Good. Okay. Are we on? Yeah, right on. Okay. Perfect. Thank you for joining us. We have Cooper and Tom to discuss F5 and the outlook and growth. Before I start, like what I do with all my companies, I give a little bit of kind of to set the framework for the discussion, and I give a little bit of what I'm trying to accomplish. You're active in a great space, meaning we understand the merits of your growth, the drivers. We understand why you need this kind of product. We understand why you're leading the market. What we're trying to understand is the business model migration, meaning historically it was appliances, now there's a lot more software. We want to speak about the drivers. We want to talk about last Quarter system sales were very strong. We want to talk about what drives it and sustainability of it. We want to talk about competition with cloud companies, with kind of alternative solutions that maybe five years ago we did not talk about them. That is kind of the framework for the discussion. Maybe I will start from the first question, which is last Quarter, you guided revenues, you guided for the annual revenues of about 7%. Can you discuss the components of the growth? What goes faster than you think? What is slower than you think? What are the sustainability factors of the growth drivers? Yeah, I'd be happy to. Before I start, let me just get our safe harbor on record. 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. The guide for revenue, just kind of the puts and takes, and just as kind of a background, as we went into fiscal 2025, we originally guided for 4%-5% revenue growth. We had an exceptional growth Quarter in Q1 that was driven both by strong hardware growth and very significant expansion on the software side. Based on that strength, we were able to raise our guidance to 6%-7% growth for the year. We said at the time that the strength on the software side was tied to exceptional expansion rates, given how early it was in the year and some of the uncertainty in the environment, we were not carrying through like updating the expansion rates through the rest of the year. So effectively, our assumptions for the remainder of the year kind of went unchanged, and we were flowing through the strength in Q1 in that update to the revenue guide. For Q2, we had another strong Quarter for revenue, and we updated our guidance for the year to 6.5%-7.5%.. And what we saw in Q2 was, again, a very strong Quarter in our systems business, as you alluded to. Our software business was flat for the Quarter, which effectively was in line with our expectations. We had kind of outlined going into the year, going back as far as July, that the software business would be more muted in the First Half of the year with the majority of the strength coming in the Second Half tied to a large base of renewals that were coming due. The history we've had on having very strong renewal rates, but also expansion into new use cases at that time of renewal. That is the same base that's available to renew in the Second Half of the year. I should also add that we also updated early in the year our software growth rates from initially we said upper single-digit growth, and we updated that to double-digit growth for the full year. That is really just driven on the strong expansion rates we've been seeing on those renewals. Those are the dynamics on the revenue guide. The last point of context I'll add is that if you look at the growth in the First Half of the year and what's implied in Q3, it would suggest the deceleration in Q4 and the growth rate. We said that really we were being what we felt was prudent just based on the uncertainty at the time of the call and the macro, a lot of uncertainty around trade policies and how that may play out with customer budgets. We felt at the time that it would be prudent to account for that, but we hadn't actually been seeing any of that manifest in our book of business. We look at pipeline strength, we look at linearity, it's been very orderly. The close rates on the weekly commits from our sales teams were coming in exactly as they had predicted all the way up through the call. No indications of any pressure on the business. It is really just more factoring in just the uncertainty that could play out with customer budgets later in the year. Got it. So many things I want to touch on. One of the things I want to discuss is just the kind of the business environment overall, and you touched on it at the end. Why would tariffs impact a company that has a very big software component? I'm not talking about you. I'm talking about the customers and decisions, spending decisions. Where do you see hesitance of customers? Where do you see customers basically saying, like we say in cybersecurity, it's like, I need to spend it, I need to do it. What are just take us through kind of your discussion with customers and what are the areas where you see some kind of maybe delay or maybe even pull forward of demand ahead of tariffs? What are the areas that you don't see impact at all? Yeah. Okay. So there's really, I think of it as kind of two lenses that customers are trying to get their arms around pertaining to tariffs. One is specifically price increases that could come flow through either directly in the form of tariffs or price increases by their vendors to mitigate the vendor impacts from tariffs. And so understanding are there basically is more of their budget going to get consumed on what they had, the same consumption that they had already planned, but in the form of higher pricing. The second dynamic, which I think all customers are thinking about, is there going to be a macro overhang related to tariffs. Even if they don't have exposure in their spend to tariffs, if the uncertainty drives a worsening business climate, that could impact their business. When you have that reduced visibility both in the macro and uncertainty on your pricing, a lot of customers may look to pause or delay spend. That is what we're trying to account for, is there a risk that some customers may delay on some of those decisions in their business pertaining to that