FFIV - NASDAQ
F5, Inc.
FFIV·NASDAQ
$405.66
+2.5%TechnologySoftware - Infrastructure
F5, Inc. provides multi-cloud application security and delivery solutions for the security, performance, and availability of network applications, servers, and storage systems. The company's multi-cloud application security and delivery solutions enable its customers to develop, deploy, operate, secure, and govern applications in any architecture, from on-premises to the public cloud. It offers application security and delivery products, including BIG-IP appliances and VIPRION chassis and related software modules and software-only Virtual Editions; Local Traffic Manager and DNS Services; Advanced Firewall Manager and Policy Enforcement Manager that leverage the unique performance characteristics of its hardware and software architecture; Application Security Manager and Access Policy Manager; NGINX Plus and NGINX Controller; Shape Defense and Enterprise Defense; Secure Web Gateway, and Silverline DDoS and Application security offerings; and online fraud and abuse prevention solutions. The company also provides a range of professional services, including consulting, training, installation, maintenance, and other technical support services. F5, Inc. sells its products to large enterprise businesses, public sector institutions, governments, and service providers through distributors, value-added resellers, managed service providers, and systems integrators in the Americas, Europe, the Middle East, Africa, and the Asia Pacific region. It has partnerships with public cloud providers, such as Amazon Web Services, Microsoft Azure, and Google Cloud Platform. The company was formerly known as F5 Networks, Inc. and changed its name to F5, Inc. in November 2021. F5, Inc. was incorporated in 1996 and is headquartered in Seattle, Washington.
At a Glance
Live SnapshotMarket Cap$22.89B
EPS11.9600
P/E Ratio33.92
Earnings Date07/29/2026
Earnings Call Transcript
FFIV • 2023 • Q2
Operator
Good afternoon. And welcome to the F5, Inc. Second Quarter Fiscal 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] Also, today’s conference is being recorded. If anyone has any objections, please disconnect at this time. I will now turn the call over to Ms. Suzanne DuLong. Thank you, ma’am. You may begin.
Operator
Thank you, sir. [Operator Instructions] And our first question comes from the line of Sami Badri with Credit Suisse. Please proceed with your question.
Sami Badri
Thank you. I had two questions. First thing, maybe, Frank, you could help us just understand modeling parameters for the year, and the reason why I ask that is, we were not really forecasting a fairly large growth contribution from services revenue, and that’s clearly looking like that’s changing as of fiscal 2Q and into the second half of the year. What should we be assuming for services growth now, given things have changed and customers are fitting assets? And then kind of backing into product, how should we be -- I think you made a comment saying you weren’t going to make guidance for software growth into the second half of fiscal year 2023 for software. But I kind of just need a little bit more color on that, just given the systems commentary as well? And then I have a follow-up after this.
Frank Pelzer
Yeah. Sure, Sami. So we did not update the mid-single-digit outlook that we did update in Q1 on services. Obviously, we outperformed that in Q2, and for all the dynamics that you highlighted, we continue to think services contribution is going to be strong through the course of the year as customers continue to sweat assets and particularly when we look at some of the aged assets and their decisions around that. And so, we don’t have an update, but I think that mid-single-digit is well intact and we will see what happens. Specifically, we did not give any guidance on mix and product, and the results of looking at that services growth to what the product growth will be in that mix, I will leave that to you to model. But we are not giving any specific guidance to what we think software growth is going to be for the balance of the year and our systems growth for the balance of the year.
Sami Badri
Got it. Thank you.
Operator
And the next question comes from the line of Ray McDonough with Guggenheim Securities. Please proceed with your question.
Ray McDonough
Great. Thanks. Two if I could. The first one, François, can you comment or maybe even for, Frank, can you comment on how or if new business declines accelerated from last quarter, I believe. And with that, I also believe a part of the renewals that you expected to come in came from the true forwards. How have they performed versus expectations from the beginning of the year and is the move towards optimizing cloud spend from customers impacting those true forwards at all given pricing is somewhat based on what customers consume per year in those contracts?
Frank Pelzer
Ray, I will start, and certainly, François, wants to pick up he can. I think we saw a challenge in new business sales in both Q1, as well as Q2. Did it accelerate in Q2? Probably slightly versus our expectation, but not necessarily when you take a look at the raw number. So that’s how I’d answer that one for you. I think in terms of your second question around spend. On the true forwards that we saw, those were slightly below our expectation level. We do keep that in the renewal bucket. And so when we said that it largely performed to our expectation, that was the one piece that did not perform to our expectation where we think that people are being a bit more critical around their consumption and being much closer to what they had planned to consume and not going over and that’s not what we experienced up until this year.
