FFIV Stock | F5 Networks, Inc. Q2 2026 Earnings Call

Thank you, Suzanne, and hello everyone. Our team delivered another robust quarter with 11% revenue growth. Product revenue grew 22%, marking our seventh consecutive quarter of double-digit product growth. This includes strong 26% systems revenue growth and 17% software revenue growth. Hybrid multicloud has become a strategic architecture and it is increasing demand across F5's core market. Customers are rapidly scaling their digital infrastructures to improve resiliency, meet data sovereignty requirements, and get ready for AI. Our strong Q2 performance reflects those dynamics and F5's alignment with where customers are headed. We captured robust international demand for digital sovereignty initiatives. We also converted hybrid multicloud adoption into meaningful systems and software growth. We capitalized on heightened demand for best-in-class security solutions. And we built on AI momentum with another standout quarter for AI wins. As a result of our strong growth and our proven operating model, we delivered 14% non-GAAP earnings growth and a record $348 million in free cash flow. The powerful combination of secular and cyclical demand trends is providing strong Q3 visibility and a growing pipeline. As a result, we are raising our fiscal year 2026 outlook to reflect revenue growth of 7 to 8%, up from 5 to 6% previously. Cooper will elaborate on our outlook in his remarks. Our outlook for stronger growth is reinforced by what we are seeing in the market. We see three forces significantly reshaping how our customers operate: hybrid multicloud adoption, threat landscape expansion, and AI inference inflection. First, hybrid multicloud adoption. Workloads now span on premises, private cloud, and multiple public clouds. Our research shows more than 90% of enterprises run hybrid multicloud today across an average of 19 locations. Organizations need flexibility, resiliency, and digital sovereignty in every environment, and they are investing to support these demands. Second, threat landscape expansion. As AI models become more capable, attackers are using them to launch attacks against production applications at higher volumes and with greater variation than traditional defenses were designed for. Our customers see this and they are responding. They are deploying more application security and prioritizing best-in-class defenses. The era of checkbox security is over. AI applications require best-in-class security to match both the volume and the sophistication of AI-driven attacks. Third, the AI inference inflection. Organizations are connecting their applications and APIs to AI models, and inference calls are becoming a regular part of how applications run. Our research shows 78% of enterprises run inference themselves using more than seven models on average. Organizations are standardizing on a new architecture with models distributed across the data center, the cloud, and the edge. And the next shift is already on the way. AI agents are moving into production and enterprises are adapting their applications for agent interaction. This is driving more compute, more data delivery, and more security to protect inference. These three market forces are driving demand across our business. Because of accelerating hybrid multicloud adoption, we are taking an already strong refresh cycle and leveraging it into significant opportunities for expansion, competitive displacement, and platform consolidation. I will double-click on each of these, spotlighting customer examples from the quarter. With this refresh, we are seeing a refresh-plus dynamic that is different from prior cycles. Customers are deploying higher performance, higher capacity F5 systems as they upgrade their data centers to support modern applications, digital resilience, sovereignty, and AI. And as customers refresh, we are capitalizing on that moment to attach new use cases, expanding our footprint and growing overall wallet share. For example, this quarter, a large healthcare services organization started with a lifecycle refresh across hundreds of legacy systems. As the project progressed, they expanded the scope to support an AI-driven consumer engagement platform. F5 became the control point for secure, low-latency traffic and data movement across applications, storage, and their GPU server environment. That gave the customer a more resilient foundation for both sensitive internal workloads and new AI interactions at scale. Our deliberate investment in hybrid multicloud solutions is translating into market share gains. We are winning customers from competitors who did not build the same breadth and depth of capabilities across on-premises, software, and SaaS. In Q2, we displaced a long-standing incumbent at a Fortune 100 energy company whose environment had hit scalability limits. The customer needed a platform that could scale into cloud while maintaining strong on-premises performance. Their incumbent provider was unable to serve workloads in hybrid multicloud environments. F5 modernized traffic management and simplified operations, improving reliability