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DATE

Tuesday, April 28, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

  • Chairman, President, and Chief Executive Officer — François Locoh-Donou
  • Executive Vice President and Chief Financial Officer — Cooper Werner
  • Senior Vice President, Investor Relations and Communications — Suzanne DuLong

TAKEAWAYS

  • Total revenue -- $812 million, up 11%, with Americas at three percent, EMEA at 22%, and APAC at 19% growth, corresponding to 50%, 32%, and 18% of total revenue, respectively.
  • Product revenue -- Increased 22% to $411 million, with systems revenue up 26% to $226 million and software revenue up 17% to $184 million.
  • Software subscription mix -- Subscription-based software revenue was $165 million, 90% of software, rising 20%; perpetual license revenue was $19 million, down four percent.
  • Recurring revenue -- Represented 70% of total revenue, comprised of subscription-based revenue and the maintenance portion of services.
  • Services revenue -- Reached $401 million, up two percent, affected in the near term by transition dynamics from hardware refresh cycles.
  • Customer segments -- Enterprise accounted for 66% of product bookings, government 24% (with U.S. Federal at eight percent), and service providers nine percent.
  • Profitability -- GAAP gross margin was 81.4%, non-GAAP gross margin was 83.7%.
  • Operating expenses -- GAAP at $482 million; non-GAAP at $406 million.
  • Operating margin -- GAAP operating margin was 22.1%; non-GAAP reached 33.8%.
  • Net income -- GAAP net income of $148 million ($2.58 per share); non-GAAP net income of $223 million ($3.90 per share), non-GAAP EPS up 14%.
  • Cash generation -- Operating cash flow of $366 million and free cash flow of $348 million, both records.
  • Balance sheet -- Cash and investments of $1.46 billion; deferred revenue at $2.12 billion, up 10%.
  • Share repurchase -- $100 million repurchased at $269 average price, with $522 million authorized remaining.
  • Fiscal 2026 revenue outlook -- Raised to seven percent–eight percent growth from prior five percent–six percent range. (Fiscal year ending Sept. 30, 2026.)
  • Q3 guidance -- Anticipates revenue of $820 million–$840 million, non-GAAP gross margin 82.5%–83.5%, non-GAAP operating expenses $406 million–$418 million, and non-GAAP EPS of $3.91–$4.30.
  • Fiscal 2026 non-GAAP EPS outlook -- Raised to $16.25–$16.55 from previous $15.65–$16.05 range.
  • Segment growth expectations -- Double-digit systems growth, mid-single-digit software growth, and low-single-digit services growth for fiscal year.
  • AI revenue -- Management stated, "If you look at the first half of the year, we had approximately $50 million in sales in the first half on these [AI] use cases. That is up more than 200% year over year."
  • AI customer count -- Now approaching about 100 customers using F5 for AI, with management noting the figure is a conservative, directly-attributable count.
  • Deferred revenue growth -- 10% year-over-year increase, attributed mostly to maintenance renewals, not product demand pull-ins or backlogs.
  • Innovation announcements -- Launched AI-powered WAF, Agentic Bot Defense, AI Remediate, and F5 Insight for ADSP during the quarter to address threat, AI, and application management trends.
  • Competitive takeout -- CFO Werner said, "Our competitive takeout rate has gone up materially," attributing this to hybrid multicloud leadership and platform breadth.
  • NVIDIA collaboration -- CEO Locoh-Donou stated, "the integration of F5 software on NVIDIA DPUs helps AI factories generate 30% to 40% more tokens for a given amount of GPUs," and the company is conducting multiple proofs of concept.
  • Share repurchase policy -- Full-year intention to repurchase at least 50% of free cash flow.
  • Employee count -- Approximately 6,500 employees at quarter end, up from profile headcount.
  • Component costs and margins -- Management expects higher memory costs to cause gross margins to step down sequentially from Q3 into Q4.
  • Field investment -- Expanded field coverage in EMEA, especially for defense sector opportunities.

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RISKS

  • Management explicitly expects "higher component costs, primarily related to memory, will cause gross margins to step down sequentially from Q3 into Q4."
  • Service revenue growth is described by CFO Werner as "a bit of a headwind on maintenance revenue" in the near term due to replacement of legacy appliances.
  • CEO Locoh-Donou flagged, "We are now in an era where the window of time for an enterprise to patch their applications has effectively closed, as AI models can now find and exploit vulnerabilities almost in real time," indicating increased enterprise application security risk.
  • CFO Werner noted, "for at least the better part of fiscal 2027, we would expect memory prices to stay elevated," implying margin pressure persistence.

SUMMARY

F5 (FFIV +2.04%) delivered 11% revenue growth and set new records in cash flow and free cash flow, with management raising fiscal 2026 revenue and EPS outlooks. Multiple innovation releases in AI-powered application security and cloud services targeted the expanding threat environment and evolving AI infrastructure demand. The company reported direct AI use-case sales of $50 million year to date with a growing base of nearly 100 identifiable AI enterprise customers. Management highlighted material competitive takeout gains, especially in hybrid multicloud deployments and digital sovereignty-driven opportunities outside the U.S. The ongoing systems refresh cycle, intensified by broader adoption of hybrid multicloud and AI workloads, offset lower perpetual software sales and contributed to a shift in revenue mix. Deferred revenue growth primarily originated in long-term service renewals, while gross margin headwinds from elevated memory costs are expected to persist into fiscal 2027.

