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    F5 Inc (FFIV)

    CFO Change

    Business Description

    F5, Inc. is a leading provider of multi-cloud application security and delivery solutions, enabling customers to develop, deploy, operate, secure, and govern applications across various architectures, from on-premises to the public cloud . The company's enterprise-grade application services are available as cloud-based, software-as-a-service (SaaS), and software-only solutions optimized for multi-cloud environments, with modules that can run independently or as part of an integrated solution on high-performance appliances . F5 markets and sells its products primarily through indirect sales channels across the Americas, Europe, the Middle East, and Africa (EMEA), and the Asia Pacific region (APAC) .

    1. Application Security and Delivery Solutions - Provides comprehensive solutions for securing and delivering applications, including BIG-IP software and systems, which are available on both a perpetual license and subscription basis.
      • BIG-IP Software - Offers a range of application services that enhance security, performance, and availability.
    2. F5 NGINX Software - Delivers high-performance application delivery and API management solutions, sold on a subscription basis.
    3. F5 Distributed Cloud Services - Offers security, multi-cloud networking, and edge-based computing solutions under a unified SaaS platform, available on a subscription basis.
    4. Global Services - Includes annual maintenance contracts, training, and consulting services to support and enhance the use of F5 products.

    Q3 2024 Summary

    Initial Price$189.80April 1, 2024
    Final Price$171.18July 1, 2024
    Price Change$-18.62
    % Change-9.81%

    What went well

    • F5 is uniquely positioned to benefit from the increasing complexity of application environments, as customers deploy applications across multiple infrastructure environments, leading to massive complexity that F5's platform can address. This trend is expected to accelerate with AI, which further distributes applications and components, playing to F5's strengths in securing and optimizing applications regardless of location.
    • F5's unmatched flexibility and choice in offering both hardware and software solutions allows them to meet customers where they are, differentiating them from competitors. This approach is expected to drive continued growth, with expectations of a return to double-digit software growth next year.
    • F5 is successfully cross-selling its Distributed Cloud security solutions, both displacing competitors and capturing greenfield opportunities. With their SaaS solution, customers can consolidate vendors, reduce complexity, and achieve consistent security across all environments, leading to increased traction and new customer acquisitions.

    What went wrong

    • F5 has faced increased competition leading to poaching of key sales staff by competitors, as acknowledged in their earnings call.
    • The shift from hardware to software has been slower than expected, with many customers still preferring hardware solutions, potentially impacting software growth.
    • The company's Bot Manager product has faced challenges, with customers seeking lower-cost alternatives and integrated platform solutions, indicating pressure on this segment.

    Q&A Summary

    1. Software Growth and Outlook
      Q: What drove the strong software growth this quarter?
      A: Our software growth was stronger than expected due to robust new business activity, which lifted us to the top end of our guidance. While we typically update ARR metrics at the end of Q4, we can say that subscription renewals remain strong with some expansion, and our Net Revenue Retention (NRR) remains world-class.

    2. Hardware Outlook and AI Catalysts
      Q: Is hardware demand stabilizing, and what is the outlook?
      A: Hardware has stabilized over the past several quarters as customers have digested inventory, and we expect hardware next year will certainly not decline and could possibly be up relative to this year. This is driven by a strong pipeline of tech refresh activity and new demand from service providers and enterprises building large AI factories, where our BIG-IP solutions improve efficiencies.

    3. Fiscal 2025 Guidance and Margins
      Q: Should we expect the same growth rates for fiscal '25?
      A: We are still planning for mid-single-digit growth off a flat to low single-digit fiscal '24, and we will deliver 35% operating margin off that revenue number. We expect more of the growth to come in the back half of fiscal '25, driven by subscription renewals and new business activity.

    4. Return to Double-Digit Software Growth
      Q: Will software growth accelerate in the next upgrade cycle?
      A: We anticipate returning to double-digit software growth next year and see catalysts in both hardware and software. We don't force customers to adopt one delivery model over another; we meet them where they are to modernize their environments.

