Good afternoon, and welcome to the F5 Networks' First Quarter Fiscal 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Also, today's conference is being recorded. If anyone has any objections, please disconnect at this time. I'll now turn the call over to Ms. Suzanne DuLong. Ma'am, you may begin. Hello, and welcome. I'm Suzanne DuLong, F5's Vice President of Investor Relations. François Locoh-Donou, F5's President and CEO, and Frank Pelzer, F5's Executive Vice President and CFO, will be making prepared remarks on today's call. Other members of the F5 executive team are also on hand to answer questions during the Q&A session. A copy of today's press release is available on our website at f5.com, where an archived version of today's call will be available through April 27th, 2021. Today's live discussion is supported by slides which are viewable on the webcast and will be posted to our IR site at the conclusion of today's discussion. A replay of today’s call will be available through midnight Pacific time, January 27th, by dialing 800-585-8367 or 416-621-4642 using meeting ID 605-5259. For additional information or follow-up questions, please reach out to me directly at s.dulong@f5.com. 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. Factors that may affect our results are summarized in the press release announcing our financial results and described in detail in our SEC filings. Please note that F5 has no duty to update any information presented in this call. With that, I'll turn the call over to François. Thank you, Suzanne, and good afternoon, everyone. Thank you for joining us today. Our first quarter results showed a strong momentum in our business. We delivered Q1 non-GAAP revenue of $626 million, representing revenue growth of 10%. We also delivered 70% non-GAAP software revenue growth, systems growth of 5%, and global services growth of 1%. Several quarters into the pandemic, several things are becoming clearer from the macro perspective. First, the realities of the pandemic have accelerated our customers' digital transformation and both business and consumer dependency on applications. At the same time, consumers' expectations about their application experience have increased significantly. As a result of higher volumes and higher consumer expectations, our customers are ramping their investments in their applications and the infrastructure needed to securely deliver them. In addition, incumbency is a significant advantage for F5 in the current environment. Customers want a trusted and operationalized partner they know they can count on. These macro drivers play to our strength, including our strategy to invest over the last several years in pursuit of our adaptive applications vision. Our continued investments in BIG-IP for multi-cloud deployments and the deliberate and early investments in both NGINX and Shape are enabling us to rapidly grow our application security and delivery footprint in modern application environments. I will speak more to our business growth drivers and momentum, including some customer highlights from the quarter after Frank reviews our first quarter financial results and our outlook for Q2. Frank? Thank you, François. Good afternoon, everyone. As we previewed in our preliminary results announcement, as François just highlighted, we delivered a very strong Q1. On a GAAP basis, Q1 revenue was $625 million. First quarter non-GAAP revenue of $626 million was up 10% year-over-year and well above the high end of our initial $595 million-$615 million guidance range. Please note as I review our revenue mix, I will be referring to non-GAAP revenue measures. This will be the last quarter we speak about non-GAAP revenue as we lap the acquisition of Shape. Going forward, the add back of the Shape purchase accounting write-down is de minimis. Q1 product revenue of $289 million was up 23% year-over-year and accounted for approximately 46% of total revenue. This is the strongest product revenue growth we have delivered since Q2 of fiscal year 2011, nearly a decade ago. As François noted, customers accelerating their digital transformation efforts drove growth in both our software and system sales. Software revenue was $111 million, growing 70% compared to the year-ago period, which did not include contribution from Shape. Excluding Shape's contribution in Q1 of 2021, software revenue grew approximately 35% year-over-year. Our mix shift continued this quarter, with software representing 38% of product revenue in Q1, up from 28% in the year-ago quarter. Customers' preference for flexible subscription models continued to fuel our subscription revenue momentum. In Q1, we again drove record subscription volume, with subscriptions representing 77% of software revenue in the quarter. Services revenue of $337 million grew 1% year-over-year and represented 54% of revenue. Revenue from recurring sources, which includes term subscriptions, as a service and utility-based revenue, as well as the maintenance portion of our services revenue, totaled 66% of revenue in the quarter. This is up from 63% in the year-ago period. The improvement comes largely as a result of the strong subscription software momentum I mentioned previously. Systems revenue of $179 million was up 5% compared to last year. François will speak to the drivers of this strong performance in more detail. On a regional basis in Q1, Americas delivered 14% revenue growth year-over-year, representing 55% of total revenue. EMEA delivered 4% growth, representing 26% of revenue, while APAC grew 7% and accounted for 19% of revenue. Looking at our bookings by vertical, enterprise customers represented 67% of product bookings, service providers accounted for 14%, and government customers represented 18% of product bookings, including 6% from U.S. federal. Let me now share our Q1 operating results. GAAP gross margin in Q1 was 81.6%. Non-GAAP gross margin was 84.4%. GAAP operating expenses were $392 million. Non-GAAP operating expenses were $322 million. Our GAAP operating margin for Q1 was 18.9%, and our non-GAAP operating margin