers customers XX% QX, from Service product During represented U.S. represented Federal. represented government X% X% XX%, including and of providers bookings.

benefit and basis points FY from was Our discipline operating results was cost were GAAP a gross margin April. non-GAAP reflecting XX.X%, full an announced QX QX improvement of gross operating 'XX. margin in strong, quarter the XXX reductions XX.X%, from of

were operating GAAP $XXX XX%, of below levels. expenses acquisition were QX million, operating operating expenses percent non-GAAP million. non-GAAP resuming revenue as pre-XXXX $XXX was a expenses

was margin Our GAAP operating XX.X%.

XX.X%, Our of more an basis improvement non-GAAP QX was points from FY of than operating XXX 'XX. margin representing

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

our a the quarter non-GAAP tax foreign IRS was expectations as issued credits. tax during guidance for to Our below XX% of relating effective the rate result initial year

income Our net for GAAP million was per $X.XX $XXX or the quarter share.

as tax top was of end $X.XX million guidance improvements margin net gross or expense $X.XX benefit. share. income above range reflects to of $XXX per the QX and as per combined discipline well share impact non-GAAP This operating of Our our the $X.XX our well the

turn will also flow I and sheet, to the which remained cash balance strong. very now

$XXX in for were million $XXX billion. We at DSO X% the shares repurchased increased days. $X.XX cash from to in quarter was $XX Capital totaled in expenditures investments $XX revenue end. quarter flow generated Cash of year-over-year Deferred quarter the and driven by profitability. operations QX, million approximately million QX. XX worth We million. for our improved

$XXX we X the million share met cash For repurchase I the year, flow of years, our commitments. approximately free we for share that each of used our note of or have past in exceeded repurchases. XX%

Finally, approximately X,XXX we employees. with ended quarter the

will recap I FY our results. now 'XX

Global revenue billion. revenue. representing revenue $X.X year, X% of to the total grew XX% For grew total $X.X of to X% $X.X revenue grew the to billion, Services for year. revenue X% XX% representing billion, Product

revenue. in XX% of year represented a second row, the roughly product For software

compared XX% flat of of projects. as was to a This transformational revenue down customers delaying was our from last growth year to Software expectation large result at million. $XXX XX% initial

performed planned. systems revenue We noted, software largely year, X% in representing million growth. Francois during renewals delivered As as $XXX the

information like I to revenue. now would provide regarding some additional software

we software as details additional said provide business to the scaled. We've revenue intended SaaS

transitions As future revenue performance. on to leading to potential We and are FY revenue last in both and managed October, 'XX that not believe service revenue necessarily and and had started clarity through will 'XX. mid-single-digit variability planned. and 'XX, service FY to that FY 'XX, the transitions FY of returning underway our managed our our is we providing to visibility expectations SaaS indicative some said FY expectation provides they that in SaaS growth We and greater these 'XX revenue of we transitions short-term continue several

components X 'XX of FY speak Today, to I revenue. our software will

the and portion and annual to SaaS and second, managed services; forward. basis the We term third, going intend an The our revenue continue the managed service first, SaaS to licenses. report subscriptions; on perpetual of

the as and new, both include forward service term expansion In from as of revenue of are FY subscription. NGINX X upfront for The term-based of deployable largely majority is contributed revenue. subscriptions recognized subscriptions X% both XXX, software revenue renewal term-based for to remainder annual or true are 'XX, software up ASC deferred $XXX of and revenue software. over contracted subscriptions revenue, subscriptions Under sales and our Term years. BIG-IP of term-based year-over-year. million subscriptions multiyear and subscriptions the The recognized comprised

as New customers new revenue well new existing use offerings to customers. sold as cases or includes

true FY to 'XX year-over-year growth, new largely several forward in In expansion encouraging FY the and reasons. offsetting plan software is subscription or experienced renewal Renewals 'XX, revenue healthy weakness for term performing in projects.

are demand. customer scrutiny, customers are they First, strong the value that levels a spending current given the signal renewals of getting

it's new our to renewals Second, and that confirmation still it relatively great working intended. motion is is see as

services, our FX of in X% cloud contributed up SaaS service revenue, software FY managed revenue offerings. from and services, component The managed of our Revenue managed and 'XX, SaaS second in comprised $XXX SaaS recognized million year-over-year. distributed is as legacy anti-bot anti-fraud the SaaS of subscription. Silverline our and the as our and offering product offerings. and from as revenue legacy are service FX term revenue well including over ratably managed offerings sales SaaS

