Q224 FFIV earnings

Earnings Results

• Q2 Revenue: $681 million, with a mix of 56% global services and 44% product revenue.
• Year-over-Year Growth: Sales down 3%.
• Global Services Revenue: $381 million, up 5%.
• Product Revenue: $300 million, down 12%.
• Systems Revenue: $142 million, down 32% year-over-year.
• Total Software Revenue: $159 million, up 20% from the previous year.
• Subscription-Based Revenue: $140 million or 88% of total software revenue, up 28%.
• GAAP Gross Margin: 79.3%.
• Non-GAAP Gross Margin: 82.1%.
• GAAP Operating Margin: 20.5%.
• Non-GAAP Operating Margin: 30.9%.
• GAAP Net Income: $119 million, $2 per share.
• Non-GAAP Net Income: $173 million, $2.91 per share.
• Cash Flow from Operations: $222 million, up 57% from the previous year.
• Share Repurchase: $100 million worth of F5 shares at an average price of $184 per share.

Future Guidance

• Q3 Revenue Forecast: $675 million to $695 million.
• Non-GAAP Gross Margins: 82% to 83%.
• Q3 Non-GAAP Operating Expenses: $340 million to $352 million.
• Q3 Non-GAAP EPS: $2.89 to $3.01.
• FY ‘24 Revenue Growth: Expected to be flat to down 2% from FY ‘23.
• FY ‘24 Non-GAAP EPS Growth: Raised to 7% to 9% from previous 6% to 8%.
• FY ‘24 Tax Rate: Expected range of 20% to 22%.

Trends, Market Conditions, Sentiment

• Customer Caution: Lingering macroeconomic concerns and flat IT budgets for 2024.
• Strong Software Subscription Renewals: Driving growth despite overall market caution.
• Hybrid Multi-Cloud Challenges: Complexity, cost, security risks, and operational silos identified as growing issues for enterprises.
• AI Readiness and Challenges: F5 is engaging with customers on architectural discussions about AI readiness, emphasizing API security, secure multi-cloud networking, and high-speed data ingestion for AI models.
• Commitment to Operating Discipline: Despite cautious spending by customers on new projects, F5 is committed to operating discipline and has improved margins and profitability.

Notable Quotes

• ”Overall, customers remain cautious as a result of lingering macroeconomic concerns and what currently looks like generally flat IT budgets for calendar 2024.” - François Locoh-Donou
• ”88% of our customers report they are currently operating applications across a combination of on-premises and cloud environments.” - François Locoh-Donou
• ”AI will accelerate the growth in the number of applications and APIs. It will also exacerbate the ball of fire.” - François Locoh-Donou
• ”We are the only provider capable of securing, delivering, and optimizing any application, any API, regardless of its location.” - François Locoh-Donou
• ”We now expect FY ‘24 non-GAAP EPS growth between 7% and 9%.” - Francis Pelzer