    5. Bot Manager Challenges and Platform Transition
      Q: How are you addressing challenges with Bot Manager?
      A: We've been challenged with our high-end Bot Manager point solution, as some customers seek lower-end solutions or platform bundles. We're integrating our sophisticated bot technology into our F5 Distributed Cloud platform and now offer bot protection as part of a bundle, leading to the number of WAAP-as-a-service customers doubling over the last year.

    6. AI Opportunities and API Security
      Q: How does enterprise AI adoption present opportunities for F5?
      A: AI presents opportunities in cost and security. Our high-capacity load balancing solutions increase efficiency in AI factories, reducing the cost per query. In the long term, securing AI models is key, and we believe securing APIs is essential. We've invested significantly in API security, seeing a tripling of API security customers year-over-year.

    7. Customer Incentives on Multiyear Maintenance
      Q: Why are you no longer incentivizing multiyear maintenance agreements?
      A: Given our very high attach rates and quality of service, we don't need to offer higher discounts to lock in customers for multiyear maintenance. We are a cash-generative company, and the service and products themselves retain customers without the need for upfront cash incentives.

    8. Impact of Competitor Poaching and Sales Attrition
      Q: Are competitors poaching your sales staff, affecting staffing levels?
      A: Our attrition in sales is well below industry norms. We have an extraordinary sales team, and while competitors may try to poach individuals, it would take much more to replicate our 20-plus years of enterprise go-to-market experience.

    9. Impact of Broadcom’s VMware Pricing Adjustments
      Q: Is Broadcom's VMware pricing affecting your business?
      A: Anecdotally, a few customers have reallocated budgets due to VMware's price increases, but we haven't seen it as a significant trend across our customer base.

    10. Cross-Selling Distributed Cloud Solutions
      Q: Are you displacing other vendors with your Distributed Cloud solutions?
      A: It's both. About two-thirds of our Distributed Cloud customers are existing F5 customers, and one-third are new logos. Sometimes we displace SaaS players as customers consolidate to our platform for consistent security across environments; other times, we address greenfield opportunities where customers lacked a dedicated solution.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDQ1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024
    Products328.175325.241,334.6305.9300.162308.489358.251,272.8
    - Systems154.659134.35670.7135.4141.654129.845130.4537.3
    - Software173.516191.09664.0170.5158.508178.644227.85735.5
    Services374.467381.641,478.5386.7381.192387.006388.41,543.3
    Total Revenue702.642706.982,813.2692.6681.354695.495746.652,816.1
    Revenue by Geography - in Millions of USDQ1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024
    Americas398.280400.861584.4376.39385.565382.846436.471,581.272
    - United States--1487.4350.08363.847361.820--
    - Other Americas--97.0-----
    EMEA181.147185.9741.6193.36178.386190.661193.53755.934
    APAC123.215120.25487.2122.84117.403121.988116.68478.914
    - Japan--------
    - Asia Pacific--------
    Total Revenue702.642707.012813.2692.60681.354695.495746.672,816.120

