F5, Inc.

Good afternoon and welcome to the F5 Inc. First Quarter Fiscal 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. Also, today's conference is being recorded. If anyone has any objections, please disconnect at this time. I'll now turn the call over to Ms. Suzanne Dulong. Ma'am, you may begin.

Hello and welcome. I'm Suzanne Dulong, F5's Vice President of Investor Relations. We're here with you today to discuss our first quarter fiscal year 2025 financial results. Francois-Locot-Denoux, F5's President and CEO, and Cooper Warner, 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 here to answer questions during the Q&A session. A copy of today's press release is available on our website at F5.com. or an archived version of today's audio will be available through April 28, 2025. We'll post the slide deck accompanying today's webcast to our IR site at the conclusion of our call. To access the replay of today's webcast by phone, dial 877-660-6853 or 201-612-7415 and use meeting ID 1374-9373. The telephonic replay will be available through midnight Pacific time, January 29, 2025. For additional information or follow-up questions, please reach out to me directly at s.dulong at f5.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. We have summarized factors that may affect our results in the press release announcing our financial results and in detail in our SEC filings. In addition, we will reference non-GAAP metrics during today's discussion. Please see our full GAAP to non-GAAP reconciliation in today's press release and in the appendix of our earnings slide deck. Please note that F5 has no duty to update any information presented in this call. During today's call, Francois will speak to our Q1 highlights, and our strategy and growth opportunities. Cooper will then review the details of our Q1 results and our outlook. I'll now turn the call over to Francois.