$XXX year-over-year. SaaS this our 'XX, managed X and ARR million, X% primary down were FY of approximately end services to was performance. the At There contributors

FX are First, Distributed seeing solid SaaS early from Cloud Service offerings. our we momentum

spending FY our scrutiny. service in anti-fraud most advanced 'XX, Second, a our and anti-bot of as plan managed solutions and budget underperformed customer to result caution relative

the churn. the FY Third, fourth, offering. in retirement our retirement migrating SaaS offerings migrations offerings FX began companies revenue planned Silverline to from acquired. and executing customers we service managed offerings legacy Cloud 'XX, SaaS And from Distributed began legacy planned we customer we of SaaS Both Silverline legacy of in resulted our the

after revenue, million The strong of third year-over-year down which unusually software component perpetual revenue software $XXX contributed 'XX. licenses, our is in FY

FY out our 'XX, Several we revenue which revenue, attached stand-alone up annually. began approximately was revenue $X.X or our and to total ago, XX% was security our maintenance in years FY from billion XX% revenue This recurring, breaking revenue. security XX% 'XX. security total security, of year, of security-related In related includes

Our X% grew $XXX product security million. to revenue stand-alone approximately

from security Distributed the lower-end on as Services well as We traction with are anti-bot through offering Cloud seeing delivered good NGINX.

growth including 'XX Our stalled the customer affected transformational previously. anti-bot, security anti-fraud solutions, caution, of mentioned FY I by revenue and was advanced projects as underperformance spending

times During returned year, we and to our overcame successfully levels. challenges normal supply lead the chain

FY approximately in the supply our year with we product product and $XX challenge pre 'XX million backlog result, a backlog. chain As closed to returned levels

'XX to turn now our FY I operating performance. will

basis as was in gross costs gross Non-GAAP GAAP from FY down in margin chain FY was supply result XX.X%. XXX XX.X%, margin points higher 'XX 'XX a of 'XX. FY

cost our margin for our and points XXX operating result FY margin XX.X%, was a 'XX GAAP previously Our non-GAAP up of was as announced XX.X%, 'XX basis FY from reductions. operating

Our the XX.X%. GAAP year rate for effective was tax

the Our XX.X%. for was non-GAAP tax year rate effective

foreign income $XX.XX IRS Non-GAAP credits. over Our rate income per expected tax than during million 'XX lower fourth $XXX or $XXX $X.XX primarily net 'XX 'XX. annual tax million per XX.X% of share representing net GAAP share. related due was quarter guidance to FY or FY growth the was FY for issued to was

I and of at our longer-term recap color. provide call. it additional our Francois outlined annual the outlook will start outlook QX. with the for some will also I

With the exception comments of guidance revenue, reference non-GAAP metrics. my

the 'XX assumptions. our following we've In made FY outlook,

we year. into 'XX, We point in expect expect continue customer but customers begin will will FY the spending to caution at reinvest also some

price return growth lap revenue We we will expect Services our to increases. low Global as single-digit

'XX's revenue million in have $XXX approximately We FY headwind fulfillment. from systems backlog

to in BIG-IP traditional the factors. both form hardware ADC share continue take space expect to in software We with and

we our SaaS software Within our strength expect offerings. continued revenue, growth renewals from our subscription and FX term Distributed continued Cloud from

revenue As the through service SaaS will I previously, I discussed. we discussed planned work churn and have transitions some managed as we

We transitions FY be expect the million, is than FY ARR we with next intend which In more is transition approximately to the 'XX, transitions associated X will complete the distributed over 'XX. any cloud in offerings of largely $XX to a little with years. associated half on these

us range FY to the these of combined single of down 'XX digits levels low current in the FY flat net The demand leads to with revenue 'XX. expect assumptions from

or from normal largely Excluding in to low backlog customers our FY our depends top achieve mid-single-digit of when end on range guidance the we would $XXX spending. 'XX. Whether million bottom more headwind growth or levels of revenue X% FY this 'XX range reflect reduction, the resume

quarter-to-quarter revenue to a subscription variability our term of related recognition We upfront continued some result expect offerings. as

strong expect chain-related supply primarily This 'XX perspective, to the of of model. profitability. driving we improve in From our range we Regardless to result of working of the margin will out cost performance, year is pressures to XX% their way XX%. gross our an committed fiscal revenue remain operating

margin We expect at XX% result of percent our to of continued for the in FY line XX% expense roughly expenses XXXX in with will roughly the operating XX% in revenue non-GAAP operating this levels revenue. put range our would discipline operating a basis, 'XX On of year.