  • The company's raised outlook to seven percent–eight percent revenue growth reflects "strong Q3 visibility and a growing pipeline" attributed to secular demand from hybrid multicloud, security, and AI trends.
  • Management reiterated a strategy to pass through higher component costs where feasible, combining price adjustments and discount discipline to mitigate margin pressure.
  • Leadership identified consolidation toward unified security and delivery platforms as an emerging enterprise priority, particularly as patching windows tighten due to accelerated AI-driven threats.
  • International government and regulated verticals drove outsized EMEA revenue growth, supported by increased field investment and a focus on digital sovereignty mandates.
  • AI-specific innovation such as Agentic Bot Defense and the NVIDIA platform integration is resonating with early adopters modernizing large-scale data and compute architectures.

INDUSTRY GLOSSARY

  • Hybrid multicloud: Deployment of applications across a mix of on-premises, private cloud, and multiple public cloud environments for resiliency, flexibility, and data localization.
  • Agentic Bot Defense: F5's security solution designed to defend applications from autonomous AI agents, providing detection and blocking of malicious bot-driven traffic.
  • AI Remediate: F5's automated tool that translates discovered security vulnerabilities into deployable runtime protections with minimal delay.
  • Distributed Cloud Services: F5's SaaS offering that extends application and API security, management, and optimization across hybrid and multi-cloud environments.
  • API security: Measures and solutions aimed at protecting application programming interfaces from misuse, abuse, and attacks, particularly important as AI workloads scale.
  • BIG-IP: F5's platform for application traffic management, security, and policy enforcement deployed as both hardware appliances and software solutions.
  • DPUs (Data Processing Units): Specialized processors, such as NVIDIA's BlueField, designed to accelerate data movement and security functions within data centers, especially in AI factory contexts.

Full Conference Call Transcript

François Locoh-Donou, F5, Inc.’s Chairman, President and CEO, and Cooper Werner, F5, Inc.’s Executive Vice President and CFO, will be making prepared remarks on today’s call. Other members of the F5, Inc. executive team are also here to answer questions during the Q&A session. Today’s press release is available on our website at f5.com, and an archived version of today’s audio will be available through 07/27/2026. We will post the slide deck accompanying today’s webcast to our IR site following this call. To access the replay of today’s webcast by phone, dial (800) 770-2030 or (609) 800-9909 and use meeting ID 6076834. The telephonic replay will be available through midnight Pacific Time on 04/29/2026.

For additional information or follow-up questions, please reach out to me directly at [email protected]. Our discussion today will contain forward-looking statements, which include words such as “believe,” “anticipate,” “expect,” and “target.” These forward-looking statements involve uncertainties and risks that may cause our actual results to differ materially from those expressed or implied by these statements. We summarize factors that may affect our results in the press release announcing our financial results and in detail in our SEC filings. In addition, we will reference non-GAAP metrics during today’s discussion. Please see our full GAAP to non-GAAP reconciliation in today’s press release and in the appendix of our earnings slide deck.

Please note that F5, Inc. has no duty to update any information presented in this call. Before I pass the call to François, I am pleased to announce that F5, Inc. will be hosting an analyst and investor event in New York on Thursday, 05/28/2026. Details about the event will be provided in a press release soon. I will now turn the call over to François.

François Locoh-Donou: Thank you, Suzanne, and hello, everyone. Our team delivered another robust quarter with 11% revenue growth. Product revenue grew 22%, marking our seventh consecutive quarter of double-digit product growth. This includes strong 26% systems revenue growth and 17% software revenue growth. Hybrid multicloud has become a strategic architecture and it is increasing demand across F5, Inc.’s core markets. Customers are rapidly scaling their digital infrastructures to improve resiliency, meet data sovereignty requirements, and get ready for AI. Our strong Q2 performance reflects those dynamics and F5, Inc.’s alignment with where customers are headed. We captured robust international demand for digital sovereignty initiatives. We also converted hybrid multicloud adoption into meaningful systems and software growth.

We capitalized on heightened demand for best-in-class security solutions, and we built on AI momentum with another standout quarter for AI wins. As a result of our strong growth and our proven operating model, we delivered 14% non-GAAP earnings growth and a record $348 million in free cash flow. A powerful combination of secular and cyclical demand trends is providing strong Q3 visibility and a growing pipeline. As a result, we are raising our fiscal year 2026 outlook to reflect revenue growth of 7% to 8%, up from 5% to 6% previously. Cooper will elaborate on our outlook in his remarks. Our outlook for stronger growth is reinforced by what we are seeing in the market.

We see three forces significantly reshaping how our customers operate: hybrid multicloud adoption, threat landscape expansion, and AI inference inflection. First, hybrid multicloud adoption. Workloads now span on-premises, private cloud, and multiple public clouds. Our research shows more than 90% of enterprises run hybrid multicloud today, across an average of 19 locations. Organizations need flexibility, resiliency, and digital sovereignty in every environment, and they are investing to support these demands. Second, threat landscape expansion. As AI models become more capable, attackers are using them to launch attacks against production applications at higher volume and with greater variation than traditional defenses were designed for. Our customers see this and they are responding.

