F5, Inc.

Good afternoon and welcome to the F5 Incorporated first quarter fiscal 2022 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your cell phone. Also, today's conference is being recorded. If anyone has an objection, please disconnect at this time. I'm now turning it over to Ms. Suzanne Dulong. Ma'am, you may begin.

Hello and welcome. I'm Suzanne Dulong, F5's Vice President on Investor Relations. Francois Le Cotonou, F5's President and CEO, and Frank Peltzer, F5's Executive Vice President and CFO, will be making prepared remarks on today's call. Other members of the F5 executive team are also on hand to answer questions during the Q&A sessions. A copy of today's press release is available on our website at F5.com, where an archived version of today's call will be available through April 26, 2022. Today's live discussion is supported by slides, which are viewable on the webcast, and will be posted to our IR site at the conclusion of today's discussion. To access the replay of today's call by phone, dial 800-585-8367 or 416-7000. and use Meeting ID 6879935. The telephonic replay will be available through midnight Pacific time, January 26, 2022. For additional information or follow-up questions, please reach out to me directly at s.dulong.fi.com. Our discussion today will contain forward-looking statements, which include words such as believe, anticipate, expect, and target. These forward-looking statements involve uncertainties and risks that may cause our actual results to differ materially from those expressed or implied by these statements. Factors that may affect our results are summarized in the press release announcing our financial results and described in detail in our SEC filings. Please note that F5 has no duty to update any information presented in this call. With that, I will turn the call over to Francois.

Thank you, Suzanne, and hello, everyone. Thank you for joining us today. Our strong first quarter results demonstrate our customers' need to grow and evolve the applications that support and drive their businesses. Customer demands stand our portfolio, driving 10% revenue growth in Q1 and our fifth consecutive quarter of double-digit revenue growth. Underpinning our top-line growth is robust 47% software growth one percent systems growth and two percent global services growth in the quarter in fact both software and systems demand exceeded our expectations in q1 contributing to our out performance we are at the epicenter of digital transformation and application security we are differentiated by our focus expertise and the vision and technology assets to secure and deliver any application anywhere as a result we have seen strengthening demand across our software portfolio and persistent strong demand for our system. Like others in the industry, since late 2020, we have been taking progressively more aggressive steps to manage supply chain risk. These include pre-ordering components, investing to secure supply, qualifying and sourcing alternate components, and purchasing on the open market to fill gaps that arise. Over the last year, stronger than expected demand for systems, coupled with ongoing supply chain constraints, have gated our systems revenue growth. As a result of persistent strong systems demand, our systems backlog continues to grow in Q1. Over the last 30 days, suppliers of critical components that spend a number of our platforms have informed us of significant increases in decommits. These came in the form of both order delivery delays and sudden and pronounced reduction in shipment quantities. The step function decline in component availability is significantly restricting our ability to meet our customers' continued strong demand for our systems. The challenge is acute in Q2, and we expect Q2 revenue in the range of $610 to $650 million as a result. This revenue range reflects a $60 to $80 million shortfall in our ability to ship in our second quarter versus what we would have expected absent these recent supply chains and strengths. Based on the information we have today, we estimate that increased supply chain limitations are likely to have a net $30 to $90 million impact to our prior revenue guidance for fiscal year 2022. We are aggressively working to mitigate the impact of two primary gating supply challenges near-term. First, like others in the industry, we are seeing worsening availability of specialized networking chipsets. Within the last 30 days, we have learned that deliveries for 52-week lead time components ordered a year ago have been pushed out and that our expected quantities have been reduced. Second, we also have experienced significant recommits for standard semiconductor components. We are working to design and qualify replacement components to resolve these standard component challenges. While we are unlikely to be able to do so in time to mitigate production shortfalls in Q2, we expect that we can mitigate the impact on the second half of our fiscal year. In addition to continuing to work with our suppliers, our sales teams also will be working with customers to fulfill their demand with alternative offerings. In some cases, customers may be able to qualify and ship demand to recently introduced platforms that are less affected by supply chain issues because they use more readily available components. Now, let me be very clear. The main drivers across our business are stronger than they have ever been. While near-term supply chain challenges may disrupt our revenue growth trajectory short-term, fundamentally, they do not change the significant opportunity we have to solve our customers' most critical application security and delivery challenges. Nor do they change our longer-term growth potential. Our software transition continues to gain momentum, In fact, we now expect to be closer to the top end of our 35% to 40% stockholder revenue growth range for the year. In addition, systems demand exceeded our plan in Q1 and remained strong headed into Q2. Because of the strong demand signals we see and our confidence in our longer-term trajectory, we will continue to invest responsibly in our business and will not make any dramatic changes to our operating model short-term. While this will mean near-term pressure on our operating margin, it best positions us to continue to capture our growth opportunity and long-term earnings potential. We expect to return to our previously forecasted operating margin profile as we return to full manufacturing capacity. Our Q1 customer wins offer great insight to both our momentum and the opportunity ahead. For instance, pervasive application security threats like log4j clearly demonstrated why every application needs web application firewall protection. As a result, we are seeing heightened interest in F5's WAF solution for both traditional and modern applications. In just one example during Q1, a customer selected NGINX with AppProtect to add WAF protection closer to a container deployed by its DevOps team. This is in addition to the advanced WAF operated by its traditional SecOps team. We also see growing demand for fraud and bot defense. As an example, in Q1, one of Central America's most prominent banks was still struggling with data security despite deploying multiple security solutions. The bank selected our shape solution to defend against persistent automated attacks. Shape has dramatically reduced the customer's automated traffic, successfully reducing the tumor friction across their digital channels. Shape is also providing fraud-based analytics for improved application security and visibility. Finally, customers' modern applications are moving into production and experiencing significant and constant swings in user demand. As a result, they need infrastructure that scales up automatically to meet user demands or down to save cloud costs. For instance, QAQ1, an American multinational investment bank and financial services customer, selected NGINX to help modernize their Kubernetes-based applications. The customer's existing solution was unable to provide multi-site resiliency for a service running within Kubernetes clusters. The customer selected NGINX Plus to provide multi-cluster, multi-site failover. Customers are increasingly looking to FIs to help them solve an escalating volume of application security and delivery challenges, and multi-cloud challenges, and modern map challenges like scaling Kubernetes-based apps into production. These challenges and the complexity they entail are only mounting for our customers. They see F5 as an innovator uniquely equipped to help them build and scale both the traditional and modern application environment. And the cloud-ready capabilities we are building with our Volterra and WebStack integrations only enhance our positioning and appeal. I'll now turn the call to Frank to review our Q1 results and our outlook.