FY will to deliver which XX% FY basis. tax-neutral XX% to year-over-year In 'XX, X% least We growth at to expect earnings non-GAAP be we to X% rate translates our 'XX a growth, effective tax on expect XX%.

have consistent share we with use cash to expect we our flow Finally, least of free XX% approach previously. annual repurchases the at for discussed

As 'XX, authorized on program. announced share repurchase $XXX had of previously we end the million remaining our FY of

We speak the expectations as to take help how to intend also we want FY opportunity signal 'XX our will the to longer to believe term. beyond business we it run

noted, we expect revenue Francois FY 'XX. mid-single-digit growth in As

drive expect We to gross improvements to XX% deliver margins XX%. between additional and margin and gross

slower to We than at revenue, an our operating in margin XX%. least operating of expect grow expenses resulting

We non-GAAP our profitability, deliver prioritize will us to at operating growth. model, annual continue EPS XX% least to needed, adjusting to compounded if enable

to Finally, intend flow we least to cash use annual our towards continue XX% share free of at repurchases.

expectations I'll FY QX conclude with our 'XX. for of

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

margins $XXX gross expect in operating to of million. XX%. expenses of XX% to We $XXX QX million the We estimate range

are targeting We QX to the $X.XX $X.XX non-GAAP EPS of share. in range per

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

back Francois. I over turn the will Francois? now call to

François Locoh-Donou

Thank Frank. you,

which AI At to address the the of the best. our call want is will we highest and to do secure manage Before the accelerate corresponding them, applications we APIs need use growth open to and AI deploy, believe what of I customers' opportunity. on level, we and view questions, FX's

support make inference to distributed. also require model as become they believe management. need the AI on to never-seen-before increasingly to floors, and soon will of traffic require using from We to API We will application security data clouds. centers, every will just it a manufacturing data believe inference, Organizations anywhere process public trained and predictions

they innovative security anti-fraud they With wherever customers workloads and solutions, protection we our AI role the empower and against bot and of delivering traffic, rich AI need our positioned our reside uniquely of defense, wherever in of run history to ML-based to to application it. denial including are secure attacks service flow

world's dramatically In incumbency XX% traffic simplify security and of position our conclusion, to application deliver and we multi-cloud Internet deployment, and the hybrid leveraging of for solutions our API management that our the customers. are in flow

are total cost We customers' reducing also significantly ownership. our of

across We are centers, our and data edge customers' cloud and apps uniting of and APIs automating their all environment.

early the encouraged are is signs with we stability customers. 'XX, of resonance in second portfolio by We half both and with saw having our the the of converging

this XX,XXX future. whom company have We all have Distributed challenge. installed FX there and have in is address an one multi-cloud Services, customers, Cloud drive created Other SaaS growth significant base With no to an platform challenge. a of than acute we of FX, the that can

improvement delivering business. least positioning will along our I operating durable, discipline; reiterate cash long-term to and which annual driving X margin repurchases using by in via compound the free Number through global of flow. enable will annual revenue services In shareholders to two, end growth a high-margin earnings us operating model, at supported expansion, which share achieve closing, rate. operating non-GAAP one, with we and growth on returning cash margin double-digit XX% our Number of gross three, our pillars mid-single-digit drive attractive will differentiated our sustained number markets,

open Operator, to questions. the please call

Operator

[Operator Instructions]

first comes with the Amit line of from Evercore. Our question Daryanani

Amit Daryanani

are maybe business the think, transition this managed headwinds that you're but that headwind but the number? to software didn't included And of start I half services maybe some how flat on around I is being to, side. flesh the Or transition transitions the Francois, I is that just the taking up $XX this, and you it talked million? growth modestly, you're is what appreciate doing? with, much about place guess, that from out

François Locoh-Donou

going essentially go Amit, roughly are SaaS managed million, million streams talked services. $XXX so $XX $XXX about we and of away. about so million to there's that In revenue that in total,

cloud. are more revenue manager is legacy distributed that intend the Silverline, to But from to that customers of of streams over half Now retiring. a coming platform, about migrate we than we this

cloud that of So on over we significant would well, expect time. to a if revenue portion, go portion distributed stream to not a --

-- are of that that the we half offerings completely, little on forward at these retire offerings $XX to the improve portfolio at products rationalize felt looked and completely that underperforming, were that that efficiency. looked than we less we going rationalize successful, and when decided to offerings are our wanted million The cost we our we retiring and other, to are focus our a

