F5 Networks at JPMorgan Conference: AI and Growth Strategies Discussed

On Wednesday, 14 May 2025, F5 Networks (NASDAQ:FFIV) took center stage at the 53rd Annual JPMorgan Global Technology, Media and Communications Conference. The discussion revolved around the company’s strategic growth, particularly in AI and hardware refresh cycles. Executives highlighted a positive revenue outlook, despite macroeconomic uncertainties, while acknowledging challenges in software revenue variability.

Key Takeaways

• F5 Networks raised its revenue guidance by 50 basis points for the year.
• AI is a significant growth driver, with three key use cases identified.
• The company is in the early stages of competitive displacement, particularly against Citrix.
• Over 50% of free cash flow is committed to share repurchases.
• F5 maintains a positive long-term outlook for software growth.

Financial Performance

• F5 Networks reported no slowdown in demand, raising its revenue guidance by 50 basis points.
• Software revenue is expected to grow in low double digits in fiscal 2025.
• Federal spending contributes 5% to 10% of revenue, with stable demand observed.

Operational Updates

• The Viprion and I Series hardware refresh cycle is driving growth, with end-of-support dates in 2026 and 2027.
• These products make up over half of F5’s installed base, indicating significant deferred demand.
• AI opportunities are expanding, particularly in scaling data stores and securing AI access.

Future Outlook

• F5 views AI as a major growth area, focusing on scaling, securing, and load balancing AI clusters.
• The company is modernizing traditional ADCs by integrating security and delivery functions.
• F5’s multi-cloud solutions differentiate it from competitors, attracting customers from Citrix and others.

Q&A Highlights

• Equity compensation is key to attracting talent in the AI sector.
• The company prioritizes balance sheet flexibility to support strategic initiatives.

In conclusion, F5 Networks presented a robust growth strategy at the conference, emphasizing AI and hardware updates. For a deeper dive into the discussion, readers are encouraged to refer to the full transcript below.

Full transcript - 53rd Annual JPMorgan Global Technology, Media and Communications Conference:

Samik Chatterjee, Host, JPMorgan: Good morning everyone. Thank you for coming to the conference. I’m Samik Chatterjee and I cover hardware and networking stocks at JPMorgan. I have the pleasure of hosting the F5 team for the next session. Cooper Werner, who’s the EVP and CFO of the company, Konal Anand, Chief Innovation Officer, Thank you both for coming to the conference, and thank you to the audience as well.

Cooper, maybe this is for you, but Kunal, feel free to chime in if you have a view here. What we’re starting and primarily asking all of our companies to do is initially sort of give us their take on the macro at this point because I think if you look at the stock market, it seems like that’s the biggest top of mind concern for investors at this point. When you think about sort of the macro outlook, particularly going into the back half of the year, likely or how likely do you see a significant slowdown or recession and particularly if you’re starting to sort of plan around those scenarios and how you run your business?

Cooper Werner, EVP and CFO, F5: Great, thank you. And before I respond, I just want to get our safe harbor on record. Please note that our discussion today may contain forward looking statements which involve uncertainties and risks. Our actual results may differ materially from those expressed or implied by these statements. Please see our SEC filings for more information on these risk factors.

Okay, so to address the question of the day, yeah, so when we laid out our guidance earlier in April for the quarter and the back half of the year, effectively we said that we were being somewhat prudent with our annual guide. We raised our revenue guidance by 50 basis points for the year, but that was really on the strength that we’ve been seeing in the business in the first half of the year. The conservatism was really just more recognizing that there’s still some degree of uncertainty with the macro, but we have not actually seen any indicators in our own business of any slowdown. And so this is both for our most recent quarter and through April. The business velocity remains kind of at our expectations.

The things that we track closely just to get the earliest indicators if there was any change in demand or things like our weekly commits, are we delivering what the sales team’s expectations are on a weekly basis, linearity through the quarter. We’ve got pretty good patterns historically on what linearity would look like in a given quarter and then beyond that just general pipeline and close rates. And then of course meeting with our sales teams and our quarterly business reviews and just hearing kind of what they’re seeing on the street level with their customers. It was a very orderly quarter last quarter in terms of prosecuting the demand that we saw and that’s continued right up through April. And so again, the prudence is really just tied to uncertainty, but it hasn’t translated into anything that we’re seeing.