They are deploying more application security and prioritizing best-in-class defenses. The era of checkbox security is over. AI applications require best-in-class security to match both the volume and the sophistication of AI-driven attacks. Third, the AI inference inflection. Organizations are connecting their applications and APIs to AI models, and inference calls are becoming a regular part of how applications run. Our research shows 78% of enterprises run inference themselves, using more than seven models on average. Organizations are standardizing on a new architecture with models distributed across the data center, the cloud, and the edge. And the next shift is already underway. AI agents are moving into production, and enterprises are adapting their applications for agent interaction.

This is driving more compute, more data delivery, and more security to protect inference. These three market forces are driving demand across our business. Because of accelerating hybrid multicloud adoption, we are taking an already strong refresh cycle and leveraging it into significant opportunities for expansion, competitive displacement, and platform consolidation. I will double click on each of these, spotlighting customer examples from the quarter. With this refresh, we are seeing a refresh-plus dynamic that is different from prior cycles. Customers are deploying higher-performance, higher-capacity F5, Inc. systems as they upgrade their data centers to support modern application digital resilience and sovereignty, and AI.

And as customers refresh, we are capitalizing on that moment to attach new use cases, expanding our footprint, and growing overall wallet share. For example, this quarter, a large healthcare services organization started with a life cycle refresh across hundreds of legacy systems. As the project progressed, they expanded the scope to support an AI-driven consumer engagement platform. F5, Inc. became the control point for secure, low-latency traffic and data movement across applications, storage, and their GPU server environment. That gave the customer a more resilient foundation for both sensitive internal workloads and new AI interactions at scale. Our deliberate investment in hybrid multicloud solutions is translating into market share gains.

We are winning customers from competitors who did not build the same breadth and depth of capabilities across on-premises, software, and SaaS. In Q2, we displaced a long-standing incumbent at a Fortune 100 energy company whose environment had hit scalability limits. The customer needed a platform that could scale into cloud while maintaining strong on-premises performance. Their incumbent provider was unable to serve workloads in hybrid multicloud environments. F5, Inc. modernized traffic management and simplified operations, improving reliability and creating a clean path for long-term cloud adoption. Hybrid multicloud customers require stronger performance and security with fewer tools and simpler operations.

We are replacing point products with a unified approach that improves performance and security and is easier to operate at scale. For example, during Q2, an energy and utilities provider and existing BIG-IP customer needed to secure APIs with better visibility and automation across their data center, cloud, and edge environments. They selected F5, Inc. Distributed Cloud Services to simplify their approach and standardize API protection across their full footprint with simpler management. Moving on to threat landscape expansion. The pace and scope with which the threat landscape is expanding is driving demand for best-in-class application and API security both on-premises and across cloud environments.

For example, this quarter, a software and managed service provider needed to standardize application and API security across a rapidly expanding hybrid multicloud estate built through acquisitions. They lacked a consistent way to enforce front-door and API protections across their multiple public cloud environments and on-premises. With F5, Inc., they deployed a single policy and management layer with security enforced locally in every environment, supporting strict privacy, audit, and healthcare requirements. F5, Inc. enabled faster regional expansion with stronger security and improved data sovereignty alignment. Finally, the AI inference inflection is driving demand for F5, Inc. We are seeing this indirectly through hybrid multicloud adoption and the requirements that come with it.

We are also seeing it directly through our three primary AI use cases. With our industry-leading traffic management, we are winning new AI insertion points, including AI data delivery and AI factory load balancing. And we are capturing AI runtime security wins, protecting AI applications, APIs, and models from emerging threats such as model abuse, data leakage, and prompt injection. In an AI data delivery win, a global payment company needed a more resilient way to move rapidly growing AI data between storage and compute as the scale of training and retrieval workloads grew. F5, Inc. improved performance and resiliency while displacing both an in-house solution and a competitor, positioning us at the center of the customer's AI infrastructure strategy.

In an AI runtime security win, an industrial automation firm needed a scalable way to assess risk and govern a growing number of AI applications and models. They chose F5, Inc. based on the depth of our red teaming insights and strong integration with their existing security stack. In an AI factory load balancing win, a major manufacturer and existing F5, Inc. customer needed to support operations and establish a digital twin of their manufacturing environment for simulation and optimization. They deployed BIG-IP as the production traffic layer across their GPU server environment, improving availability and offloading encryption. Taken together, these wins underscore two things.

The forces reshaping our customers' environments are real, and F5, Inc. is well positioned to capture them. Staying ahead of the pace of change requires relentless innovation. In Q2, we brought multiple new capabilities to market, strengthening our leadership in application delivery and security for the AI era, and driving greater value for customers. We introduced AI-powered capabilities in Distributed Cloud WAF, replacing manual policy tuning with automated, outcome-based threat blocking. Our F5-trained model helps customers stay ahead of increasingly sophisticated AI-driven attacks that are growing in both speed and complexity. We launched Agentic Bot Defense, extending our industry-leading bot defense to autonomous AI agents, a new and fast-growing category of traffic.