Amit Daryanani

just -- million. the Got I about just can't the what signs on And assets geo seeing vertical think, any you these of talked Is these $XX them split sort get are quarter. you're sort flip to it. signs? the demand? perhaps That enterprise it are positive running then Francois, is in your initial understand really anymore? you customers where at you you're helpful starting high comments, utilization, customer talk is in signs you about there made see encouraging from that September from Can to And of

François Locoh-Donou

look I more little we're slower The a sweat in I geography would assets soft. terms is transition Asia market, prioritization. we service at I anticipated. of has markets. than where -- really been where a The say we're probably service of mean, is say than that's our That's provider we're number If verticals others. particular to European a in be continue enterprise stabilization, there providers solid North I think XG and to XG America than and and their wouldn't different seeing more the stable been factors, seeing stabilization. for has really ruthless market

have service we're and in So been soft, expecting kind continue. providers that general of to

in assets that we of that enterprise hardware the the customers or at to kind specifically, specifically but half in especially cycle ordering the of again. of got and is some saw that second space, What QX had year, demanding encouraged been were the again started hardware end by, sweating in their we

quarter, received And hardware ship some some customers that think had to customers a of in it customers us we long a number XXXX. saw their hardware to also to we again. ordering in start these fourth but QX, deploy a, fiscal see been took assets, of swallowed we and had our to from, in rebound time finally in able having that equipment their so did orders And the coming for a

So by were we trends. encouraged those

Operator

Our next with line of comes Henderson question Alex from the Needham.

Alex Henderson

prior your you percentages rate Looking in longer-term what look you excess an to update in think through the back at XX% longer 'XX? of Can mid-single like think FY software talked us systems. wobble declines get growth those term in high had give about on once you you I and in might expectations,

François Locoh-Donou

Yes.

today, don't and 'XX. want so about So to what's 'XX going to I'm FY about talk 'XX. -- Alex, beyond I we're FY so we're talk --

Beyond FY haven't of I think 'XX, our really view markets our end changed.

'XX in so opportunity FY to talk markets that future, we to on about But XX%-plus targeting. that based they're are software, let's And return if the end the in growth and 'XX. FY

talked So growth 'XX, you FY just we flattish. to that we've expect talked be being about components perpetual about, -- roughly if of modest. that's flat software And to we've X of in the software the think base the business

of part And where based subscription modest view We going in the SaaS some part the of the business and see transitions the we on growth. services we're potentially have would potentially, on through. a is managed term similar business

that and expect and the of we we're our our very a The are growth business. XXXX, going strong SaaS revenue perspective, the into in from because expansions XXXX. renewals from we business visibility into Going what expansions in -- to subscription transitions we're from be term continue strong the expect But amplified don't and necessarily have seeing, that and services through. managed perpetual we or

in XXXX, software to So business. double really term subscription digit by expect return we powered to our growth would

Alex Henderson

been talked about I see. backlog you I if follow up, normalized. having just your could And

going your in that's the that is Or expect goods for costs the to driven environment. over out next X.X that were you When component feather do of the to achieved? of sold? cost supply going orders had maybe Is the off years? also You've that components of tight in year, full be already something normalization

Francis Pelzer

Alex, it's Frank.

purchase been expect variances the most in has in FY there 'XX, a that price that largely, through but 'XX. of coming be level. still By we FY So out some are of normalized to achieved, is that fully

Alex Henderson

sense be? Can you variance would of what the give 'XX some

Francis Pelzer

just improvement XX in the basis it's range FY off points see in margins think I we'll for in based 'XX. comparison of Alex, expectations to XX to probably of that gross where

Operator

Samik the comes next line with Our JPMorgan. of Chatterjee question from

Samik Chatterjee

to I mid-single changed orders what long-term curious bit. guess, you just you've pick a like, as related for view if I'm you've Francois, about mentioned, your your 'XX the particularly digit, outlook fiscal just seen up systems in demand do can looks And systems do about of also quick demand, within to out play you talk when I how it related a maybe portfolio? sort you And expect expect software have AI between to your -- about talked you -- trajectory follow-up. you

François Locoh-Donou

Samik, thank you.

