F5, Inc. Q1 FY2026 earnings call

• F5 reported strong Q1 results with 7% revenue growth, driven by 11% product revenue growth (sixth consecutive quarter of double-digit product growth) and 37% systems revenue growth. - Growth is fueled by durable demand drivers: hybrid multi-cloud adoption, scaling AI investment, and demand for converged platforms. - EMEA region had a particularly strong quarter due to regulations and mandates for resiliency and digital sovereignty prompting hybrid multi-cloud deployments. - Response to security incident in the quarter was effective, with minimal demand disruption; global sales and support teams managed over 9,000 additional support cases. - Key trends reshaping customer infrastructure: hybrid multi-cloud (workloads span on-premises, private, and public clouds), enterprise AI (shifting to AI-centric data centers), and converged networking/security platforms (replacing fragmented point products). - Specific customer wins: regional banking leader using F5 for hybrid multi-cloud strategy, media provider standardizing application delivery, veterinary clinics operator strengthening hybrid multi-cloud resilience. - AI-related investment scaling, with F5 solutions addressing AI data delivery, runtime security, and factory load balancing. - F5 launched BIG-IP version 21.0, enhancing core for AI workloads and bringing advanced API security to data centers.

F5 reported Q1 revenue of $822 million, with 7% growth. Product revenue was $410 million, up 11% year over year, representing 50% of total revenue. Services revenue was $412 million, up 4% year over year. Systems revenue totaled $218 million, a 37% increase compared to Q1 FY '25. Software revenue was $192 million, down 8% year over year. Subscription-based software revenue was $164 million, up 1% year over year. Recurring revenue contributed 69% of Q1 revenue. Regionally, The Americas accounted for 53% of revenue (2% growth), EMEA had 31% of revenue (24% growth), and APAC had 16% of revenue (1% decline). Vertically, enterprise customers represented 64% of Q1 product bookings, and government customers represented 23%.

• Raised FY 2026 revenue growth outlook to 5%-6% (up from 0%-4%). - Expect mid-single-digit software revenue growth, double-digit systems revenue growth, and low single-digit services revenue growth. - FY 2026 gross margin expected in range of 82.5% to 83.5%. - Non-GAAP operating margin expected in range of 34% to 35% (up from prior range). - Non-GAAP EPS expected in range of $15.65 to $16.05 (up from prior range). - Q2 revenue expected in range of $770 million to $790 million, with non-GAAP gross margin 82.5%-83%, non-GAAP operating expenses $390 million to $408 million, and non-GAAP EPS $3.34 to $3.46 per share.

• Memory costs are anticipated to impact product COGS in the second half of FY 2026. - Concerns about supply chain related to memory, with monitoring ongoing to address potential shortages.

Q: Matt Hedberg from RBC asked about AI adoption durability.

A: François Locoh-Donou stated AI is very early in the cycle, with shift from training to inference, durable due to large enterprises adopting, and strong adoption of AI guardrail solutions.

Q: Tim Long from Barclays asked about software and hardware.

A: Cooper Werner said software performance was in line with expectations, with no demand disruption for new software projects, and François Locoh-Donou discussed hardware demand driven by hybrid multi-cloud and AI, with regulations and AI accelerating it.

Q: Samik Chatterjee from JPMorgan asked about hardware upgrade cycle and security incident.

A: François Locoh-Donou mentioned a strong refresh cycle with expansion for AI, and Cooper Werner added strength from refresh and capacity expansion.

Q: George Notter from Wolfe Research asked about security breach impact.

A: François Locoh-Donou said no evidence of customers being breached, response was successful, and Cooper Werner noted no noticeable financial impact.

Q: Simon Leopold from Raymond James asked about AI revenue and price hikes.

A: François Locoh-Donou said AI revenue not broken out yet but growing, and Cooper Werner discussed price hikes impacting systems revenue more with mid-single-digit increase.

Q: Michael Ng from Goldman Sachs asked about systems revenue shape and EPS.

A: Cooper Werner said revenue guide reflects deceleration but no specific slowdown, and discussed EPS considering gross margin and investments.

Q: Ryan Koontz from Needham and Company asked about EMEA strength and sovereignty.

A: François Locoh-Donou said EMEA strength due to sovereignty regulations and a mix of new projects and deferred upgrades.

Q: Meta Marshall from Morgan Stanley asked about hybrid implementations and government business.

A: François Locoh-Donou discussed hybrid implementation trends and strong government business, especially in North America.

Q: James Fish from Piper Sandler asked about product refresh and AI.

A: Cooper Werner said product refresh is a combination of security needs and AI workload anticipation.