was 33%. Our GAAP effective tax rate for the quarter was 25.1%, and our non-GAAP effective tax rate was 21.7%. GAAP net income for the quarter was $88 million, or $1.41 per share. Non-GAAP net income was $161 million, or $2.59 per share. I will now turn to the balance sheet. We generated $137 million in cash flow from operations in Q1. Cash and investments totaled approximately $1.5 billion at quarter end. We did not make any share repurchases in Q1. We remain committed to repurchasing $1 billion in shares over the next two years, including $500 million via an accelerated share repurchase program in fiscal year 2021. DSO was 50 days. Capital expenditures for the quarter were $5 million. Deferred revenue increased 10% year-over-year to $1.4 billion. We ended the quarter with approximately 6,160 employees, up approximately 50 from Q4. Now, let me share our guidance for our fiscal second quarter. Unless otherwise stated, please note that my guidance comments reference non-GAAP metrics. With the Volterra deal recently closed, our Q2 outlook incorporates the addition of their financials to our guidance expectations. Near term, we expect customers will continue to invest to support application growth and the modernization of their application infrastructures. We also anticipate continued focus on an investment in application security. With this in mind, we are targeting Q2 fiscal year 2021 revenue in the range of $625 million-$645 million, reflecting year-over-year growth of approximately 8.5% at the midpoint of our range. While we do not give quarterly guidance on product revenue mix, we do anticipate continued near-term strength in systems, with Q2 growth likely similar to Q1. We would also remind you that our prior year Q2 software revenue growth was exceptionally strong at 96%. This difficult comparison is likely to be reflected in our Q2 2021 software growth rate being below our Horizon 2 target of 35%-40%. This is consistent with our commentary about the potential for quarterly variability in software growth rates as we continue to scale our software business. We expect Q2 2021 gross margins of 84%-84.5%, and we estimate operating expenses of $340 million-$352 million. As we discussed last quarter, we generally see a seasonal increase in operating expenses in Q2. We expect our Q2 operating margin to decline from Q1 and then to increase in the back half of the year to achieve our FY 2021 non-GAAP operating margin target of 31%-32%. I will remind you once more that our Q2 2021 outlook also incorporates the addition of Volterra into our operating model. We anticipate our effective tax rate for Q2 will be in the range of 21%-22%. Our Q2 earnings target is $2.32-$2.44 per share. We expect Q2 share-based compensation expense of approximately $62 million-$64 million. As for capital deployment, as I mentioned previously, we intend to repurchase 500 million shares via an accelerated share repurchase in fiscal 2021. With that, I will turn the call back over to François. François? Thank you, Frank. Several quarters into the pandemic, it is growing clearer that COVID has accelerated digital transformation and both business and consumer dependency on applications. As a result, our customers are accelerating their digital transformation investments. Incumbency is also an advantage for us in the current environment, and together, these trends are enabling us to drive strong growth. Underneath these micro drivers, and consistent with our discussion at our November Analyst and Investor Meeting, there are three F5 specific growth drivers fueling our demand. One, ongoing software and subscription momentum. Two, growing demand for application security. Three, resiliency in systems-based demand leading to moderating systems revenue declines. As we noted in November, these multiple growth drivers mean that we also have multiple paths to achieve our Horizon 2 revenue growth targets. More specifically, we do not need everything to go exactly right to achieve our goals. In Q1, we had a lot go right and customer demand drove growth across all three of these drivers. I will speak to each in turn. First, we continue to see demand for software and subscription consumption across our application security and delivery solutions. I will focus first on our BIG-IP and NGINX solutions. Customers look to BIG-IP to refresh core business applications for capacity additions and to simplify traditional application delivery in cloud environments. In one example during Q1, a large financial institution struggled for months to turn up a mission-critical application in a cloud environment. This was despite the best efforts of the cloud provider they were working with. Frustrated, they turned to F5. In under one day, we helped them get the app up and running in the cloud with multiple BIG-IP virtual editions. This use case highlights the customer benefits we have driven as a result of our investment to modernize BIG-IP, making it easier and more efficient to use in cloud environments. Let me turn to NGINX. At the time of the NGINX acquisition, we deliberately invested in new products, accelerating time to market. Specifically, we built a joint F5 NGINX Controller and rapidly ported F5 security to the NGINX platform. This quarter, NGINX delivered its largest quarter ever with broad-based strength across geographies. This strength was driven in large part by robust NGINX Controller traction, as well as integrated F5 security through NGINX App Protect. During Q1, we also secured a win for BIG-IP Controller, NGINX Plus, and NGINX App Protect with a longtime F5 federal government customer. While upgrading its current BIG-IP infrastructure, this customer also selected NGINX to help prepare for migrating network infrastructure from physical to virtual, while building out capabilities to support containerization. NGINX is leading the way in a number of modern application use cases, including cloud-native load balancing, scaling APIs, and delivering Kubernetes applications in production. As applications continue to get more distributed, we expect the