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 • 2026 • Q2
Operator
Good afternoon, and welcome to the F5 Inc. Q2 fiscal 2026 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. 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.
Suzanne DuLong
Hello, and welcome. I'm Suzanne DuLong, F5 Vice President of Investor Relations. We are here to discuss our Q2 fiscal year 2026 financial results. François Locoh-Donou, F5's Chairman, President, and CEO, and Cooper Werner, 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. Today's press release is available on our website at f5.com, where an archived version of today's audio will be available through 27 July 2026. We will post the slide deck accompanying today's webcast to our IR site following this call.
Suzanne DuLong
The telephonic replay will be available through midnight Pacific Time, 29 April 2026. For additional information or follow-up questions, please reach out to me directly at [email protected]. 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've 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.
Cooper Werner
Thank you, François, and hello, everyone. I will review our Q2 results before I provide our guidance for Q3 and update our outlook for FY 2026. We delivered a strong Q2, growing revenue 11% to $812 million, with a mix of 51% product revenue and 49% services revenue. Product revenue totaled $411 million, increasing 22% year-over-year, while services revenue of $401 million grew 2% year-over-year. Systems revenue totaled $226 million, up 26% over Q2 FY 2025. Our software revenue of $184 million grew 17% year-over-year. Subscription-based software revenue totaled $165 million, up 20% year-on-year, representing 90% of our Q2 software revenue. Perpetual license software totaled $19 million, down 4% year-over-year.
Cooper Werner
Revenue from recurring sources contributed 70% of our Q2 revenue. Our recurring revenue consists of our subscription-based revenue and the maintenance portion of our services revenue. Shifting to revenue distribution by region. Revenue from the Americas grew 3% year-over-year, representing 50% of total revenue. Both our EMEA and APAC regions delivered very strong quarters. EMEA grew 22%, representing 32% of revenue. APAC grew 19%, representing 18% of revenue. Looking at our major verticals, enterprise customers contributed 66% of Q2's product bookings. Government customers represented a strong 24% of product bookings, including 8% from US Federal. Service providers contributed 9% of Q2 product bookings. Our continued financial discipline contributed to our strong Q2 operating results. GAAP gross margin was 81.4%. non-GAAP gross margin was 83.7%.
Cooper Werner
Our GAAP operating expenses were $482 million. Our non-GAAP operating expenses were $406 million. Our GAAP operating margin was 22.1%. Our non-GAAP operating margin was 33.8%. Our GAAP effective tax rate for the quarter was 21.9%. Our non-GAAP effective tax rate was 21.5%. Our GAAP net income for the quarter was $148 million or $2.58 per share. Our non-GAAP net income was $223 million or $3.90 per share, reflecting 14% EPS growth from the year ago period. I will now turn to cash flow and balance sheet metrics.
Cooper Werner
We generated $366 million in cash flow from operations in Q2 and free cash flow of $348 million, both records highlighting the strength of our operating model. CapEx was $18 million. DSO for the quarter was 47 days. Cash and investments totaled $1.46 billion at quarter end. Deferred revenue was $2.12 billion, up 10% from the year ago period. In Q2, we repurchased $100 million worth of F5 shares at an average price of $269 per share. We had $522 million remaining on our authorized share repurchase program as of the end of the quarter. We ended the quarter with approximately 6,500 employees. I will now speak to our outlook and guidance, beginning with Q3, followed by our full year view.
Cooper Werner
We expect the market trends we've outlined, hybrid multi-cloud adoption, threat landscape expansion, and AI inference inflection, to drive strong demand for our products and services in the second half of FY 2026. We expect Q3 revenue in a range of $820 million-$840 million, reflecting approximately 6.5% growth at the midpoint. We expect non-GAAP gross margin in the range of 82.5%-83.5%. We estimate Q3 non-GAAP operating expenses of $406 million-$418 million. We expect Q3 share-based compensation expense of approximately $68 million-$70 million. We anticipate Q3 non-GAAP EPS in a range of $3.91-$4.03 per share. Turning to our fiscal year 2026 outlook.