I be of we period the more decline a long low business hardware of time, think single-digit time. think a over So over would

of is is that on, as today, hardware first, the There's a know, that normalization business. statement much been right? in there -- not XXXX. And we're softer the was demand a based However, you

actually But this so in And in that saw you business. to for we signs long-term think already trend we the hardware beyond rebound our we hardware in of more I and giving some a of And fourth XXXX, rebound business least a expect expect XXXX. kind of quarter. I'm XXXX, at

our AI of where will play terms business. in In

will enable applications their their and secure So in about portfolio the and deliver to environment. that hardware, it, think the together, to customers is is putting we our that API we're Samik, and any SaaS, -- way expect software we which

which may run AI in going to a some environments. applications will be lot of on prem, but think are them workloads modern software of we run

addition accrue cloud AI capabilities, to to distributed position And cloud supporting And time. run we have that, software environment our with unique our in will a that in think we business over so in and able any it's workloads really inferences very likely more we beyond. are to that

whether some far in to and any running and these that deliver position ability run edge of unique we environment, inferences environments for cases. edge one any FX its have in and And own secure in the manufacturing any makes run in use And floors inferences we it's very run customers on hearing in these in they increasingly, at inferences customers to it for for cloud. or retail we're We edge, want public our run run from can branches the in inferences cloud or future. the will can it the that AI we So in retail far in these vehicles can or cloud.

of software of will All business. course, to that, accrue our

Samik Chatterjee

Got it.

terms the the Francois, of green you're enterprise in follow-up, spending you I shoots there. mentioned Before recovery and seeing

expectation seen just back end one we've on think largely in of the pickup perspective the enterprises sort and the budget again of from back you that the front there might has flush a next before of be here pull you more pushbacks I has been or from about year to this investors see relation that the from look might already and how year customers sort cuts. of your flush of the into with more whether year pickup enter Any insight budgets year-end? getting for in temporary anything you're we of sort do the budget from next budgets a that to as

François Locoh-Donou

was a the have FY close in it quarter entering related We rates the saw 'XX. we for strong the down end were better And were to September and will in are that of in resumption shoots QX, of our pipeline. will we what on we for the the the budget because year. the saw year, X visibility we us. have that Samik. we year we not rate. don't what talked at the come flush on on Thank no, of rates in fiscal about in do to made QX into comments than pipeline is the That's think you, the also When part quarters close why green really things . In the close our it have prior stabilization do I hardware. in in now that entering quarter because what next we year exactly of ended budgets pipeline customers look observed

into stronger out hardware rates course, still of year that cautious a we But are you are there's a positive. data close are lot So on recent noted. with because points fiscal uncertainty there macro of pipeline, we're the the going around as

We scrutiny having continue more budget approvals. customers occasions certain deals to or and delaying see in continued

seeing that continue. phenomenon are We

cautious And into so going overall, the year. we're still

Operator

from Marshall next Our comes question of Morgan the Meta with line Stanley.

Meta Marshall

to Maybe building on Samik's start. question

see trying we applications expanding is of of lot in traditional cases? kind it at we've multi-cloud get can is look okay, the Or to a assets as view we that is, use are or this at are again? your as pipeline, sweated kind too a look to as the is you much of growth your starting projects sense of utilization you of As Just high? appliances pipeline, your

and grow, having as And going just then inference kind of kind plays that AI require suite maybe to mentioned have today a products kind any cases is as of second you solution? to or productization kind question, of of of of tailoring AI-ready

François Locoh-Donou

Thank you, Meta.

things start sometimes sweating they where will receive side deploy number we're be question. more again. utilization Or that that point are these orders what we where comments have assets one, So number we in had 'XX been 'XX, do to levels starting of my have some to equipment who able they and seeing in a ready placed the first customers hardware the on their getting to on let orders to are of and have the and FY pipeline, with that they're number have have related know been me for to now at who to have two, order customers not started capacity something. And

accruing to hardware pipeline. a stronger is that So

kind big seeing project, into projects And of are on kinds of of terms saying resumption what yet on And are software pattern we're very we call the software, of a those earlier, still cautious was In undertaking I substantial what transformational big like year we not a not that's that. going this these different seeing customers projects. multi-cloud aspects.

able of -- whether we aspect these in it cloud. it any essentially run being require inferences have on environment, productization, As the AI to in relates distributed and capabilities so will we have, to

that of we to aware customers future these AI need make ensure made that workloads. effort to a deploying in we think that they be start capabilities, there's as I the strong go-to-market around harden to and

exist to workloads, able and to to secure that being As and go deliver it already. are today, those AI relates ready with we capabilities

Francis Pelzer

wanted look add our of renewals was the that more of come and true look and software we And just a term plus that's of growth were our in that to portion subscription and the managed going we in out, we the at renewals forward little a flat-to-modest SaaS-based true coming renewal to over we the I from service take of from Meta, is formula our same pieces that of that outlook about is what software than less a new XX% of -- half from year and XX% coming we outlook, this expect our time as at the last in our term little year forwards SaaS talked particularly revenue. business agreements of than the both and subscription that business.

