F5 Inc at Raymond James TMT and Consumer Conference Transcript

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

Question: Simon Leopold - Raymond James - Analyst : So the one acronym you didn't mention is AI, and I'm not sort of leading up to asking you to sort of AI watch story. But I think it's interesting in that, that's really been the obsession for tech investors over the last year. And I felt like, on the last earnings call, you were able to weave in some of the AI narrative into the F5 proposition. So maybe in the interest of sort of not kind of taking the bait and saying, oh, yes, we're AI, but how does AI sort of fit into the narrative?

Question: Simon Leopold - Raymond James - Analyst : And I want to shift a little bit to enterprise adoption of AI. So I think the vision we have, which admittedly isn't unique, is that we move from sort of the factory builders that you mentioned to enterprises employing AI for their businesses. And so they're doing inferencing or tuning of AI, and your history is primarily selling to enterprises, not too those big factory builders. So maybe a little bit of your perspective on what's that timeframe? When do we see that? And how does that play into F5's opportunities?

Question: Simon Leopold - Raymond James - Analyst : Now historically, and I followed F5 for years, we saw a good correlation between F5's business and the sales of servers and then also the sales of VMware licensing because you're managing those virtual -- the workloads among those virtual machines on those servers. So the dynamics have shifted where VMware is a very different business under Broadcom, but it does appear as if the -- even the traditional server market is improving. How should analysts think about the correlation? So sort of the old tools we've used, are they still applicable? And how should we think of maybe some of these metrics we've looked at in the past as indicators for F5, whether it's virtual machines or server sales?

Question: Simon Leopold - Raymond James - Analyst : So moving past AI, looking at the broader business at this point. So what are the factors that you're monitoring when you're doing your forecasting? I guess, both from a top down and bottom up, how much of it is sort of macro economy, IT spending? What are the key metrics we want to pay attention to?

Question: Simon Leopold - Raymond James - Analyst : Can you remind folks what you offered as a fiscal '25 forecast since you're just starting that fiscal year?

Question: Simon Leopold - Raymond James - Analyst : And how about earnings, the rest of the --

Question: Simon Leopold - Raymond James - Analyst : And sort of historically normal for F5?

Question: Simon Leopold - Raymond James - Analyst : And I want to get a better understanding of how maybe the competitive environments evolve, particularly since one of your -- you've generally been the market leader, but one of your competitors, Citrix NetScaler Century now part of private equity.

Question: Simon Leopold - Raymond James - Analyst : Which I would assume leads to different behaviors than a public company. So is this giving you better opportunities to raise price? How is the competitive environment changed versus sort of the pre-pandemic situation?

Question: Simon Leopold - Raymond James - Analyst : Now are these price increases sticking? Because I guess one of the things I've struggled with the IT space, is it's not sort of like consumer products, where if you raise the price of a box to zero, that's the price. Every deal is a negotiated deal in IT infrastructure. So are your customers paying the higher prices? Are they accepting it? Or is it still sort of every deal is somewhat unique? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 6:40PM, FFIV.OQ - F5 Inc at Raymond James TMT and Consumer Conference

Question: Simon Leopold - Raymond James - Analyst : So I want to ask about how competition with the cloud has evolved, and you sort of alluded to this before, but I think back to when F5 was sort of strictly an appliance company, public cloud was sort of the biggest threat because people would stop buying the appliance and migrate workloads to public cloud, and that's a gross oversimplification. Can you talk to the evolution of the company of how you've sort of taken advantage or shifted the strategy to embrace public cloud or to live with public cloud as a competitive threat?

Question: Simon Leopold - Raymond James - Analyst : So as you're sort of thinking about the forecast you've offered on 2025, how are you thinking about either from a geographic or market vertical perspective? What are sort of the bright spots, what are the areas that you see the most risk?

Question: Simon Leopold - Raymond James - Analyst : So with this idea that there's going to be this much greater government efficiency, have you had an opportunity to sort of think about what the potential impact might be? So hypothetically, if the Department of Education were to be eliminated, does that affect your business?

Question: Simon Leopold - Raymond James - Analyst : You've already sort of touched on kind of the software, hardware mix. Maybe just sort of home in on that. Where is the company today in terms of revenue coming from software sources versus hardware source? And what's your expectation for how that trends?

Question: Simon Leopold - Raymond James - Analyst : Now having sort of grown up as a hardware analyst, it's easier for me to sort of visualize a box, whereas your software business seems to have a number of different components, different use cases. Maybe help people gain a little bit of better understanding of what's the composition of your software portfolio, product names, use cases, where does it sort of all fit?

Question: Simon Leopold - Raymond James - Analyst : And one of the topics that comes up on every earnings call is the renewal rate. And I feel like, for us as analysts, we don't have necessarily great visibility into the time line for that. And it does seem like it's an element of your forecasting. So how do you suggest analysts think about renewals when they're trying to build financial models?

Question: Simon Leopold - Raymond James - Analyst : And that should result in a higher operating margin in the second half of the year as well then?

Question: Simon Leopold - Raymond James - Analyst : And then I recall sort of when the company was first trying to push towards big IP as a software and hardware that one of the objectives was it should be gross profit dollars neutral.

Question: Simon Leopold - Raymond James - Analyst : Have you succeeded in that? Is that sort of the way to think about it, that even if it's fewer dollars upfront, the dollars of profitability are unchanged regardless of what the customer buys?

Question: Simon Leopold - Raymond James - Analyst : Believe it or not, our time is flown by. It's been fun. So I'd like to close with the same sort of last question is what do you think is the least appreciated aspect of F5 story and the stock?

Question: Simon Leopold - Raymond James - Analyst : Well, great. Cooper, thanks for joining us. Appreciate everybody joining us as well. Thank you.