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01/10 18:47
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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%.
Total Revenue $780 million, reflecting 12% growth year-over-year. This growth was driven by a mix of 50% global services revenue and 50% product revenue. The increase was attributed to strong demand across hardware and software deployment models, data center modernization, and hybrid multi-cloud architecture adoption.
Product Revenue $389 million, up 26% year-over-year. This was the strongest growth in 14 years, driven by increased capacity requirements, adoption of the latest generation of hardware, and hybrid multi-cloud architecture adoption.
Systems Revenue $181 million, up 39% year-over-year. Growth was fueled by data center modernization, increased capacity requirements, and preparation for AI workloads.
Software Revenue $208 million, up 16% year-over-year. Growth was driven by hybrid multi-cloud architecture adoption and strong software subscription renewals and expansions.
Subscription-based Software Revenue $185 million, up 19% year-over-year, representing 89% of total software revenue. Growth was attributed to increased consumption and adoption of additional capabilities across the platform.
Perpetual License Software Revenue $23 million, slightly down year-over-year. No specific reasons for the decline were mentioned.
Global Services Revenue $392 million, up 1% year-over-year. Growth was modest and attributed to maintenance revenue and recurring sources.
Recurring Revenue 73% of total Q3 revenue. This includes subscription-based revenue and the maintenance portion of global services revenue.
Revenue by Region Americas: $429 million (55% of total revenue), up 13% year-over-year; EMEA: $202.8 million (26% of total revenue), up 6% year-over-year; APAC: $148.2 million (19% of total revenue), up 21% year-over-year. Growth was driven by strong demand across all regions.
Operating Margin Non-GAAP operating margin was 34.3%, an improvement of more than 80 basis points year-over-year. This was attributed to continued operating discipline and strong revenue performance.
Earnings Per Share (EPS) Non-GAAP EPS was $4.16, reflecting 24% growth year-over-year. Growth was driven by strong revenue performance and operating margin leverage.
Cash Flow from Operations $282 million, a record for the company. This was attributed to strong operating performance.
Deferred Revenue $1.96 billion, up 10% year-over-year. Growth was attributed to strong subscription renewals and maintenance revenue.
Stock Repurchase $125 million worth of shares repurchased at an average price of $256 per share. Year-to-date, shares equivalent to 52% of annual free cash flow have been repurchased.
F5 Application Delivery and Security Platform (ADSP): The platform consolidates delivery and security solutions for applications and APIs, offering deployment across hybrid multi-cloud environments. It simplifies operations using AI-powered analytics and policy management. Initial customer response has been positive, with notable wins in healthcare, airlines, and service providers.
AI-related Innovations: Introduced advancements in AI for ADC and ADC for AI. AI for ADC simplifies operations using AI-powered analytics, while ADC for AI focuses on securing AI-driven applications. Expanded capabilities include AI Gateway for data protection and BIG-IP SSL Orchestrator for encrypted data defense.
Hybrid Multi-Cloud Adoption: Strong demand for hybrid multi-cloud architectures is driving growth in both hardware and software. Customers are modernizing data centers and scaling for application capacity and performance needs.
AI Workload Support: F5 is enabling AI-driven applications through partnerships with NVIDIA and MinIO, enhancing performance and security for AI infrastructures. Customers are leveraging F5 for AI data delivery, runtime security, and factory load balancing.
Revenue Growth: Achieved 12% total revenue growth in Q3 2025, with 26% growth in product revenue and 39% growth in systems revenue. Software revenue grew 16%, driven by hybrid multi-cloud adoption.
Operating Margins and EPS: Delivered 24% year-over-year EPS growth, with non-GAAP operating margin improving to 34.3%. Strong cash flow from operations reached $282 million.
Platform Strategy: F5's platform approach integrates hardware, software, and SaaS, enabling customers to consolidate multiple vendors and simplify operations. This strategy is driving competitive displacements and customer wins.
AI Security and Delivery: Positioning as a leader in AI data delivery and runtime security, leveraging expertise in Layer 7 traffic management to secure and optimize AI workloads.
Tech Refresh and Hardware Dependency: The company is heavily reliant on tech refresh cycles for hardware revenue, with 2/3 of hardware sales attributed to this. This dependency could pose risks if customers delay or reduce refresh cycles. Additionally, the shift to hardware over software in some cases may limit software growth potential.
AI Readiness and Adoption: While AI-related opportunities are emerging, they are still in early stages. The company faces uncertainty in the pace of AI adoption and the extent to which customers will invest in AI-specific infrastructure. This could delay revenue realization from AI-related products.
Service Provider Business Volatility: The service provider vertical remains lumpy and project-based, making it difficult to predict consistent revenue streams. This volatility could impact overall financial performance.
Software Growth Challenges: Software revenue growth is expected to slow to mid-single digits in FY '26 due to a flat subscription base from FY '23. This creates a headwind for renewals and expansions, potentially impacting long-term software growth.
Customer Deployment Preferences: Some customers are opting for hardware deployment models over software due to performance needs and regulatory requirements. This shift could limit the growth of software revenue and alter the company's revenue mix.
Federal Government Spending Uncertainty: Federal government spending showed some softness in Q3 due to efficiency initiatives and project delays. This could impact future revenue from this segment.
Gross Margin Pressure: Gross margins were at the lower end of expectations due to high-performance use cases and FIPS compliance demands in the systems business. This could continue to pressure margins if the trend persists.
Competitive Pressures: While the company is successfully displacing competitors, the competitive landscape remains challenging. Aggressive pricing and innovation from competitors could impact market share and profitability.
Q4 Revenue: Expected in the range of $780 million to $800 million, implying approximately 9% revenue growth for FY '25.
FY '25 Revenue Growth: Guidance increased to approximately 9%, up from prior guidance of 6.5% to 7.5%.
FY '25 Non-GAAP Gross Margin: Expected in the range of 83% to 84%.
FY '25 Non-GAAP Operating Margin: Expected at or around 35%.
FY '25 Non-GAAP Effective Tax Rate: Adjusted to a range of 18.5% to 19.5%, down from the prior range of 20% to 22%.
FY '25 EPS Growth: Expected in the range of 14% to 15%, up from prior guidance of 8% to 10%.
FY '25 Share Repurchases: Expected to be at or above 50% of free cash flow.
Hardware Revenue Growth: Expected to grow year-over-year in FY '26, though at a more modest rate compared to FY '25.
Software Revenue Growth: Expected to grow in mid-single digits for FY '26, with reacceleration anticipated in FY '27.
Services Revenue Growth: Expected to improve in FY '26, supported by deferred revenue growth and lag effect from product revenue.
Share Repurchase Program: In Q3, we repurchased $125 million worth of F5 shares at an average price of $256 per share. As of the end of Q3, we had $1 billion remaining on our authorized stock repurchase program. Year-to-date, we have repurchased shares equivalent to 52% of our annual free cash flow. Finally, we expect our share repurchases for the full year to be at or above 50% of our free cash flow.
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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