So from where I sit, I don’t have any visibility around any kind of real erosion to the demand environment.

Samik Chatterjee, Host, JPMorgan: Okay. And I mean part of that uncertainty stems from tariffs and how are you managing or navigating sort of the unpredictability of tariffs as well as much as managing the levels that you see today versus yesterday? Just give us a sort of lay of the land, what you’re doing on that front.

Cooper Werner, EVP and CFO, F5: Yeah, of course. So we’ve spent a lot of time kind of digesting all of the new cycles and kind of inspecting where we might have exposure from a cost perspective. Thankfully the majority the tariffs, if there were tariffs that apply apply to our business, would be on the hardware side of our business. The majority of our products are manufactured in Mexico and are USMCA compliant, so our cost exposure is pretty immaterial. It’s mostly around peripherals that we might ship from tariff impacted countries, but it’s in the low single digit millions what we’ve kind of sized our exposure at.

And we think we can manage that just through efficiencies that we’ve identified in our manufacturing process. So no real near term impact to the business. From a demand perspective, we also haven’t seen any indicators of an impact in terms of pull I think that customers have a reasonable view as to what our pricing practices are. We haven’t announced any changes to our pricing practices. And so the business that we’ve been seeing has been within our expectations with our pipeline and our sales teams hadn’t identified any material cases of pull in related tariffs.

Samik Chatterjee, Host, JPMorgan: Okay. So on the topic of pull in, but maybe putting tariffs aside, just the Viprion and the I Series hardware refresh cycle where you do have sort of end of support on some of them coming up. What are you seeing in terms of the driver for the refresh cycle and why shouldn’t we interpret that as pulling forward some of the system level demand?

Cooper Werner, EVP and CFO, F5: Yeah, so you’re referencing the end of software support dates we have on our Viprion and I Series families, which Viprion goes end of software support in April of twenty twenty six and I Series goes end of software support in January of twenty twenty seven. Collectively, those two product families are well over half of our customers’ installed base. So that’s a sizable opportunity in terms of tech refresh and we’re seeing that come through in the numbers this year. That’s driving a lot of the growth that we’re seeing. We don’t look at it as pull in.

If anything, it’s been deferred demand where customers have been prolonging their existing installed base and sweating assets beyond kind of what their normal replacement cycles would be. And we’re finally starting to see customers kind of get caught up on their capacity. And so that’s where some of the strength that we’re seeing on our year over year growth rate is coming from. But there’s not really any pull in that’s associated with those refresh cycles. It’s more of just kind of modernizing their data centers.

But what we are seeing beyond just the normal tech refresh is we’re seeing some increase in demand related to capacity expansion and preparing data centers for how applications are expected to grow over time. Things like AI are adding a new dimension of growth related to our systems business. It’s still pretty early and it’s a little bit of an exercise trying to assess how much of the demand is coming related to preparation for AI. But clearly we’re seeing growth beyond just normal tech refresh. And we’re also seeing an uptick in our competitive takeout opportunity.

We’ve got some competitors that have invested less in innovation and the quality of the support that we’re hearing from our customers is also less than what our customers would expect. And so we’re seeing a lot of interest from customers in coming to F5 and we think that represents a share gain opportunity over time.

Samik Chatterjee, Host, JPMorgan: Okay. Maybe just following up. I mean, how do you expect that then curve of the refresh cycle to play out, particularly if iSeries has a January 2027 sort of end of software support? That’s a fair amount of time between now and then. When you’ve gone through these sort of similar dynamics in the past with some of your products, is it really sort of just ramping and probably you see a peak more closer to that January 27?

Cooper Werner, EVP and CFO, F5: Yeah, so all customers kind of have their own time frames in terms of their planning. You’ve got some customers want to get well ahead of these end of software support dates. Other customers may choose to kind of run right up into those software support dates. And you actually have other customers that may go beyond those dates because we still do offer maintenance on those products. So that’s one of the more difficult things is to predict is the shape of that demand curve.

Expect that we’re going to see strength at least through FY ’20 ’20 ’6 and into FY ’20 ’20 ’7. And it’s really just a question of how fast customers move forward with some of those refreshes through next year will kind of give us a better indicator of whether that opportunity goes well into FY 2027 or if it starts to kind of tail off.