uncertainty? Now, for F5, we also qualify that our exposure to tariffs is very minimal, low single digits. We do not have a lot of our products that are exposed to tariffs because we are USMCA compliant for the majority of our products. A little bit of exposure with some peripherals, but the cost impact is something that we effectively can absorb through other efficiency initiatives. Got it. System sales grew 27% and 18% in the last two Quarters. It's atypical, right? It's not typical for systems to grow. What are the drivers and what's the outlook? Yeah. The driver, I guess the headline is really we're well down the path now of seeing customers move forward with refreshes. It's something that customers had deferred their refresh activities over the course of the prior year plus. We think that customers are sweating assets. They really in Q4 of 2024 is when we first started to see signs that customers were moving forward with their refresh activities. It really manifested in Q1 and Q2. Part of it is just easier comps because we had a tough year in FY2024 on our systems business as customers were delaying those refresh activities. Now we're seeing that refresh activity really pick up. That's part of what's in the exceptional growth rates that you're seeing. Having said that, the base of refresh opportunity that we see is really related to product families that have end-of-software support dates in late fiscal year 2026 and early fiscal year 2027. Customers need to plan in advance of those end-of-software support dates. That is really what we think has been the catalyst to get them to move forward with refreshes. We think that opportunity is going to be over the course of this year, 2026 and into 2027. The install base that is exposed to that end-of-software support date forcing function is over half of our install base. I think it is a pretty sizable opportunity. Going back to your original question, that is kind of the lead driver in the growth right now. What we are also seeing above and beyond that is we are seeing customers that are doing more data modernization activity at that time of refresh. If you go back to the prior cycle, a lot of customers had uncertainties where a lot of their applications ultimately were going to reside. It's going to be data centers, it's going to be public cloud. I think there was an appetite to move everything to public cloud. There wasn't a lot of reinvestment in their data center with the last refresh. What we're seeing now is that customers have better visibility into their architecture of the future. Things have kind of normalized. You're getting a lot of customers that are now modernizing their data centers. They're building in new capacity in addition to the basic refresh activities. That's driving some incremental growth. The last thing that we're seeing is kind of an inflection in the growth opportunity around customer takeouts. We're seeing more share gains in both the hardware and the software business associated with customer takeouts or competitive takeouts. The fact that we see very healthy refresh activity means that parts of the market are not going to migrate to software modules, meaning NGINX versus BIG-IP. Where in the market, I'm just taking a step back and say, okay, the fear a few years back is that applications are moving to the cloud. As a result, the business model changes and we don't need these big boxes anymore. We can go with software solutions that could be much cheaper. The fact that there is such a big refresh, it goes against this kind of fear. The question is, what are the use cases, the business cases where you see strong refresh and what are the use cases where you see customers saying, okay, I'm done with this, I'm shifting to NGINX, I'm shifting to a different business model? Yeah. I think you're spot on. We're seeing a very different behavior from customers now than maybe just a few years ago. I think the prevailing belief a few years ago was that we would move all workloads to the cloud and that everything else was just a temporary thing until we eventually got there. What we've seen is a perceptible change in CIO attitudes over the last two to three years now, where they've instead decided that they're going to make an app-by-app decision on where to place that application. That means that some apps will stay in their data center, some apps will stay in maybe a private data center, some will move to public cloud, some will move to the edge, but it's going to be on an app-by-app basis. We see that in the survey results in talking with CIOs. We also see that even in behaviors like repatriation. 87% of organizations have now moved some number of apps back out of a public cloud and into an on-prem environment. All of it is because organizations are choosing where to put each app. Some of the use cases tend to be things like security. Do I want to have greater security around the application? Maybe I need to have hardware security even in my own data center. In some cases, it is driven by other applications. What apps do I need to communicate with or what data stores do I need to access? We think that increasingly it is now really going to be driven by AI. We see a lot of organizations starting to think about where their data is and where AI needs to be placed relative to that. We think that we are squarely in a hybrid and multi-cloud world where customers are looking to span all of these different environments. As a consequence of that, they are turning to vendors that are able to support them across those environments. If I look at just the overall kind of the use cases for hardware, do I think about it properly that if it's a modern application, it's going to be running in the cloud and if it's more legacy application, it's going to be running on my own data center and then that's when I need your systems? How do I think about the correlation between what kind of application is being deployed and what kind of solution am I buying from my vendor? Yeah. I think as a first order, I think history does weigh on these things in terms of where to place them. Increasingly, it's about the characteristics of the