F5(FFIV) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported Q4 revenue of $707 million, reflecting a 1% year-over-year growth, with global services contributing 54% and product revenue 46% [85] - For FY '23, total revenue grew 4% to$ 2.8 billion, with global services revenue growing 7% to $1.5 billion and product revenue growing 1% to$ 1.3 billion [90] - GAAP net income for Q4 was $152 million or$ 2.55 per share, while non-GAAP net income was $209 million or$ 3.50 per share, exceeding guidance [88] - The company expects FY '24 revenue to be flat to down low-single-digits from FY '23, factoring in a $180 million revenue headwind from backlog fulfillment [128] Business Line Data and Key Metrics Changes - Software revenue grew 11% year-over-year to$ 191 million, with subscription-based revenue increasing 27% to $166 million, representing 87% of Q4 total software revenue [57] - Systems revenue declined 25% year-over-year to$ 134 million, reflecting lower backlog-related shipments and demand stabilization at lower levels [35] - Global services revenue grew 9% to $382 million, driven by high maintenance renewals and price increases [35] Market Data and Key Metrics Changes - Enterprise customers represented 72% of product bookings in Q4, while service providers accounted for 9% and government customers for 19% [58] - The company noted that North America has been more stable compared to Asia and European markets, with early signs of stabilization in enterprise demand [109] Company Strategy and Development Direction - The company is focused on transitioning its SaaS and managed services offerings, with a planned retirement of legacy offerings contributing to a$ 65 million revenue headwind [127] - The company aims to leverage its unique position in the market to deliver hybrid, multi-cloud solutions that simplify application and API deployment, security, and management [132] - The company expects to return to mid-single-digit revenue growth in FY '25, driven by application and API growth and the need for security solutions [130] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about early signs of stabilization in demand, particularly from enterprise customers, but acknowledged ongoing budget scrutiny [120] - The company anticipates continued customer spending caution into FY '24, with expectations for customers to begin reinvesting in application infrastructure [76] - Management highlighted the importance of their converging portfolio in addressing multi-cloud challenges faced by customers [103] Other Important Information - The company returned 58% of its annual free cash flow to shareholders through share repurchases [45] - The company ended FY '23 with approximately $922 million remaining on its share repurchase program [99] Q&A Session Summary Question: What are the headwinds from the transition in managed services? - The headwind from the transition is approximately$ 65 million, primarily from the retirement of the legacy Silverline managed services platform, with plans to migrate customers to Distributed Cloud [136] Question: What signs of stabilization are being observed? - Signs of stabilization include customers who have received hardware after delays in 2023 and are now ready to order again, particularly in the enterprise market [111] Question: How does the company view the hardware business moving forward? - The company expects a rebound in the hardware business in 2024, driven by a stronger hardware pipeline and improved close rates [118]