F5 Inc at Morgan Stanley Technology, Media & Telecom Conference Transcript

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

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : <_ALACRA_META_ABSTRACT>All right. Perfect. Maybe to start with, over the last few quarters, F5 has seen its profile rise again as organizations invest in multi-cloud architectures and discover that they have complexity or this kind of ball-of-fire problem that you guys have talked about. Can you just level set how much of the recent success has been customers kind of settling on an architecture in terms of what is going to be hybrid cloud, versus F5 becoming better and more front-footed with kind of that labeling of what you guys can do or kind of the ball-of-fire problem you can address?

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : Okay. So one of those ways in which you've kind of evolved the product portfolio is kind of adding distributed cloud into that portfolio. Are there examples that you can give of where that breadth of the portfolio has provided kind of additional differentiation versus just kind of that core ADC product you've always had?

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : Okay. So you talked a lot about kind of improvements that you've made overall to the platform to kind of address and be differentiated and kind

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : Okay. So other areas that investors have been excited about your story of late is kind of the AI piece of the story. And you guys have been talking about seeing more success with customers as they invest in AI. Just where are you seeing that success? And are there actions you can take to kind of productize some of these solutions that you see your customers kind of putting together?

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : Got it. I mean maybe to that point, you guys kind of talked about it cautiously on the fiscal Q4 call that you were starting to see -- you thought there would be an opportunity but maybe not kind of same win. You were maybe a little bit more upfront about it and kind of identified in these three buckets in fiscal Q1. Just kind of what changed over those three months? And just how can we think about the contribution AI can have to your growth? Or kind of what timeline should we be thinking of that in?

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : Okay. Tom, maybe turning to you for a second, not to leave you out there on the end of the stage. But turning back to today, you've experienced a particularly strong fiscal Q1 driven by data center refresh. You also had some pull forward and some large deal impacts. Just how did fiscal Q1 change how you think about the year, both for the hardware and software business versus where you came into the year?

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : Got it. I mean you mentioned kind of there is some end-of-life kind of coming within the portfolio. Just what are you seeing in terms of data center refreshes and just -- and like how should we think about these end-of-life that are coming in the next couple of years, influencing how you're thinking about the growth rate?

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : Got it. I mean, your predecessor, maybe on fiscal Q4, talked about kind of a more back half loaded year. We clearly saw a very strong Q1. Just how should we be thinking about kind of linearity around the year? And I know maybe on hardware, it's a little different than software.

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : Okay. Maybe on your telco customer base traditionally kind of been hovered between mid-teens to low 20s. Percentage of revenue. They had very constrained budgets in '23 and '24. Just how are you seeing kind of telco spending patterns? And how is that impacting that portion of the business?

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : Okay. And then just on the other side of that, obviously, you guys have a decent sized federal government business as well. Just what kind of trends are you seeing within kind of that vertical?

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : Okay. And then you did some price increases that we're going to go into effect in January 2025. Just how does that influence kind of how you think about kind of the linearity of the year and just any competitive dynamics into kind of why introducing price increases now?

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : Got it. Cooper, I want to return back to you for a second. You alluded to kind of this NVIDIA partnership or product for kind of AI. I just wanted to -- for intercluster traffic management, understand that's still in early stages, but just kind of what is the time line of that progressing? Has it already productized? Just kind of how to think about that?

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : Got it. And maybe I want to return to the distributed cloud business just for a second as well. You noted that up to 1,000 or 1,000-plus customers. And that 1/3 of them were kind of existing F5 customers, but 2/3 were kind of new. Just how are those new customers kind of finding you in that distributed cloud use case more specifically? And do you think that those could kind of eventually become multiproduct customers?

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : Got it. And then, Tom, just kind of coming back to you, just tariffs, obviously, very topical over the past couple of days. Just how are you guys looking at addressing kind of potential tariff impacts?

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : Got it. And then you're obviously new kind of to the role of CFO, but not new to F5 in general. So any changes kind of to capital allocation priorities or just kind of financial strategy as you look ahead?

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : Got it. Maybe just a last question we're asking a lot of people here at the conference, just ways in which you're using AI internally to either trialing or kind of looking at.

Question: Meta Marshall - Morgan Stanley Co. LLC - Analyst : Got it. All right. Well, I think that's a great place to stop. Cooper and Tom, thanks so much for being here today.