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01/10 18:48
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary indicates strong financial metrics with increased guidance for revenue, EPS growth, and share repurchases. Despite a security breach, recurring revenues remain stable, and the company is investing in cybersecurity. The Q&A session reveals potential growth in the systems business and software driven by AI and SaaS adoption. While there are uncertainties, the overall sentiment is positive, with strong financial performance and optimistic guidance outweighing the risks.
Total Revenue Exceeded $3 billion, representing a 10% year-over-year growth. Growth was driven by data center reinvestment, hybrid cloud adoption, and enterprise AI infrastructure demand.
Operating Profit Exceeded $1 billion for the first time, with an 18% year-over-year growth in earnings per share. Growth attributed to product refresh cycle, competitive takeouts, and maturation of software model.
Gross Margins 83.6%, up 80 basis points year-over-year. Improvement due to strong profitability and financial execution.
Operating Margin 35.2%, up 160 basis points year-over-year. Reflects strong financial discipline and operational efficiency.
Free Cash Flow $906 million, up 19% year-over-year. Highlighted as a result of strong business fundamentals and execution.
Q4 Revenue $810 million, an 8% year-over-year growth. Product revenue grew 16%, while global services revenue grew 2%.
Systems Revenue $186 million, up 42% year-over-year. Growth driven by tech refresh, data center modernization, and AI use cases.
Software Revenue $229 million, slightly up year-over-year. Perpetual license software grew 25%, while subscription-based software declined 3%.
Recurring Revenue 72% of Q4 revenue, reflecting strong subscription-based and maintenance revenue.
Regional Revenue Growth Americas grew 7%, EMEA grew 7%, and APAC grew 19% year-over-year.
Non-GAAP Gross Margin 84.3%, up 138 basis points year-over-year. Reflects strong financial discipline.
Non-GAAP Operating Margin 37.0%, up 255 basis points year-over-year. Indicates improved operational efficiency.
Non-GAAP Net Income $257 million, or $4.39 per share, reflecting 20% year-over-year EPS growth.
Deferred Revenue $2.0 billion, up 11% year-over-year. Indicates strong future revenue potential.
Annual Software Revenue $803 million, up 9% year-over-year. Term-based subscriptions grew 18%, while SaaS and Managed Services declined 9%.
Security Revenue $1.2 billion, up 6% year-over-year. Stand-alone security revenue totaled $463 million, representing 31% of product revenue.
AI-related demand: Contributed to growth with over 30 customers leveraging F5 for AI workflows. Key use cases include AI data delivery, runtime security, and factory load balancing.
F5 AI Guardrails and AI Red Team: Launched two new offerings leveraging CalypsoAI technology for securing AI inference. Secured wins with a top-tier investment bank and a global AI compute platform leader.
Hybrid multi-cloud adoption: Driving demand for advanced application delivery and security solutions. 26% of top 1,000 customers now use F5 Distributed Cloud Services, up from 17% in 2024.
Regional revenue growth: Americas grew 7%, EMEA grew 7%, and APAC grew 19% year-over-year.
Revenue and profitability: Achieved $3 billion in revenue and $1 billion in operating profit for FY '25. Gross margins at 83.6% and operating margin at 35.2%.
Free cash flow: Generated $906 million in FY '25, up 19% from FY '24.
Incident response: Addressed security vulnerabilities in BIG-IP code, enabling customers to update environments with minimal disruption.
Security investments: Increased investment in security, including hiring Michael Montoya as Chief Technology Operations Officer to enhance security across processes and products.
AI capabilities: Acquired CalypsoAI to strengthen AI runtime security and launched new offerings to address AI inference security needs.
Incident Response and Security Vulnerabilities: The company faced a significant security incident on August 9, requiring immediate containment of a threat actor and urgent action to address vulnerabilities in BIG-IP code. This incident has led to increased investment in security and the hiring of a Chief Technology Operations Officer. However, the company acknowledges potential near-term business impacts as customers assess and remediate their environments.
Customer Sales Cycles Disruption: The security incident may cause near-term disruption to sales cycles as customers focus on assessing and remediating their environments. This could impact revenue growth, particularly in the first half of FY '26.
Transition of Legacy SaaS and Managed Services: The transition of legacy SaaS and managed service offerings has led to a decline in subscription-based software revenue by 3% year-over-year. This reflects customer preferences for hardware-based solutions in certain use cases and may impact recurring revenue streams.
Economic and Competitive Pressures: The company faces competitive pressures in the market, particularly in the transition to hybrid multi-cloud architectures and AI-driven infrastructure. Additionally, economic uncertainties could impact customer spending and adoption of new solutions.
Regulatory and Compliance Risks: The company must navigate strict regulatory requirements, particularly in sectors like banking and government. Failure to meet these requirements could result in compliance risks and operational disruptions.
FY '26 Revenue Growth: Guidance for FY '26 revenue growth is in the range of 0% to 4%, with mid-single-digit growth supported by hybrid multi-cloud adoption, systems refresh opportunities, and AI readiness use cases. However, near-term disruption to sales cycles is anticipated, with impacts more pronounced in the first half of the year before normalizing in the second half.
FY '26 Gross Margin: Estimated gross margin for FY '26 is in the range of 83% to 83.5%.
FY '26 Non-GAAP Operating Margin: Expected to be in the range of 33.5% to 34.5%, with the lowest margins in fiscal Q2 due to payroll tax resets and costs associated with a large customer event.
FY '26 Non-GAAP Effective Tax Rate: Projected to be in the range of 21% to 22%.
FY '26 EPS: Expected to be in the range of $14.50 to $15.50.
FY '26 Free Cash Flow Usage: At least 50% of free cash flow will be used for share repurchases.
Q1 FY '26 Revenue: Guidance for Q1 revenue is in the range of $730 million to $780 million, reflecting potential near-term disruption to sales cycles.
Q1 FY '26 Non-GAAP Gross Margin: Expected to be in the range of 82.5% to 83.5%.
Q1 FY '26 Non-GAAP Operating Expenses: Estimated to be between $360 million and $376 million.
Q1 FY '26 Non-GAAP EPS: Anticipated to be in the range of $3.35 to $3.85 per share.
Share Repurchase: In Q4, we repurchased $125 million worth of F5 shares at an average price of $297 per share. For the year, we repurchased shares equivalent to 55% of our annual free cash flow. Finally, we intend to continue to use at least 50% of our free cash flow towards share repurchases in FY '26.
The earnings call summary indicates strong financial metrics with increased guidance for revenue, EPS growth, and share repurchases. Despite a security breach, recurring revenues remain stable, and the company is investing in cybersecurity. The Q&A session reveals potential growth in the systems business and software driven by AI and SaaS adoption. While there are uncertainties, the overall sentiment is positive, with strong financial performance and optimistic guidance outweighing the risks.
The earnings call reflects strong financial performance with 12% revenue growth and increased guidance for FY '25. Despite risks like hardware dependency and competitive pressures, the company is mitigating these through strategic growth in AI and share repurchases. The Q&A did not reveal significant negative sentiment. With a positive outlook on revenue and EPS growth, and a robust share repurchase plan, the stock is likely to see a positive movement of 2% to 8%.
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