Samik Chatterjee, Host, JPMorgan: Okay. Got it. I’m going to take it back to compare to what at one point in time your expectations for systems revenue was that you would be in sort of a steady decline in that business. And I know that hasn’t been reiterated for a while, but when we certainly see a year like this year where you’re guiding to double digit growth, I mean does that change overall your thinking in terms of what the long term drivers for the system business are? Does that change sort of how should investors think about the system business and the sustainability of some of the growth rates versus this decline that you had at one point thought it would go ahead?

Cooper Werner, EVP and CFO, F5: Yes. So you’re right. Our messaging that we’ve had around our systems business is that we think the market is kind of a mid single low to mid single digit decliner, but we think that we can do better than that just by continuing to take share. And if you look at kind of what’s implied in our systems business right now back to kind of what a normalized level was back 2018 and FY 2018, FY 2019 kind of pre COVID, it’s right in that kind of low single digit decliner on a CAGR basis. But clearly we’re seeing a lot stronger growth in this year’s numbers.

We’ve talked about some of the newer dimensions of potential inflection on that growth rate. It’s a little bit early for us to say that this is kind of expectation, especially around AI driven demand. It’s very early. So it’s something we’re watching closely. But between the potential for AI demand and some of the competitive takeout opportunities where we may be able to take a little bit greater share than we had in earlier years, there is potential that that market may be a little bit healthier for us than we had previously signaled.

Samik Chatterjee, Host, JPMorgan: Since we are on the topic of AI, maybe just outline how do you think about how F5 is associated with the enterprise adoption of AI or sort of AI adoption by the enterprises and how F5 can help on that front?

Konal Anand, Chief Innovation Officer, F5: So I think enterprises are still in more of a foundational phase when it comes to AI today. We roughly see about three different use cases related to AI. One is sitting in front of data stores that organizations have. For those that don’t quite know, in order to get the most utility out of these large language models that are out there, enterprises have found success infusing it with their own enterprise data. And what customers have begun to do is put F5 technology in front of those data stores to help with scaling and to help with the information retrieval that’s eventually going into these large language models.

The second area is securing access and securing the information that’s going to and from those large language models, whether they’re locally hosted or in the cloud. And for that, that’s where we introduced the F5 AI gateway to effectively sit between these applications and APIs as well as these large language models, whether they’re deployed somewhere else or locally. And then last but not least is around load balancing, specifically load balancing these AI clusters. How does information get to these clusters? And then intra load balancing as well.

So we recently announced the GA of what we’re calling BIG IP Next for Kubernetes that runs on NVIDIA’s BlueField three DPUs, which now gives organizations the ability to do delivery and security within an AI factory or inside of an AI super pod. So we really think that those three opportunities are very meaningful.

Samik Chatterjee, Host, JPMorgan: And do you mind just giving us maybe one more layer down when you think of these three use cases, where are you seeing sort of the most appetite from customers today, and which would be sort of more, I guess, more sort of staggered in terms of ramping up maybe a bit later with the enterprises?

Konal Anand, Chief Innovation Officer, F5: Yeah. So it’s interesting when we look at it because I think each of these fit a different persona and a different use case. Like for instance, the first one around object retrieval and information retrieval, you’re squarely talking to a CIO who’s worried about scale, who’s worried about uptime and availability of core systems and information in their networks. And we typically see that across enterprises today. It’s one of the more surprising things for us in the conversations that we’ve had around organizations who have collectively put BIG IP and our systems in front of those data stores.

It’s what informed our partnership with NetApp that we announced. Then the second use case around securing access is speaking more to a CISO. And they’re truly worried about governance. They’re truly worried about information security. And that is something that we see cutting across all enterprises.

We announced the AI gateway and we’re seeing early wins right now, which is very promising. But at the same time, I think it’s very telling of the moment that we’re in, which is a lot of companies are experimenting with these large language models. But they don’t have the security and the governance that they need to properly lock that down. And then the third domain, which is around this work around load balancing, I think there are two things that are just fundamentally important, which is performance related to these AI factories and these AI workloads. And then the other is energy efficiency.

And what we’re finding is through early customer validation, we’re seeing that we’re able to deliver that for organizations, is improving the time to first token, which is essential in these AI workloads. How fast do these models produce output? And then also the consumption, the fact that energy consumption over time can go down because a lot of the networking work that would typically happen on these GPUs is now getting done before the data even gets to the GPU, which increases the lifespan of these GPUs and allows them to take on more work.

