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

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

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Cooper, maybe this is for you, but Kunal free to chime in if you have a view here. But what we're starting and primarily asking all of our companies to do is initially sort of give us their take on the macro at this point because I think if you look at the stock market, I mean, it seems like that's the

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : I mean part of that uncertainty stems from tariffs? And how are you managing or navigating sort of the unpilityof tariffs as well as much as managing the levels that you see today versus yesterday? Just give us a sort of lay of the land, what you're doing on that firm?

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. So on the topic of pull-in, but maybe putting tariffs aside, just to be prion and the iSeries hardware refresh cycle where you do have sort of end of support on some of them coming up -- what are you seeing in terms of the driver for the refresh cycle? And why shouldn't we interpret that as pulling forward some of the system-level demand.

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. Maybe just following up, I mean, how do you expect that the curve of the fresh cycle to play out, particularly if iSeries has a January 2027 sort of end of software support, that's a fair amount of time between now and then when you've gone through these sort of similar dynamics in the past with some of your products, is it really sort of just ramping and probably you see a peak more closer to that January?

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. Okay. I'm going to take it back to compared to some -- at 1 point in time, your big expectations for systems revenue was that you would be in sort of a steady decline in that business. And I know that hasn't been reiterated for a while. But when we certainly see or you're like this year, where you're guiding to double-digit growth, I mean does that change overall your thinking in terms of what the long-term drivers for the system business are? Does that change sort of how should investors think about the system business and the sustainability of some of the growth rates versus this decline that you had at 1 point or it would go ahead.

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. Got it. Since we are on the topic of AI. Maybe just outline how do you think about how F5 is associated with the enterprise adoption of AI or sort of AI adoption by the enterprises and how F5 can help on that?

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. And do you mind just giving us maybe one more layer down when you think of these three use cases where you're seeing sort of the most appetite from customers today and which would be sort of more, I would, I guess, more sort of staggered in terms of ramping up maybe later with the enterprises.

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. But maybe just asking it -- going about it in another angle, which is now when you think about these use cases, translating it back to your product portfolio, how does it translate back to hardware versus your software demand?

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. Got it. On the last call, you talked about AI for (inaudible) and using AI to enhance the product offering and customer experience. Can you talk about the significance of those investments? And what's the early feedback from customers?

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. You talked about the gateway product and how it sort of helps in these security use case, particularly around AI. -- distributed cloud product, I mean, can you just talk about whether there's a relevancy for enterprises in relation to AI with the distributed offering that you?

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. I mean is the distributor cloud opportunity sort of, I guess, in the three pillars that you outlined already, do you see as a fourth pillar -- or is the magnitude a bit sort of lower in terms of near-term contribution than the other on -- particularly on the systems side?

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. Maybe talk about the competitive landscape, the way you see it today, particularly related to traditional competitors that you've had in the space, Citrix and Radware, and then we can go into sort of the more sort of public cloud competition, but maybe let's talk about the traditional competitors that you've had in this space? 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 14, 2025 / 2:40PM, FFIV.OQ - F5 Inc at JPMorgan Global Technology, Media and Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. Got it. Coming back to some of the recent trends, and you did have a softer-than-anticipated software performance in the last quarter, at least from our standpoint, native to what we model versus sort of what was very clearly a strong quarter for hardware. And one of the things that always comes up with investors is how can you improve predictability in terms of quarterly software and hardware revenues for investors that follow F5 closely. I know you probably have much more insight, but the productivity on the investor side seems to be

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Got it. Got it. But one of the questions that stems from what Kunal was saying in terms of high performance systems and demand related to AI is when we now think about a lot of the investments for enterprise going forward, incremental investments will be on and that pulls in a lot of high-performance systems. Does that automatically cannibalize some of the appetite to spend on the software offerings from F5? Do you see any cannibalization happening on that front?

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. Staying on software, the revenue growth this year in fiscal '25 is expected to be low double digits. -- following a similar year in fiscal '24 and then you had 0% growth in fiscal '23 in the software revenue. As we look through a cycle and particularly think about the software revenues through a cycle, like how do you reassure investors that there's enough there to drive double-digit growth consistently in software revenues.

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. I mean, clearly, on the software side, there's a lot of reliance on renewals and customers coming back and sort of raising capacity overall. That does tend to sort of lead to concerns about your TAM growth being limited and it's being driven by a set of customers that you're renewing. Yes, you're expanding with them, but the pool of new customers coming in seems to be relatively more modest relative to the renewals that you're addressing. Like overall, how do you think about the TAM growth on this front? And what can you do to sort of accurate TAM growth?

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. Maybe just going into smaller pieces overall. One, you talked about competitive displacements, but give us sort of what are you thinking in relation to how much more there is in terms of headroom on the comparable placements because that is coming up a lot more on your commentary as well in terms of where the share gains are coming from?

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : And would you care to sort of outline between Citrix and Radware, like where are the bigger share gains coming from?

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. And then again, maybe following up, fair to assume that most of that share gain opportunity comes through on the system side first and then sort of expand into the software domain.

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. Let me take a quick pause and see if anyone in the audience has a question. Any questions in the audience? Unidentified Participant Very insightful. How are you thinking about your equity compensation or incentives for executives and employees, -- any change or things you're thinking about differently with the market environment?

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Maybe last three questions here. One, federal spending, a lot of discussions and noise around pulled back there. How are you sort of maybe quantifying the risk around it or embedding any risk around it? And what is your exposure to the federal spending specifically?

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Okay. You've been building cash on the balance sheet like now you generate $800 million, $700 million to $800 million free cash flow. You're buying back $500 million. There is some cash that keeps building every year on your balance sheet? I mean, how are you thinking about allocation there allocation on that front.

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : And so when you say you want to keep balance sheet flexibility for strategic actions, M&A being a part of it. I mean, if I did do a bunch of acquisitions, but it's been a while since you did the --

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Last one for you. You are one of the few companies that cover that's hitting the rule of 40% at this point. So while that's always good to see. How do you think about sort of upside on the operating margin -- is it purely a case of continuing to drive operating leverage? Or is there a ceiling? I mean you're at 35% operating margin, is there a ceiling for a company of the sort of P&L structure that F5 has.

Question: Samik Chatterjee - JPMorgan Chase & Co. - Analyst : Great. I'll wrap it up there, but thank you for coming to the conference, and thank you to the audience as well.