    Executive Team

    NamePositionStart DateShort Bio
    François Locoh-DonouPresident, CEO, and DirectorApril 2017François Locoh-Donou has been leading F5, Inc. since April 2017. He previously served as COO at Ciena Corporation and has a strong background in enterprise technology, particularly in security, networking, and telecommunications. Under his leadership, F5 has shifted to a software-first approach with over 70% recurring revenues .
    Tom FountainExecutive Vice President and COOAugust 30, 2024Tom Fountain became COO on August 30, 2024. He joined F5 in January 2018 as EVP and Chief Strategy Officer, later serving as EVP of Global Services and Chief Strategy Officer from June 2020. He has held senior roles at McAfee, Intel, and Juniper Networks .
    Frank PelzerExecutive Vice President and CFOMay 2018Frank Pelzer oversees F5's financial operations since May 2018. He was previously President and COO of the Cloud Business Group at SAP and CFO of Concur Technologies. He has also worked at Deutsche Bank and Credit Suisse Group .
    Scot RogersExecutive Vice President and General CounselJanuary 2014Scot Rogers has been with F5 since 2005, becoming EVP and General Counsel in January 2014. He was previously General Counsel for Xpediate Consulting and spent eight years in private practice as a commercial litigator .
    Chad WhalenExecutive Vice President and Chief Revenue OfficerSeptember 2024Chad Whalen has been CRO since September 2024. He joined F5 in 2017, leading the Cloud Sales team, and served as EVP of Worldwide Sales from July 2018 to August 2024. He has held leadership roles at Fortinet, Jasper, Ciena, and World Wide Packets .
    Lyra SchrammExecutive Vice President and Chief People OfficerApril 2024Lyra Schramm joined F5 in April 2024. She previously spent nine years at Google in various leadership roles, including VP of Strategy & Innovation, where she led Google's enterprise-wide people strategy .
    Kunal AnandExecutive Vice President and Chief Innovation OfficerSeptember 2024Kunal Anand joined F5 in April 2024 as CTO and became Chief Innovation Officer in September 2024. He was previously CTO and CISO at Imperva and co-founded Prevoty. He has worked at BBC Worldwide, Gravity, MySpace, and NASA Jet Propulsion Lab .
    Edward Cooper WernerExecutive Vice President and CFO (upcoming)Future DateEdward Cooper Werner is set to become CFO following the filing of F5's Form 10-K for the 2024 fiscal year, expected in mid-November 2024. He has been with F5 since 2001, serving as SVP of Finance for 12 years .

    Questions to Ask Management

    1. Are you experiencing increased attrition in your sales team due to competitors poaching your staff, and how is this affecting your go-to-market strategy?

    2. The shift from hardware to software seems slower than expected, with customers preferring hardware solutions; do you anticipate a more rapid shift to software in the upcoming upgrade cycle, or will hardware continue to be a significant part of your revenue mix?

    3. With the $65 million headwind from retiring legacy SaaS businesses and migrating Silverline to Distributed Cloud Services, are you on track with this transition, and how are you mitigating the associated revenue impact?

    4. Given the challenges in your bot manager business, including customer churn due to preference for lower-cost or platform-based solutions, what strategies are you implementing to improve its performance and address competitive pressures?

    5. While you expect hardware demand to stabilize or grow next year due to tech refresh cycles and AI opportunities, how confident are you in this outlook considering industry trends toward software and cloud solutions, and what risks could affect this hardware demand?

    Share Repurchase Program

    Program DetailsProgram 1Program 2Program 3
    Approval DateOctober 2010 July 25, 2022 October 25, 2024
    End Date/DurationN/AN/AN/A
    Total Additional Amount$5.4 billion $1.0 billion $1.0 billion
    Remaining Authorization$0$0$422.4 million
    DetailsCan be terminated at any time Can be terminated at any time Incremental to existing unused amount