Samik Chatterjee, Host, JPMorgan: Okay. But maybe just asking it, going about it in another angle, is now when you think about these use cases, translating it back to your product portfolio, how does it translate back to hardware versus your software demand?

Konal Anand, Chief Innovation Officer, F5: I mean, look, I think for these AI workloads, systems is definitely something that organizations are looking for. They want high performance. And that’s something that they get with the coupling of hardware and software.

Samik Chatterjee, Host, JPMorgan: Got it. On the last call you talked about AI for ADCs and using AI to enhance the product offering and customer experience. Can you talk about the significance of those investments and what’s the early feedback from customers?

Konal Anand, Chief Innovation Officer, F5: We announced a bunch of capabilities over the last several months. And going back more than six months now, we announced our F5 AI Center of Excellence, which is effectively our own organization within F5 that is doing the things around AI like building, training, fine tuning models, which allowed us to put out capabilities in the market that our customers are absolutely loving. We released something called our AI assistant for our distributed cloud customers. And the attachment’s been phenomenal. More than 50% of our customers are using our AI assistant today.

More of our 50% of our sorry, to scope it specifically, our distributed cloud customers are using that AI assistant today. And that’s been extremely interesting to watch and observe and see how they’re leveraging that solution. But it speaks to, I think, the broader challenge that I think that every enterprise has, which is the complexity of the environment and needing to get help when it comes to building policies, rules, understanding what’s going on. And then for our BIG IP customers, we announced that we’re bringing that AI assistant to BIG IP later this year. And we also announced at the beginning of the year work around iRule, which is a programmability construct that we have for BIG IP.

Basically, we’re allowing customers to generate these iRules using natural language and AI. So this is where we’re leveraging AI for ADC of how do we make our life easier or the life easier for our customers.

Samik Chatterjee, Host, JPMorgan: You talked about the gateway product and how it sort of helps in this security use case, particularly around AI. Distributed cloud product, can you just talk about whether there’s a relevancy of enterprises in relation to AI with the distributed cloud offering that you have?

Konal Anand, Chief Innovation Officer, F5: Yeah, absolutely. I mean, when you think about it right now, every organization is on some AI journey or AI curve. But we talked about it earlier around how the world is pretty distributed. Data is everywhere. And data is needed to get the most value and utility out of these models.

And a lot of organizations are not able to move their data for compliance reasons or security reasons, which means that data on prem is likely going to remain on prem. That data is not going to get transmitted somewhere else. So if you think about it fundamentally, we’re not bringing data to the AI model. We’re going have to bring these AI models to the data. Or we’re going to need to find a newer way to bridge that level of connectivity.

So what we built with distributed cloud, we have a capability in there for multi cloud networking. And what we’re finding right now is organizations are leveraging multi cloud networking and they’re building this interesting fabric across their application layer. It doesn’t matter if it’s on prem in the cloud across multiple environments. And they’re able to now connect these applications, APIs, and these AI workloads together. So we think that there is absolutely a play around what we can provide there.

Samik Chatterjee, Host, JPMorgan: Okay. I mean, is the distributed cloud opportunity sort of, I guess, in the three pillars that you outlined already, do you see it as a fourth pillar? Or is the magnitude a bit sort of lower in terms of near term contribution than the other, particularly on the system side?

Konal Anand, Chief Innovation Officer, F5: I think it’s just obviously different compared to the high performance systems. This is speaking more to connectivity. So it’s not going to be around sitting in front of data stores directly. It’s going to be about bridging the different environments. So I view it more as a broader connectivity play rather than a just specific AI play.

Samik Chatterjee, Host, JPMorgan: Okay. Yeah. Great. Maybe talk about the competitive landscape the way you see it today, particularly relative to traditional competitors that you’ve had in the space, Citrix and Radware. And then we can go into sort of the more sort of public cloud competition.

But maybe let’s talk about the traditional competitors that you’ve had in the space.

Konal Anand, Chief Innovation Officer, F5: Yeah, I mean where we’ve been focusing on is obviously a bunch of innovation around, I would say, modernizing what would be a traditional ADC. When we look at our competitors, Citrix, Radware, etcetera, they’ve spent a lot of time in ADC but relatively one dimensional in their capabilities. What we’ve been focusing on is bridging both delivery and security together. I think for the longest time ADC has been synonymous with things like load balancing, traffic management. What we’ve been able to do with a lot of investment and obviously a lot of work is bridging a lot of the security use cases along with the load balancing and traffic management.