The result is that customers can confidently adopt agentic AI while ensuring only verified, trusted agents reach their applications. We released F5 AI Remediate, which closes the loop between our AI Red Team and AI GuardRail products. It collapses the path from vulnerability discovery to runtime protection from days or weeks into minutes. And finally, we launched F5 Insight for ADSP, providing deeper visibility across application estates. The result is that customers can identify and resolve issues faster, with less guesswork. We are innovating so customers can run faster, stay protected, and simplify their hybrid multicloud and AI environments. And we are accelerating that innovation by rapidly integrating AI into our solutions to create practical capabilities customers can deploy quickly.

That innovation engine is also sharpening our view of what is next. As we look ahead, we have conviction in the power and durability of hybrid multicloud, the expanding threat landscape, and inflecting AI inference as the main drivers for F5, Inc. We look forward to digging deeper into these drivers and our expectations for how they will shape F5, Inc.’s longer-term growth outlook at our May analyst and investor event. Now I will turn the call over to Cooper, who will walk through our Q2 results and our outlook.

Cooper Werner: Cooper, thank you, and hello, everyone. I will review our Q2 results before I provide our guidance. For Q3 and update our outlook for FY 2026. We delivered a strong Q2, growing revenue 11% to $812 million, with a mix of 51% product revenue and 49% services revenue. Product revenue totaled $411 million, increasing 22% year over year, while services revenue of $401 million grew 2% year over year. Systems revenue totaled $226 million, up 26% over Q2 FY 2025. Our software revenue of $184 million grew 17% year over year. Subscription-based software revenue totaled $165 million, up 20% year over year, representing 90% of our Q2 software revenue. Perpetual license software totaled $19 million, down 4% year over year.

Revenue from recurring sources contributed 70% of our Q2 revenue. Our recurring revenue consists of our subscription-based revenue and the maintenance portion of our services revenue. Shifting to revenue distribution by region, revenue from the Americas grew 3% year over year, representing 50% of total revenue. Both our EMEA and APAC regions delivered very strong quarters. EMEA grew 22%, representing 32% of revenue. APAC grew 19%, representing 18% of revenue. Looking at our major verticals, enterprise customers contributed 66% of Q2’s product bookings. Government customers represented a strong 24% of product bookings, including 8% from U.S. Federal. Finally, service providers contributed 9% of Q2 product bookings. Our continued financial discipline contributed to our strong Q2 operating results.

GAAP gross margin was 81.4%. Non-GAAP gross margin was 83.7%. Our GAAP operating expenses were $482 million. Our non-GAAP operating expenses were $406 million. Our GAAP operating margin was 22.1%. Our non-GAAP operating margin was 33.8%. Our GAAP effective tax rate for the quarter was 21.9%. Our non-GAAP effective tax rate was 21.5%. Our GAAP net income for the quarter was $148 million, or $2.58 per share. Our non-GAAP net income was $223 million, or $3.90 per share, reflecting 14% EPS growth from the year-ago period. I will now turn to cash flow and balance sheet metrics.

We generated $366 million in cash flow from operations in Q2 and free cash flow of $348 million, both records highlighting the strength of our operating model. CapEx was $18 million. DSO for the quarter was 47 days. Cash and investments totaled $1.46 billion at quarter end. Deferred revenue was $2.12 billion, up 10% from the year-ago period. In Q2, we repurchased $100 million of F5, Inc. shares at an average price of $269 per share. We had $522 million remaining on our authorized share repurchase program as of the end of the quarter. Finally, we ended the quarter with approximately 6,500 employees. I will now speak to our outlook and guidance, beginning with Q3, followed by our full-year view.

We expect the market trends we have outlined—hybrid multicloud adoption, threat landscape expansion, and AI inference inflection—to drive strong demand for our products and services in 2026. We expect Q3 revenue in a range of $820 million to $840 million, reflecting approximately 6.5% growth at the midpoint. We expect non-GAAP gross margin in the range of 82.5% to 83.5%. We estimate Q3 non-GAAP operating expenses of $406 million to $418 million. We expect Q3 share-based compensation expense of approximately $68 million to $70 million. We anticipate Q3 non-GAAP EPS in a range of $3.91 to $4.30 per share.

Turning to our fiscal year 2026 outlook, with continued strong close rates in Q2 and strong pipeline creation into the second half, we are raising our FY 2026 outlook. We now expect FY 2026 revenue growth of 7% to 8%, up from our prior outlook of 5% to 6%. We continue to expect mid-single-digit software revenue growth, double-digit systems revenue growth, and low-single-digit services revenue growth for the year. Our gross and operating margin outlook for FY 2026 is unchanged. We expect FY 2026 non-GAAP gross margin in a range of 82.5% to 83.5%. On a modeling note, we expect higher component costs, primarily related to memory, will cause gross margins to step down sequentially from Q3 into Q4.

We expect non-GAAP operating margin in a range of 34% to 35%. We now expect our FY 2026 non-GAAP effective tax rate will be in a range of 20% to 21%. Reflecting the strength of our second quarter and our increased revenue outlook, we now expect FY 2026 non-GAAP EPS in a range of $16.25 to $16.55, up from the prior range of $15.65 to $16.05. Finally, we expect our full-year share repurchase to be at least 50% of our free cash flow. I will now pass the call back to François.