Cooper Werner
With continued strong close rates in Q2 and strong pipeline creation into the second half, we are raising our FY 2026 outlook. We now expect FY 2026 revenue growth of 7%-8%, up from our prior outlook of 5%-6%. We continue to expect mid-single-digit software revenue growth, double-digit systems revenue growth, and low single-digit services revenue growth for the year. Our gross and operating margin outlook for FY 2026 is unchanged. We expect FY 2026 non-GAAP gross margin in a range of 82.5%-83.5%. On a modeling note, we expect higher component costs, primarily related to memory, will cause gross margins to step down sequentially from Q3 into Q4. We expect non-GAAP operating margin in a range of 34%-35%.
Operator
Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We'll take our first question from Tim Long at Barclays.
Tim Long
Thank you. One question and one clarification. On the software side, looks like it was a pretty good quarter, and you're keeping the mid-single digit for the year. I know, you know, sometimes these are on, you know, three-year cycles given the term. Maybe just touch a little bit on, you know, why not a little bit more of a raise there after a pretty solid growth quarter. Are you still looking at potential acceleration on that number into next year? After that, I'll come back with a follow-up.
Cooper Werner
Hey, thanks, Tim. This is Cooper. Yeah, I'll take that. You know, we did have a good growth quarter in Q2. I would say it was right where we expected it to be for the quarter. You're right, we do caution against kind of over-rotating on any individual quarter's reported revenue growth rate. The second half of the year is where we have a more balanced growth expectation for the year. Just based on where we're at with the renewal base, we continue to expect it to perform as we had seen it shaping up for the year. That's where we're still at the mid-single digit growth rate for the year. All trends look very healthy.
Cooper Werner
Yes, as we look ahead to next year, we do expect to see an inflection in the growth rate. We're continuing to see strong trends around consumption rates across that renewal base, and we have a larger base coming up for renewal next year. With the expansion we would anticipate against that larger renewal base, we feel pretty confident about a higher growth rate into FY 2027.
Operator
We'll move next to Samik Chatterjee at JPMorgan.
Operator
We'll go next to Simon Leopold at Raymond James.
Operator
We'll go next to Matt Hedberg at RBC Capital Markets.
Operator
We'll go next to George Notter at Wolfe Research.
George Notter
Hi. Thanks a lot, guys. If I look back, you guys have been raising prices pretty conservatively, I think once per year. Obviously, you know, there's some more memory costs here, you mentioned in the context of gross margins. Any thoughts about raising prices a bit more aggressively or a bit more frequently? I think if I look back historically, you guys also talked about kind of balancing price increases with the opportunity to gain share. I'm just curious, like, on the share side of things, are you making progress there? Are there any metrics you can give us in terms of logos or, you know, incremental revenue or share that you can point to that kind of, you know, reinforce the idea that you guys are winning share? Thanks.
Cooper Werner
Yeah, George. Thanks. This is Cooper. I'll start on the pricing. So we do have kind of an annual pricing review that we do. Typically, it's in our Q2 where we make price adjustments to factor in the innovation that we've been bringing to market, and that's part of our ongoing playbook. We've also been closely monitoring what's been going on with memory and SSD pricing, which has just been accelerating through the year and really kind of had a big step up in Q2. That's something that we continue to look at price adjustments to pass through some of that impact through to offset the impact on our gross profits.
Cooper Werner
It's a combination of price adjustments and discount discipline, and that's something that we have to stay really agile with, and we'll continue to kind of monitor that, and make those adjustments on more of a one-off basis tied specifically to the rising costs of memory. Long term, as we think about share, you know, what we've seen, particularly recently, is our competitive takeout rate has gone up pretty materially. I think that really speaks to the hybrid multi-cloud adoption that our customers are seeing, where we're really the only vendor in this space that can support a customer's applications in any environment. That's really been resonating, particularly recently with the evolving threat landscape, as customers are looking for a platform approach to resolve a number of complexities in their environment.
Cooper Werner
They've been coming to F5, and so we've been seeing a lot of share gain in that regard.
Operator
Our next question comes from James Fish at Piper Sandler.
James Fish
Hey, guys. Great quarter. Maybe to give François a bit of a break, especially the AI side, Cooper, for you, I'm gonna get at this tomorrow. On the two-point raise to guide year for the year, it looks about one point just from this past quarter's upside. Are you actually passing through memory much at this point? What are you guys assuming from memory prices kind of in the back half of the year? Do you have enough supply still lined up given the outperformance of hardware? How far along with you are on migrating to DDR5 from DDR4 in particular?