app. It's asking the question, does this app require really high security, in which case maybe I need to run it in a premise environment where I've got greater control over it. It may be the data example, right, where I actually need it to access a bunch of data. I need to put it co-located with that data and maybe that's in a private cloud environment. It's much more about the technical characteristics of the app and where it needs to connect with and access other corporate resources. Got it. Who do you compete with when it's about system sales? I'll ask you another set of questions on your software solutions, but who do you compete with when it's your system sales and how is the competitive landscape? Yeah. I think our traditional competitors here are probably the set that we run into most with hardware products. Most specifically, Citrix is who we compete with most there. I think they've changed a number of times around their level of innovation and some of the choice and flexibility that they provide customers. Today, we're seeing very strong competitive displacements against Citrix quite specifically for these hardware opportunities. They're driven in part by some of the pricing actions that they've taken that has given us an opportunity to reengage with customers that perhaps historically hadn't worked with us, but are very excited at the level of innovation that we've been driving, the vision and roadmap that we've set out for our product portfolio, and then a number of things around the commercial elements of how the relationship with F5 works. Right. If I summarize what you say, there is great outlook for system refresh. It's not just about Q1 and Q2, the last two Quarters. Actually, there is limited competition and there is a need. Applications are coming back, applications are being deployed in an on-prem environment. If I understand you correctly, this may be not at the same level, but this kind of elevated growth versus history could continue over the next few Quarters. It's not just about First Half of the year. That's right. I think we are increasingly excited about sort of the long-term prospect for hardware. Yeah. And it's something just to add to that. Historically, we've said that this space, the market, data center market, we think is likely a slow decliner over time and that we have opportunity to offset the declines just through taking share in some of the pricing realization efforts that we have in place. I think it's something that we're giving more thought to just based on some of the additional expansions that we're starting to see coinciding with these refreshes. We talked about the AI, sorry, the data center modernization efforts that some of our customers are undertaking. We're also seeing some customers that are readying for future growth related to AI that's driving some hardware growth. And so longer term, it potentially may be a better market for us than we had previously discussed, but that's something that we'll kind of track over the next few Quarters. Yeah. Shifting to the other side, to software, maybe first explain your offering, meaning I'm talking about I'm a customer, I have a hybrid, maybe hybrid cloud or multiple clouds. I have a hybrid environment where I have on-prem versus cloud. What is the tendency of customers to choose a single vendor for both all the components of the hybrid environment versus maybe customers that will say for on-prem, it's F5, for cloud, I'm going to use Google or Amazon or whatever? Yeah. 94% of organizations are exactly the type you described, operating across multiple cloud environments. 9 in 10 customers say that they really want a single vendor that is able to support them across those environments. By that, they're looking for a combination of things. They want all of their application delivery and security functionality. All these things around how to make applications work available from a single vendor. They need to be able to support this multitude of different environments in which they're operating. Increasingly, we think they really need a set of functions that are around consistent policy, around AI that is able to take advantage and use information from all of these different environments that is around centralized management and visibility. All of those are now required to be able to solve their modern needs. It's a big part of what's powering what we're calling our application delivery and security platform or ADSP is that we think there's a need for delivery of a platform that unifies across all of these different environments. Maybe before, I'll ask a basic question. Can you describe your software offering? I know your hardware offering, we just spoke about it, I understand it. What is your software offering for those who are looking for a software solution versus a hardware solution? Yeah. So if you look at our BIG-IP offering, that's an offering that can be run in either a hardware-based form factor or as a virtual appliance. Right. It does, but it's very heavy for a virtual appliance. Yeah. It is a high-performance software offering that supports large applications, sophisticated applications that have complex needs. That can be run again in a private cloud environment, public cloud environment. It can be run both as a perpetual, consumed as perpetual or as a subscription. For more modern workloads that you referenced earlier, we have NGINX, which is a Kubernetes-based set of applications and security services. That can be deployed. That is a subscription offering that can be deployed in public cloud and as a service. We have our distributed cloud platform, which has an array of delivery and security capabilities in a SaaS or managed service form factor. A few years back, I was afraid, I was concerned, not knowing the market too well, to be honest, I was afraid that there will be substitution, meaning some customers will migrate from one form factor to another and that could create revenue pressure because software is cheaper than buying a whole system. First, I have multiple questions. First, is the notion of substitution correct? And if it happens, does it mean revenue