F5, Inc. Q4 FY2025 earnings call

Key Points - François highlighted FY '25 results exceeding $3B in revenue and $1B in operating profit, driven by data center reinvestment, hybrid cloud adoption, etc. - Incident response priorities: contain threat, deliver reliable software releases, raise security bar; Michael Montoya joined as CTO. - Cooper discussed Q4 results: 8% revenue growth, 72% recurring revenue, regional growth, cash flow metrics, share repurchases. - Customer highlights: APAC bank, North American investment manager, energy/gas company using F5 solutions. - AI use cases: data delivery, runtime security, factory load balancing; acquisition of CalypsoAI to enhance AI security capabilities.

In Q4, revenue grew 8% to $810 million, with 49% global services revenue ($396M, +2% y/y) and 51% product revenue ($414M, +16% y/y). Systems revenue was $186M, up 42% y/y. Software revenue was $229M, with perpetual license software up 25% y/y and subscription-based software down 3% y/y. For FY '25, revenue exceeded $3B, operating profit over $1B. Software grew 9% to $803M, with software subscriptions 85% of FY '25 software revenue. Security revenue grew 6% to $1.2B (39% of total revenue), with standalone security revenue $463M (31% of product revenue).

FY '26 Guidance - Revenue growth guided 0%-4% (non-GAAP) due to near-term incident impact. - FY '26 gross margin 83%-83.5%, non-GAAP operating margin 33.5%-34.5%. - Q1 2026: revenue $730M-$780M, non-GAAP EPS $3.35-$3.85.

Risks - Near-term impact on business due to cybersecurity incident, including customer delays, project deferrals, and resource allocation to incident response.

Q: What form of customer conservatism is taking place and how much of FY '25 systems growth was due to product upgrade cycle?

A: François noted near-term disruption from resource allocation to incident response, customer approval delays, and potential project deferrals. Cooper said ~2/3 of FY '25 systems growth was tech refresh, ~1/3 data center capacity expansion.

Q: How is the potential impact from the security breach sized and which customers were affected?

A: Cooper discussed profiling revenue streams and historical peer impacts; François said impact was on BIG-IP customers, with most upgrading quickly and a small percentage affected by data exfiltration with non-sensitive data.

Q: Any additional costs from data breach and percentage of revenue from BIG-IP?

A: Cooper said costs accounted for in cyber insurance or remediation, and F5 doesn't break out BIG-IP revenue by percentage.

Q: What drives software and systems growth going forward?

A: Cooper said systems growth has room from refresh cycle and data center capacity expansion; François cited flexible consumption agreements, SaaS adoption, and cross-selling of product families as drivers for software growth.

Q: Details on Distributed Cloud and verticals?

A: François said Distributed Cloud is a land-and-expand motion with 1/3 of customers expanding ARR; verticals like financial services, healthcare, etc., embrace hybrid multicloud driving F5 growth, while service providers face tepid growth due to 5G challenges.

Q: Market share impact and standalone security growth?

A: François said market share will strengthen over time despite short-term blips; Cooper said standalone security growth is muted due to customers preferring platform consumption and SaaS transitions.