F5, Inc. (FFIV) September 2026 Conference Transcript

Great. Good morning everybody. Welcome to the F5 Fireside Chat at the Goldman Sachs Communicopia and Technology Conference. My name is Mike Ng and I cover F5 and ComTech here at Goldman. It's my great privilege to welcome Cooper Werner who is F5's CFO and Tom Fountain who is F5's COO. Thank you both for joining us here today. It's an absolute pleasure. Thanks for having us. You know, to start off, I was just wondering if we could, you know, hit a big picture strategic question. At the analyst day, the company highlighted several technology megatrends, the growing adoption of hybrid multi-cloud, the expanding threat landscape, growing demand for AI inference. All of these things are driving demand for F5's ADC products or performance tools. Would you talk a little bit more about what you see as a key industry trend today and how F5 is positioned in each of them?

Thank you, Mike, for having us. And maybe before I jump into the megatrends, let me just get on record our safe harbor provision. Our discussion today may contain forward-looking statements which involve uncertainties and risks. Our actual results may differ materially from those expressed or implied in these statements. Please see our SEC filings for more information on these risk factors. So, you know, Mike, I think we talked a bit about this at our investor event. You know, the world runs on applications today, and applications require performance and security and scalability like we've never seen before. And I think we today are really operating at the nexus of three megatrends megatrends that are shaping the architectures around us. The first is really around hybrid and multi-cloud. So 90% of organizations today have a hybrid multi-cloud architecture. They operate across, on average, 22 different environments. And this creates incredible complexity for large organizations trying to manage this hybrid multi-cloud. The second is an expanding threat landscape. Frontier AI is fundamentally changing the way we think about security, the focus around application security, and today's world, the relationship between vulnerabilities found and when they need to be patched to avoid exploitation has shrunk quite dramatically. And F5 sits at the front door of these applications, and we've seen the application layer attacks increase 140% over the last year. And then, of course, the third megatrend is AI, and specifically AI inference. Today's organizations are either building or preparing for a large number of AI-powered applications. We sit at a really important place. The indirect use cases for AI drive additional bandwidth it through our products, and as a result, sort of increased demand for them. But we also are very specifically pursuing a set of direct use cases. And we have three of those. We go after the data delivery opportunity, where we can sit in front of data stores. We pursue a set of things around AI runtime security. So today's applications require additional security to really both protect against these AI threats, as well as use AI capabilities to do that. And then the third is around AI factory load balancing. And here, this is really around GPU optimization for the AI factories that the world is building. And so when you put these three together, they layer on top of each other and create just an incredible demand environment.

Great. That's a fantastic overview. Cooper, to bring you in and perhaps just translate how this impacts the financials, You know, the company has guidance for this year to have revenue growth of 9% to 10% on the back of eight consecutive quarters of double-digit product growth. How would you characterize the underlying demand environment today? And, you know, what were some of the drivers of, you know, giving you the confidence to take guidance higher last quarter?

Yeah, so I think it's been a very healthy demand environment over the past several quarters is what we've been seeing. Our pipeline health has been very strong. Pipeline create rates continue to remain very high. I think we've been seeing some new growth vectors over the last several quarters emerge, and we've talked a lot about some of them on the system side of the business. Digital sovereignty has become top of mind for large enterprises across Europe, and we're seeing that now across Asia-Pacific as well. And so there's been kind of a renewed focus on building out data center capacity in these environments. AI is also driving a need for digital sovereignty is more of these workloads customers want to retain on-premise. And so we're seeing more capacity built out supporting that. But then also just in general, as Tom said, customers are seeing today and they're preparing for continued growth in their workloads driven specifically by AI. And so as part of the refresh that we've been seeing, we've been seeing a lot of expansion in capacity, which is kind of a new phenomenon when you look back to prior refresh cycles. And so all these trends that are kind of driving new vectors of growth, in addition to the typical software and refresh-related growth that we're seeing, have given us that confidence to take our guidance up throughout this year and give us a pretty good outlook on momentum heading into FY27.

And is the right way to think about this focus on digital and data sovereignty is, you know, that's something that's enabled by hybrid multi-cloud, and therefore there are opportunities for F5's products systems to help support the performance of hybrid multi-cloud?