pressure for you? Okay. That was a dynamic that was in place and it was part of why in the early days, we expected software to grow at a much higher rate than what would be sustainable over time because there is new use case growth and there is application growth that drives software revenue, but there is also some substitution as customers do go down that journey of migrating applications. I think at the time, there was real concern in some investors' minds that it would be a different solution than F5 as they made that migration. Our position was that they would use the same offerings from F5, but in a software form factor and that has largely played out. Now, with that substitution effect from a pricing perspective, it is effectively gross income neutral. The price point was a little bit lower for software on a like-for-like, but there's no COGS associated with it. What we saw over time was that there was more security opportunity in a public cloud-based environment. As customers made that migration, they tended to consume more offerings related to security. It ended up being net accretive to revenue. Having said all that, that's just kind of the journey we've been on with this transformation to software. As Tom referenced now, customers are kind of now at a steady state. We don't think there's a lot of that mixed shift or substitution effect still happening with customers. Of course, there are some workloads that may move from a data center to a public cloud, but there are also other workloads that we're seeing go the other direction. On balance, we think it's effectively stabilized. Is there a technology synergy between BIG-IP and NGINX? I understand BIG-IP, hardware form factor and virtual form factor because it's the same software, but if I have both, is there any technology synergy as a customer that I can exploit? Yeah. Let me speak to one that we have today and then kind of where we're going. Today, as an example, our security stack is available in both BIG-IP and NGINX. You can consume our web application firewall, for example, in both of those environments. Over time, a big part of what we're trying to do with this ADSP, the Application Delivery and Security Platform, is create a consistent experience across all of these data planes so that a customer is able to take advantage of BIG-IP where it's applicable or NGINX where it applies, or even our distributed cloud environment and be able to do that with a common and centralized management infrastructure, common policy that you're able to express and use across all of those different environments, be able to get analytics and reporting, use AI, things like that. We're trying to create a model where you have a consistent experience across all of these different form factors and delivery models. How is the competitive landscape changing? You are completely dominating the market through technology and systems. In software, when it's NGINX, do you have different types of competitors? Are cloud companies, cloud titans, do they offer solutions that compete with you? How do you see kind of the market evolving? Yeah. Maybe I'll start on kind of our ADC market. We talked a little bit about the competitive dynamics there and that there are far fewer competitors than we've had historically. I think we're very, very well positioned there. Across a number of our security segments, I would describe it as competing with point solutions. There are security vendors that have very strong offerings in individual security features. I think we feel very good about the security efficacy of the products that we have in each of those segments. We go toe-to-toe with them, but there are a number of competitors there. Certainly, there are some platform-type players like the public clouds who offer some basic functionality in a number of these areas that are really optimized for their environment. What I think really stands out is there's nobody who is able to operate across all of these different deployment models. I think we're quite unique in the range of both functions that we're able to provide and environments in which we are able to operate. For the large organizations that we serve, large enterprise, service providers, governments, that's an absolute necessity. I think we stand out in a pretty unique way. Yeah. What needs to happen for you to grow faster? I'm skipping a few things I wanted to ask you, but I want to go back. At the end of the day, when I hear you on what you're saying, hardware system sales should go through a multi-year refresh cycle. Software, there is great value in setting both sides and the fact you are the de facto leader in providing this kind of services. I didn't even go, you see, I don't define it because it could be classic ADC services, it could be attached, it's add-ons, right, security. You're still growing 7%, right? That's the guidance. What needs to happen for the company to have sustainable growth above 7%? Because traffic growth is much higher. Yeah. There is a number of things, but I think that where we've been seeing the biggest opportunity start to manifest is on the expansion rates across the portfolio. We have done a lot of work building out an end-to-end portfolio that gives all of the delivery and security capabilities customers may need for their apps in any environment that they operate in. We have paired that with commercial model flexibility that makes it easy to provision and consume these services. I think kind of the next leg in the journey is really around the platform and making that platform easier for customers to quickly provision these solutions. We've talked about some of the innovations we've made around what we call AI for ADC, where we've given tools, we've developed tools and put them in the hands of customers to have a better understanding of their application environments and where they have delivery needs or security vulnerabilities that could be better addressed with some of the additional offerings that we have in our portfolio. We think that that can help accelerate the adoption across the portfolio. That comes through in the form of net new opportunity. Very