F5(US:FFIV)2022-07-26 00:41Financial Data and Key Metrics Changes - In Q3, the company reported revenue of $674 million, reflecting a 4% year-over-year growth, with product revenue growth of 5% [18] - Software revenue grew 38% to $179 million, while systems revenue declined 18% year-over-year to $148 million due to supply chain challenges [19] - GAAP net income for the quarter was $83 million or $1.37 per share, while non-GAAP net income was $155 million or $2.57 per share [24] Business Line Data and Key Metrics Changes - Software represented 55% of product revenue, marking the second consecutive quarter where the majority of product revenue came from software [18] - Subscription-based revenue contributed 82% of total software revenue, a new high, with recurring sources totaling 72% of revenue, up from 66% in the prior year [20] - Global services revenue increased by 2% year-over-year to $348 million [19] Market Data and Key Metrics Changes - The Americas region delivered 5% revenue growth year-over-year, representing 57% of total revenue, while EMEA declined 7% and APAC grew 15% [21] - Enterprise customers accounted for 70% of product bookings, with service providers at 18% and government customers at 12% [21] Company Strategy and Development Direction - The company is focused on expanding its solutions portfolio and consumption models to adapt to macroeconomic uncertainties and inflation [17] - The strategic emphasis is on software growth drivers, including BIG-IP, NGINX, and F5 distributed cloud services [17] - The company anticipates improvements in systems revenue starting in Q2 of fiscal 2023 due to supply chain enhancements [9] Management's Comments on Operating Environment and Future Outlook - Management noted strong demand in Q3 but acknowledged potential pressures on customer budgets due to macroeconomic factors [16] - The company is preparing for a cautious environment by monitoring customer signals and adjusting investments accordingly [17] - Management expressed confidence in sustained revenue and earnings growth due to successful business transformation efforts [17] Other Important Information - The company authorized an additional $1 billion for its share repurchase program, in addition to the remaining $272 million from the existing program [30] - Deferred revenue increased 14% year-over-year to $1.64 billion, driven by subscriptions and SaaS bookings growth [26] Q&A Session Summary Question: Clarification on backlog and software growth trajectory - The backlog was significantly higher in Q3 compared to Q2, with specific numbers to be released in the October call [33] - Management is optimistic about software growth drivers but will provide more guidance for fiscal 2023 in October [34][36] Question: Service provider reliance on F5 portfolio - Service providers are increasingly relying on F5 due to investments in cloud-native functions and capacity increases for 4G and 5G traffic [40][42] Question: Software metrics and deal flow - Management is tracking software metrics internally but is not ready to release them externally yet [58] - Both true-forwards and new deals contributed to software growth, but specific splits were not provided [63] Question: Customer buying behavior and pipeline activity - No concerns about order cancellations were noted, and the pipeline for Q4 is strong with large deals expected [66][70] - Management is cautious about potential impacts of macroeconomic factors on customer investment prioritization [71] Question: Internal preparations for macro changes - The company has slowed down hiring and delayed some investments in response to macroeconomic uncertainties [77] - Demand signals remain strong, and incentives for software sales will continue to be robust [78] Question: Back-end loaded quarter and DSO - The back-end loading was attributed to strong demand and some orders being pulled forward to avoid price increases [83] - DSOs are expected to normalize in the back half of FY '23 as shipping schedules improve [82]