François Locoh-Donou: Thank you, Cooper. Looking ahead, our strengths are well matched to the secular shift transforming IT infrastructure: hybrid multicloud adoption, threat landscape expansion, and AI inference inflection. We expect these trends to support continued growth for F5, Inc. in fiscal 2026 and beyond. F5, Inc. is built for hybrid multicloud and the AI era. We deliver and secure every app and API anywhere with one unified platform across on-premises, multiple public clouds, and the edge. Our application delivery and security platform reduces complexity. Customers get centralized security, high-performance delivery, and consistent policy without stitching together point products. And we provide a control point for traffic, APIs, and data flows as applications and AI become more distributed.

Operator, please open the call to questions.

Operator: We will now open the call for questions. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1. We will take our first question from Tim Long at Barclays.

Tim Long: Thank you. One question and one clarification. On the software side, it looks like there was a pretty good quarter and you are keeping the mid-single digit for the year. I know sometimes these are on three-year cycles given the term. Maybe just touch a little bit on why not a little bit more of a raise there after a pretty solid growth quarter. And are you still looking at potential acceleration on that number into next year?

Cooper Werner: Thanks, Tim. I will take that. We did have a good growth quarter in Q2. I would say it was right where we expected it to be for the quarter. You are right; we do caution against over-rotating on any individual quarter’s reported revenue growth rate. The second half of the year is where we have a more balanced growth expectation for the year, and just based on where we are at with the renewal base, we continue to expect it to perform as we had seen it shaping up for the year, and so that is where we are still at the mid-single-digit growth rate for the year. But all trends look very healthy.

And then yes, as we look ahead to next year, we do expect to see an inflection in the growth rate. We are continuing to see strong trends around consumption rates across that renewal base, and we have a larger base coming up for renewal next year. With the expansion and that larger renewal base, we feel pretty confident about a higher growth rate into FY 2027.

Tim Long: Okay, great. Thank you. And then on the AI front, a lot of different applications and a lot of activity. Maybe you could help us with some benchmarks or some metrics. How do we frame the successes—revenues, orders, customers? How should we look at it? Any data points you can give us as far as the scale and the traction you are seeing on the customer side?

François Locoh-Donou: Yes, Tim. What we are seeing in AI is that enterprises are now putting AI into production—inferencing—and that is creating substantial opportunity for F5, Inc. We have talked about three big areas where we see opportunity. The first is in hardening data pipelines between data stores and AI models—a use case we call data delivery—and we are seeing growing demand for F5, Inc. in these use cases. We are also seeing growing demand in securing AI in runtime. Both AI applications and AI models increasingly require security that is tailored for AI models that traditional security solutions do not address.

And we also address AI factory load balancing, which is a third area where we are starting to see growing demand. If you look at the first half of the year, we had approximately $50 million in sales in the first half on these use cases. That is up more than 200% year over year. And we are now approaching about 100 customers that are using F5, Inc. for their AI use cases. That is probably a conservative estimate because those are customers for whom we absolutely know they are using F5, Inc. for these AI use cases.

We believe there are other parts of the business where we are getting indirect benefits from customers getting ready for their AI infrastructure, but those are harder to quantify. So the data I am sharing are ones we can attribute directly to these use cases. Enterprise AI is one of the big trends fueling tailwinds in our business. Hybrid multicloud and an expanding threat landscape are the other two very significant trends we are seeing.

Tim Long: Okay. Thank you, François.

François Locoh-Donou: Thank you.

Operator: We will move next to Samik Chatterjee at JPMorgan.

Samik Chatterjee: François, strong quarter. You are raising the guide for the year as well and getting ready, it seems, to give us a more longer-term view of the business. How are you thinking about sustainability of the high-single-digit growth as you look forward, given that you did have a softer year in software this year, but you also have the hardware tailwinds and releases in relation to end of support for some products? How should we think about sustainability of these growth rates as we look forward beyond this year?

François Locoh-Donou: As it relates specifically to software, Cooper touched on it: we expect even stronger software growth next year than this year. Stepping back to the overall business, we are seeing a very strong refresh cycle, which by definition is cyclical. But we are also seeing three secular trends that we think are very durable and are growing and accelerating our business. The first is hybrid multicloud. For years, hybrid multicloud was by default. Now we are seeing it as a strategic architecture by design. Customers are implementing it for digital sovereignty reasons—to rely not just on big public clouds, but local cloud alternatives or on-premises—and for resilience. Increasingly, AI is also pushing customers toward these architectures.

That is a secular trend that is there for the long term and provides substantial tailwinds. The second trend is the threat landscape is expanding. Customers are experiencing more frequent and more sophisticated attacks because of AI. A recent report showed the increase in web attacks year over year was up 77%, and bot attacks up 150%. Our customers have more to protect—their apps, APIs, and now AI models, both on-prem and in the cloud—and best-in-class application security solutions are needed. That is where F5, Inc. has been focused, and we are seeing that demand.