see account take on horizon these projects we into that to fact as we thought transformational the try we guidance. the don't the So about

Operator

Our Sachs. of next question comes Michael from line Goldman the Ng with

Michael Ng

software. both all you Thank for on the comments had on the just outlook. I X,

you could I just talk into about your wondering term First, if the business. bit visibility little a was

would 'XX. software You well help the in as called fiscal out term as as that growth 'XX in potential double-digit drive something revenue growth fiscal

about headwind to contributed I 'XX you if from weakness a wondering But fiscal fiscal bit DCS. then it's headwind, ARR a Silverline migration in and 'XX. also something just And like second, be seems to to fiscal could 'XX. multiyear in sounds It was talk little more a this in the that it

about talk off over that how just and transition could rolling you maybe is how many that years? and So

Francis Pelzer

in first Francois with on I'll Sure, on Silverline the Michael. let and question, to the jump side. the second start I'm going

true rate the now getting expansions signs of first, the early the that with much and massive had X about on subscription, on and and the where run term comfortable particularly second forwards coming seen are probably continue. So that we've more the or on, with quarters have the terms we expansions X

very, BIG-IP importantly, remarks. getting portfolio deployed, utilization right business, that's 'XX, a consumption on as I both strong FY programs. than we 'XX. of revenue expansion from of a is so now, got that base 'XX. do from FY -- our within lot covers mentioned flexible the in And in in in top comfort, FY we've And the NGINX of and pool this the of more very and us specifically bigger 'XX giving FY And 'XX prepared growing 'XX and

compile of all to these upon So themselves. continue

that outlook the forwards is just the of service coming pretty the As plus as good XX% from seeing, within that revenue software piece well to feel in Meta the true term I that is we've SaaS about renewals that got as got we managed cohort revenue our mentioned that we've renewal which more stream. than

So the stream. of feel got we visibility within we've and those, confident the it's probably that highest both about, revenue very

François Locoh-Donou

you, SaaS services. And Michael, second and question, managed your Thank on Frank. to

$XX reasons yes, that 'XX, in about started down. you it, the One to that. of there is, business out we've if 'XX, ARR we ARR there for that transitioned transitions million talk the 'XX about So we talked was FY about, saw flat X was to FY are of XXXX. the slightly roughly and call There in

and to this a with and softness we in really pressures new in over as implement think, bookings change. cases. reluctant lot under -- budget of some But in of reason is we time, business, our other more the budget bit high immediate scrutiny, end customers both scrutiny and the the the specifically year We macro The had that significant saw attack second there, the sophisticated a solutions. saw quite some were at half were will softness, especially unless bot of they of year in churn

'XX FY is the FY to 'XX So view. that

going $XX into a that the we is you stream XXXX, multiyear we out million transition? of expect Yes, couple From of transition the this revenue transitioning is over themselves work that next will -- asked years. are about

So are over FY to 'XX they headwind a growth. total and FY 'XX,

are our SaaS we on Distributed specifically SaaS happening excited Cloud. by However, quite portion of what's with FX the offerings,

a We ago, about WAP seeing have launched on extraordinary are offering, security traction we XX a offering, months that.

rapid on that. earlier, enterprise we period, that As won XXX And customers. I customers seeing very whom are are traction over said of we've in all

and where quite security the We're also seeing multi-cloud both traction market, bring networking the in rapid differentiated capabilities, anybody to we're we market. networking and on

portfolio. majority services we a grown time has that portion the of expect So SaaS grow to of that become fast and to over managed and and fast, business continue this

Operator

line Our next the comes with of Long from Tim question Barclays.

Timothy Long

Two from side as my well.

change . And and then changes do happening? And there? lot sounds sign those those replacing your view the bit of distributed how and is have cloud going and on a in some you move them? synergies transitions competitor that the some of a I that a a Is think both in businesses businesses ADC, forward of with software. think the services hardware sense. across you you're of a sustainable that there's from you little moving offerings? of it that's talked like Could Francois, same you Having synergy not into think kind maybe It about just looked software with domain. dig that second, is was that more? that kind does at something to moving one-off? product of on didn't kind First, them, makes Or why Or