Cooper Werner
Yeah, okay. I'll try to make sure I hit all three, but if I forget, please let me know. In terms of our revenue guide for the year, that doesn't really contemplate new pricing adjustments. I just referenced the work that we're doing around that. You know, any pricing adjustments that we did are more likely gonna flow through into FY 2027 just based on where we are with the cycle. It is something that we continue to look at, but it's not really a significant component to our back half revenue guide for the year. In terms of supply availability, yeah, we feel pretty good about our near-term visibility.
Cooper Werner
We've really been out in front of this, and I'm really proud of our manufacturing team for identifying this as an issue, you know, going back to kinda mid FY 2025, where we increased our build forecast, we extended the length of our build forecast, and we took on additional supply and components that we thought might have more constraints. That's allowed us to secure the memory that we need, not just for the revenue outlook that we had at the time, but for the upside we've been delivering over the last six quarters or so. We feel pretty good, at least for the near term.
Cooper Werner
Now, you get it longer term into FY 2027, the build forecast we have out there are within our needs for what we would expect to do on the high side for our systems business. Obviously, the visibility four or five quarters out is not as strong as it is in the near term, but right now we feel pretty good with where we sit.
James Fish
And then the last.
Cooper Werner
The last question, DDR4. The current appliance lineup that we have leverages DDR4. Future appliance cycles will be on newer technology. We haven't discussed the timing of those, the next generation of appliances.
James Fish
Fair enough. If I could follow up just because if I look at your billings, you had a really strong deferred here, especially on the current side. What are you guys seeing with any net pull in or demand or build-up of product backlog here? As a lot of us here will kind of be reminiscent of the supply chain crisis just a few years ago, in that this would be about the time you guys would start to see a build-up in product backlog. Thanks, guys.
Cooper Werner
Just to be clear, backlog does not show up in our deferred revenues. Our deferred revenue strength is almost entirely tied to our services business, where we have maintenance renewals. We saw the strength both on short-term and long-term. Deferred maintenance is actually a little bit higher on the long term. We did see some customers that were doing multi-year renewals. I'm certain that some of them are getting in front of, you know, perceived risk around price increases as they're working with other vendors. That is playing out to an extent, I would imagine, on the maintenance side. But the growth is not tied to product orders.
James Fish
Thank you.
Cooper Werner
No problem. Thank you.
Operator
Next, we'll move to Meta Marshall at Morgan Stanley.
Meta Marshall
Great. Thanks so much.
Operator
We'll move next to Jeffrey Hopson at Needham.
Jeffrey Hopson
Hi. Thank you for the question. I just wanted to follow up on the memory situation and the gross margin implications. You gave guidance for, you know, the last quarter to have a step down from Q3 to Q4. Just curious if there's any more color on the magnitude of that step down. I think I had like around 150 basis points. Is this just a function of, you know, memory bought today, you know, takes about two quarters of flow through, and that's kind of dynamics at play? Thank you.
Cooper Werner
Yeah. Thank you. Yeah, that's the dynamic. As I referenced earlier, we had taken a pretty extensive position early, and so we've been able to kind of mitigate any impact up through, you know, the H1 of this year. We're now starting to see some of the later purchases that we have been doing at higher price points are gonna start to flow through into the model. It'll start to flow into Q3, but it'll be kind of more at full run rate in Q4. It's an incredibly dynamic situation with memory pricing. It's, you know, we're trying to get the signals on what it could look like in the next few quarters. Our expectation is that there will be relief, you know, several quarters out.
Cooper Werner
Right now, for at least through the better part of FY 2027, we would expect memory prices to stay elevated.
Jeffrey Hopson
Thanks for the colors.
Operator
We'll move next to Amit Daryanani at Evercore ISI.
Caden Dehl
Hi there. This is Caden on for Amit. I guess services growth at 2% was fairly muted. Can you maybe just touch on what's happening there, and maybe your updated thoughts on how to think about it in the long term? Thank you.
Cooper Werner
Yeah. I'll start. You know, I would say ironically, I think this is tied to a good news story, which is the strength that we're seeing with the refresh. This is kind of a dynamic that we've seen with past refresh cycles. When you see a strong refresh in the very near term, it has a little bit of a headwind to the services business. Part of that has to do with you're replacing legacy appliances that have been carrying service for a number of years. As those come out of the system, then you backfill with the new appliances, there's a little bit of a lag on the maintenance revenue stream. Conversely, when we've had periods where customers were sweating assets, that's where you saw some strength in the maintenance revenue.