Ray McDonough
Okay. That makes sense. And then maybe a follow-up, Frank, for you. Can you help us on the direction of cash flow margins for this year and where you think that can go? You have the benefit of supply chain challenges subsiding somewhat at least. You are lapping the initial cohort of term license renewals and now you have the benefit or will have the benefit of some of the cost reductions hitting this year that you are putting in place. So is it reasonable to think that a mid-20% cash flow margin is achievable this year or is there still some noise in the model that would preclude you from hitting that sort of target or range?
Frank Pelzer
Yeah. Ray, so we don’t specifically guide to cash flow and I think the dynamics that you mentioned are the similar ones to the ones that we are experiencing. So we did have some unusual cash hits to last year in relation to component costs and other supply chain challenges that we do anticipate are going to work their way out of our model by Q4. You saw some of that happen in the Q2 timeframe, you will see more of that happen in Q3. But we don’t guide to a specific margin percentage, because we don’t guide to cash flow.
Ray McDonough
Okay. Thanks for taking the questions. Appreciate it.
Frank Pelzer
Sure.
Operator
And the next question comes from the line of Tim Long with Barclays. Please proceed with your question.
Frank Pelzer
And Tim, on the maintenance -- the renewal question, I am going to separate out the maintenance renewals, which have obviously been quite strong on the services side and the software renewals, which are also strong, and the your saying, what are your expectations? When you think about the way we have talked about businesses, STPs [ph] have been the predominant amount of growth that we have seen in our software business and that’s the majority of what comes up for renewal in any given quarter. Those have performed largely to our expectations, and in many cases, growing from the levels that they were when they ended year three. There has been some this year where we have taken a look at years two of the agreement and year three of the agreement, where that true forward amount has not been up to the level of expectations that we had that we modeled from previous years as people are very critical on trying to consume very close to what they have contracted for. And so we are not seeing the same overages that we have before, and we think that’s probably indicative of the same way that cloud providers are seeing their consumption. So when we say the renewal base, the renewal base is up substantially last year as expected as this is the first full year of STP sales when we take a look back three years ago as a comparison.
Tim Long
Okay. Thank you.
Operator
And the next question comes from the line of Samik Chatterjee with JPMorgan. Please proceed with your question.
Samik Chatterjee
Okay. Thank you. Thanks for taking the questions.
Operator
Thank you. And the next question comes from the line of Simon Leopold with Raymond James. Please proceed with your questions.
Simon Leopold
That’s very helpful. So thank you for that. And just one quick follow-up, I know you mentioned that you thought you would have backlog normalized either at the end of the third quarter or fourth quarter, certainly, in fiscal 2024. Can we -- can you quantify where backlog was at the end of the March quarter?
Frank Pelzer
Yeah. Simon, we are not in the -- our normal course is not to update backlog in any one particular quarter. We talk about it at the end of the year. We tried to highlight to people during this particular call that we did expect to be through most of our shippable backlog by the end of the fiscal year, whether that’s Q3 or Q4, I can’t tell you. But we didn’t quantify where we were at the end of Q1 and we are not quantifying where we are at the end of Q2.
Operator
And the next question comes from the line of Meta Marshall with Morgan Stanley. Please proceed with your question.
Meta Marshall
Great. Helpful color. Thank you.
Operator
Thank you. Due to time constraints, we will take our last question from the line of James Fish with Piper Sandler. Please proceed with your question.
James Fish
Hey, guys. Most mine have been asked, but just wanted to follow up. François, you actually made the comment that you expect some of the -- maybe it was Frank, some of the working capital stuff to kind of work itself out by fiscal Q4 and I know you don’t want to talk about backlog specifically, but it sounds like if it’s going to work itself out by fiscal Q4 that we should expect to kind of exit the year at a more normal backlog level now. Is that the right way to kind of think about it at this point?
Frank Pelzer
Yes. Jim, that is the right way to think about it.
James Fish
Okay. And just lastly, I know you called out SaaS being more resilient and that it’s still growing on a year-to-year basis. Just given now that, that’s become a more resilient part and it seems like it should be at this point a material part of the business. Any further color as to what percentage of the total recurring software business is now overall and if it grew actually sequentially?
Frank Pelzer
Yeah. Jim, we have not split that out and we are not currently splitting that out now. In terms of growth year-over-year, yes, but we just have not split that out yet.
James Fish
Okay. Understood. Thanks, guys.
Transcript from April 19, 2023
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