François Locoh-Donou

start let not Tim. Thanks, No, about it's with second the me part. synergies. Maybe

have a we're that, have of million the X about there is talking transition. that we transitions, So of of the that One platform we aspects Tim, managed which legacy terms -- $XX in built services offerings. are on

to plan. Cloud, have with much transition platform. getting architecture that's FX built that. want was And we with the more Distributed that always We rapid that's modern That the And a and was to modern plan always to platform differentiated. now this traction, our an customers do

to, all, start on transition. and to had However, platform be this the able the the build of we first all capabilities security to platform build

all this start over the on work Volterra years, transition and we're this to excited very platform able last were we we're in able XXXX. the that So of couple do to

that we The macro given not made early second we have the products. and the attractive our these that and forward environment, some what in would the of do most to traction part on of portfolio not well these seen we we about hoped in revenue decided stream April being new and market. rationalize offerings decisions, know, that launched offerings, the of focus we've is retired, as It's you with the investment, go it's recently But synergies. to

your second So part question. the that's of

that consistency they or have our security then We're other well all with synergies have BIG-IP to environments. number of on say to customers They the the I across their about is Software-as-a-Service for estate, the, And would managed we between a thing a that policies last are seeing. in engine, have on-prem portfolio, seeing who the do BIG-IP no, also hardware software. so very terms want in applications. to cloud, these and we're of or of the say, services. should applications I of as elements of actually actually as really the Distributed already And for what SaaS in Cloud they have BIG-IP we're and want adopt On encouraged able set security

also in a stack part BIG-IP NGINX, that NGINX ported and Cloud. in very security had in was use onto that now the by security capabilities same driven and QX, strong Distributed we from quarter that is in

are portfolio deployable we especially the years terms between couple synergies, of the next SaaS security do out. as our over products. that in playing the will accelerate we and So across of And more they expect and actually more convergence

Now the part to of first question. your

the we In Look, ADC Tim, our the factors competitors. rapid form situations terms a from future of for in building upgrades, ADCs upgrades invest competitors to in have, X the benefit Those are a we displace of it operationalize and of they continue able in and here factors multi-tenancy, incumbent make and them. gaining cost total ADC form next-generation deployments, have even bring on-prem -- the franchise the next-generation of that ADC together decision the and market of customers and to software over it's and hardware cloud, to franchise last the the years, the specifically made being us as investments out such are -- where paying way share seamless ownership. for terms easier in traditional better share in to to our take

one-off. that think a that's not we And

that on even that in what and differentiated expectation is think we also market. continue, had excited this next-generation platform than the more we're software BIG-IP will we've introducing the because year, pretty Our is we're

expect it's and I we've X over the that last investments will years. hopefully made that payoff the continue, So a for

Operator

Our McDonough with the next Guggenheim. line question of comes from Ray

Raymond McDonough

solutions. like software even in Francois, or you're your the to of seems of given changes making you're some some portfolio, it your converging simplifying way, a

voluntary you next even road that about? you've churn particular, think about make the potential Cloud Distributed you Or to we can the what and should we do for as how sure Cloud in think around the adoption year? Distributed So accelerate map capture talked about priorities

François Locoh-Donou

their ridiculously Cloud our it traction of and The -- lot is a secure is you. that make easy Distributed look, to customers because our does Thank to it and deliver for goal our customers. applications, for getting

So next available it's when platform more platform. you so of it's priorities in to look services and continue more scaling the environments markets, add course, at the the in to year,

X, WAP services I will platform add our networking, say, we to X to have and services, would add. first that the want of want other We that customers a have multi-cloud we sets backlog of to

a platform CDN of get for convenient after attach balancing that to it's our Lilac on and back, and cases. capabilities them because acquihire low to months adopting to the recently security some We've few CDN we're starting customers added in the

So the adding are priorities services. the and platform scaling first

customers cycle go-to-market, the but frankly, our they SaaS FX to that deployable as applications into or of is to customers want for it make don't hardware already far a to FX As use front a products. solution to software, that have easier going the of priority which bunch are want manage life

customers And actually look over of are if so them X/X the that Distributed Cloud at XXX you today, or existing customers. on are BIG-IP

continue enterprise large strong is to FX going there the the customers, lot that's with are growth, new customers. is. And customers, customers think net of that both where we a is them a So and to existing be of net about where from And presence. new them of bought anything and and X/X FX focus X/X existing BIG-IP have actually has are focus with with never

Raymond McDonough

I income thoughts appreciate ex of more cash flow should line we I Any you focus through on we know typically think fiscal could continued operating in even And sneak margins guide some growing that. would help maybe in appreciate Certainly, directional operating think 'XX? helpful. how in But should don't you with think of headwinds if EPS the had tax us about growth. fiscal 'XX? in flow, the and for you can I be but margins one cash cash Frank. flow