investments we are making to deliver API gateway, API management, and service mesh capabilities will drive additional NGINX momentum. It should come as no surprise that customer demand for application security is also growing. With the ongoing pandemic fueling ever-increasing consumer use of digital channels, the threat landscape is growing significantly. With application-based attacks growing both in numbers and sophistication, customers are looking to F5 for help. The combination of our organic investment and the addition of Shape has created an enhanced F5 application security portfolio. If you map our solution set against the top application security threats, it is clear that we are very well positioned to help our customers address the most frequent incidents and the most damaging breaches. We continue to see increased interest in adding F5's enterprise-grade web application firewall protection to modern applications. During Q1, a major car manufacturer selected NGINX with App Protect when they needed a cloud-independent, portable, scalable solution that included a container-friendly web application firewall. We also are seeing growing traction for SSL orchestration. This encrypt/decrypt use case is a strategic differentiator for F5, and while it tends not to be a big revenue driver on its own, it is a strategic control point in enterprise customer security stack, which gives us the ability to pull in BIG-IP security and Shape. Let me speak also to the traction we are seeing with Shape and in particular, our Shape Silverline combination. Last quarter, we highlighted the benefit of making Shape's industry-leading anti-fraud solution available to a much larger customer base through our Silverline managed services platform. Silverline Shape Defense delivers advanced bot protection to prevent large-scale fraud. Shape AI Fraud Engine, or SAFE, is a cloud fraud prevention service. As a combined solution, our Silverline Shape Defense and SAFE Solutions enable sparsely resourced organizations to deploy true industry-leading capability. Combining Shape's anti-bot and anti-fraud capabilities with Silverline in managed service also makes it easy to quickly deploy Shape's capability, which is especially useful when customers are in crisis. There are two interesting use cases that have emerged. First, Shape Silverline Defense is being used by several U.S. states to combat rampant fraud related to unemployment benefit. The combination of sky-high demand and limited security of fraud capabilities created an ideal environment for fraudsters who are conducting sophisticated attacks against unemployment sites as well as other unprotected state domains. With a Silverline Shape Defense solution, we can go in and offer real data about what is happening, unveiling the true scale of the threat. Once enabled, Shape's sophisticated AI and machine learning capabilities identify and block the fraudsters. Credit unions also are emerging as an ideal use case for Silverline Shape Defense. With new web and mobile banking capabilities coming online and larger transfer limits being introduced, credit unions can present an easy target for sophisticated attackers. Pressure to provide the same services as big banks is exposing them and their lack of cybersecurity and fraud capability. Shape Defense provides an affordable, turnkey, easy-to-deploy managed security and fraud solution, as evidenced by the five credit union wins our sales team delivered in Q1 2021. We are as excited as ever about the use cases Shape has opened for us. Going forward, we see additional potential to leverage Shape's analytics engine to build new analytics offerings that enable us to go beyond application security to drive revenue enhancements for customers. Finally, let us talk about systems and the drivers for the growth we saw in Q1. First, I will note that our systems business is also benefiting from the macro trends I mentioned previously, namely COVID driving increased application use and accelerating investment in digital transformation. Q1 strength in systems was broad-based across geographies and industries. We identified three primary factors behind our strong systems performance. First, as we have discussed previously, we have seen growing demand for systems-based security use cases. Second, over the last several years, customers have gained clarity on their cloud strategies and now expect to operate in a hybrid multicloud world for some time to come. As a result, they are more willing to purchase systems to support capacity needs driven by accelerating digital transformation. We believe both of these drivers are sustainable. Third, Q1 also benefited from some COVID-suppressed systems catch-up. Customers who have put off systems purchases for several quarters simply can no longer defer growing capacity demands. For a very small subset of our customers that had not refreshed in a long time, a long-planned April end-of-software-development milestone on one of our legacy systems contributed to their desire to act sooner rather than later. For clarity, I would note that end of software development is very different than end of support. In this case, the April milestone pertains to an end-of-software development date that has been well-publicized for years, providing customers a long planning runway. We estimate this catch-up demand drove approximately $10 million in system sales in Q1. We see this as a transient systems growth driver, though we do expect it to carry over into Q2. Finally, while I did not call it out as a growth driver, our expanded reach and role has also expanded our strategic position with customers. This has enhanced our ability to connect with C-level personas and also means we are more often considered for opportunities that span our application security and delivery portfolio, bridging traditional and modern applications in both hardware and software form factors. As an example, in Q1, one of the United States' leading healthcare providers selected BIG-IP hardware, software, security, and NGINX to keep their critical care applications