F5 Inc at Needham Security, Networking, and Communications Conference Summary

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

Question: Matt Dezort - Needham & Company - Analyst : <_ALACRA_META_ABSTRACT>Great to have you here. I guess let's start at a high level. You guys just posted fiscal Q4 results, really strong close to the year. I think accelerating software, better-than-expected systems demand I guess for you, if you could recap the print from your perspective, maybe what two or three KPIs really stood out for you and encouraged you?

Question: Matt Dezort - Needham & Company - Analyst : Yes, definitely a lot to chew on there, and I want to get to a lot of those points you made on some of the drivers. But to go back to the renewal visibility that you guys have, I guess, you talked about that accelerating subscription growth next year with a weighting towards second half driven by the visibility you have from renewals, I think your assumptions around new growth are pretty modest. I guess, what drives that visibility and confidence? What sort of telemetry do you have on customer usage that sort of gives you that confidence heading into fiscal 25?

Question: Matt Dezort - Needham & Company - Analyst : Got it. Yes, I guess to follow up on something you mentioned, sort of the stacking of the 2019 and 2022 cohorts coming up here at 25%. How are you feeling about your capacity to service and win those renewals? And how do we think about the maturity and retention of those cohorts throughout time?

Question: Matt Dezort - Needham & Company - Analyst : Got it. I guess shifting gears to some of the exciting drivers you listed earlier, AI being the one I want to talk about first. What are you seeing in your customer base regarding widespread AI deployments planned for 2025? And maybe double click for those less familiar on some of the wins that you guys have already talked about over the past couple of quarters that are AI-driven. Got it. I, I guess shifting gears to some of the exciting drivers you listed earlier. A I being the one I want to talk about first, you know, what are you seeing in your customer base regarding, you know, widespread A I deployments planned for 2025 and then maybe double click for those less familiar on some of the wins that you guys have already talked about over the past couple of quarters that are A I driven.

Question: Matt Dezort - Needham & Company - Analyst : Got it. Yes, lots of exciting opportunities there for F5. It seems multiple facets. I guess staying on AI last quarter, I think you guys announced an exciting partnership with NVIDIA, where I think you're going to be placing your ADC software onto their infrastructure. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 3:15PM, FFIV.OQ - F5 Inc at Needham Security, Networking, and Communications Conference You also talked about big IP next for Kubernetes now being compatible with their DPUs seems like a really exciting partnership. I guess, what are the details of the partnership? And how should we think about this as an AI opportunity for you guys near term?

Question: Matt Dezort - Needham & Company - Analyst : Got it. I guess Shifting gears to your partner program. I think you've announced some rehauls there. Any changes as you enter fiscal 25 and especially how are you thinking about incentivizing the more productive set of partners that you're focused on now as you roll out DCS and you just launched NGINX 1. Talk to us about some of the partner changes that you're making with your go-to-market.

Question: Matt Dezort - Needham & Company - Analyst : Got it. I guess want to ask a question about cross-sell sort of between BIG-IP and NGINX I think earlier this year, you guys called it out really strong. I think somewhere 50% of NGINX customers have become big IP customers. Any update on that metric and plans

Question: Matt Dezort - Needham & Company - Analyst : Got it, I guess shifting gears sort of towards product revenue growth. I think you guys guided to higher than mid-single digits in fiscal 25 is what you said. What sort of expectations for systems and refresh specifically are embedded in that growth and what sort of trends have you seen with refresh activity heading into fiscal 25?

Question: Matt Dezort - Needham & Company - Analyst : Got it. Yes. I appreciate all that color. I guess staying on products within the system specifically. I think last quarter, you guys announced a price increase, I believe, any sort of details you can give us around the magnitude of that increase? Why now? How do we think about balancing that versus sort of the mid -- persistent mid-single-digit unit decline growth that has characterized the ADC market? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 3:15PM, FFIV.OQ - F5 Inc at Needham Security, Networking, and Communications Conference

Question: Matt Dezort - Needham & Company - Analyst : Got it. I guess shifting over to services now. I think you talked about lapping price increases from fiscal 22 and fiscal 23. How are you thinking about the puts and takes from for services growth from here. I think you talked about low single-digit growth in that sort of segment down from where it was last year when you benefited from the price increases, what are the puts and takes for services growth. What would it take for services to exceed these modest expectations as you lap the price increases? .