Yeah, I mean, that's one of the big things that differentiates F5 is that we allow customers to run their applications in any environment. And, you know, several years ago, it wasn't the popular move to continue to invest in data center capabilities, but we really felt long-term customers were going to find themselves in a hybrid multi-cloud world and having the right efficacy of their delivery and security solutions, both in data center-based environments as well as cloud-based environments, was going to become paramount, and we're seeing that play out now. And so it's been driving not just growth on the capacity that we're seeing, but it's also manifesting as broader expansion across the rest of the portfolio as customers are preparing for that hybrid multi-cloud world.

Great. That's very clear. And then on the systems piece, revenue grew 32% year-over-year last quarter, supported by ongoing refresh, but also broader capacity expansion. You have iSeries end-of-software support, I think, starting in the fiscal second quarter of 27, could you just talk about the remaining runway of the I-series to R-series migration, and how does that end-of-support deadline give you visibility into what systems demand should be over the next one to two years?

Yeah, so we have an end-of-software support date that's in our Q2 of 27. And those customers that do not refresh their legacy I-Series infrastructure, they'll still be under customer support, but what they won't get is the software updates. And in this environment, in the post-methos world, that's become more front and center with our customers is ensuring that they're running on the current supported versions of software to make sure that they're getting the updates that they need in response to new vulnerabilities. And so I think what you're seeing is customers are refreshing in a more orderly fashion than they had in prior cycles where some customers had an appetite to sweat their infrastructure and maybe wouldn't refresh until beyond those dates. And so we're seeing, I think, a little bit more of an acceleration of that refresh motion. Now, having said that, there is a long tail of refresh that will still happen after that end of software support date. There's customers that maybe have equipment that has a lower risk profile in their view, and just based on the timing of their loan budgets, they may still refresh beyond those dates. And so what you see is a little bit of a surge in the demand as you get closer to that date, and then you'll see kind of a long tail slope on the remaining refresh motion.

And what's exciting is that this is not just a simple installed base refresh. You guys have talked a little bit about this refresh plus expansion. So could you just expand a little bit around what's driving that refresh plus dynamic?

Yeah, and I think this goes back to the workload growth that we've been seeing with customers. So as they're engaging in that refresh motion, they're planning for future growth needs. And so we're seeing capacity expansion. So if you think of it as a fill rate, when you go through that replace motion, And you're going to decommission legacy infrastructure, and you're going to replace it with new infrastructure. And so the fill rate is, you know, how much capacity do you replace, and then do you expand that capacity? And we're seeing that fill rate is growing versus prior cycles. And customers are adding capacity to support the existing growth that they're seeing and in anticipation of future growth. And we're also seeing them move up the stack of our appliance lineup. So we have kind of a low, mid, and high-end range of our appliance families. And so what we're seeing is customers are moving up to more performant units at that time of refresh.

And F5 is continuing to invest in capabilities within the ADC portfolio, and a lot of your competitors are not. And I think that that's led to some competitive takeouts relative to your competitors.

So I was just wondering if you could talk a little bit about what's happening in the competitive set. you know why are you seeing accelerating takeouts you know does the competition provide a pricing umbrella and how aggressive are you guys being and following that pricing yeah so we have seen an inflection in that takeout opportunity and really it's kind of three dynamics that are kind of coming to a head for customers of some of these these competitive competitors the first of the innovation that we've continued to invest in across both systems and software environments. And some of our competitors just did not continue to invest in the system side of the technology stack. From a pricing perspective, yes, there's competitors that have taken pretty aggressive pricing tactics. It has provided a bit of a pricing umbrella for F5. We do have a price motion that monetizes the innovation we're bringing to market, but we think it's viewed as a much more sustainable practice for our customers. And it's a little bit more fair compared to what they've seen from other providers. And then just in terms of customer support, we've continued to invest in our support capabilities. We've provided more flexibility with our pricing and commercial models. And so all this is adding up to a choice for customers that where do they want to architect for the future and that F5 has seen as a great partner going forward.

Shifting over to software, I was just wondering if we could talk a little bit about the shape of software growth this year, you know, next year. You know, F5 guided to double digit software revenue growth in fiscal 27, which would be an acceleration. So, you know, what's driving that? How are expansion rates and contract terms trending within these multi-year renewals?