For example, in our Distributed Cloud Services platform this quarter, the number of customers choosing F5, Inc. for web application firewalls is up 62% year over year; for API security, up 54%; and for Bot Defense, up 33%. These trends are durable, and we believe the inflection we are seeing in our business is likely to continue.

Samik Chatterjee: Got it. And as a follow-up on the increased attacks that customers have to be ready for, have you seen any change in engagement or an uptick in engagement following all the discussion in relation to Anthropic’s model vulnerabilities? Are you seeing any step change in your engagement with customers on the security front, and how are you addressing these issues?

François Locoh-Donou: Yes, we are seeing a step change. We have had a number of conversations over the last several weeks with customers. We are now in an era where the window of time for an enterprise to patch their applications has effectively closed, as AI models can now find and exploit vulnerabilities almost in real time. There are a couple of implications. First, given that you do not have a significant window of time to patch applications, you will rely more on runtime security, specifically securing the front door of your applications. That is precisely where F5, Inc. has focused, and customers are sharing that they will rely on us even more.

Second, we believe all security is going to be AI-powered. Static signatures are not going to cope with the power and speed of new models in creating exploits. We saw this shift coming and have been investing in AI-powered security for a while. This quarter, we released our AI-powered web application firewall and our Agentic Bot Defense solution. Over time, our entire portfolio will be AI-powered; we are already fighting AI with AI. Third, consolidation toward platforms will accelerate. With 95% of our customers operating in hybrid and multicloud environments, point products across environments create complexity that is hard to manage if you must react quickly. We expect more customers to move toward platforms.

The breadth of our portfolio can simplify operations. We are seeing all three implications in customer conversations already.

Operator: We will go next to Simon Leopold at Raymond James.

Simon Leopold: Thank you. We have heard that some customers may be showing a preference for your hardware solutions based on performance and total cost of ownership versus software. Are you seeing this shift, and might that explain some of the relative growth between your hardware and software?

François Locoh-Donou: We are seeing a number of customers recommitting to hardware. It is not just about performance, although performance is a factor. Many customers are modernizing their data centers and want strong on-prem infrastructure with strong performance. In the first half, we generated about $60 million in sales from customers who had previously stopped buying hardware and recommitted to hardware. More broadly, hybrid multicloud is driving customers to both modernize their data centers and continue to invest in software for flexibility so they can deploy the same F5, Inc. software stack on-prem or in public clouds.

So yes, there is very strong momentum in hardware at this moment, but customers continue to want the flexibility of software and subscriptions to deploy licenses across their environments.

Simon Leopold: As a quick follow-up, could you update us on progress around the engagement and discussions with NVIDIA?

François Locoh-Donou: Yes. We have developed an integration with NVIDIA, refactoring our software to work on ARM architectures and specifically on NVIDIA BlueField technology. We have done a lot of work over the last 18 months. As of December, we were formally included in NVIDIA’s reference architecture. Since then, there have been a number of tests, including third-party tests, to validate efficiency gains. Those tests have validated that the integration of F5, Inc. software on NVIDIA DPUs helps AI factories generate 30% to 40% more tokens for a given amount of GPUs. We are now taking that value proposition to market and are involved in a number of proofs of concept and trials.

Many customers building AI factories are still early; their first priority is to get GPU farms up and running and Kubernetes clusters working. As more customers move to inferencing, we think the value proposition of making GPUs more efficient will resonate.

Operator: We will go next to Matt Hedberg at RBC Capital Markets.

Matt Hedberg: Congrats on the results. Based on our conversations with customers, we think F5, Inc. sits at a critical junction in the hybrid cloud infrastructure build-out and increasing AI app traffic. In your prepared remarks, you talked about your role in the evolving threat landscape. You have a lot of security solutions now, but are you hearing customers pull you into additional use cases, given your unique spot in the traffic flow? Are there other opportunities for you to add further security capabilities in this new AI era?

François Locoh-Donou: Absolutely. As I shared earlier, in this new era, runtime security—specifically securing the front door of applications—is going to be even more important. We are seeing strong growth in web application security, API security, and bot security. We are also seeing API discovery, whether on-prem or in the cloud, as a growing use case as customers want to know where all their APIs are and protect them. With AI, there is a new attack surface—models and agents—which will use more APIs. Customers will need help discovering and securing them. We have introduced AI GuardRail and AI Red Team, which help customers detect vulnerabilities in their AI models and mitigate them.

We also introduced AI Remediate, which automates the process of creating mitigations for these vulnerabilities. These are new security use cases that will grow as customers deploy more AI models in production. Security is a significant opportunity, and we are also seeing opportunity in delivery, specifically data delivery for AI.

Matt Hedberg: You also mentioned you are starting to see AI inferencing inflect with your customer base. Non–AI-native customers seem increasingly AI-leaning. How early are we in that, and is this a multiyear inflection?

François Locoh-Donou: We are very early. The customers today most focused on AI security—protecting AI models and applications from vulnerabilities like prompt injection and model abuse—are a small minority, typically the largest and most sophisticated in each vertical, such as financial services and large technology companies. That minority will grow over the next couple of years as more customers implement AI inference. We are just at the start, and the number of models for inference and agents will dramatically increase over the next couple of years.

