F5 Inc Q4 2024 Earnings Call Transcript

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

Question: Samik Chatterjee - JPMorgan - Analyst : Congrats on the strong results here. I guess I had a couple of questions on software. So maybe just to start off here, Francois, Frank, very strong results in software in the quarter. Just wondering if you can detail out for us a bit more in terms of the composition of that between did the outperformance really come from renewals? Or is it more true-ups? Where did you see the strength coming in from -- or anything that you can parse out in terms of what you're hearing from the enterprises in driving some of that upside that you saw in the quarter? And then I have a follow-up.

Question: Samik Chatterjee - JPMorgan - Analyst : Got it. And a follow-up. Maybe this is more of a broader question, just given the guide that you outlined for software, where you're calling for a high single-digit growth after the strong growth you had in fiscal '24 here. I mean the product perception, I think, still remains that enterprise are pretty early in their AI adoption cycle. Why -- just I wanted to understand the thinking in terms of software growth derating a bit, particularly in terms of how to think about how much conservatism is in that number versus should we be really thinking of a deceleration this early in the cycle if you really levered to the enterprises and their investment cycle around AI?

Question: Samik Chatterjee - JPMorgan - Analyst : Any comments on why should there be a distribution, particularly with AI still being a major driver of investment for the enterprises?

Question: Meta Marshall - Morgan Stanley - Analyst : On systems revenue maybe being better than expected as we head into fiscal '25. Do you see that more as share gains or more of accelerated refresh on this part of your customers? And I guess just related to that as a follow-up customer, I would think that share gains come in a healthier spend environment where people are willing to entertain making more decisions about their enterprise IT. And so just what are you seeing in terms of as your customers are talking about fiscal '25 -- or calendar year '25, just what are they thinking about in terms of sales cycles or spend cycles, are you seeing any improvement there?

Question: Michael Ng - Goldman Sachs - Analyst : I wanted to ask about the cadence of subscription revenue obviously, very strong in the quarter. As we head into, I guess, the first half of next year and the December quarter, it seems like there's an implied decline in subscription revenue sequentially. I was just wondering if you could speak to some of the dynamics there, whether that was the outperformance of things like true forwards in the September quarter or the timing of term base. But any color about that and how that plays out through the rest of fiscal '25 would be very helpful.

Question: Michael Ng - Goldman Sachs - Analyst : Great. And just as a quick follow-up. You had an expansion of the renewal base in the September quarter that was better than expected. I guess, are you assuming a similar level of expansion of the renewals that come up in fiscal '25 or smaller or bigger?

Question: Amit Daryanani - Evercore ISI - Analyst : I have two questions as well. I guess, maybe to stop it, Francois, can you just talk a little bit more about the BIG-IP NGINX for Kubernetees? You've talked about it a little bit already, but just talk about which customer base do you think this will resonate more with it? Is it the hyperscalers that are deploying more of the NVIDIA AI solutions right now? Or do you think it's going to be more with the enterprises over time? Where do you think this product will gain more traction? And any way to think about how big this opportunity could be for F5 as you go forward?

Question: Amit Daryanani - Evercore ISI - Analyst : Got it. That's really helpful. And then if I can just get a clarification on the software growth, right, which I think you folks have talked about high single digits in fiscal '25 is the right way to do it. Is it fair to think that software growth, just like we've talked about the top line will be a bit more muted, maybe low single in the front half and then ramps up in the back half. We going to understand this because you do have a very tough compare in the March quarter where you got some term license deals on the software side. So just any cadence on the first half versus back half on software and how to think about that would be helpful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 28, 2024 / 8:30PM, FFIV.OQ - Q4 2024 F5 Inc Earnings Call

Question: James Fish - Piper Sandler Companies - Analyst : Nice quarter. Just curious, as going back to Meta's prior question around systems. You guys have talked in the past about potential price increases? And clearly, your largest competitor in that space changed their packaging and pricing. So how are you guys thinking about a potential price increase for some of your legacy systems or the maintenance sell given that change? And is that included in the growth rate around mid-single digits for systems, especially when this is a segment that Francois back in, I think, '17 or

Question: James Fish - Piper Sandler Companies - Analyst : You guys care to quantify how much that price increase is? And then Francois building off of what you just said as well as your AI commentary before in terms of those three buckets. Is there a way to think about when to expect each of those tailwinds to come in, if there's any difference on timing? Or if we should think about them all coming in together at the same time?

Question: Simon Leopold - Raymond James - Analyst : First, I just want to see if I can clarify how you've updated the cadence forecast. On the last earnings call, you had indicated the first half of fiscal '25 would be relatively flat with strength in the second half of the year. Now you've given us this forecast for the first quarter that at the midpoint, it's about 3% year-over-year growth I think you're implying that the second quarter should be somewhat similar year-over-year growth. And so you've essentially guided up from the prior quarter's flat first half rather than implying that Q2 should be down a lot to compensate for the 3% growth in the first half? And then I've got a quick follow-up if you can just clarify that guidance comment first.

Question: Simon Leopold - Raymond James - Analyst : Great. And then I just wanted to see if we could talk a little bit about how the verticals performed relative to your expectations in that in the past, you've had meaningful seasonal benefit from the US Federal, which was on a dollar basis, decent and certainly a nice percentage, but other public sector was basically flattish sequentially this quarter. Just wondering, it sounds to me like your enterprise was the positive surprise that offset others. But how did your verticals perform relative to expectations that you guided?

Question: Sebastien Naji - William Blair & Company - Analyst : Two quick ones here. Just the first one, can you give us a sense for how much of your growth each quarter is coming from new customers? Just one helpful to get your view on how much growth in 2024 came from competitive share gains? And then how much customers are expected to contribute to growth in fiscal year 2025. And then my second question, just so it's out there is around the new BlueField NVIDIA announcement. What are you serving as an alternative to here? Are you replacing a native NVIDIA load balancer? And if so, what is the risk for them to build a more competitive offering and drive that higher utilization internally with their own solution?

Question: Matt Dezort - Needham & Company - Analyst : Great. Congrats on the great results, guys. On the go-to-market, I guess, just quickly, as you turn the page to fiscal '25, any changes in sales comp incentives especially as you start to more cross-sell NGINX One? And any changes to the partner program as you think about fiscal '25?