Cooper Werner
The longer term picture is that the refresh has been very strong, and it's a refresh plus expansion story. What we're seeing is that we're getting better retention of that footprint than we had in prior cycles. Ultimately, that's gonna be a great story for services, because with the larger footprint that you get with maintenance revenue against, you're gonna see a better revenue outcome. In the very immediate term, as customers are making that transition, it's a bit of a headwind on the maintenance revenue.
Operator
Next, we'll move to Tal Liani at Bank of America.
Tal Liani
Hi, guys. I think everyone is trying to basically get to the same question, whether this is finally a sign that AI is showing its impact on the company's growth or whether this is just a refresh story that is temporary. The question I have is: I think you touched on some of it, but why are we seeing the growth only outside of the US or less in the US? Meaning US is leading AI. Out of $80 million growth year-over-year, US was only $11 million growth. Last year, out of $56 million, it was $7 million. The majority of the growth is outside of the US. What I'm trying to understand is to link the story of AI uplift to the fact that the growth is coming only from outside of the US.
Cooper Werner
Yeah. Just to touch on the software and systems dynamic, just a couple of dynamics that I would point you to is, one, the software business is largely a subscription business. We said this quarter, 90% of our software business was subscription, and of that subscription business, the majority does come through in a renewal motion. So we are seeing strong attach of software at the time of refresh, but it's still a relatively small component of the overall software number.
Cooper Werner
The majority of the software number is this base that we continue to expand over time, and we referenced this year that because the renewal cycle is coming off of our a flat software year from FY 2023, that there would be a bit of a slower growth rate this year, followed by a much stronger growth rate next year. Don't mistake the slower growth rate this year is having to do with expansion and attach rates at that time of refresh because those trends are actually pretty healthy.
Operator
Next we'll move to Michael Ng at Goldman Sachs.
Michael Ng
Good afternoon. Thanks for the question. I just have two. First, this is just on systems revenue growth in fiscal 2027. Obviously, you guys have had two, you know, strong back-to-back years in systems revenue. Could you just talk about your early expectations around whether fiscal 2027 systems can grow, just given the strong refresher we've had in the last couple of years? A related question. It's been about, I think, four or five years since the launch of rSeries and BIG-IP VELOS. Are you expecting a new kind of ADC form factor system to drive another refresh cycle, particularly given all the incremental demands from AI? Just wondering how you guys think about new products on the ADC side. Thank you.
Cooper Werner
Yeah. Okay. I'll start with the growth question. It's a little bit early to be guiding for next year, but yes, we do expect there to be a growth opportunity for the systems business, just where we're at with the refresh cycle right now and the strong trends we've been seeing, both in expansion at the time of refresh, but also new use cases. We haven't spent as much time on that, but we really have been seeing new growth, you know, pretty healthy growth outside of the refresh. Some of it's the AI use cases that we've talked about. We've been seeing higher takeout rates, from competitors. Some of the data sovereignty, digital sovereignty dynamics are coming through as new business in addition to expansion at the time of refresh.
Cooper Werner
All of that's kind of giving us pretty good visibility, you know, two quarters out into next year, and we feel pretty good about the growth opportunity in that regard. As far as the next range of appliances and systems offerings, we wouldn't get into specifics at this point. Yes, of course, we are well down the path of planning. We think there are some pretty interesting growth opportunities further downstream as we start thinking about things like PQC. Continuous investment in innovation on our systems as well as our software has been something that's been critically important, and I think we're really kind of the only player in the space that has stayed steadfast in investing in systems, and I think that's really paying off right now.
Cooper Werner
We've always felt like customers are going to need choice and that their environments are dynamic in how they architect. It can change over time. Giving that flexibility for customers to deploy how they need to is going to be important, and that's really coming through right now with the business that we're seeing.
Operator
That concludes our Q&A session. I will now turn the conference back over to Suzanne for closing remarks.
Suzanne DuLong
Thank you, Audra. We look forward to seeing many of you during the quarter and especially at our Analyst and Investor Day in May. Watch for more details in a press release about the event coming soon. Thank you all for joining us.
Transcript from April 28, 2026
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