running nonstop while beginning to migrate to next-generation apps for their care providers. This project re-emerged as a priority for the customer after being deferred last February so the customer could divert all necessary resources to fighting COVID. In closing, we are encouraged by our momentum and believe we are seeing clear signs that our organic investments and our value creation methodology for both NGINX and Shape are paying off for customers and investors alike. We were very pleased to announce that our acquisition of Volterra closed yesterday, the team has already begun the hard work of integration. Initial customer feedback about the combination of F5 and Volterra has been very positive. Customers are excited about the potential of F5's Edge 2.0 to eliminate the pain they feel from today's closed edge platforms. Our Edge 2.0 will be the first edge platform built for enterprises and service providers. It will be an open edge platform that will allow every service to run on any server, virtual or otherwise, inclusive of public clouds. We are very excited to have the Volterra team as part of F5 and are looking forward to sharing our progress with you going forward. I will wrap up today's prepared remarks by thanking the entire F5 team again, as well as our customers and our partners. With that, operator, we will now open the call to Q&A. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from Sami Badri from Credit Suisse. Please go ahead. Great. Thank you, and congratulations on the solid quarter and highlighting some of these major trends and drivers that we're seeing in your business. François, I want to go back to almost about a year ago when the pandemic first started, and you called out pros and cons of the pandemic of some deals being pushed out, some deals being re-accelerated back. Some of the catch-up demand that you saw in fiscal 1Q and the catch-up or potential pull forward, or sorry, however you want to put it, the catch-up of demand in fiscal 2Q 2021. Are you basically seeing all the deals that were punted about a year ago or through 2020 are all essentially coming back in full force, at least within 2021? Hey, Sami. Thanks for the question. The short answer is no. On what we call the catch-up demand, there are some customers, and I would say there is a small subset of customers who have waited and waited on adding capacity, in part because of the uncertainty related of COVID or the absence of resources or the ability to physically do it, who are now doing those refresh. If you go back to the deals that were pushed out at the beginning of the pandemic, there were some software deals, we call them software transformation deals, that were pushed out. We're starting to see these come back, but not yet in a big way. I think that's still ahead of us. Got it. My other question is to do with systems revenue, and I know we had the Analyst Day relatively recently, where you did guide a little bit differently to systems versus what you're guiding today and reported fiscal 1Q and then guiding through fiscal 2Q with the 5% growth. Now, based on some of the underlying industry drivers that you highlighted and some of the customers that have identified F5 gear as the go-to gear for security measures, does your overall Analyst Day guide boost or negative growth of systems in fiscal year 2021 and for Horizon 2? Does that kind of now go away, and we're looking at a little bit of a different trajectory? Well, Sami, I think we've got to go back and look at the drivers of our hardware business. I think if you look at where we're at today, Sami, there are two macro things that are benefiting the company in general. Generally, there's more spending on applications infrastructure. We have positioned ourselves to benefit from that, and I think that's a long-term effect. There's also the effect of the company is strategically better positioned because of the combination of hardware and software and cloud solutions and security solutions that we have, and that allows us to have more strategic conversations with our customers and being seen as a future-proof partner for their strategic plans. All of that benefits all of our business, including our systems business. If you look at the drivers specifically to our systems business, there are two drivers that I think are long-term and one that is more of a transient driver. If you look specifically on the long term, we talked about at Analyst Day that our mix of security had grown, and that was helping our systems business. This quarter, we saw again stronger growth in security than in the overall demand. That helps the systems business. The second factor in our systems business is that generally, we have some customers who, as you recall, we talked about that two, three years ago. Customers who basically have said they were either going all in on the cloud or they were essentially pausing the systems business to reconsider their architecture for public cloud deployment. I think a lot of customers we're seeing have kind of graduated from that and now have a clear strategy around the cloud. They have maturity around knowing that they're going to operate in hybrid cloud environments for a long time to come. They're very comfortable moving forward with hardware as part of their long-term architecture. We're seeing some customers that have decided not to buy any more hardware at all, that are coming back and now refreshing or adding capacity to their systems. I think those two aspects are longer term, Sami. There is one transient driver, which is a subset of our customers that really had to make a refresh because of the extent of software development. We think that was about $10 million in the quarter. We think that kind of carries on in Q2, but that's a really short-term demand. When you take all of that into account, we're not changing our Horizon 2 guidance. Yes, there is the possibility that our hardware business will do better in Horizon 2 than what we saw at AIM. We certainly think that for FY 2021, it's likely to do better than what we had in our overall