F5 Networks Earnings Call Highlights AI and Systems Strength

F5 Networks ((FFIV)) has held its Q1 earnings call. Read on for the main highlights of the call.

F5 Networks Signals Confidence With Strong Systems Growth and Raised Outlook

F5 Networks’ latest earnings call painted a broadly upbeat picture, with management stressing solid revenue growth, powerful momentum in hardware systems, expanding profitability, and a meaningfully higher outlook for fiscal 2026. While pockets of weakness—most notably in software revenue, APAC demand, and gross margin headwinds from rising memory costs—were acknowledged, executives framed these as manageable issues against a backdrop of strong AI-driven demand, healthy cash generation, and an improving security posture following a recent incident.

Balanced Revenue Growth and Recurring Mix

F5 delivered total revenue of $822 million, up 7% year over year, reflecting a well-balanced mix between products and services. Product revenue rose 11% to $410 million, while services revenue increased 4% to $412 million. Recurring revenue accounted for 69% of the quarter’s total, underscoring the company’s shift toward more predictable, subscription-like streams that investors typically favor for visibility and resilience through cycles.

Systems and Product Engine Firing on All Cylinders

A standout theme was the strength in systems, where revenue surged 37% year over year to $218 million. This marked the sixth consecutive quarter of double-digit product revenue growth, reinforcing the view that demand for F5’s hardware-based solutions remains robust even as the industry leans into software and cloud. Management signaled confidence that this momentum is durable, reiterating expectations for double-digit systems revenue growth in fiscal 2026, a key driver of the company’s raised long-term outlook.

AI Wins Accelerate Demand Across the Portfolio

Artificial intelligence was a central storyline, with F5 reporting that it added nearly as many AI customers in the quarter as it did in all of fiscal 2025. The company highlighted a balanced mix of AI-related use cases, spanning both AI data delivery and AI runtime security. Management cited multiple large wins across OEM partners, financial services, and energy customers, and emphasized that AI is materially accelerating demand across the entire portfolio. For investors, this signals that F5 is emerging as a key enabler of secure, performant AI workloads rather than a bystander to the AI spending wave.

Regional and Vertical Mix: EMEA Shines as APAC Softens

Geographically, performance was mixed but skewed positively. EMEA was the clear bright spot, posting 24% year-over-year growth and contributing 31% of total revenue, reflecting strong adoption across that region. The Americas grew a modest 2% and remained the largest contributor at 53% of revenue. APAC, by contrast, declined 1% and represented 16% of revenue, underscoring some regional softness. On the customer side, enterprise accounts drove 64% of product bookings, while government customers provided a robust 23%, underscoring F5’s entrenched position with large, mission-critical buyers.

Margin Expansion, Cash Generation and Aggressive Buybacks

Profitability improved meaningfully, with GAAP gross margin at 81.5% and non-GAAP gross margin at 83.8%. Non-GAAP operating margin reached 38.2%, up 80 basis points from a year ago, demonstrating solid operating leverage. Non-GAAP net income came in at $259 million, translating to $4.45 per share—an impressive 16% year-over-year EPS increase. Cash flow from operations was $159 million, and F5 ended the quarter with about $1.22 billion in cash and investments, alongside $2.1 billion in deferred revenue, up 6%. The company returned capital aggressively, repurchasing $300 million of shares at an average price of $249, signaling confidence in the valuation and future earnings power.

Elevated FY 2026 Guidance Underpins Growth Narrative

Reflecting its strong start and growing confidence in demand, F5 raised its fiscal 2026 outlook. The company now expects revenue growth of 5–6%, up from a prior range of 0–4%, driven by mid-single-digit software growth, double-digit systems growth, and low single-digit services growth. Gross margin is projected at 82.5–83.5%, acknowledging some pressure from rising memory costs. Non-GAAP operating margin is now guided at 34–35%, up from 33.5–34.5%, and non-GAAP EPS is projected at $15.65–$16.05, an increase from the prior $14.50–$15.50 range. F5 also plans to return at least half of its free cash flow to shareholders via buybacks. For the current quarter, management guided revenue to $770–$790 million—about 7% growth at the midpoint—non-GAAP gross margin of 82.5–83%, and non-GAAP EPS of $3.34–$3.46, reinforcing the view that near-term fundamentals remain solid.

In sum, F5’s earnings call showcased a company leaning into secular trends like AI and hybrid multi-cloud while delivering tangible gains in systems growth, margins, and shareholder returns. While investors must weigh software softness, regional variability, and component cost risks, the raised multi-year outlook, strong systems trajectory, and expanding AI footprint suggest F5 is gaining strategic relevance in critical parts of the infrastructure stack, with management sounding more confident about sustained growth than in prior quarters.