Thank you, Suzanne, and hello, everyone. We are really pleased to share our robust Q1 results with you today. F5's alignment with significant secular trends, a more stable IT spending environment, and our strong execution contributed to another record quarter. We delivered 11% total revenue growth including 20% product revenue growth. Software revenue grew 22% and systems revenue grew 18% with strength from all geographies. Our revenue outperformance also drove Q1 non-gap EPS of $3.84, a beat of 43 cents above the top end of our guidance range. The quarter's strength is multifaceted, and reflects a continuation of the trends we observed in the second half of last year. First, we are benefiting from consistently strong expansion of our software subscriptions, many of which have exceeded our expansion forecast. Second, with a more stable IT spending environment, new software demand continues to grow as customers resume transformative and modernization projects. And third, Technology refresh activity is increasing, driving demand for both software and systems. Our pipeline shows these drivers will persist into Q2, contributing to our expectations for Q2 revenue in a range of $705 to $725 million, implying roughly 5% growth at the midpoint. In addition, reflecting our Q1 outperformance and our better-than-expected Q2 forecast, We are raising our FY25 revenue expectations to 6% to 7% growth up from our initial guidance of 4% to 5% growth. Cooper will speak to our outlook in greater detail in just a few minutes. Before he does, I will spend a few minutes discussing F5 differentiation and highlighting some customer wins from Q1. Over the last several years, We have substantially reshaped F5 for the hybrid and multi-cloud architectures of the AI era. With all its advantages, hybrid multi-cloud also brings with it new challenges. IT teams are being overwhelmed by high cost, crushing complexity, and escalating cyber risk, a set of challenges we call the ball of fire. As AI becomes ubiquitous, it will add fuel to the ball of fire, requiring more capacity to handle massive amounts of data, more sophisticated traffic management to deal with complex traffic patterns, and enhanced security capabilities to stay ahead of new security threats. Unlike competitors who invested solely in cloud or SaaS, or significantly reduced investment limiting their applicability in a multi-cloud world, over the last several years, F5 innovated across hybrid SaaS and next-generation software and hardware. As a result, we stand alone with the only complete hybrid multi-cloud portfolio for application security and delivery. We are the only player that can partner with a CIO or CISO to secure and deliver all of their applications and APIs across hybrid multi-cloud environments. We are differentiated across three primary vectors. First, F5 has the most effective and comprehensive application and API security platform in the industry. We enable our customers to consolidate point products targeting specific threats onto a single integrated platform with a suite of best-in-class capabilities. A notable example of the power of our ability to consolidate multiple security point products comes in the form of a significant Q1 renewal and expansion with a major financial services customer. Along with the anticipated renewal and expansion of its sizable BIG-IP and NGINX term subscription, the customer converged multiple security point solutions onto F5, adding SSLO and DDoS use cases. The result was a larger-than-expected expansion on what was already an eight-figure renewal. Second, F5's hybrid multi-cloud strategy enabled consolidation on a single vendor for app security and delivery. Only F5 delivered solutions that extend from customers' on-premise environment across public clouds to the edge. F5 simplifies connecting disparate infrastructure environments and the applications deployed in and across them. In Q1, a regional utility company in North America modernized its big IP application hosting, security, and remote access infrastructure. The customer also deployed F5 distributed cloud services to support its modern applications displacing two F5 competitors and consolidating their traditional and modern applications and investment on F5. Third, F5 solutions streamline customers' operations with consistent policies, comprehensive automation, and rich analytics. We enable customers to simplify their operational management across all environments. One of the largest private sector banks in APAC offers a great example of this dynamic. The customer has deployed F5's unified security policy, displacing two-point security competitors and consolidating on F5 for multiple use cases across their on-premises, public clouds, and Kubernetes environments, leveraging F5 in SaaS, software, and hardware deployment models. F5 is vastly simplifying hybrid multi-cloud complexity for customers, By converging multiple point solutions to address high-performance traffic management, full web app and API security, multi-cloud networking, and AI gateway capabilities, we are empowering customers with simplicity and choice. F5 enables them to tame the ball of fire with the right mix of hardware, software, and staff that best fits their operating model, deploying securely and consistently on-premises, in the cloud, or at the edge. F5 differentiated approach to hybrid multi-cloud is also driving competitive displacement momentum across our full range of hardware, software, and SaaS deployment models. In fact, in Q1, we achieved a record number of competitive displacements. These included a notable win with a home improvement retailer. Following a series of escalating challenges with its incumbent ADC provider, the customer is replacing them with F5 Big IP leveraging BIG-IP's automation capabilities to support their application delivery infrastructure and to streamline operations. In another example of a competitive takeout in Q1, a leading American insurance provider and longtime BIG-IP customer chose F5's distributed cloud services to eliminate its growing security tool sprawl and reduce associated administrative burdens and costs. The customer is replacing their prior API protection provider with F5 distributed cloud services, web application and API protection or WAP solution. In doing so, they are enhancing their application and API security while consolidating tooling. Before I pass the call to Cooper, as I have in prior quarters, I will discuss the latest developments we see emerging with AI. In the last year, Organizations across the globe have embraced AI as a strategic imperative. We expect that within three years, 80% of applications and processes will be infused with AI. There is evidence of this ramp in our own business with more than 50% of our F5 distributed cloud customers already leveraging our AI agent, which provides configuration assistance and insights. While AI promises to bring massive productivity benefits, it is also creating new compliance, infrastructure, networking, and security challenges for customers. AI is already exacerbating the ball of fire and accelerating the pressure to simplify hybrid multi-cloud deployment. Our early AI opportunities are concentrated on three areas of high-performance data delivery and security. The dominant AI opportunity for F5 thus far is delivering and securing data for both AI model training and inference. AI model training requires high performance traffic management to ensure the efficiency, speed, and reliability of lengthy and expensive training processes. Customers are using F5 Big IP to move incredible amounts of data at high speed to and from their data stores, providing greater efficiency for the training process. AI inference is having a profound effect on infrastructure as well. When customers perform retrieval augmented generation, or RAG, as a part of inference, they see a sharp increase in the number of queries going to their data stores. As a result, these data stores experience congestion and latency, slowing overall infrastructure performance. By deploying BIG-IP in front of their data stores, customers are able to scale to handle the vast and increasing amounts of queries related to RAG. The result is improved availability and resiliency for their AI workloads. The second AI opportunity we see today leverages our market-leading WAP solution for secure AI inferencing. APIs connect the AI ecosystem and AI APIs are subject to the same security challenges and vulnerabilities as traditional APIs. F5's WAP solutions protect hybrid and multi-cloud applications with functionality that spans from API discovery to API security, which is essential for AI workloads. Customers are leveraging F5's complete security portfolio to protect their AI workloads, including BIG-IP, NGINX, and F5 distributed cloud services. We expect secure AI inferencing will become a bigger opportunity for F5 as organizations move from experimenting to leveraging AI inferencing at scale. The third AI opportunity we are focused on is AI factory load balancing. Here, F5 is optimizing the performance and scalability of AI factories with advanced traffic management. We are doing this across AI factories and are working with partners toward deploying our solutions within AI factories. Across AI factories, customers are deploying big IP to improve the efficiency and performance of data going to and from massive GPU clusters. Within AI factories, And as we described last quarter, we have partnered with NVIDIA to ensure BIG-IP Next for Kubernetes works seamlessly with NVIDIA's Bluefield 3 DPUs. The combination of S5 BIG-IP and NVIDIA's DPUs provides customers with improved performance, multi-tenancy and observability. While it is early, we are seeing growing momentum with AI opportunities. I will share just a couple of wins from Q1. The first is with a net new customer, a large mobility platform in APAC, who is using BIG-IP for high performance data delivery. They selected F5 BIG-IP to support their robust AI computing stack, addressing high velocity load balancing for AI data ingestion, and replacing costly public cloud infrastructure. F5's SSL performance and compatibility with AI protocols with orchestration was a major factor in winning this customer. The second Q1 AI win I will highlight is with a leading multinational bank headquartered in our EMEA region. The customer selected F5's BIG-IP to secure, optimize, and scale their AI applications. They are leveraging BIG-IP for traffic management and WAF, ensuring efficient distribution and security of their critical AI and data infrastructure with seamless integration with their existing infrastructure. Now, I will turn the call to Cooper to elaborate on our results and outlook. Cooper?