Horizon 2 guidance. Got it. Thank you. Congrats again on the quarter and the dynamics. I'll pass it over to the next question. Thank you, Sami. Your next question comes from Alex Henderson from Needham. I was hoping you could talk a little bit about what you think the impact might have been from the SolarWinds hack, and to what extent your software, your systems, your cloud capabilities are seeing an acceleration in demand. If you've heard from any of your CIOs, CTO, CFOs, CEO contacts or even board contacts, whether companies are increasing their spend on IT or specifically security as a result, and to what extent you think that'll translate to F5 demand. Alex, you're asking if they're increasing their spend on cloud and security as a result of what? The SolarWinds hack. Okay. Not necessarily directly, Alex. There is, of course, heightened awareness of it, generally by CISO and security organizations. Our security trends have been pretty strong over the last several quarters. The aspects that have accelerated security for us relate more to, A, more customers moving to software and attaching more security use cases as they move to software. Same happening when they move to the public cloud, attaching more security in the public cloud environment. With the addition of Shape, what we have seen, frankly, since the pandemic started, but we're still seeing today is as more and more businesses go to digital channels, that also attract more fraud. Our offers for anti-fraud are seeing very strong demand. I mentioned a couple of use cases in my prepared remarks, but that is across the board, large and small companies. There is more online fraud, and we're very well positioned to protect against that. Clearly you guys are seeing an increased correlation between your appliance sales and your software sales. You're suggesting that's from hybrid cloud, but hybrid cloud's been in place for quite a while. Is it also possible that the launch of the Beacon product and the integration of NGINX back into the appliances accelerate and expand your ability to tie together the enterprise IT spending for campus and data center with the cloud integration, and therefore pulling both as a result? Alex, yes, there is definitely an element of the overall portfolio creating stronger demand for F5. Beacon is still early days, but certainly with NGINX, there is a significant factor, and we're seeing it here. It's the halo effect of our participation in modern application. What's happening, Alex, is a lot of times we think about traditional and modern applications in kind of separate silos, but the reality for large enterprises is they do a lot of application modernization. That is, they will have a traditional application that is typically supported by BIG-IP, and as they modernize that application, they don't refactor it, but they add modern components to that application. These new modern components, typically microservices, NGINX is ideally suited to support these modern components. We're seeing that the combination of NGINX and BIG-IP gives a full solution set for these modernization initiatives that customers have, and it's pulling both NGINX and BIG-IP together. There's definitely an effect of the portfolio and the synergies coming together, and driving growth. Great. Thank you very much. I appreciate the answer. Your next question comes from the line of Tim Long from Barclays. Please go ahead. Thank you. Two quick ones if I could. First, could you guys talk a little bit about the organic software revenue growth line, Frank, understanding the tough compare, maybe just talk a little bit about how we should look at that line in the future. Are we going to see it being a little bit less lumpy, particularly as we've seen deferred revenue really grow pretty strongly. Is that something you expect to normalize around a higher number as we get through some of the tougher compares? Second, I think at your Analyst Day or somewhere around there, you talked about a $100 million cloud revenue number. Could you just give us a little color in the quarter, whether it's qualitative or quantitative, around how the cloud specific software businesses did for F5? Thank you. Tim, it's Frank. Let me start with the first part, and then I'll turn it over to François for the second. In terms of the organic growth in the quarter, we talked about 35%, and in the second quarter, we talked about that being likely lower than that 35%-40% range that we've given you for Horizon 2 based off the telcon that's coming up at 96% in Q2 2020. As the business continues to scale and as we get more of it from recurring subscriptions, we do expect to have some more normalization in that and not necessarily see the same swings. As we've talked about from the beginning when we discussed software revenue, gosh, almost three years ago now, we said that it will be lumpy for this time as we continue to build out scale in the model. Overall, we are not changing at all our Horizon 2 outlook of a compounded annual growth rate of 35%-40%. François, you want to add anything on the cloud side? On the cloud side, Tim, we have very strong demand in the cloud. The growth in public cloud was actually stronger than the organic software growth rate that you saw. That has been the case for the last number of quarters. Generally, Tim, to the demand of software, we will see still some variability. The overall demand drivers for software are very strong. I'll point to a couple. We had an all-time high number of multiyear subscription agreements in the quarter. A lot of these subscription agreements include multiple software solutions from F5, including NGINX. NGINX had the best quarter ever. We're really seeing as customers start to really deploy these modern applications, NGINX growing very fast. We also made some investments too, as you know, in NGINX a year ago in the controller and app security, and we're seeing the effect of those in terms of growing the size of deals that we have and the addressable deals that we can bring to the table. When you factor that cloud, the number of subscription