F5 Inc Q2 2025 Earnings Call Transcript

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

Question: Tim Long - Barclays - Analyst : Maybe one and then a follow-up if I could as well. Thanks for the comments here, guys. On the software side, seemed like a little bit of an underperformance in Q2, maybe that we just had it holding correctly, but pretty big growth in the second half embedded to get to double digits. So could you just give us a little color? It sounds like the subscription pipeline is strong. Just curious how that's going to break out between maybe renewals or new business and given the macro uncertainty, is there any risk to that? And then on the follow-up on the hardware side, you Cooper, I think you listed a number of things that are positive. I'm just curious how big a driver and how the ramp of these replacements will go? Is that currently one of the major things that customers are talking about as far as their upgrades in that 50%, do you expect that to move rather quickly away from the base that's aged? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 28, 2025 / 8:30PM, FFIV.OQ - Q2 2025 F5 Inc Earnings Call

Question: Ryan Koontz - Needham - Analyst : Congrats on a great quarter there (inaudible) on the call. I want to ask about your competitive displacement opportunity here. How would you characterize kind of where you are in that cycle? Or do you feel like you've got enough critical mass here in terms of really getting to sizable wins in displacing? And how long do you think that cycle can last? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 28, 2025 / 8:30PM, FFIV.OQ - Q2 2025 F5 Inc Earnings Call

Question: Ryan Koontz - Needham - Analyst : Super helpful color there. A quick follow if I could, around the platform. How how fully featured is this? It's around BIG-IP, right, the platform play?

Question: Amit Daryanani - Evercore ISI - Analyst : I guess, Francois, maybe just start off with you folks obviously have seen very good growth on the hardware systems side in the front half. First half of the year, it's up like 2%. Just given everything you've talked about both from a displacement side plus the reverse cycle. Can you just talk about why the embedded assumption that this growth would decelerate to, I think you're implying high single-digit growth in the back half of the year? Maybe just help understand like what's decelerating to that magnitude on the hardware side in the back half of the year. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 28, 2025 / 8:30PM, FFIV.OQ - Q2 2025 F5 Inc Earnings Call

Question: Amit Daryanani - Evercore ISI - Analyst : Got it. That's perfectly helpful. And then if I could just follow up, you talked about sort of three use cases on AI that are starting to ramp up from what you folks see. Can you just talk about at least qualitatively which of these three use cases you think is the largest opportunity from a dollar basis for the company? And then where are you seeing better traction right now versus not?

Question: Samik Chatterjee - JPMorgan - Analyst : I guess, Francois, if I can start off with the -- going back to the hardware revenue that you're seeing. In terms of sort of overall giving investors comfort that it's not driven by any pull forward of hardware purchases by companies because of sort of anticipating some of the tariff-led price increases. Can you just talk a bit more about which products you're seeing this hardware sort of acceleration in? Is it just product end of life in this year? Or is it more broad-based across the sort of hardware portfolio? It would be just interesting to know and sort of how are you driving your own confidence that it's not a bit of a pull forward ahead of tariffs. And secondly, if I can just ask more on the software perpetual revenue, if I look at the trends last quarter relative to sort of this quarter where you had a step down. Can you just highlight what did you see in terms of the customer sort of overall lower engagement on the perpetual side this quarter? What drove that? And any insights that you're drawing in terms of what the overall customer engagement or pipeline looks like from that perpetual revenue? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 28, 2025 / 8:30PM, FFIV.OQ - Q2 2025 F5 Inc Earnings Call

Question: Michael Ng - Goldman Sachs - Analyst : I have two as well. First, just on systems. I was wondering if you could talk a little bit more about the iSeries, VIPRION installed base being 50% of the total systems installed base. I guess, first, like how big is the installed base in nominal terms? And could you just talk about the typical price increase or price mix increase that you see when you transition to, I guess, it would be rSeries and VELOS, respectively?

Question: Michael Ng - Goldman Sachs - Analyst : Great. And just my second question, just on software. You talked about the subscription renewal base picking up as we head into the second half of the year that drives the acceleration in software growth. Just wondering if we'll be largely through that renewal by the end of this year, said differently as the renewal base in '26 is going to be smaller than '25? And how should we think about the implications for growth?

Question: Michael Richards - RBC Capital Markets - Analyst : This is Mike Richard on for Matt. You touched a little bit earlier on maybe seeing some pull-in from Fed in Q3. Just any other color around how Fed performed relative to expectations and your assumptions for Fed moving to the year? And any other color on dose impacts there would be helpful.

Question: Michael Richards - RBC Capital Markets - Analyst : Great. And then maybe just from a geographic perspective, anything to call out. It looked like EMEA was pretty strong in the quarter. So just any commentary there.

Question: Meta Marshall - Morgan Stanley - Analyst : Yes. Maybe kind of following up on a couple of questions. Understanding that you didn't see any pull in, in fiscal Q2. But I guess just we are a month into the quarter, is the linearity that you're seeing in fiscal Q3 any different than you would have traditionally kind of seen end of fiscal Q3 versus expectations? And then second, just on the last question about kind of international. The dollar has weakened a little bit in the last month. I guess, has that changed your expectation or change the behavior of international customers where that business has actually gotten stronger as the dollar has weakened slightly.

Question: Tal Liani - Bank of America Securities - Analyst : Can hear me now? Can you hear me now?

Question: Tal Liani - Bank of America Securities - Analyst : I want to go back to the first question we had by Tim Long and the question is if -- I'm trying to learn from a quarter where you have no growth in software because that's when we can see the drivers. And if you had no growth because of renewals, it means that when you have growth, it's always coming just from renewals. So the question is, why don't we see growth from new products, new markets, new drivers that you have in the quarter that renewal is weak? Why don't we see the other drivers? And does it mean that when it grows, is it mostly about the accounting of renewals? And that's kind of the first question. The second question is, we talk a lot about AI, and you have a great position in AI. And this is enterprise , right? So the question is about timing. When do you think AI starts to be a meaningful driver or a notable driver to growth?

Question: James Fish - Piper Sandler & Co. - Analyst : Francois, for you, going back a bunch of questions ago, you gave four sort of ranking on the hardware side? Is there a way to you either rank or give a mix as to what's impacting between that refresh data center modernization competitor displacements and AI? And then Cooper for you, to get to your software number in the second half, given what you have disclosed and even in kind of mapping out the renewals and all that, it was just a new recurring business or even assigned to the perpetual side of things, is it that new piece would be up year-on-year versus what you're doing today for the second half. So I guess what's giving the confidence that we're going to actually see growth on the new business side or either or an expansion on the expansion rate?