and creating a clean path for long-term cloud adoption. Hybrid multicloud customers require stronger performance and security with fewer tools and simpler operations. We are replacing point products with a unified approach that improves performance and security and is easier to operate at scale. For example, during Q2, an energy and utilities provider, an existing BIG-IP customer, needed to secure APIs with better visibility and automation across their data center, cloud, and edge environments. They selected F5 Distributed Cloud Services to simplify their approach and standardize API protection across their full footprint with simpler management. Moving on to threat landscape expansion. The pace and scope with which the threat landscape is expanding is driving demand for best-in-class application and API security both on premises and across cloud environments. For example, this quarter, a software and managed service provider needed to standardize application and API security across a rapidly expanding hybrid multicloud estate built through acquisitions. They lacked a consistent way to enforce app and API protections across their multiple public cloud environments and on premises. With F5, they deployed a single policy and management layer with security enforced locally in every environment, supporting strict privacy, audit, and healthcare requirements. F5 enabled faster regional expansion with stronger security and improved data sovereignty alignment. Finally, the AI inference inflection is driving demand for F5. We are seeing this indirectly through hybrid multicloud adoption and the requirements that come with it. We are also seeing it directly through our three primary AI use cases. With our industry-leading traffic management, we are winning new AI insertion points, including AI data delivery and AI factory load balancing. And we are capturing AI runtime security wins, protecting AI applications, APIs, and models from emerging threats such as model abuse, data leakage, and prompt injection. In an AI data delivery win, a global payments company needed a more resilient way to move rapidly growing AI data between storage and compute as they scaled training and retrieval workloads. F5 improved performance and resiliency while displacing both an in-house solution and a competitor, positioning us at the center of the customer's AI infrastructure strategy. In an AI runtime security win, an industrial automation firm needed a scalable way to assess risk and govern a growing number of AI applications and models. They chose F5 based on the depth of our red teaming insights and strong integration with their existing security stack. In an AI factory load balancing win, a major manufacturer and existing F5 customer needed to support operations and establish a digital twin of their manufacturing environment for simulation and optimization. They deployed BIG-IP as the production traffic layer across their GPU server environment, improving availability and offloading encryption. Taken together, these wins underscore two things: the forces reshaping our customers' environments are real, and F5 is well positioned to capture them. Staying ahead of the pace of change requires relentless innovation. In Q2, we brought multiple new capabilities to market, strengthening our leadership in application delivery and security for the AI era and driving greater value for customers. We introduced AI-powered capabilities in Distributed Cloud WAAP, replacing manual policy tuning with automated outcome-based threat blocking. Our F5 TRAIN model helps customers stay ahead of increasingly sophisticated AI-driven attacks that are growing in both speed and complexity. We launched Agentic Bot Defense, extending our industry-leading bot defense to autonomous AI agents, a new and fast-growing category of traffic. The result is that customers can confidently adopt agentic AI while ensuring only verified, trusted agents reach their applications. We released F5 AI Remediate, which closes the loop between our AI red team and AI guardrails product. It collapses the path from vulnerability discovery to runtime protection from days or weeks into minutes. And finally, we launched F5 Insights for ADSP, providing deeper visibility across application estates. The result is that customers can identify and resolve issues faster with less guesswork. We are innovating so customers can run faster, stay protected, and simplify their hybrid multicloud and AI environment. And we are accelerating that innovation by rapidly integrating AI into our solutions to create practical capabilities customers can deploy quickly. That innovation engine is also sharpening our view of what's next. As we look ahead, we have conviction in the power and durability of hybrid multicloud, the expanding threat landscape, and inflecting AI inference as the main drivers for F5. We look forward to digging deeper into these drivers and our expectations for how they will shape F5's longer-term growth outlook at our May analyst and investor event. Now I will turn the call over to Cooper, who will walk through our Q2 results and our outlook. Cooper.