often that will come through in the form of a renewal where we see the growth from customers deploying more and more of our solutions. In some cases, it can just be expansion of their existing offerings where they discover they've got more performance needs, they've got more latency in certain areas of their environments, they need to expand their capacity. There is a lot of work that we're doing to effectively make it a lot easier for customers to consume more of the portfolio and also to recognize where that need is. It is less of a manual effort to identify those opportunities. Beyond that, there are things that we've done around M&A that are helping us to build in more capabilities, particularly AI capabilities that we think will serve customers' needs over time. We think that AI in general is a little bit of a wild card in terms of a new growth driver for F5. A lot of that is really around enterprise readiness and adoption of AI. It is certainly going to drive more traffic management needs. It is going to drive more movement in data that needs to be handled by services that we offer. That could be a little bit further down the road, but it is another leg of growth that we are looking at. That's the challenge I've always had personally is that I understand your position in the market and you have a very unique position and there is limited competition at the end. The problem is giant to solve and there is an upsell opportunity. What are the things that take the growth down? Meaning I understand all the positives, I don't understand what are the things that are the offset to the growth? Meaning why, if you look back in the last, and I'm trying to isolate the environment because the environment goes through ups and downs, right? If I think about a normal environment where there is investment in cloud, in new applications, etc., what are the things we spoke about, the positive drivers, what are the negative drivers in your business? Yeah. I mean, I think it comes back to uncertainty. For us, when we've had slowing periods of growth, it's usually been driven by uncertainty. This can be macro uncertainty, it can be architectural uncertainty, it can be changes in customers' environments that make them take a step back and say, is the current approach the long-term approach? That's something that it's not something that we're seeing right now outside of the macro uncertainty we referenced in our guide. Over a period of time, that's what can lead to a pause in deployments from customers. That's part of our mission, to make sure that we have the flexibility and the agility within the offerings to help customers navigate that uncertainty. We can't control the macro, but we can help customers get better visibility and make faster decisions around uncertainty within their environment. That's the mission with the platform. We almost ran out of time, but there is one question I wanted to ask you and I don't want to miss it. What happens upon renewal? Meaning you spoke about expansion of scope of contracts. Can you elaborate a little bit and tell us what kind of things are driving up the expansion? Yeah, happy to. I'll keep it simple and just talk to our three-year flexible consumption agreements. That is the largest component of our renewal cycle. These are contracts that customers will size their need for their environment over the next three years, typically. Sometimes it's five years, but most often it's three years. They will contract to use a certain set of our portfolio and they will contract for a certain value that they anticipate will cover their needs over the course of that three-year agreement. What happens over the course of that three-year agreement is they will consume the products that are in that contract and they may find that they're consuming at a faster rate than what they initially sized. If that's the case, what we do is we will reset their contract at the end of the anniversary based on that higher rate of consumption. That's the true forward mechanism. We will capture that growth in the remainder of the contract. We won't do a back charge or a true up. Customers love that. It's really driven a lot of acceleration in the adoption of this model because they don't get hit with a surprise that they didn't account for in their budget. We help them with the visibility as to what the future, the remainder of the contract may look like. More importantly, it resets that base to a higher level of consumption for that next renewal. There are two kind of components of expansion, main components that we see in the expansion. One is that increased consumption that's typically driven by growth in their applications. There is what else might serve our needs in the next period, the next three-year period. That is where we really have the opportunity to engage with the customer and understand their environment and introduce other components of our portfolio. We have seen that time and time again where customers have outsized expansion because they have got growth with their existing set of use cases, but they build in new F5 solutions into their expansion. The third, more minor component of the growth is really around price realization. We have had modest price increases over the last few years. That increase in pricing gets built into that next contract. Security gets into the second component you mentioned? Typically. Fellow security? Yeah, typically that's the way it works. I mean, in some cases, it could be the other way where you have a security solution and they add traffic management. Typically, when you see expansion, it might be either adding NGINX you referenced earlier. You may have been using BIG-IP and then you say, "I've got modern workloads that could be well served. Let's scope NGINX into that next agreement." It could be new security use cases. The strength in Q1 was really about expansion into security use cases at that time of renewal. Effectively, it's a lot of new business that's coming forward in the renewal motion. Got it. We are way into the break. We made it. Thank you. We Thank you. We made it. Thank you very much. Very good. Thank you.