Operator: We will go next to George Notter at Wolfe Research.

George Notter: Thanks a lot. You have been raising prices conservatively, about once per year. With higher memory costs impacting gross margins, any thoughts about raising prices more aggressively or more frequently? And on share, are you making progress? Any metrics on logos, incremental revenue, or share that reinforce the idea that you are gaining share?

Cooper Werner: Thanks, George. We do an annual pricing review, typically in Q2, where we make price adjustments to factor in the innovation we are bringing to market—that is part of our ongoing playbook. We have also been closely monitoring memory and SSD pricing, which has been accelerating through the year with a big step up in Q2. We continue to look at price adjustments to pass through some of that impact to offset gross profit pressure. It is a combination of price adjustments and discount discipline, and we need to stay agile; we will continue to make those adjustments on more of a one-off basis tied specifically to rising memory costs.

On share, our competitive takeout rate has gone up materially, which speaks to hybrid multicloud adoption where we are the only vendor in this space that can support customers’ applications in any environment. That is resonating, particularly with the evolving threat landscape. Customers are looking for a platform approach to resolve complexities, and they have been coming to F5, Inc. We are seeing a lot of share gain as a result.

François Locoh-Donou: Thank you.

Operator: Our next question comes from James Fish at Piper Sandler.

James Fish: Great quarter. Cooper, a few for you. On the two-point raise to the guide for the year, it looks like about a point is from this past quarter’s upside. Are you actually passing through memory costs at this point? What are you assuming for memory prices in the back half of the year? Do you have enough supply lined up given the outperformance of hardware? And how far along are you on migrating from DDR4 to DDR5?

Cooper Werner: On the revenue guide for the year, it does not contemplate new pricing adjustments. Any pricing adjustments we make now are more likely to flow through into FY 2027 based on where we are in the cycle. On supply availability, we feel good about our near-term visibility. Our manufacturing team identified the issue back in mid-FY 2025; we increased our build forecast, extended its horizon, and took on additional supply and components we thought might be constrained. That has allowed us to secure the memory we need not just for our prior outlook, but for the upside we have delivered over the last six quarters.

For the longer term into FY 2027, our build forecasts are within our needs for what we would expect to do on the high side for systems. Visibility four to five quarters out is not as strong as near term, but right now we feel pretty good. On DDR, our current appliance lineup leverages DDR4. Future appliance cycles will be on newer technology; we have not discussed timing of the next generation.

James Fish: If I could follow up, on billings you had really strong deferred, especially current. Are you seeing any net pull-in of demand or buildup of product backlog? This would be about the time we might see a buildup reminiscent of the supply chain crisis a few years ago.

Cooper Werner: Just to be clear, backlog does not show up in our deferred revenue. Our deferred revenue strength is almost entirely tied to our services business, where we have maintenance renewals. We saw strength in both short-term and long-term deferred maintenance, a little higher on long term, and some customers did multiyear renewals. I am certain some are getting in front of perceived risk around price increases as they work with other vendors. That is playing out to an extent on maintenance, but the growth is not tied to product orders.

James Fish: Thanks.

Operator: Next, we will move to Meta Marshall at Morgan Stanley.

Meta Marshall: A couple of questions. One, on the continued strength in EMEA, particularly around data sovereignty—how much further is there to go, and are there initiatives you are taking to capitalize on that opportunity? Second, as you move more into the security space, what are you seeing in terms of the competitive landscape there and the chance to gain mindshare?

François Locoh-Donou: Thank you, Meta. On EMEA, we think the trend is durable and even accelerated this quarter. Government agencies, the defense sector, and regulated industries, including financial services, are pushing hard for digital sovereignty. That often implies modernization and reinvestment in data centers, and creating consistency of security and delivery across hybrid multicloud environments. We are also seeing customers who created separate teams for public cloud and on-prem merge those teams as they move to true hybrid multicloud. That creates more opportunities for providers who can cover needs across on-prem and public cloud with a single platform.

We have increased our field coverage in EMEA and will likely continue to do so, with an accent on the defense sector where spend is significant. On security, we are focused on runtime application and API security. We are seeing substantial growth for both on-prem and cloud requirements. Our differentiation is the ability to serve both environments with an extensive security portfolio that includes application firewall, API security, bot defense, and DDoS protection. Frankly, none of our competitors—whether in application security, AI security, or hybrid multicloud—offer the same breadth across environments. As customers embrace these architectures and need solutions for both on-prem and public cloud, we stand alone with a very strong value proposition. We will continue to invest there.

A highlight this quarter was innovation in security: our AI-powered WAF, Agentic Bot Defense, AI Remediate, F5 Insight, and bringing API discovery on-prem with BIG-IP. We invested early in hybrid multicloud and are now reaping the rewards as we accelerate innovation to capture growing opportunities.

Operator: We will move next to Jeffrey Hopsman at Needham.

Analyst: Thank you. Following up on the memory situation and the gross margin implications, you guided for a step down from Q3 to Q4. Any more color on the magnitude? I had around 150 basis points. Is this just a function of memory bought today taking about two quarters to flow through?

