F5 (FFIV) Q3 FY26 earnings call: guidance and Q&A

Asked about AI-related revenue growth relative to customer count growth and the sustainability of improved gross margins given dynamic component costs.

Francois stated AI direct use case customer growth doesn't directly map to revenue growth, but momentum is strong, especially in AI security (100% customer growth in Q3). He noted indirect AI opportunity in hardware expansion (32% systems growth). Cooper attributed Q3/Q4 GM improvement to high-performance appliance adoption and better component sourcing, but reiterated FY27 GM guidance due to dynamic memory/storage pricing.

“I wouldn't necessarily approximate the number -- the growth in the number of customers with the growth of revenue. We did give an indicator of that last quarter that we have passed the $50 million revenue mark. That particular number, we don't intend to update every quarter.”

asked by Timothy Long · answered by François Locoh-Donou

Inquired about drivers and sustainability of the mix shift to high-performance systems, and the expected inflection point for software revenue acceleration.

Cooper linked the high-performance systems demand to expansion use cases, digital sovereignty, and AI traffic, expecting the trend to continue. He explained that software growth is in line with expectations for FY26 due to a weaker renewal cohort, but anticipates reacceleration in FY27 driven by the completion of legacy offering transitions and a stronger 2024 renewal cohort.

“So it all adds up to what we think is a pretty compelling growth opportunity, getting back to a solid double-digit growth outlook for next year.”

asked by Joseph Cardoso · answered by Cooper Werner

Asked for an update on the iSeries refresh pacing and how Mythos/Frontier AI models are influencing this refresh and broader security demand.

Cooper stated the iSeries refresh is orderly and on track, with an end-of-software-support date in Q2 FY27 expected to accelerate activity. Francois explained Mythos drives customers to address technology debt (a tailwind for refresh) and increases demand for runtime security, citing rapid uptake of AI-powered WAF and 100% growth in AI security customers.

“The effects of Mythos are actually wide ranging. We're seeing that in refresh for customers that want to kind of remediate tech debt. We're seeing that in more energy in AI-powered security in front of applications. And we're also seeing it in terms of the momentum we're seeing in AI security now to secure AI models.”

asked by George Notter · answered by François Locoh-Donou

Questioned if growth post the current cycle would be shallower than previous troughs and asked about the ROI of F5's AI factory solutions, particularly regarding token costs.

Cooper believes future growth troughs will be shallower due to new project contributions (digital sovereignty, AI), competitive takeouts, and potential post-quantum crypto adoption. Francois highlighted F5's traffic management software with NVIDIA DPUs can generate 30-50% more tokens per GPU. He noted initial traction with cost-conscious sovereign AI customers, expecting Neoscalers to also focus on tokenomics as the market evolves.

“Where we are -- actually, interestingly, where we are seeing traction now is more with sovereign AI customers. So this is typically telcos outside of the U.S. that are implementing AI factories and are starting to put these AI factories in production, and they are quite cost conscious and really want to get the most amount of tokens for the infrastructure that they're building.”

asked by Matthew Hedberg · answered by François Locoh-Donou

Sought to understand why systems revenue continues to outgrow software revenue.

Francois explained that software growth is in line with FY26 expectations due to a weaker renewal cohort, with reacceleration expected in FY27. Systems growth is driven by the refresh cycle, structural shifts like digital sovereignty (repatriating workloads), competitive displacements due to F5's hardware innovation, and consolidation. He emphasized these structural drivers led to changing long-term hardware guidance from decline to growth.

“No, it's a really good question. Look, in terms of software, the growth that we're seeing this year is actually very much in line with our expectations, the expectations we had set at the beginning of the year.”

asked by Simon Leopold · answered by François Locoh-Donou

Asked for a qualitative and quantitative breakdown of the 32% systems growth into cyclical versus secular drivers.

Francois acknowledged a portion is cyclical due to the refresh cycle. However, he emphasized durable secular shifts: digital sovereignty (reinvestment in data centers, building resilience), increasing AI traffic on on-prem infrastructure driving demand for F5 units, and F5's competitive position (platform adoption, competitive takeouts). He noted these factors often manifest as strong expansion during refresh, leading to the revised long-term hardware growth outlook.

“But I think you can fairly think about it as there's clearly a refresh portion that is cyclical, and there are these 3 or 4 drivers that we think are durable. And that is why we have changed our view on the trajectory of hardware, not just for this year, but for the next few years.”

asked by Amit Daryanani · answered by François Locoh-Donou