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

Yes, Tim. It's Francois here. So what we're seeing in AI, Tim, is that enterprises are now putting AI into production, and the term we use is inferencing, and that's creating substantial opportunity for F5. We've talked about three big areas where we see opportunity. The first one is in hardening data pipelines between data stores and AI models, a use case we call data delivery, and we're seeing growing demand for F5 in these use cases. We're also seeing growing demand in securing AI in runtime. So both AI applications and AI models increasingly require security that is tailored for AI models that traditional security solutions do not address. And we also address AI factory load balancing, which is a third area where we're starting to see growing demand. If you look at the first half of the year, we had approximately $50 million in sales in the first half of the year on these use cases. That's up more than 200% year-on-year. And we're now approaching about 100 customers that are using F5 for their AI use cases. That's probably a bit of a conservative estimate because those are customers from whom we absolutely know that they are using F5 for these AI use cases. We believe there are other parts of the business where we're getting indirect benefits from customers getting ready for their AI infrastructure, but those are harder to quantify, harder to count. So the ones I'm sharing with you are ones where we actually have the data and can attribute it directly to the use cases. So enterprise AI is one of the big trends that's fueling some tailwinds in our business, and hybrid multicloud and an expanding threat landscape are the other two very significant trends we're seeing.

Thank you.

Yes, as it relates specifically to software, I think Cooper touched on it where we expect even stronger software growth next year than this year. But let me step back a little bit and talk about the overall business. We are seeing a couple of things. One, of course, is we are seeing a very strong refresh cycle, and refresh cycle by definition is cyclical, but we are also seeing three secular trends that we think are very durable and that are just growing and accelerating our business. The first one is hybrid multicloud. We've been talking at F5 about hybrid multicloud for several years. If you look at the past few years, hybrid multicloud was by default — customers needed the flexibility to put their application in different environments. But now we're seeing it being more of a strategic architecture that is by design, and customers are implementing that for digital sovereignty, regional reasons, to be able to rely not just on big public clouds but local cloud alternatives or on-premise environments. And they're also implementing hybrid multicloud architectures for resilience reasons, and increasingly AI is also pushing customers toward these hybrid multicloud architectures. That is a secular trend that is there for the long term and that is providing substantial tailwinds for the business that we believe are durable. And then the other trend that we're seeing is the threat landscape is expanding. So what we're seeing is customers are having more frequent attacks that are more sophisticated attacks because of AI. There was a report published recently that showed the increase in web attacks year-on-year was up 77%, increase in bot attacks were up 150% year-on-year. And all of that means that our customers have more apps to protect because their apps, their APIs, they're now AI models both on premise and in the cloud. And with the frequency and the sophistication of attacks increasing, there is a need for best-in-class application security solutions. And that is right where F5 has been focused, and we are seeing that demand in our business. To give you a couple of data points, in our Distributed Cloud Services platform, for example, we saw this quarter the number of customers choosing F5 for web application firewalls is up 62% year-on-year, the number of customers choosing F5 for API security is up 54% year-on-year, and for bot defense it's up 33% year-on-year. So you can see these trends of increasing attacks, our customers responding, needing more application security solutions that are best-in-class and coming to F5. So these are important trends. We think they are durable and secular, and therefore we think the inflection we're seeing in our business is likely to continue.

Thank you, Sami, for the second question. Yes, we are seeing a step change. We've had a number of conversations over the last several weeks with customers. If you think about it, we are now in an era where the window of time for an enterprise to patch their applications has closed, as we have AI models that are very powerful and can now find and exploit vulnerabilities in any application almost in real time. So there are a couple of implications for that. The first is, given you don't have a significant window of time to patch your applications, you are going to rely more on runtime security, and specifically runtime security that is protecting the front door of your applications. That's precisely where F5 has focused, and we're having conversations with customers who are sharing with us that they're going to have to rely on us even more than they had in the past. The second implication is that we believe that all security is going to be AI-powered. Your static security, static signatures, are really not going to be able to cope with the power and the speed that these new models have in terms of creating exploits. So this is a shift that we saw coming. We have been investing in AI-powered security for a while now. Just this quarter, you may have seen this, we released our AI-powered web application firewall. We also released our Agentic Bot Defense solution. So over time, our entire portfolio is going to be AI-powered, but we are basically already fighting AI with AI, and that we think is a significant shift for our customers. And probably the other step change for our customers, it's a trend that has been happening but I think the new era really accelerates this, is the consolidation towards platforms. If you're a customer that's operating in multiple environments, and 95% of our customers are operating in a hybrid and multi-cloud environment, the era of having a point product solution in any one of these environments really just creates complexity that you don't want to have to deal with if you have to try and patch your systems very quickly. So I think we're going to see more customers move towards platforms, and the breadth of our portfolio can really help them simplify their operations. So those are three of the implications that we see with this change, and we're seeing that in our conversations with customers already over the last several weeks.