Cooper Werner: Thank you. That is the dynamic. We took a pretty extensive position early and were able to mitigate impact through the first half of this year. We are now starting to see later purchases at higher price points flow through, starting in Q3 and more at full run rate in Q4. It is an incredibly dynamic situation with memory pricing. We expect relief several quarters out, but for at least the better part of FY 2027, we would expect memory prices to stay elevated.

Analyst: Thank you. And on U.S. Federal, it has been a couple of really nice quarters. Any additional color on dynamics there?

François Locoh-Donou: Generally, dynamics are strong. We had a strong quarter, and globally the government sector in the first half was really strong. Defense spending across the globe has been growing, and we are a beneficiary. Defense customers are investing more in security and are very hybrid multicloud. Many want air-gapped environments in their own data centers, even if some leverage cloud. We have been investing for that opportunity and are seeing the benefits. We think government spending will continue to be strong for the next several quarters.

Operator: We will move next to Amit Daryanani at Evercore ISI.

Analyst: Hi there. This is Caitlin on for Amit. Services growth at 2% was fairly muted. Can you touch on what is happening there and how to think about it long term?

Cooper Werner: Ironically, this is tied to a good news story: the strength we are seeing with the refresh. In past refresh cycles, a strong refresh creates a near-term headwind to services. You replace legacy appliances that have been carrying service for a number of years; those come out of the system. When you backfill with new appliances, there is a lag on the maintenance revenue stream. Conversely, when customers are sweating assets, you see strength in maintenance revenue. Longer term, the refresh has been very strong, and it is a refresh-plus-expansion story. We are getting better retention of footprint than in prior cycles.

Ultimately, that is a great story for services because with a larger footprint, you get a larger maintenance revenue base. In the immediate term, as customers make the transition, it is a bit of a headwind on maintenance revenue.

Operator: Next, we will move to Tal Liani at Bank of America.

Tal Liani: Hi. I think everyone is trying to get to whether this is finally a sign that AI is showing its impact on the company’s growth or whether this is just a temporary refresh story. First, why are we seeing the growth mostly outside of the U.S.? The U.S. is leading AI. Out of $80 million growth year over year, the U.S. was only $11 million growth. Last year, out of $56 million, it was $7 million. The majority of growth is outside the U.S. How do we link AI uplift to growth mostly outside the U.S.? Second, why do we see a lag between systems growth and software?

Systems went from about $160 million to $226 million in five quarters, but software is back to around $164 million. At the time of refresh, do companies not upgrade software as well?

François Locoh-Donou: Thank you, Tal. On the U.S., trends are healthy. I would not read too much into a given quarter’s regional performance; some is timing of shipments. The expanding threat landscape is creating more opportunity; we had a very strong security quarter, and that trend is global. On AI, we are approaching 100 customers and did about $50 million in the first half—also a global trend that includes a strong U.S. component. Hybrid multicloud is also global, including in the U.S., where customers want resiliency, though it is particularly pronounced in EMEA due to digital sovereignty requirements, driving extra growth there. The three trends I mentioned—hybrid multicloud, expanding threats, and AI—are secular and global, in addition to a strong refresh cycle.

On software versus systems, as Cooper noted, the software business is largely subscription—this quarter, 90% of software—and the majority comes through in a renewal motion. We are seeing strong attach of software at the time of refresh, but it is still a relatively small component of the overall software number. The majority is the installed base that we expand over time. Because the renewal cycle this year is coming off a flat software year in FY 2023, we expected a slower growth rate this year followed by a much stronger growth rate next year. Do not mistake the slower software growth this year as weak attach at refresh; those trends are healthy.

Tal Liani: Got it. Thank you.

Operator: Next, we will move to Michael Ng at Goldman Sachs.

Michael Ng: Two questions. First, on systems revenue growth in fiscal 2027: you have had two strong back-to-back years. Could you talk about early expectations around whether fiscal 2027 systems can grow given the strong refresh the last couple of years? Second, it has been about four or five years since the launch of rSeries and BIG-IP VELOS. Are you expecting a new ADC form factor or system to drive another refresh cycle, particularly given incremental demands from AI?

Cooper Werner: It is early to guide for next year, but yes, we do expect a growth opportunity for systems based on where we are in the refresh cycle and the strong trends we are seeing—expansion at refresh and new use cases. We are seeing healthy growth outside of refresh as well, including AI use cases, higher takeout rates from competitors, and new business tied to digital sovereignty. That gives us good visibility into next year. As for the next range of appliances and systems offerings, we would not get into specifics now. Of course, we are well down the path of planning. We think there are interesting growth opportunities downstream as we consider things like PQC.

Continuous investment in innovation on systems and software is critically important, and we are really the only player that has stayed steadfast in investing in systems. Customers need choice, and environments are dynamic. Providing flexibility in deployment is important, and that is showing up in the business we are seeing.

Michael Ng: Great. Thank you, Cooper.

Operator: That concludes our Q&A session. I will now turn the conference back over to Suzanne for closing remarks.

Suzanne DuLong: Thank you, Audra. We look forward to seeing many of you during the quarter and especially at our Analyst and Investor Day in May. Watch for more details in the press release about the event coming soon. And thank you all for joining us.

Operator: And this concludes today’s conference call. Thank you for your participation. You may now disconnect.