Good afternoon, and welcome to the F5 Fourth Quarter Fiscal 2021 Financial Results Conference Call. At this time all participants are in a listen-only mode. After speakers presentation there will be a question and answer session. [Operator Instructions]. 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 am 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 A copy of today's press release is available on our website at f5.com, where an archived version of today's call will be available through January 25, 2022. 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. To access the replay of today's call by phone, dial 800-585-8367 or 416-621-4642, and use meeting ID 6879935. The telephonic replay of this call will be available through midnight Pacific Time, October 27. 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 will turn the call over to François. François Locoh-Donou: Thank you Suzanne, and hello everyone. Thank you for joining today. On the pandemic conditions that have persisted far longer than anyone initially expected the F5 team delivered another very strong quarter closing out a robust year for us. Customer demand for application security and delivery amid skyrocketing application growth and heightened application security awareness are driving strong demand for F5 Solutions. This demand span our portfolio and our regional theaters in Q4 driving 11% revenue growth and our fourth consecutive quarter of double-digit revenue growth. We delivered 35% software growth, 12% systems growth and 2% global services growth in the quarter. With software revenue representing 45% of product revenue in the quarter and 80% of our software coming from subscriptions, we continue to mark milestone after milestone in our rapid transformation to a more software-led business. I will speak more about our business drivers and customer highlights from the quarter after Frank reviews our Q4 and FY'21 results and our outlook for Q1 and FY '22. Frank?

Thank you, François, and good afternoon everyone. I'll review our Q4 results before briefly recapping our fiscal year results. As François just outlined, our team delivered another very strong quarter. Fourth quarter revenue of $682 million is up 11% year-over-year and above the top end of our guidance range. Please note as I review our revenue mix I will be referring to non-GAAP revenue measures for the year ago period. Q4 product revenue of $340 million is up 21% year-over-year representing a significant acceleration from 6% in the same period last year. Q4's software revenue grew 35% to $152 million, representing 45% of product revenue up from 40% in the year ago period. Systems revenue of $188 million is up 12% compared to Q4 last year when systems were down 8%. Rounding out the revenue picture we continue to see strength from our global services at $342 million in Q4, up 2% compared to last year and representing 50% of revenue. Taking a closer look at our software revenue, customers preference for subscription-based consumption models is evident. In Q4, 2021 subscription-based revenue represented 80% of total software revenue, up from 76% in the year ago period. Subscription-based revenue includes our radically recognized as a service offerings and our solutions sold as term-based licenses. Within subscriptions customer demand is driving substantial volume and value growth from our multi-year subscriptions. The deal volume of our multi-year subscriptions more than doubled year-over-year and is approaching 500 in total. This consumption model offers flexibility for the customer and through the annual true forward and normal renewal cycles offers us visibility to customers utilization and consumption patterns. In addition, we ended the year with more than 600 SaaS and managed service customers reflecting growth of 50% year-over-year. 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 67% of revenue in the quarter. On a regional basis in Q4, Americas has delivered 11% revenue growth year-over-year representing 59% of total revenue. EMEA delivered 11 growth representing 24% of revenue and APAC delivered 9% growth accounting for 17% of revenue. The strength in Q4 span customer verticals as well. Enterprise customers represented 69% of product bookings in the quarter, service providers represented 13% and government customers represent 18% including 8% from U.S. Federal. I will now share our Q4 operating results. GAAP gross margin in Q4 was 81.1%, non-GAAP gross margin was 83.7%. GAAP operating expenses were $427 million. Non-GAAP operating expenses were $350 million. Our GAAP operating margin in Q4 was 18.5%. Non-GAAP operating margin was 32.4%. Our GAAP effective tax rate for the quarter was 10.3%. Our non-GAAP effective tax rate was 15%. GAAP net income for the quarter was $111 million or $1.80 per share. Non-GAAP net income was $185 million or 3.01 per share. I will now turn to the balance sheet. We generated $197 million in cash flow from operations in Q4. Cash and investments totaled approximately $1.04 billion at quarter end. DSO was 45 days and capital expenditures for the quarter were $7 million. Deferred