F5 Inc at JPMorgan Global Technology, Media & Communications Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Francois, I'll hand it over to you with the sort of first question. And these are questions we're asking every company to share their insights on and not necessarily the best question to start with. But what is the probability you would assign potential recession based on what you're seeing in terms of customer demand trends that either confirm or deny sort of a recession in the near term? And I know you have to read the safe harbor, so I'll let you do that first.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. No, that's helpful, Francois. Supply. And I know you've had your challenges with supply in the recent quarters, but more specifically on the China shutdowns, how much of an impact is that incremental to the constraints that the industry was already facing? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 24, 2022 / 2:10PM, FFIV.OQ - F5 Inc at JPMorgan Global Technology, Media & Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. Any predictions of when supply normalizes? Or is that essentially second half of fiscal '23 that you're thinking supply now comes back to a more normal level?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Got it. Okay. Let's move to more company-specific stuff here. And I think the transformation that over the last few years, we've seen F5 go through in terms of accelerating growth. I mean, most enterprise IT suppliers would be sort of envious of that transformation going from a low single-digit growth to high single-digit sort of getting close to low double digit, let's say. What was unique to F5 that enabled that growth transformation? How are you thinking about the expansion of the TAM and sort of opportunities you can address from here on?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. There has been an ongoing debate for a while about F5's relevance as customers move to the cloud. How is the current portfolio addressing the opportunity as customers move to the cloud? What are the opportunities you're seeing to expand your presence as customers sort of do that in active migration to either sort of one public cloud or multiple public clouds?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. First I'll bring it back to a bit more near term. In our recent channel checks that we've done with distributors, VARs, et cetera. They are highlighting there's an increased appetite from customers to use the software version of what used to be traditional hardware appliances given some of the supply challenges as well that's triggering that. What are you seeing in terms of your customers and sort of shift maybe or substitution within your portfolio there?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Keeping on software, you outlined certain targets at the Investor Day for software growth. you've been largely in line to actually be a bit better in relation to your targets. But that's sort of the broader sort of way to look at it. Curious if you can give us a sort of a better look there in terms of how is BIG-IP versus NGINX versus like where you have more security offerings attached to it, how they're doing on a stand-alone basis if you can break that down?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : That's interesting. Okay. Yes. Essentially, you're doing a subscription that's multiproduct. And how is that different from like doing an enterprise license subscription in some sense? Because it's interesting to bring that out because I think one of the companies we were hosting yesterday brought up that subscriptions, the consumption that they're seeing now increasingly is at an enterprise level rather than at a product level?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. So going back to the software to -- sort of hardware to software architecture changes that are required. And maybe before we go into sort of the drivers of individually each of them, you've had the supply challenges on systems for the last few quarters. You're not seeing as much of an REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 24, 2022 / 2:10PM, FFIV.OQ - F5 Inc at JPMorgan Global Technology, Media & Communications Conference acute sort of shift from customers to the software versions because of the changes that are required on the architecture. Why doesn't -- is the right way to interpret this? Now you have a pent-up demand for systems going into the next year?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Hardware appliances because of the supply constraints that you have and you haven't seen substitution with software.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. Now going back to the longer-term discussion on this, what are the -- essentially, what are the sort of hurdles that you see from customers in moving from the hardware appliance to the either being at a subscription or just a software license. Like what are those hurdles that you need to help them clear what are the architecture changes that you need to be sort of maybe more involved in discussing with them before they sort of get over the hurdle there and move towards an easier architecture where they can be more flexible with their deployment?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. And -- on the system side, I think relative to the guidance that you had at the Investor Day, your bookings, or at least demand trends have been stronger than outlined at the Investor Day. I know supply has been an issue more near term, but how are you thinking about just those demand drivers maybe being different from what you anticipated at the time of the Investor Day, how sustainable are those that are driving this higher amount of demand at this point?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Got it. Let's see. So on the software, and we were looking at some of these software revenue numbers that you report and I think you gave some color around how much of that is subscription as well. However, if we look at the last couple of quarters, it does look like software licenses that approaches on a CapEx model are growing as well as accelerating. Can you provide some color on what's driving that? It seems like counterintuitive relative to subscription.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. When you talk about the distributed cloud services Francois, as you mentioned earlier, you launched it recently, and I think you described it as the first major step in integration of Volterra. Can you outline what use cases, can the platform be used for? I mean the average investor, obviously, is not that familiar with Volterra and the use cases there. But how should investors think about sort of the milestones and the use cases that it can support? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 24, 2022 / 2:10PM, FFIV.OQ - F5 Inc at JPMorgan Global Technology, Media & Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. And can you quantify the addressable market or the revenue opportunity that you're looking at?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Got it. Let me do a check here, anyone in the audience with a question. Okay. Let me continue here. And I think, Francois, the other thing that I wanted to discuss is security revenue growth. And I mean, obviously, you've had strong performance in security, but help us sort of piece that apart in terms of how much of that has been driven by attaching security versus stand-alone security that you've been able to sell? And what are you generally seeing from customers as well in terms of willingness to spend on your security products?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : In relation to the transformation Francois, now starting to sort of think about how the sort of the revenue and the hardware and the software revenue mix sort of progresses over time. I think some of the challenge for the share price more recently has been the lumpiness in the software revenue that has got some investors unaware about sort of the quarterly trends there. I mean, how are you thinking about where you need to get to just based on sort of the transformation you're doing to subscriptions, how do you provide investors a sort of easier platform in terms of there's limited lumpiness on the subscription revenue in yourself? Where do you need to get to before you can provide that? And obviously, that's been

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. And Francois, the next one for you, it seem on the transformation. But when you think about the transformation rate of the product portfolio versus the incremental or the next step being the go-to-market, obviously, you still have a ways to go on the go-to-market. But where do you think you are on the portfolio transformation?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. And it does appear like most of the plan here is to continue to build the portfolio to tap into the existing sort of addressable markets that you outlined at the last Investor Day. But if I sort of step back to the last Investor Day, you pleasantly surprised a lot of investors with the additional addressable markets that you could offer capabilities in relative to what the traditional alliances did, or the traditional applications that you supported. So as you sort of think forward, are there any more incremental addressable markets that you see associated with application services more broadly that you are not sort of capturing in the current portfolio or in the sort of Investor Day outlook that you had for your addressable markets? Are there more adjacencies that you think of expanding into?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. I do see couple of questions here. let me try to take one of them. The first one reads as the term licenses have been renewed after initial 3 years, what's the average uplift to average contract value?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Great. we're almost up on time. So in the interest of that. Thank you for coming to the conference. Thank you for everyone in the audience as well. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 24, 2022 / 2:10PM, FFIV.OQ - F5 Inc at JPMorgan Global Technology, Media & Communications Conference