Francis Pelzer

of we mirror growth Cash you Yes. one think predict, bit income I us described, to a as net the is Ray, those flow that's harder it that for correct. roughly expense cash don't dynamics, purposes. things we for but that should year non-GAAP tax have but split of have restructuring real with last this to some that true some out year the the are impacts, exceptions

there's ins So but it close roughly a that. to few and outs, be should

Operator

from the James Fish of question next Our Piper comes with Sandler. line

James Fish

I'll to simple here. get just like

$XX Any performing net specifically exclude overall even the cross-sell should or into headwind the about of those this business about You Or subscription the rates, guys think we quantitative and renewals. have remarks, retention business what that around better prepared How talked piece? net when MSP seeing kind renewals you SaaS qualitative specifically rate that in color impact products understanding million. more the SaaS color about of Is of you're seeing? you term any are the or the about well. retention within around that aggregate

Francis Pelzer

why would don't I Fish, start wants anything, Francois great. add that to Sure. and be if

revenue of what our that still what our at you an into of look that where not as is seen. try in XXX%, of type try term because parts. retention BIG-IP of net it is rate combination the generally So the revenue of within our and let that the moving of easiest norm rate put task rates software our SaaS subscription that's would it's net or north well ARR do industry expansion as we to and me business, convert term NGINX, it's and to that would as retention that business have world think rate, of all we expansion north convert it be But And an XXX%. way. just It's service, the managed when plus to the that

and So will expectation of combination of in visibility business that pieces of lot is a our what the to well. do gives that us continue those firmness

James Fish

the now and terms any incentives fiscal transition? we turn as we on page in have software approach as just side, year into the And sense. this the next Makes within transitions changes or go-to-market of overall

Francis Pelzer

always It's There's the the to incentive and and we're -- was of Fish. there couple but not, successful tweaks looking going and between the nothing X what before be major. here a largely are plans year as the years same, seeing

Operator

line the Raymond with Simon from of James. question Our Leopold last comes

Simon Leopold

then trying how a September this just any, just so not drawdown where seasonal than of on a $XXX is million have the And if quarter I to it? per the systems that in wanted And $XXX I'm to the in much, I of is backlog assume level, systems? sense of stabilizing million maybe some just to the business software trending. quickly movement, sort better Great. other is sense of quarter did new sort for get normal get

shows Silverline year? up does With that gradually is throughout exit, the particular itself something that the quarter? that in Or manifest a

Francis Pelzer

I'll the then, and in the in second. we equating we're I the bookings. have for you remarks of Francois, term of we and hit of some terms that first that one both trough take know don't what we said, terms in But answers, start to systems I believe the if the want in think, to And FY a do 'XX prepared demand.

'XX. the or balance in FY 'XX the that bookings they FY there was is that were Now delivered offset that of

that that so we And be came shipments they utilized. in, that FY and started the received, 'XX recognized actually to revenue the in is which

It enterprise was wasn't necessarily case. There of best QX, that the of year. to we've started in leveling we bit even probably bookings come Now on demand that was the perspective the fluctuations. started basis, be a the in continue see seen as needed, more which revenue looks side. will bookings or that our perspective, systems or case. a that still quarter like that utilization and capacity There's But was increase from a through improvement a to to

hesitant, as been expect isn't SP, means and bookings to we're take the federal impact see in we in and particular, trying to and a the on. account got now, service is into that providers to that in government mentioned, and looked functional the an QX, continue we've that what Francois expectations. for have as we necessarily that On at systems And we'll QX, guidance right

or And the expect, many explains talked that dynamics X just chain supply past, particularly takes there to that why same about a do X- environment. is quarters, as X I the X-quarter that times about we've in to sometimes We low. in talked

So going to we higher will systems can't it's up say But do in less do our to expect year that level. know back are revenue. expectation when will bookings place. -- level we that outlook is take because million a at not that we QX normalized some our tough to our level bookings point I pick we're $XXX in a and in return systems and exactly that from

bookings of the Our $XXX will year of but from last will because headwind. be that down improve, million revenue

François Locoh-Donou

your of part second question. the to And

a there not a or it, going where timed they quarters. of years, going to It's decision to be customers to when are going I it's their quarter. point, be bleed see of going every to next Silverline, that off one no, over terms all point and will X you're at the migrate kind to with be next And renew In subscription to have the in X it's think, of couple over so quarter.

Operator

Ladies Thank this conclude for you and gentlemen, does participation. today's teleconference. your

at disconnect may You lines a your this time, day. and have wonderful

F5 (FFIV) 24 Oct 232023 Q4 Earnings call transcript