    Past Guidance

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: Q4 2024 and FY 2024
    • Guidance:
      • Q4 2024 Revenue: $720 million to $740 million .
      • Q4 2024 Non-GAAP Gross Margins: Approximately 83% .
      • Q4 2024 Non-GAAP Operating Expenses: $350 million to $362 million .
      • Q4 2024 Non-GAAP EPS: $3.38 to $3.50 per share .
      • Q4 2024 Share-Based Compensation Expense: $54 million to $56 million .
      • FY 2024 Revenue: Approximately $2.8 billion .
      • FY 2024 Non-GAAP Effective Tax Rate: 19.5% to 20% .
      • FY 2024 Non-GAAP EPS Growth: Approximately 12% .
      • FY 2024 Non-GAAP Gross Margins: 82% to 83% .
      • FY 2024 Non-GAAP Operating Margin: 33% to 34% .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024 and FY 2024
    • Guidance:
      • Q4 2024 Revenue: $720 million to $740 million .
      • Q4 2024 Non-GAAP Gross Margins: Approximately 83% .
      • Q4 2024 Non-GAAP Operating Expenses: $350 million to $362 million .
      • Q4 2024 Non-GAAP EPS: $3.38 to $3.50 per share .
      • Q4 2024 Share-Based Compensation Expense: $54 million to $56 million .
      • FY 2024 Revenue: Approximately $2.8 billion .
      • FY 2024 Software Revenue Growth: Mid- to high single-digit growth .
      • FY 2024 Non-GAAP EPS Growth: Approximately 12% .
      • FY 2024 Non-GAAP Effective Tax Rate: 19.5% to 20% .
      • FY 2024 Non-GAAP Gross Margins: 82% to 83% .
      • FY 2024 Non-GAAP Operating Margin: 33% to 34% .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024 and FY 2024
    • Guidance:
      • Q3 2024 Revenue: $675 million to $695 million .
      • Q3 2024 Non-GAAP Gross Margins: 82% to 83% .
      • Q3 2024 Non-GAAP Operating Expenses: $340 million to $352 million .
      • Q3 2024 Non-GAAP EPS: $2.89 to $3.01 per share .
      • Q3 2024 Share-Based Compensation Expense: $55 million to $57 million .
      • FY 2024 Revenue Growth: Flat to down 2% from FY '23 .
      • FY 2024 Non-GAAP Gross Margins: 82% to 83% .
      • FY 2024 Non-GAAP Operating Margin: 33% to 34% .
      • FY 2024 Tax Rate: 20% to 22% .
      • FY 2024 Non-GAAP EPS Growth: 7% to 9% .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: Q2 2024 and FY 2024
    • Guidance:
      • Q2 2024 Revenue: $675 million to $695 million .
      • Q2 2024 Gross Margins: 82% to 83% .
      • Q2 2024 Operating Expenses: $347 million to $359 million .
      • Q2 2024 Non-GAAP EPS: $2.79 to $2.91 per share .
      • Q2 2024 Share-Based Compensation Expense: $56 million to $58 million .
      • FY 2024 Operating Margin Target: 33% to 34% .
      • FY 2024 Tax Rate: 21% to 22% .
      • FY 2024 Non-GAAP EPS Growth: 6% to 8% .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Citrix and Broadcom: Compete against F5's BIG-IP offerings in application delivery .
    • Amazon Web Services (AWS), Google Cloud Platform, Envoy, and HAProxy: Compete against F5's NGINX offerings in optimizing Kubernetes traffic management and load balancing cloud-native and hybrid cloud applications .
    • Akamai, Cisco, Cloudflare, Fortinet, Juniper Networks, Palo Alto, Radware, and Thales: Compete in application security, offering web application firewall, bot detection and mitigation, API protection, carrier-grade firewall, carrier-grade network address translation (NAT), SSL orchestration, access policy management, and DDoS mitigation .
    • Akamai, Cloudflare, Fastly: Traditional edge players competing with F5 Distributed Cloud Services in application and API security delivered as SaaS, as well as multicloud networking .
    • Broadcom and Cisco: Networking vendors competing with F5 Distributed Cloud Services .
    • Aviatrix: Pure-play vendor competing with F5 Distributed Cloud Services .

    Latest news

    Recent developments and announcements about FFIV.

    Corporate Leadership

      CFO Change

      ·
      Nov 5, 2024, 12:00 AM

      Frank Pelzer, the Executive Vice President and Chief Financial Officer of F5, Inc., is set to retire. His official resignation will occur at the end of the day when the company files its Form 10-K for the 2024 fiscal year, expected around November 18, 2024. Following his resignation, Pelzer will transition to a consulting role, acting as a senior advisor to his successor from December 1, 2024, through May 31, 2025 .