Thank you.

Well, let me see, Simon. First of all, we are seeing a number of customers that are recommitting to hardware. I wouldn't say that it's just about performance. Performance is a factor, but there are a number of reasons for customers to want to be doing that. I think one of those reasons is a lot of customers are modernizing their data centers and wanting to have strong on-prem infrastructure with strong performance in their data centers. And we have seen over the first half, just to give you a data point, we generated about $60 million in sales from customers who had previously stopped buying hardware and recommitted to hardware. So we are seeing this phenomenon of customers recommitting to hardware. But if you expand from that, because we delivered 22% growth on hardware this quarter and 17% growth on software, the broader trend we're seeing, Simon, is that hybrid multicloud is really what's driving customers to both modernize their data center and continue to invest in software to have the flexibility to deploy the same solution, the same software stack from F5 either on-prem or in public clouds. So yes, at this moment there is a very strong momentum on hardware, but we continue to see customers wanting to have the flexibility of software or subscription-based software to be able to deploy licenses across their environment.

Yes, of course. As you know, we have developed an integration with Nvidia where we have been able to refactor our software to work on ARM architectures and specifically work on Nvidia Bluefield technology. We've done a lot of work with Nvidia over the last 18 months. As of December, we have now been formally put into Nvidia's reference architecture. Since then, there have been a number of tests, including third-party tests, to test the efficiency gains from this integration. Those tests have validated that the integration of F5 software on these Nvidia DPUs helps AI factories generate 30 to 40% more tokens for a certain amount of GPUs. We are now taking that value proposition to market and are involved in a number of proof of concepts and trials around this technology and integration. I would say that what we are seeing is that a number of customers who are building AI factories are early in terms of sophistication. Their first priority is to get these AI factories, these GPU farms up and running, get them working, get these Kubernetes clusters to work. That takes quite a bit of technical sophistication, and customers are really focused on that. For those who are providing GPUs as a service, the goal initially is to get these GPUs to work and be able to provide that to their customers. I think the issue of making those GPUs more efficient is the issue that comes next, and as more and more customers go to inferencing, we think this value proposition is going to resonate.

Thank you.

Well, absolutely. A couple of things. I shared earlier that in this new era, runtime security and specifically securing the front door of applications is going to be even more important than it was in the past, especially for folks who have invested like us in best-in-class application and API security. So the first thing we're seeing is really strong growth in web application security, API security, and bot security. We're also seeing API discovery, whether on-prem or in the cloud, being a growing use case with more and more customers now worried about knowing where all their APIs are and being able to protect them. Now when you go to AI, we also have a new attack surface: these AI models and agents, both of which will be using more APIs, and our customers will need help discovering and securing them. We've also introduced in the last few months AI guardrails, which include AI red team and AI guardrail technologies that help our customers detect vulnerabilities in their AI models and mitigate them. We have introduced a product called AI Remediate that automates the process of creating mitigations for these vulnerabilities. All of these are new use cases in security that will grow as our customers deploy more AI models in production. So we are seeing new use cases and new opportunities to insert F5 security. I think it's a very significant opportunity, but as I said earlier, we're also seeing that opportunity in delivery, specifically in data delivery for AI.

Yeah, so Matt, I think the customers who today are really focused on AI security and protecting AI models and AI applications that have new types of vulnerabilities like prompt injections, model abuse, etc., are a small minority, typically the largest customers in any vertical. The customers perhaps with a lot of sophistication in security, financial services companies, very large technology companies, but today it's a small minority of the universe of customers we serve. I think that number of customers is only going to grow over the next couple of years as more and more customers actually implement AI inference. So I think we are just at the very start of this trend, and the number of models for inference and agents will dramatically increase over the next couple of years.

