F5, Inc. (FFIV) 2024 Q3 Earnings Call Summary

Optimistic Highlights

• Strong Q3 Performance: F5 delivered Q3 revenue of $695 million, at the top end of the guidance range, with non-GAAP EPS of $3.36, above guidance due to operating discipline and tax favorability.
• Software and Services Growth: Total software revenue grew 3% year-over-year and 13% sequentially, with global services growing 3% in Q3.
• Improving Demand and Bookings Growth: Noted areas of improving demand and strong bookings growth in Q3, including an uptick in new business.
• Positive FY '24 Outlook: Expects Q4 revenue in the range of $720 million to $740 million, putting FY '24 revenue at approximately $2.8 billion, roughly flat with FY '23 despite challenges.
• AI Initiatives and Customer Wins: Highlighted engagement with major customers on AI initiatives and shared notable customer wins showcasing F5's differentiated capabilities in application and API security.

Pessimistic Highlights

• Systems Revenue Decline: Systems revenue was $130 million, down 16% year-over-year, reflecting a lower level of backlog-related systems shipments.
• Challenges in Bot Defense: Subscription renewals remained strong, but the Bot Defense point solution faced challenges with some customers opting for less sophisticated, lower-cost options.

Company Outlook

• Q4 and FY '24 Expectations: For Q4, revenue is expected to be between $720 million to $740 million. FY '24 revenue is anticipated to be approximately $2.8 billion, with mid-to-high single-digit software revenue growth and non-GAAP EPS growth of approximately 12%.
• Hardware and Software Dynamics: Hardware demand signals for FY '25 are positive, with expectations of stabilization or growth. Software is expected to return to double-digit growth next year.
• AI and Future Growth: F5 is actively engaging with customers on AI initiatives, with AI expected to be a significant catalyst for both hardware and software solutions.

Q & A Highlights

• Q: Can you parse out the strong sequential growth in software? (Tim Long, Barclays)

  A: Subscription renewals remained strong, with solid expansion in multi-year agreements. New business activity was stronger than expected, contributing to the top end of guidance. (Frank Pelzer)

• Q: What's driving the better pipeline, and is there better expansion from new products or higher volumes? (Meta Marshall, Morgan Stanley)

  A: The pipeline strength is due to F5's ability to address hybrid and multi-cloud complexity, with notable customer wins across various solutions. Expansion is driven by both new products and higher volumes. (Francois Locoh-Donou)

• Q: On the Bot Manager side, what are you doing to change its trajectory? (James Fish, Piper Sandler)

  A: Migrating Bot Manager technology to the F5 Distributed Cloud platform and commercializing it as part of a bundle, seeing traction with WAAP as a service customers doubling year-on-year. (Francois Locoh-Donou)

• Q: How has the potential headwind from retiring legacy SaaS businesses and migrating Silverline to DCS gone? (Michael Ng, Goldman Sachs)

  A: The transition is largely going to plan, with migrations starting and early in the curve. F5 is seeing strong growth in Distributed Cloud and API security. (Francois Locoh-Donou)

• Q: Is there any change in sales staffing levels or increase in poaching by competitors? (Alex Henderson, Needham & Company)

  A: Attrition in sales is well below industry norms, with F5 having a strong sales team and leadership. Competitors' attempts to poach have not significantly impacted F5's go-to-market strength. (Francois Locoh-Donou)

• Q: Could the mix shift between software and hardware change with a new upgrade cycle in fiscal year '25? (Sebastien Naji, William Blair)

  A: F5 meets customers where they are, offering flexibility and choice between hardware and software. The mix may evolve, but F5's approach is to provide solutions that best fit customer needs. (Francois Locoh-Donou)