Yeah, so we'll start with what we were seeing this year and next year where we had said mid-single digits, software growth for this year, double digit for next year. One of the dynamics that we're seeing is that there's just kind of a math equation around the timing of some of these renewals. So we had a more flattish renewal cohort for FY26, and we expect, you know, we're seeing expansion against that cohort, but that was a bit of a headwind. But then we said the same dynamic would be a tailwind for our software opportunity in FY27. But if you normalize across that and take the math headwind tailwind over to your time frame and call that net neutral, what we're more excited about is the expansion we're seeing at the time of those renewals. What we're seeing is customers are utilizing more of what they've contracted, so we're seeing higher rates of consumption. We're seeing customers adopt more of the portfolio, so more and more of our customers are running all three of our major product families. And then on the SaaS side of the business, that's been a bit of a headwind as we had retired some legacy offerings, and we're pretty much through that transition now. And so we're anticipating ARR growth for that part of our business in FY26. That's a ratable business. And so that ARR growth in FY26 will start to show up as a new growth driver in FY27. And then lastly, and this is earlier days, but the AI security opportunity, that's a software opportunity as well. And that's top of mind for all of our customers. And so we expect to see that drive new growth as well. And so then as we look, as long as we're talking about cohorts, we do have visibility as to what renewals are coming up in the timing. And so as we look ahead to FY27, we anticipate that growth will be more back-end weighted just based on the timing of when some of these larger opportunities come up for renewal. Great.

And beyond the kind of mechanical elements of, you know, the three-year contracts and the renewal cohorts, could you just provide a little bit more texture in terms of the structural drivers of that growth? How much of it is expansion with existing subscribers versus new software logos? Any kind of features or product sets that you would highlight that are resonating in particular?

Yeah, I'd say it's mostly expansion, but I'll call it new use cases and new projects. So, you know, we're in the vast majority of Global 2000 customers already. So we continue to see new logos quarter in, quarter out. But just based on our competitive position across large enterprises, service providers, government agencies, the majority of our revenue is going to come with customers that are already F5 customers. And so when we get to that renewal cycle, that's where the opportunity is for us to expand what we're doing for those customers. And so we're seeing a lot of new projects. We're seeing customers adopt new functionality from F5. And so that is the majority of the growth, is the expansion we're seeing with that existing customer base.

And could you just give us some color around distributed cloud services, DCS, Like, how does that fit into the broader portfolio?

Yeah, so Cooper already referenced it a bit. We're very pleased with the progress that we've made around distributed cloud. You know, so this is a critical part of the portfolio. And I think the numbers tell a very compelling story on that. So this is a product offering that we launched four years ago now. We've shared that we're over 1,700 customers on it. 33% of our top 1,000 customers have now adopted distributed cloud, and that's up from 24% a year ago. We really see the SaaS offering as a critical part of the portfolio. It is a key way that customers are able to consume the value that we deliver in a different form factor and be able to extend those benefits to all of their applications. And so it really fits a really essential part of our application delivery and security platform story, what we call our ADSP. And maybe to make it sort of tangible, take a customer that has used big IP in many cases for a number of years, seen tremendous value from it, but maybe are only covering a portion of their applications, probably the ones that are the mission-critical apps in their data center. And many of these organizations, particularly large enterprises, have a large portfolio of applications, some of which are distributed in many locations. And so now they're able to get those same benefits that they had seen from the critical apps in their data center and extend those all the way to their edge applications wherever they might be running. And because of the application delivery and security platform story, they're able to get consistent policy, the same management interfaces, the same sort of benefits that they're accustomed to from Big IP. Of course, that dynamic also works the other way. So there are a number of examples where customers may first experience F5 in a SaaS form factor, and because we're hybrid and multi-cloud, they're then able to extend that back into their on-premise environment. And so we've seen sort of great cross-sell sort of both directions on that. I think, you know, one of the really powerful conclusions is that customers that adopt more than one modality, so there are two or more of these from us, grow 25% faster than others. And so, you know, it's, I think, a real testament to the fact that customers that get onto the platform, start to experience the benefits, enjoy sort of these different modalities, then use it even more thoroughly across their organization. Great.

I wanted to revisit a topic that you mentioned earlier, Tom, which is really about the AI opportunity for F5. And you talked about AI data delivery, AI runtime security, AI factory load balancing. So could you just walk us through where each of those opportunities fit on the customer adoption curve? of, you know, for F5, you know, which one is contributing revenue today versus, you know, which ones have longer-term market expansion potential as you think about agentic and physical AI and all those things.