revenue increased 17% year-over-year to $1.489 billion up from $1.273 billion. The growth in total deferred was largely driven by subscription and SaaS bookings growth and to a lesser extent deferred service maintenance. Finally, we ended the quarter with approximately 6,460 employees, up approximately 80 from Q3. This does not include approximately 90 employees added with the threat stack acquisition which closed in our fiscal first quarter of 2022. I will now briefly recap our full year 2021 results. For the year revenue grew 10% to $2.6 billion. Product revenue of $1.25 billion grew 21% from the prior year and accounted for 48% of total revenue up from 44% in the year ago period. [Indiscernible] grew 37% to $500 million, a beat on our outlook for at or about 35% growth for the year. Systems revenue in FY '21 grew 12% to $748 million. Global services grew 2% to $1.36 billion representing 52% of total revenue. Looking more closely at our software revenue, since fiscal 2018 we've grown our software revenue at a 49% compounded annual growth rate and our software subscription revenue at 115% compounded annual growth rate. GAAP gross margin in FY '21 was 81.1%. Non-GAAP gross margin was 83.9%. Our GAAP operating margin in FY '21 was 15.1% and our non-GAAP operating margin was 31.6%. Our GAAP effective tax rate for the year was 14.4%. Our non-GAAP effective tax rate for the year was 17.7%. GAAP net income for FY '21 was $331 million or $5.34 per share. Non-GAAP net income was $671 million or $10.81 per share. Application security is a big and growing reason customers turn to F5. Our application security offerings including DDOS protection, advanced vulnerability defense for web application firewall and bot, fraud and abuse protections are increasingly recognized as industry leading. As a result we estimate our standalone security product revenue grew 26% in FY '21 to approximately $350 million reflecting a 38% compounded annual growth rate since FY '18. Including bundled security offerings and an estimate for our services revenue associated with security we estimate the total application security portion of our business grew to more than $900 million in FY '21 representing approximately 35% of total revenue. Supply chain challenges have been well acknowledged across the industry over the last year. Our supply chain team continues to do an impressive job managing global supply chain constraints and working through our supplier ecosystem to manage through challenging conditions. At this point, like many others, we are working with extended lead times. In part as a result of supply chain constraints we ended FY '21 with approximately $125 million in backlog the vast majority of which is system based. Now, let me share our guidance for our first quarter as well as some color on our view for FY '22. Unless otherwise stated please note that my guidance comments reference non-GAAB metrics. Let me start with sharing our expectations for the first quarter of 2022. We are targeting Q1 revenue in the range of $665 million to 685 million implying roughly 8% growth at the midpoint. We expect Q1, 2022 gross margins of approximately 84%. We estimate operating expenses of $342 million to $354 million. Our Q1 earnings target is $2.71 to $2.83 per share with a share count of approximately $62 million. We expect Q1 share-based compensation expense of approximately $64 million to 66 million. Now let me share some operating expectations for our 2022 fiscal year. For the year we expect revenue growth of 8% to 9%. We expect software growth of between 35% and 40%. We expect the range of software variability we will see quarter-to-quarter will narrow relative to what we have experienced in the past. This is due in part to what we expect will be a higher contribution from ratable revenue over time and also in part due to increased scale of our software business overall. We expect systems revenue growth will be flat to slightly up for the year. And we continue to expect low single-digit global services revenue growth. I note that all of these revenue expectations are at or above our most recent Horizon 2 outlook provided in January with the Volterra acquisition announcement. We anticipate continued pressures related to our global supply chain in the next several quarters. We expect these pressures will result in some increased costs related to the expedite fees and sourcing of long lead time components. In light of this dynamic we anticipate non-GAAP gross margins of approximately 83.5% to 84% for the year. And we will continue to closely monitor this situation as we have throughout the past year. We continue to target operating on the Rule of 40 basis where the combination of our revenue growth and non-GAAP operating margins total 40. The combination of our strong FY '21 revenue growth and our continued operating discipline enabled us to achieve the Rule of 40 in four out of four quarters and FY '21 ahead of our initial Horizon 2 target. We continue to target achieving the Rule of 40 in FY '22. Given our anticipated revenue growth and the ongoing benefits from the cost reduction initiatives