agreements, NGINX, and some new catalysts that haven't played out yet, we have some catalysts around the True Forward in our subscriptions, some new use cases for Shape that are coming. We feel very good about our software for Horizon 2. Okay, thank you. Thank you, Tim. Your next question comes from Paul Silverstein from Cowen. Please go ahead. Appreciate it. Before I ask my questions, I was hoping I could ask Frank to just clarify two pedestrian issues. One, Frank, is my math right that Shape did roughly $22 million in the quarter, given your comment about organics in total growth for software? Paul, actually, it was higher than that, but we didn't give the exact number, but it's higher than that. There was some slight growth over what we had experienced in Q4. All right. I suspect I know the answer to this question, but I'll ask. François, you made the statement multiple times that you had the best record NGINX quarter, which means you clearly know what the specific NGINX revenue was. Is that a number you're willing to share with us? I hope the answer is yes. No, we haven't broken out NGINX lately. You saw the numbers, Paul, that we showed at our Analyst and Investor Day around the doubling of revenue of NGINX and the growth in deal size. Essentially this trend is continuing or accelerating, I should say. Yeah. No, I get it. Okay. I'm not sure. You want credit for it, but you don't want to give us the details. I'll move on. Let me ask you the real questions. Operating leverage. You've been very clear that you're going to drive operating leverage this year, next year, and beyond. I assume it's as simple as you guys are planning to grow OpEx slower than revenue, which obviously that's the math, but the question really is, it's within your control. Since there's a variance in revenue growth up or down relative to your Horizon 2 fiscal 2021, 2022 outlook, are you planning to adjust OpEx accordingly? Which leads? Does revenue lead, or does OpEx lead? Paul. What we talked about is the 31%-32%, and that's what we are targeting. If we find opportunities for investment to continue to drive that revenue growth, we will make those investments. Having said that, we are committed to that 31%-32% in FY 2021 and the overall Horizon 2 outlook that we gave you, as well as the long-term model. That's the way we are managing the business. We are very excited to see the 10% growth this quarter and the 8.5% for next quarter implied in the midpoint of our guidance range, and those are both obviously above the Horizon 2 outlook. The factors that go into the Rule of 40, we ended up at 43 this quarter. We're really happy with that continued progress. That Rule of 40 is the North Star that we continue to strive for within the business. All right. I trust from your comments and François' comments that visibility today is better than it was 90 days ago, 365 days ago. Let me ask you the opening question. What is visibility today versus previous periods? Has it improved or has it remained solid? I'm assuming you mean visibility in the pipeline and sales opportunities is the primary factor here. Forward-looking metrics, correct. Yep. Visibility continues to grow and be strong for us, Paul, and we're excited about the outlook that we've given you. All right. I'll pass it on. Appreciate it. Yep. Your next question comes from the line of Meta Marshall from Morgan Stanley. Please go ahead. Meta Marshall, your line is open. Apologies. This might be circling around some of the other questions that were asked. You had noted a couple of quarters ago that people were kind of heads down amidst COVID and that if they were buying physical editions before, they continued to buy physical editions. If they were buying virtual, they continued. You spoke, François, about people kind of having a little bit more of a framework of what their hybrid architectures look like. I guess I'm just trying to get a sense of, is there still a contingent of customers who are just kind of heads down and just trying to address the problems with their current architectures, and that could be kind of lifting systems revenue for now? Just maybe some of the puts and takes on the lumpiness in the service provider revenue and just understanding some of that is project-based, but just maybe that tracking a little bit under traditional kind of percentage of revenue would be helpful. Thanks. Hi, Meta. Let me start with the service provider. Our bookings in our demand in service provider were up year- on- year. We continue to see a strong demand in 4G solution. We're seeing start of some capacity increases related to 5G, we think the bigger kind of demand in 5G is probably still 6- 12 months away. Generally, the trends in our service provider business has kind of continued as stable. As it relates to customers in the enterprise and whether some of them are still not moving forward with some projects, yes, that is still the case. What we're seeing, Meta, is our incumbency in a number of customers and the fact that we're operationalized, whether we're operationalized in hardware or in software, is actually a significant advantage because we still see a lot of customers that continue to do incremental things and will come back to bigger transformational projects later. Yes, in some ways, because with a number of customers, hardware is still a majority of our business. That does favor our hardware business in a way more than our software business. Great. Thanks. Your next question comes from the line of Rod Hall from Goldman Sachs. Please go ahead. Question. I wanted to see if you guys could give us some indication of what you're thinking for services growth in Q2. I have a follow-up on that. Yeah, we didn't split it out specifically, Rod. I think it's going to be in those low single digits. My guess is it's higher than the 1% that you saw this quarter, but I'm not expecting it to be in the mid-single digits. Like 2%, 3%, Frank, something like that? Yep, something like that. Okay. I wanted to come back and just clarify what you guys said in response to Paul on the organic