And that includes application security, API security, bot protection. We really believe that the infusion of security and delivery is fundamentally important. So for us, we think that that investment and building out that platform play is a core differentiator as it relates to our traditional competitors. Then there is the sort of modern players. Let’s take the hyperscalers as an example.

Many of them have things like load balancing. Some of them have web application firewall. And for those organizations that use those technologies, those are limited to just that cloud. Now 90% of the enterprises that we cater to are sitting across three or more different enterprise environments. That could be multiple clouds.

That could be on prem. And so for them, when they try to leverage something like a hyperscalers load balancer or a hyperscalers WAF, that is limited to just that environment. They’re not able to extend that to other environments. And so for us, the competition there is for us playing in a hybrid multi cloud space, which when we go in and have a conversation with a CIO or a CISO is more appealing rather than them adopting lots of different point solutions and trying to figure out how to make that work.

Samik Chatterjee, Host, JPMorgan: Okay. Got it. Got it. Fair. Coming back to some of the recent trends, and you did have a softer than anticipated software performance in the last quarter, at least from our standpoint, relative to what we model versus sort of what was very clearly a strong quarter for hardware.

And one of the things that always comes up with investors is how can you improve predictability in terms of quarterly software and hardware revenues for investors that follow F5 closely? I know you probably have much more insight, but the productivity on the investor side seems to be a bit lower just given how new numbers move around quarter to quarter.

Cooper Werner, EVP and CFO, F5: Right. Yes. And that’s just part of our business model. We’re going to have variability in the growth rates on a quarterly basis. And it’s really kind of tied to the majority of our software revenue is coming through in our renewals motion on these multiyear software contracts that we book with customers.

And so what we’ve really tried to do is focus investors more on our kind of annualized growth rates because that quarter to quarter variability will kind of normalize over a longer term timeframe. But also I want to just be crystal clear that the lack of a smooth growth trajectory does not equate to a lack of visibility on our perspective. So we have a good insights as to what the timing and shape of these renewals looks like. And we tried to give some kind of indicators, going back to last July, we had said that we thought the first half of the year would be closer to flat growth for software just based on the timing of these renewals with stronger growth in the second half. And that’s pretty much playing out to our expectations with the exception of in Q1 we had an exceptionally strong growth quarter driven by some really healthy expansion across a couple of our larger renewal opportunities.

But we had said we’re not that was acute to that quarter’s renewal base and we weren’t flowing through that expansion, changing our expectations for the rest of the year. So from our perspective, Q2 was pretty much in line with what our expectations were. And we expect to have a very strong growth quarter in Q3. So what we could do to make it more smooth would be to reduce our flexibility that we give customers, give them less choice, have every customer go on an annual subscription agreement and that would smooth the numbers out, but they would be smaller. And we think that the better opportunity for us is to give customers choice that leads to them growing faster with F5.

And we’ll take the kind of ups and downs on the quarterly growth rates that come along with that because longer term it’s a better software outcome for F5.

Samik Chatterjee, Host, JPMorgan: Got it. But one of the questions that stems from what Kunal was saying in terms of high performance systems and demand relative to AI is when we now think about a lot of the investments for enterprise going forward, incremental investments will be towards AI and that pulls in a lot of high performance systems. Does that automatically cannibalize some of the appetite to spend on the software offerings from F5? Do you see any cannibalization happening on that front?

Cooper Werner, EVP and CFO, F5: We have not seen any signs of cannibalization to date. Most of the increased demand that we’re seeing related to AI is on the hardware side, but it’s mostly new use cases. It’s either for direct AI capabilities that customers are rolling out or growth in their apps that are driven by AI that is leading to additional capacity needs in the data center. But we’re not really seeing a shift in customers’ architectures for how they support their hybrid multi cloud environments. So no indicators that we can see to date as to where software is shifting back to hardware related directly to AI.

Samik Chatterjee, Host, JPMorgan: Okay. Staying on software, the revenue growth this year in fiscal twenty twenty five is expected to be low double digits. Following a similar year in fiscal twenty four and then you had 0% growth in fiscal ’twenty three in the software revenue. As we look through a cycle and particularly think about the software revenues through a cycle, like how do you reassure investors that there’s enough there to drive double digit growth consistently in software revenues?