that we discussed at our analysts and investor meeting last year, we expect non-GAAP operating margin in the range of 32% to 33% for FY '22. We expect our typical operating margin seasonality, which translates to operating margins stepping down in Q2 and improving in the back half of the year. We anticipate our full fiscal year effective tax rate will be at around 21% with some fluctuations quarter-to-quarter. This estimate does not account for any potential future federal tax changes. We expect physical 2022 stock based compensation expense in the range of $250 to $270 million and capital expenditures in the range of $40 million to $60 million. Finally, for the year, we expect share count to remain at approximately $62 million shares inclusive of the expected share purchase of $500 million during FY '22 as we previously discussed. With that, I will turn the call back to François. François? François Locoh-Donou: Thank you, Frank. A very strong fourth quarter results are the perfect tap to our robust out performance in FY '21. In the last 18 months our reliance on application both of businesses and our consumers have escalated sharply and likely forever changed. Our customers are massively accelerating digital transformation to keep up with current demand and forecasted growth. They are doing this while also working to consistently meet consumers high expectations for application performance and availability. And while also ensuring their application and their consumers data are secure. In my conversation with investors, I am often asked what is potentially misunderstood about F5? Let me address the key points here. First, traditional on-premise applications continue to grow counter to the prevailing expectations from two to three years ago. In fact, traditional apps are generating more traffic and more revenue than ever, because every aspect of life and business relies on applications. For F5, this means BIG-IP demand will continue to grow in both software and systems form factors. Second, contrary to early cloud height, the vast majority of traditional applications are not being refactored. They are either remaining on-premise or they are moving to the cloud with a lift and shift motion. In other words, F5 run applications are remaining attached to F5. As a result, BIG-IP is growing both on-premise and in public clouds. Third, modern container-based applications continue to grow at a rapid pace and not only for new applications. Customers are bolting new modern components onto traditional applications to improve the user experience. In many cases cloud-native application security and delivery simply are not robust enough to meet the application's needs. For F5 this means accelerating NGINX demand enabling app security and scale for modern application often as a complement to BIG-IP. And finally, given the volume of business and data that is now flowing through application and the increasingly distributed nature of applications, application security has taken on new significance. Where in the past network and infrastructure security was a focus for customers and vendors alike. We expect application security will be one of the hottest areas of investment over the next decade. F5 is one of the few players 100% focused on application security and we protect not just access to applications but also how they are used. As a result, we expect our role and reputation as a leading application security provider will accelerate. To sum up these points. F5 is differentiated and well positioned to benefit from significant emerging secular training. There are some companies focused on applications. There also are some focused on application security. F5 is the only one that is at the epicenter of these two secular forces with a focus, expertise and the technology assets to secure and deliver any application anywhere. Let's ground our opportunity in real customer trends and use cases. Last quarter, I talked about five sustainable customer trends we expected to drive demand across our portfolio. Let's revisit those trends with some customer examples from Q4. Number one, enterprise customers developers and DevOps teams are using NGINX to insert security earlier in the application lifecycle. NGINX with App Protect delivers robust application security for micro services with the flexibility and agility developers demand. In one example during Q4, we secured an NGINX win with a global insurance group. They are migrating their consumer-facing insurance services into a public cloud. For risk mitigation and security reason, they required a scalable and container friendly solution. They also needed enterprise-grade security capable of protecting their strategic high-value apps and guaranteeing risk management compliance. And they wanted all of this within a lightweight footprint that could drive automation saving time and money. NGINX with App Protect was the natural choice. Trend number two, heightened security concerns and high-profile ransomware attacks are escalating demand for top-notch application security and fraud and abuse mitigation. With pronounced application growth and