Question: Matt Dezort - Needham & Company - Analyst : Got it. staying sort of in the financial model, I think last year, you talked about net expansion rates that were world class and software over under 20%, I think, for our term licenses. Any color around where that net retention figure is today? How is gross retention also trending for your SaaS business as that becomes a bigger piece of your overall pie.

Question: Matt Dezort - Needham & Company - Analyst : Let's stay here on those transitions. I think the silver line unwind, you're converting a subset of your customers from the legacy version to distributed cloud. You've also had some planned churn? I guess how is this migration shaping out versus your guidance expectations so far?

Question: Matt Dezort - Needham & Company - Analyst : Definitely. Yes, I definitely see the benefit of getting them over to FI distributed cloud. I guess shifting gears a little bit to sales and marketing spend. I think it declined again this year, maybe the second straight year that's happened. But you've also said that awareness is the biggest limiting factor for F5, especially as you ship to distributed cloud and your other SaaS products. So how are you thinking about incremental returns on investment, especially in sales and marketing? And what sort of plans do you guys have for quota-carrying headcount expansion into fiscal 25 and beyond?

Question: Matt Dezort - Needham & Company - Analyst : Got it. Make sense. I guess, shifting now to like the competitive environment and pricing a little bit. Any changes to the competitive environment today across systems or software for you guys? I know specifically in the recent past, you called out Broadcom and VMware that tie up sort of causing consternation amongst your customers. I mean, is that still impacting demand? Or what sort of shake outs within budgets could that potentially drive benefits for F5? How do we think about the competitive environment?

Question: Matt Dezort - Needham & Company - Analyst : Got it. I guess moving now to like security, I want to ask about consolidation in WAP and API. I think you've called out some impressive wins for WAP as more cyber-attacks are now coming through APIs than ever before. Do you have everything from a product perspective that you need to compete there? And what's the appetite in the market today for a consolidated offering around WAF and API security?

Question: Matt Dezort - Needham & Company - Analyst : What sort of growth do you see coming out of the what market? Is it being cannibalized by the new API security solutions? How do you see them jointly surviving going forward? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 3:15PM, FFIV.OQ - F5 Inc at Needham Security, Networking, and Communications Conference

Question: Matt Dezort - Needham & Company - Analyst : I guess staying in product, I think you guys did just announce -- you hired a new CPO Canal. I think it was coming over from Imperva. So he's got a really strong background in security and sort of this realm I guess what's changing with the new Chief Product Officer, if anything, from a philosophy standpoint, do you think he's going to come in and have a different vision around where a WAP and distributed cloud service as you go? Is it kind of more the same and just accelerating sort of the growth vectors that you see in security working?

Question: Matt Dezort - Needham & Company - Analyst : Yes. Now it's really exciting to see you guys bring him on board and best wish just to care who was incredible, and I know it's taking on an awesome seat over half on (technical difficulty). Maybe shifting over to the CSP marketplace, the cloud service provider marketplace. Any updates that you can give us on growing our partnership with AWS how is that sort of taking off as we see cloud apps sort of reaccelerate coming out of the period of optimization and now we have AI. Maybe just talk to us about what sort of opportunities do you see with other cloud service providers as well.

Question: Matt Dezort - Needham & Company - Analyst : I guess staying on NGINX, how have you seen since you guys acquired that asset. How have you seen the competitive environment change, if at all, are there new entrants into that market? Just what's changing with NGINX and sort of market share and competitive environment?

Question: Matt Dezort - Needham & Company - Analyst : Got it. I guess a few minutes left here. I realize -- this is a CFO question. Maybe I know you don't guide to free cash flow, but how should we think about free cash flow conversion in fiscal 25, especially as you have these large renewal cohorts coming up and you're talking about 35% plus operating margins into the future. How do you think about free cash flow conversion going forward?

Question: Matt Dezort - Needham & Company - Analyst : From a growth perspective or a margin perspective?

Question: Matt Dezort - Needham & Company - Analyst : I guess with a couple of minutes left here, Tom, I want to turn it over to you for any closing thoughts, if any investors are dialled in and you want to walk away with two or three things to take away from this conversation, what would they be?

Question: Matt Dezort - Needham & Company - Analyst : Got it. That's great. perfect synopsis. I think that brings us to time. So I want to thank you, Tom, Suzanne, for joining us from F5 and for all the clients that tuned in. Thank you so much for your attention, and please enjoy the rest of the Needham tech conference.