Cooper Werner, EVP and CFO, F5: Right. So you’re referencing what we call kind of a math headwind related to that ’23 software where growth was flat because we saw pressure on new projects related to more of a macro downturn in customer budgets. So that does flow through on that renewal cycle for next year. Now what offsets that are the increased rates of expansion we’ve been seeing with customers. We’re seeing more and more customers that are expanding into new use cases and new functionality across our portfolio at the time of renewal.

And so that’s where we have an opportunity to kind of drive growth in spite of that math headwind. And then also point out that that same math headwind becomes a tailwind in FY 2027 where you see a growth cycle on our FY 2024 numbers that comes up for renewal in FY 2027. Long term, we believe that the software revenue opportunity is a double digit grower on a CAGR basis. There any given year you may see a little bit of a fluctuation up or down just based on some of those cycles. But broadly, we think the opportunity is only increasing based on the expansion that we’re seeing across the portfolio.

Samik Chatterjee, Host, JPMorgan: Mean, clearly on the software side, there’s a lot of reliance on renewals and customers coming back and sort of raising capacity overall. That does tend to sort of lead to concerns about your TAM growth being limited and it’s being driven by a set of customers that you’re renewing. Yes, you’re expanding with them, but the pool of new customers coming in seems to be relatively more modest rate up to the renewals that you’re addressing. Like overall, how do you think about the TAM growth on this front and what can you do to sort of accelerate TAM growth?

Cooper Werner, EVP and CFO, F5: Yes. So the TAM we actually think has a very healthy growth rate. It’s just that a lot of the new projects come through with customers that we’ve already contracted with. So we don’t want to conflate the renewal opportunity as being just a cyclical opportunity. The growth in a lot of the new workloads that customers are seeing in their estates, they’re very often building that into capacity expansion or new use cases at that time of renewal.

So we are seeing a lot of new business opportunity come in either as net new projects or new customers or new functionality with existing customers. So you want to be careful not to just separate them as either business that we’re winning or business that we’re recontracting. The growth is really coming on both dimensions.

Samik Chatterjee, Host, JPMorgan: Okay. Maybe just going into smaller pieces overall. One, talked about competitive displacements, but give us sort of what you’re thinking in relation to how much more there is in terms of headroom on the competitive displacements because that is coming up a lot more on your commentary as well in terms of where the share gains are coming from.

Cooper Werner, EVP and CFO, F5: Yes. So we’ve always had competitive displacements. That’s part of our revenue opportunity going back several years. I think what we’ve seen is an increased appetite by some of our competitors’ customers to move towards F5. And that really started showing up in the numbers more in this past year, past kind of four quarters.

But we think it’s pretty early. We’re just kind of scratching the surface in terms of not just winning some of those accounts but then the follow on opportunity. Most accounts aren’t going to replace their entire state on the initial buy, So they’re going to replace part of their environment. They do the work to standardize on F5 and then they in a more cadence fashion replace the rest of their estate. And so we think that this kind of increased rate of competitive take opportunity is probably a multiyear cycle and we feel like we’re still kind of in the early innings of that opportunity.

Samik Chatterjee, Host, JPMorgan: And would you care to sort of outline between Citrix and Radware like where are the bigger share gains coming from?

Cooper Werner, EVP and CFO, F5: Yes. So Citrix is definitely the bigger opportunity. They’ve got a larger installed base in general, and so I would put that opportunity kind of at the top of the list.

Samik Chatterjee, Host, JPMorgan: Got it. And then again, maybe following up, fair to assume that most of that share gain opportunity comes through on the system side first and then sort of expands into the software domain?

Cooper Werner, EVP and CFO, F5: I don’t know that I’d say it’s mostly systems. It’s really spread across both systems and software. I would say deployable software, so BIG IP software, in some cases NGINX. And then over time one of the differentiators we have is that we have a true multi cloud set of solutions. So there’s opportunity to expand across the rest of the portfolio where some of the traditional competitors really were more kind of data center in cloud based offerings but didn’t really have an offering for SaaS based environments.

Samik Chatterjee, Host, JPMorgan: Okay. Let me take a quick pause and see if anyone in the audience has a question. Any questions in the audience?

