• Total Revenue Growth: 11% increase to $766 million.
• Product Revenue Growth: 20% increase.
• Software Revenue Growth: 22% increase to $209 million.
• Systems Revenue Growth: 18% increase to $160 million.
• Non-GAAP EPS: $3.84, exceeding guidance by $0.43.
• Subscription-based Software Revenue: $162 million, up 30% year over year.
• Recurring Revenue Contribution: 72% of total revenue, reflecting 10% growth.
• Non-GAAP Gross Margin: 83.9%.
• Non-GAAP Operating Margin: 37.4%, up 189 basis points from the previous year.
• Cash Flow from Operations: $203 million.
• Deferred Revenue: $1.95 billion, up 6% year over year.
• Share Repurchases: $125 million worth of shares at an average price of $255 per share.
• FY25 Revenue Growth Forecast: Raised to 6% to 7% from initial 4% to 5%.
• FY25 Software Revenue Growth Expectation: At least 10%.
• FY25 Non-GAAP EPS Growth Outlook: 6.5% to 8.5%.

• Warning! GuruFocus has detected 6 Warning Signs with FFIV.

Release Date: January 28, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• F5 Inc (NASDAQ:FFIV) reported an 11% total revenue growth, with product revenue growing by 20% and software revenue by 22%.
• The company achieved a non-GAAP EPS of $3.84, surpassing the top end of their guidance range by $0.43.
• F5 Inc (NASDAQ:FFIV) is benefiting from strong expansion in software subscriptions, with many exceeding their expansion forecasts.
• The company has a unique position in the market with a complete hybrid multi-cloud portfolio for application security and delivery.
• F5 Inc (NASDAQ:FFIV) is seeing growing momentum in AI opportunities, particularly in high-performance data delivery and secure AI inferencing.

Negative Points

• There is some uncertainty in the sustainability of the hardware systems business, with potential pull-ins due to pricing increases.
• The company faces challenges in maintaining the high expansion rates seen in Q1 across its software base.
• F5 Inc (NASDAQ:FFIV) acknowledges the complexity and risks associated with hybrid multi-cloud environments, which could impact operations.
• The company's revenue growth is not smooth due to the nature of software revenue recognition, leading to potential volatility.
• There is a cautious approach towards AI opportunities, with the company acknowledging the rapidly changing landscape and limited data for long-term projections.

Q & A Highlights

Q: Francois, could you talk a little bit about the AI business and the breadth of who you're selling into? Are these large data centers, enterprises, government combinations? A: Francois Locoh-Donou, CEO: The AI opportunity for F5 is categorized into three areas: moving data securely and at speed, security in inferencing, and load balancing traffic for AI factories. Most deals are with large enterprises building AI factories or deploying AI applications, and they span across Europe, Asia, and North America. The majority of our current deals are in the first category, involving high-performance data delivery.

Q: Can you help us size the distributed cloud business given the growth in API security cases? A: Francois Locoh-Donou, CEO: Our distributed cloud is part of our SaaS and managed services portfolio, with total ARR around $180 million at the end of fiscal 2024. We have over 1,000 customers on distributed cloud, mostly large enterprises. Two-thirds are existing F5 customers, and one-third are new. More than 20% of our top 1,000 customers are now using distributed cloud.

Q: Is the refresh activity driven by broader data center refreshes or readiness for AI? A: Francois Locoh-Donou, CEO: The refresh activity is driven by a revitalization of data center capacity for AI and hybrid multi-cloud environments. Customers are preparing for AI infrastructure and embracing hybrid multi-cloud as a long-term strategy. Additionally, end-of-support dates for certain products are prompting refreshes.

Q: Can you separate the software growth into new software versus renewals? A: Cooper Werner, CFO: Our software growth is driven by large multiyear subscriptions, with upfront revenue recognition for renewals. The strong expansion in Q1 was due to customers converging multiple solutions onto our platform. We also saw growth from new software projects, which was better than expected.

Q: How do you view the sustainability of the strong results and growth? A: Cooper Werner, CFO: The underlying driver is resolving hybrid multi-cloud complexity for customers, which is sustainable. We see durable expansion in software and continued investment in systems and software solutions. While there may be some spikiness in demand, the overall theme supports long-term growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.