Thank you. On EMEA, we think the trend we're seeing there is durable. In fact, we saw an acceleration in that trend this quarter. A lot of customers, whether it's government agencies, the defense sector, or regulated industries including financial services, all have a strong push for digital sovereignty. That implies in a lot of cases modernization, reinvestment in data centers, and also creating consistency of security and delivery across their hybrid multicloud environments. We're seeing an interesting trend where when customers went to the public cloud, they created separate teams for public cloud and on-premise environments. Now that they're coming back and creating true hybrid multicloud architectures, they are merging those teams together, creating more opportunities for the provider that can cover their needs across on-prem and public cloud with a single platform. That trend we think is going to continue in EMEA. We are leveraging it more. We have increased our field coverage in EMEA and will probably continue to do that in the future, and probably accentuate our focus on the defense sector because we're seeing significant spend in defense in EMEA. As it relates to the competitive landscape in security, we are focused on runtime application and API security. In that space, we are seeing substantial growth both for on-premises and cloud requirements. Our differentiation is really the ability to serve both environments with an extensive security portfolio that includes application firewall, securing APIs, securing against bots, and securing against DDoS attacks. Frankly, none of our competitors, whether for application security, AI security, or hybrid multicloud, can match that. The more we see customers embracing these architectures and needing a solution for both on-prem and public cloud, we are alone in that category and have a very strong value proposition. There are a few examples I mentioned in my prepared remarks where customers needed to secure APIs or applications with a solution that works both on-prem and in the cloud, and they came to F5. That consistency is more important than ever, and that's where we are focused and will continue to invest. One of the highlights of the quarter for me, and I'm really proud of our product team, was the incredible innovation in security. We released our AI-powered WAF, and we already have significant interest. We have a new solution for agentic bot defense, which is really important now to understand which agents are authorized to access a model and which are not. We innovated on our AI security solutions with F5 AI Remediate, a new solution. We introduced new solutions that are AI-powered, like F5 Insight. We brought API discovery on-premise with our BIG-IP solution. So a lot of innovation is accelerating, in part because we're also leveraging AI to do that. I'm excited about where we are as a company that invested in hybrid multicloud architectures ahead of everybody else and is now starting to reap the rewards, and now doubling down on our innovation, accelerating the pace to capture a growing landscape of opportunities in front of us.

Yeah, generally the dynamics are strong. We had a strong Fed quarter, and I would actually expand that beyond US Fed to the global government sector in the first half. It was really strong. I think you're seeing that it's not just an F5 trend; generally defense spending across the globe has been growing, and we are a beneficiary of that trend. In part because defense customers are investing more in security, and also because those customers are very hybrid multicloud. We have a number of customers in the defense sectors that want air-gapped environments. Sometimes they want to leverage cloud as well, but a lot of them want air-gapped environments in their own data centers. We have been making investments for that opportunity and are seeing the benefit today. So I think the Fed has been strong for us, but globally government spending has been strong and will continue to be for the next several quarters.

Okay, Tal, thank you. I will start, and then Cooper may complement me on a couple of aspects you've raised. Let me start with the US first. The trends of our business in the US are very healthy. I would not read too much into a given quarter's performance in this or that region. Some of it is the timing of what was able to ship to which customers in the quarter. But generally, the trends we're seeing around the expanding threat landscape are creating more opportunity. We had a very strong security quarter, as I shared. That trend around expanding threat landscape driving more security opportunity for F5 is a global trend. The trend of AI—I shared some numbers earlier: we are approaching 100 customers in AI, and we did about $50 million in sales in the first half of the year in AI. That is a global trend that obviously includes the US, and the US is actually pretty strong in that trend. The hybrid multicloud trend is also global and includes the US, where we are seeing more customers want resiliency. But that particular trend is very pronounced in Europe, Middle East, and Africa because of digital sovereignty requirements there, and we are seeing extra growth coming from there. So when you're trying to dissect what's a refresh versus what are secular trends, the three trends I've mentioned are secular and global. In addition, we have a strong refresh cycle. Cooper mentioned the attributes of the refresh: it is stronger than usual because we have an even higher retention rate than we've had in the past, and we have more customers expanding at the time of refresh. That is also a global trend. But what I would take away is that the three big trends I've talked about are secular and global, and they are at play in the US as well.

Thank you.