software. Maybe, I guess, the more direct question is what the Volterra contribution would be in Q2. Can you give us any idea on that? It's de minimis. We talked about less than $10 million for the full year when we announced the acquisition, and so it's going to be de minimis, Rod. It's not a number that we're going to split out. Okay. Finally, just another clarification. This $10 million that you guys talked about in Q1, and then I think, François, you said it carries into Q2, but it wasn't clear. Are you saying $10 million again in Q2, or I would assume some number less than that, but can you clarify what that number should look like in Q2 roughly for us? Yeah, Rod, it was about five to eight points in the quarter. It may be something similar to that. There's obviously a declining revenue stream between Q1 and Q2 for systems on the product side. It's hard to say exactly, but it probably is a little less than 10, but I wouldn't say it's dramatically less than 10. Frank, that falls to zero after Q2, right? It's just a Q1, Q2 phenomenon, you think? I'm not giving guidance beyond that, Rod, but the date that we had given out was April 21, two or three years ago, and so it could stretch beyond that. For some customers, this is a two or three-generation-old product, and so I don't know exactly when people are going to go through that upgrade cycle, but our guess is it's done mostly by next quarter. Okay, great. Thanks very much. Appreciate it. Your next question comes from James Fish from Piper Sandler. Please go ahead. Hey, guys. Thanks for the question. A little bit on the guide and the results here. You said it wasn't budget plus a few weeks ago and talked about project deferral and increased app infrastructure investment. I guess, could you, in any way, break out how much of it was project deferral from product quarters coming into the quarter here versus increased activity and pipe around that app infrastructure investment versus, frankly, share gains? Well, hi, James. Look, I think the major drivers here are more around increased investments in application infrastructure driven by an acceleration of digital transformation, and digital channels for all companies that is flowing through application infrastructure and capacity additions. I think that, I would say, is factor number one. I think our improved strategic position with customers and the fact that they are more comfortable moving forward with a hardware purchase with F5, knowing that we are also their partner for software, that we're now also their partner for modern applications, that we're also their partner for public cloud deployments, and they don't see F5 as a single-threaded horse, if you will, that's just a hardware partner. That is also providing opportunities to move forward even in hardware. I would say those are the two major factors. The catch-up is just for some customers that have just tried to wait out, if you will, the pandemic to do some refresh. Some of them are moving forward, but I would say that's less of a factor than the first two. That's helpful, François. Last one from me, and going off of Rod's question. Obviously, it was announced a couple of years ago. Just making sure we should think about it as $10 million for fiscal Q2, or could it be more? Really, my question is, are there other systems over the next 12-18 months that are on a similar path that we should be reminded of? Yeah. For fiscal Q2, James, you should think of it as $110 million or less. We think it will be less than what it was this quarter, as Frank said, but exactly where, can't pin it. To your point around other systems that were maybe the same situation, there isn't any similar effect in the next 18 months. Thank you. Congrats, guys. Thank you, James. Your next question comes from Jason Ader from William Blair. Please go ahead. Yeah, thank you. Hey, guys, I'm just curious, would you say it's possible that the growth outlook for your ADC business has actually hit an inflection point? Well, yes. I think as we discussed earlier, whilst we are not changing our overall view for Horizon 2 of an overall growth of 7%-8%, if you look at the recent trends, it's possible that we're going to see on our systems business, a better trend than what we anticipated in our Horizon 2 guidance. Now, I will remind you that when we laid out our Horizon 2 guidance and the drivers of growth for F5 that are driving the 7%-8% growth, there were three substantial drivers. The first one is continued momentum in software and software subscriptions. I mean, we posted 70% growth year-over-year this quarter. We're going to continue to see very strong growth in software because the flywheel of subscriptions that we've put in motion now two and a half years ago is really working well for us as a motion and for our customers. The second driver is demand for application security, and we're seeing that also being very strong, boosted by the addition of Shape and the use cases that I've talked about. The third driver was a moderation in our systems declines, and we had said at the time it would moderate from double-digit to high-to-mid single-digit decline. Now, we felt when we put the guidance together that not all three of these things had to go perfectly for us to achieve the 7%-8%. We have multiple paths of getting there. Right now, in this first quarter, essentially, all three are pretty much going very well. If that continues, there's a possibility we do better than what we thought. Right now, specifically in hardware, the trends are pretty strong. Can you remind us what was the kind of organic growth, excluding the three acquisitions? What were you telling us on what that would grow in Horizon 2? The growth for Horizon 2 was 35%-40% for all software. The only component of that, pre-Volterra, of course, that was organic, was just one quarter of Shape, which was the quarter we just had, the first quarter. Everything else was organic. Okay. I guess what I was asking is the non-NGINX kind of ADC business, if that was going to be flat to slightly up. Could the outlook for that be more