F5(US:FFIV)2023-07-25 00:08Financial Data and Key Metrics Changes - Product revenue totaled $328 million, representing growth of 1% year-over-year, while systems revenue grew 5% year-over-year to $155 million. Software revenue totaled $174 million, down 3% from the previous year [4][69] - GAAP gross margin was 79.8%, and non-GAAP gross margin improved to 82.5%, an increase of more than 200 basis points sequentially [5][70] - Cash and investments totaled approximately $696 million at quarter end, with deferred revenue increasing 9% year-over-year to $1.79 billion [6][77] - Non-GAAP earnings per share for Q3 were $3.21, exceeding the guided range of $2.78 to $2.90 [7][105] Business Line Data and Key Metrics Changes - Subscription revenue reached a record high of $152 million, accounting for 87% of total software revenue, which grew 4% year-over-year [4][57] - Revenue from global services grew 8% year-over-year, driven by high maintenance renewals and price realization [77][69] - Systems revenue is benefiting from supply chain normalization, but demand remains constrained [69][88] Market Data and Key Metrics Changes - Revenue from the Americas grew 3% year-over-year, representing 57% of total revenue; EMEA grew 16%, accounting for 26% of revenue; APAC declined 6%, representing 18% of revenue [63][77] - Enterprise customers represented 66% of product bookings, service providers 13%, and government customers 21%, including 8% from U.S. Federal [78] Company Strategy and Development Direction - The company is focusing on innovation and integration across product families, including F5 BIG-IP, F5 NGINX, and F5 Distributed Cloud Services, to capture growth opportunities [58][61] - The company is aggressively targeting the WAF market and multi-cloud networking, positioning itself as a strong competitor in these emerging areas [26][47] - The strategy includes leveraging AI capabilities to enhance security products and improve application traffic profiling [17][90] Management's Comments on Operating Environment and Future Outlook - Management noted early signs of stabilization in demand, with Q3 demand slightly above initial forecasts, although still below FY '22 levels [56][85] - The company expects demand for hardware to return in 2024, but acknowledges a 6% to 8% headwind on total revenue growth due to backlog shipments [15][42] - Management emphasized the importance of AI and multi-cloud architectures in driving future growth opportunities [90][101] Other Important Information - The company repurchased $250 million worth of shares in Q3 and remains committed to returning at least 50% of annual free cash flow to shareholders [7][106] - The company ended the quarter with approximately 6,500 employees, reflecting headcount reductions announced earlier [106] Q&A Session Summary Question: How did the true forward portion of renewals perform this quarter? - Management indicated that while expectations were higher at the beginning of the year, there was a strong quarter in renewals, with early signs of stabilization in demand [84][112] Question: Can you unpack the signs of macro stabilization? - Management noted that while scrutiny and deal delays persist, there is a sense of stabilization across verticals, particularly in financial services, where deal approvals are improving [85][86] Question: What is the outlook for hardware demand? - Management expects hardware demand to be higher in 2024, but acknowledges that the current demand is soft due to macro conditions and backlog digestion [88][90] Question: How is the company positioned to leverage AI for growth? - Management highlighted the opportunity presented by AI-related workloads, particularly in API security and multi-cloud architectures, which align with the company's offerings [90][101] Question: What are the expectations for operating margins in 2024? - Management expects operating margins to be around 33% in 2024, driven by continued operating discipline and cost reductions [135][132]