Unidentified speaker: Thank you very much. Very insightful. How are you thinking about your equity compensation or incentives for executives and employees? Any change or things you’re thinking about differently with the market environment?

Cooper Werner, EVP and CFO, F5: Not at this time. We’ve had a pretty steady equity compensation in terms of percentage of revenue. It’s slightly declined over the last couple of years. I will say that as we look ahead to things like AI and the competitive nature of talent acquisition, that’s something we will have to consider is to what’s the best way to attract and retain top talent. See really exciting opportunity with AI.

Kanal outlined several dimensions where we think that we can drive an increased revenue growth opportunity related to AI, but there is cost to acquiring that talent. So it’s something that we’re spending a lot of time on in terms of how to attract the best talent.

Unidentified speaker: Maybe

Samik Chatterjee, Host, JPMorgan: last three questions here. One, federal spending, a lot of discussions and noise around pullback there. How are you sort of maybe quantifying the risk around it or embedding any risk around it, and what is your exposure to the federal spending specifically?

Cooper Werner, EVP and CFO, F5: Yeah, so federal is typically in the kind of 5% to 10% of revenue. That’s the mix that we get from federal government depending on the quarter. Our prioritization is pretty high within federal budgets. So we understand that there is, of course, some uncertainty in terms of various budgets within federal government. In terms of the appetite to reduce waste, our products we don’t really feel are exposed to that dynamic just because we’re not a seat based model.

Most of our solutions are tied to kind of mission critical engagements. And so we’re tied to security as an example. We haven’t really seen any notable change in demand from federal government. We haven’t seen any pull in either. That’s always the question is with uncertain budgets, do you see some pull in while you have the budget, but we haven’t really seen that to date.

Samik Chatterjee, Host, JPMorgan: Okay. You’ve been building cash on the balance sheet and like now you generate 700,000,000 8 hundred million dollars 7 hundred million to $800,000,000 free cash flow, you’re buying back $500,000,000 There is some cash that keeps building every year on your balance sheet. I mean how are thinking about allocation there, allocation priorities on that front?

Cooper Werner, EVP and CFO, F5: Yes. So we’re still in kind of the same commitment of repurchasing shares greater than 50% of our free cash flow. That’s our model that we’ll continue to operate with. We want to make sure that we’ve got flexibility strategically in terms of our balance sheet. I’ll also note that about 60% of our cash is held offshore.

And so there are opportunities to bring some of that cash back across, but we want to be mindful in terms of any tax implications that that could have.

Samik Chatterjee, Host, JPMorgan: And so when you say you want to keep balance sheet for flexibility for strategic actions, M and A being a part of it, mean, I did do a bunch of acquisitions, but it’s been a while since you did the last one.

Cooper Werner, EVP and CFO, F5: Yeah. We’ve been doing more kind of tuck in type acquisitions and those have been incredibly successful. We’ve had what we feel are really good returns in terms of the capabilities that we’re able to bring to market quickly with some of these smaller acquisitions. We’re constantly kind of surveying the landscape and seeing where there’s an opportunity to accelerate our roadmap in terms of M and A. So it’s not to say that there might not be larger opportunities that come our way, but those tend to be a little bit fewer and further between.

But M and A will always be part of our strategic posture.

Samik Chatterjee, Host, JPMorgan: Last one for you. You are one of the few companies at Howard that’s hitting the rule of 40 at this point. While that’s always good to see, how do you think about sort of upside on the operating margin from here on? Is it purely a case of continuing to drive operating leverage? Or is there a ceiling?

I mean, you’re at 35% operating margin. Is there a ceiling for a company of the sort of P and L structure that F5 has?

Cooper Werner, EVP and CFO, F5: Yes. I don’t know that we characterize it as a ceiling. We do think there’s an opportunity to continue to drive operating leverage over time. I think we’re always going to be balancing that with what we think the revenue opportunity is. We try to plan relatively conservatively in terms of our assumption on top line and how we then resource the rest of the model to make sure that we’re able to continue to drive double digit earnings growth sustainably over time.

We’ve outlined several vectors of potential inflection in revenue growth over time. So we will kind of make that balance in terms of how we resource the business to go after those opportunities. But we do think that there is more operating leverage in the model.

Samik Chatterjee, Host, JPMorgan: Great. I’ll wrap it up there, but thank you for coming to the conference and thank you to the audience as

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