something like mid-single digit growth going forward? We don't break that out. The answer is no. It wasn't going to be flat. It was going to grow much faster than that. We don't break out specifically the software growth percentage of BIG-IP versus NGINX. Frankly, increasingly, as I showed earlier, those solutions are actually used in the same subscription agreement to support customers that have traditional and modern applications that need to scale. They have become increasingly synergistic and kind of driving growth for one another. The software growth number that we shared, including BIG-IP, NGINX, Shape, as part of our security portfolio. Okay. Thank you. Thank you. Your next question comes from Samik Chatterjee from JP Morgan. Please go ahead. Hi. Thanks for taking my question and squeezing me in here. I guess, François, from what I hear related to your comments here, it does sound more like what you are saying is you did not really need software, systems, and services to kind of fire on all cylinders. Given where you are today in the first half, you would exceed the 7%-8% Horizon 2 revenue growth target this year if things continue this way. So I just wanted to confirm that is what you are implying, and then if you can help me think about sustainability of that higher than kind of 7%-8% growth rate into next year, given the momentum that you are seeing in the business. I have a follow-up. Thank you. Samik, just to be clear, we're not changing our guidance for Horizon 2 of 7%-8%. That remains our view on Horizon 2. If we're thinking specifically about FY 2021, Samik, if you look clearly in the first half, our expectation, if you look at the midpoint of guidance for Q2, is we will exceed the 7%-8%, just on the basis of the first half. Frankly, if the trends that we're seeing right now were to continue, there's a possibility we could exceed that as well for FY 2021. We're not here guiding for FY 2021. If you're asking about the underlying drivers that I see in the business for growth, I think the drivers we're seeing for both software and security are very strong and very sustainable. In hardware, some of the drivers we're seeing that I've talked to are actually sustainable. There is a change there that we're seeing in how customers are approaching deployment of traditional applications in these hybrid cloud environments. The place that they're giving F5 in their go-forward plans and the strategic position we occupy now, I think that is sustainable. There are a couple of things that I think are transient, that are not. How much of that will play out in terms of FY 2022 and beyond? It's really too early to say that now. Okay. Thanks for that. A quick follow-up here for Frank. Frank, I'm calculating about a $25 million OpEx increase from 1Q to 2Q. Can you clarify how much of that is from Volterra? Yeah. I'm not splitting it out specifically, bud, but I would say it's in the sort of single-digit millions. I would say mid-single digit millions would be probably more accurate. That's something that we're not going to expect to sort of split out going forward. It's just too de minimis in terms of a total number. Okay, great. Thank you. Thanks for taking the questions. Yep. Thank you, Samik. We'll take our last question today from Amit Daryanani from Evercore. Yep. Thanks a lot for literally squeezing me in, guys. I guess maybe just on the systems side, I know it's been discussed a bit, but given everything you've talked about, which is not all the stuff that was held up last year is back yet, and I would imagine that perhaps the share gain narrative that hasn't been talked about could be somewhat powerful as well. Could we see a scenario where that systems business actually accelerates in the back half of the year? If not, I guess what are the caveats to that statement? Amit, I didn't catch the last part of your question. The first part is, could the systems business accelerate? What was the second part? Yeah. I guess if I think about all the stuff that was held up last year that still has to come back into the funnel, plus the share gain potentially you could have in terms of just picking up a little bit more share, I would imagine that systems business could accelerate as we go through FY 2021. I'm curious, what would be the caveats or the reservations from that dynamic? Well, Amit, it's a good question. Look, the way I would think about this is, if you look at the kind of long-term trends for F5, and where we're going to be as a company in the long term, and we have said for the long term, with the acquisition of Volterra now, we expect to grow double digit in the long term. That's going to be driven by software subscription, and SaaS. We don't expect our hardware business to be a growth business going into the future. That's our view of things. There's nothing that has happened in the last three months that would make us fundamentally change that view of the long term. Now, in the short term, will it accelerate beyond what we're seeing in the second half of 2021? That's unlikely. We're not going to rule it out given the dynamics that we're seeing with our customers today. Got it. If I could just clarify this, the modest or the deceleration that you're talking about in the software business in March versus December, is that just a reflection of the compares are very difficult in the March quarter, or is there something else you'd call out that's driving that modest deceleration? Nope, that's what we called out, and that's our feeling. It's just a much harder comp than we had in Q1. Yeah. It's a harder comp because as a reminder, Amit, we had last Q2, I think our growth rate was 95% or 96% year-on-year. You have a harder comp. The underlying dynamics and drivers for software demand are very strong across NGINX, Shape, our subscription agreements, and the momentum we're seeing there, and general security. That we are very confident that is going to continue to pick up. Perfect. That's it for me. Thank you very much. Thank you. That concludes our call today. Thank you for joining. You may now disconnect.