Yeah, we're very excited about the investments we're making and the opportunity available in AI. To frame it, though, I do need to step back and remind everybody that we have both the direct and the indirect use cases. The demand for AI is causing organizations to increase their usage of traditional ADCs and those capabilities. And in many cases for us, those are hard to discern from some of these new use cases because customers just see it as increased capacity. In some cases, they're already seeing it with AI-powered apps that are driving more demand. In others, it's in anticipation of those applications, and particularly the agendic AI world that is now ahead of us. that they're planning for that and building that additional capacity in. So we think this indirect use case is actually as big or bigger than the direct use case, but the direct use case is the one that we can really sort of put our finger on. And here there are really three different use cases, each of which at a different stage in their maturity. So if I start with the AI data delivery, this one is the most mature. It most typically is a hardware-based use case, So these are customers that want to put performance enhancement capabilities in front of their data store. That's a net new control point for us, so we didn't traditionally sit in that part of the network architecture. And so customers that are building out their AI environment need to be able to get data in and out of their data stores in incredible performance. And we're optimized and tuned really well for that set of use cases. The second one, then, is around AI runtime security. And here, organizations need to be able to secure their AI-powered applications. Those look a lot like the sort of capabilities that we've had and that we offer already. But in addition to that, they need to be able to secure the communication between the application and their AI models. And that's a new frontier of AI security functionality. We find that all of that needs to be now AI-powered. So in a world where threat actors are using AI to help find and exploit vulnerabilities in organizations, you have to have AI-powered capabilities to respond to it. And so we have made some investments there, a number of investments there, and we're very proud of some of the innovation that we brought to market. And then the third use case is perhaps the most nascent, and this is really around AI factory load balancing. That could be across different AI factories or more focused. It's really about load balancing within an AI factory. And so here we have a partnership with NVIDIA where we have taken our big IP capabilities and brought those to their DPUs. So this is a data processing unit that runs inside of an AI factory, and that provides a number of performance benefits, a number of security benefits, multi-tenancy. So there's a range of benefits that it brings. That one is by far the most nascent and the earliest, in part because DPUs are still getting more broadly deployed, and there's some differences in some of the business models for people that are building out AI factories. But we're very excited about the potential for it.

Great. And then translating that into financials, is there a way to quantify how much of the revenue benefit F5 has seen from AI to date? and then anything that you could share as it relates to, you know, which enterprises or verticals are, you know, driving the most demand?

Yeah, so as Tom said, we've kind of got two categories of revenue growth. We've talked about the direct use cases, and we've sized that first half of the year. That was roughly $50 million of bookings, and we continue to see tremendous growth from those use cases. And then, of course, we're seeing a lot of the strength on systems side of the business is related to some of that indirect related demand. We haven't been able to quantify that, but clearly that's one of the largest drivers of the growth that we're seeing there. In terms of adoption, what we're seeing is data delivery is the largest use case early days. We're seeing customers that are starting to inflect their inference capabilities. we're seeing customers start to evaluate a mix of public models in hyperscaler environments, and now they're evaluating more open-source models that they may be running on their own infrastructure, and as we see that continue to mature, we think that's going to drive additional data delivery demand. In terms of verticals, one thing that we're seeing is in financial institutions, in government agencies, their AI security is becoming more front and center. And so we're seeing early momentum in some of our AI security use cases within those verticals. Great.

Let's shift gears and talk about the broader F5 security portfolio. What is F5 doing to address some of the enterprise application security issues? And maybe you could talk through what the portfolio looks like today and also touch on the SurePath AI acquisition that you guys just did.

Yeah, so maybe the starting point for this really is where we sit. So we sit at the front door of the most mission-critical applications of the largest enterprises, service providers, and governments in the world. And as a consequence of that, we see every request, every API call, and as we go forward, sort of every agentic call in and through these organizations. Today, we serve 80% of the Fortune 500, and so it puts us in a really prime position to be able to help our customers solve their security challenges. I really point to sort of three areas of differentiation for us. The first is really around depth. And so here we have built sort of the highest efficacy set of capabilities around securing applications in the world. That is a set of functionalities that goes very deep into each of the areas that customers need to protect for their enterprise apps. The second then really is around the breadth of the portfolio, and this takes a few different forms. So we offer these application security services across a number of different categories. There's several different types of security that are required there. We provide that full range of functionality. We've integrated together into a platform, and so we're the only player that offers a single integrated platform that allows customers to have policy that runs across these different environments. And then the third is the multiple modalities, the ability to support hybrid and multi-cloud. So the breadth there is quite unique. And then the third, which is sort of where you got to it in the question, is really around the role of AI. And here we built an AI-powered set of AI security capabilities. Our AI-powered WAF, for example, is one of the fastest-growing products in our history. And we're seeing sort of great momentum and traction with that. We are also, as I referenced, building out a number of AI security capabilities. We made an acquisition last year. We combined that with a number of the organic investments that we've been making. We feel very good about the AI security functionality that we have. In Q3, we announced the SharePath acquisition. That added to the guardrails and red teaming functionality. We have new discovery capabilities, and that really builds out a more complete AI security offering. I think we're very pleased with the momentum that we're seeing with customers, particularly in financial services, where we have a number of marquee wins there and are continuing to very aggressively grow that business. And so we feel very good about our position in security in general and specifically in AI security.

Cooper I was wondering if we just turn to margins and financials maybe you can just walk through some of your expectations around gross margins and operating margins over the next couple of years and then if you could please you know touch on just what you're seeing in terms of your supply chain constraints kind of operational constraints that may affect the margin outlook over the next couple of years here?

Yeah, so gross margins have held up pretty well this year. We've seen a lot of this has to do with some of the dynamics I talked about earlier with customers moving up to higher margin offerings as they're adding capacity. And so we feel pretty good about where gross margins are this year. We've noted that because of some of the memory cost pressures that we're seeing, those will start to flow through in the model next year. So we sized in our analyst day the margins would be in the kind of 80% to 82% range for next year. We did see a little bit of stability on the pricing related to memory in Q3 and for Q4. We haven't updated our guidance for gross margin next year. It's kind of cautiously optimistic, I guess, is how we would characterize it, because, frankly, we're getting some mixed signals where providers are saying that there potentially could be continued cost pressure on memory, but what we've been seeing come through over the last few weeks is signaling more stability, and so we think we'll be in a better position to provide an update on where gross margins look like they're trending in October for FY27. But longer term, we think that gross margins should stabilize as we start to get a little bit better availability of some of these scarce components. From an operating margin perspective, We think we have an opportunity to continue to improve our operating margins in the long term, notwithstanding the gross margin headwind for next year, as we can grow our OPEX at a slower rate than revenue. We're seeing a lot of efficiency across the business, leveraging automation and AI capabilities. We're seeing really strong sales productivity. We've been adding a lot of sales capacity for some of the new growth opportunities that we're seeing. But even as we've added that sales capacity, the productivity rates continue to go up. So we feel really good about our ability to continue to scale the business in terms of our OPEX as a percentage of revenue.

And then on capital allocation, F5 has committed to returning at least 50% of its free cash flow to shareholders through buybacks. And you guys have also selectively done some tuck-in acquisitions. So maybe you could just provide an update on capital allocation priorities, how you weigh things like repurchases versus strategic investments in the business.

Yeah, so it'll be pretty consistent with our approach over the past few years. We will continue to invest both organically and look for inorganic opportunities, but it'll be largely kind of the same philosophy as what you've seen with our acquisition approach over the last couple of years will continue to repurchase shares with a target of at least 50% of our free cash flow devoted to share purchases. And then you'll see, I think, a little bit of an increase in our CapEx as we continue to build out the distributed cloud part of our business and just building more points of presence around the world to support the growth of that business. And then the last item I would note is our inventory position will continue to build as we're sourcing some of these long lead time components, which we feel really good about that approach. It's provided some stability in terms of our supply that we need to meet demand for FY27 and beyond. But you'll see some of the actions we've taken to assure that we can meet that demand showing up on our balance sheet in terms of inventory positions. Great.

To close out, I mean, it certainly feels like there's a lot of exciting times ahead. So would you just talk a little bit about key priorities, goals that F5 is focused on over the next one to two years?

Yeah, so the setup for the next 12 to 24 months, I think, is better than I've seen it ever in my time at F5. And I think it's many of the things we were just talking about, right? The incredible demand environment in which we're operating right now, the long-term secular demand for our architectural approach and the way we go about solving things. The platform message is really resonating with customers, and I think the team is executing really well. And so for us, I think that translates into kind of four priorities that are immediately in front of us. The first is around capitalizing on this secular shift. The second, then, is really about capturing the growing demand for ADCs. The third is around driving platform adoption across our install base of customers. And then the fourth is around capturing this new AI opportunity that is available to us.

Well, Tom, Cooper, thank you so much for participating in our conference. It's been a privilege to have you on stage here. Thank you so much.