an ever-expanding threat landscape including high-profile ransomware and credential stuffing attacks, we see growing demand for application security in cloud environments and rising demand for fraud and bot defense. During Q4 a North American electric utility experienced the credential stuffing attack resulting in substantial infrastructure failure. More than 6 million customers had to reset their account passwords. Based on their experience as a BIG-IP customer, the utility turned to F5 for help. Shape was emergency onboarded, identified high volumes of automated traffic and deployed highly effective mitigation measures to stop the attack. Trend number three. Customers are leveraging F5 for kubernetes, containers and cloud native architectures. Our growth in modern application continues to accelerate driven by NGINX, kubernetes and cloud-native deployments. We are seeing several top use cases emerge for NGINX including managing API, optimizing kubernetes' traffic management and load balancing cloud native and hybrid cloud applications. With customers modern applications experiencing significant and constant swings in user demand, they need infrastructure that scales up automatically to meet user demands or down to save cloud costs. During Q4, the Canadian online investment manager selected NGINX to move their kubernetes-based applications into production at scale. Initially, they attempted to use a competitive solution, but it lacked performance and did not integrate well with their HashiCorp console or with AWS auto scaling. NGINX plus delivered low latency and high uptime to improve user experience and integrated seamlessly with AWS auto scaling to spin down half of their instances during off-peak traffic demand. Trend number four. Customers are scaling their existing hardware-based infrastructures to handle accelerating application growth driving continued strength for BIG-IP systems. We are finding that customers are often looking to scale both their existing infrastructure and their modern apps infrastructure simultaneously. This is particularly true amongst tech and SaaS provider customers who continue to experience rapid adoption and growth of their digital products and services. In the latest of a growing list of examples during Q4, a high growth SaaS provider selected F5 to help them scale both the traditional apps on BIG-IP and their modern public cloud apps with NGINX. This deal was made sweeter by the fact that NGINX displays the competitor that wasn't performing as promised. Finally, trend number five. Customers are leveraging BIG-IP for transformation including cloud migration and automation initiatives. The demand we are seeing for BIG-IP systems and software is about more than just capacity additions. Customers also are choosing BIG-IP to drive transformation often combining it with NGINX. F5 is particularly well suited for enterprises that operate both modern and traditional applications, which most do. NGINX integrations with BIG-IP provide differentiation over competitor and cloud-native offering and we will extend this with integrations into Volterra at the edge. During Q4, the BIG-IP and NGINX combination was selected by one of the largest online betting companies in Asia Pacific. The customer who processes more than one billion annual transaction needed hybrid on-premises data security as well as the ability to support modern app development and new engaging multimedia capabilities. They selected BIG-IP and NGINX as the foundation for their digital transformation. Let me touch briefly on service providers and our Volterra integration progress before concluding our prepared remarks. We had a good year with service providers in FY '21. While it's true that several of the trends I have just described also apply to our service provider customers. They also face unique challenges as a result of 4G to 5G migration and growing 5G traffic demands. Thus far our service provider demand has come largely from 4g core network upgrades as they expand hardware capacity and upgrade existing infrastructures to handle 5g traffic. We expect software use cases will begin to emerge as carriers virtualize their 5g cores. Looking forward our Volterra platform is generating significant interest from service provider. They view it as a way to insert their capabilities at the edge thus creating 5G in a box offerings. That offers a good transition to discussing progress on the integration of volterra. Volterra is a universal edge platform, which will enable us to insert critical application services at the edge and allow our customers to consume these services in a fast format. Our initial priority is on security offerings. We have one of the best, if not the best application security software stacks in the industry including our web application firewall, our DDOS protection, API security and bot capabilities. We are taking that entire security stack and integrating it natively into the Volterra platform. Our first priority is a SaaS security offering that will address the shift towards modern web apps and APIs and we are on track to deliver within our committed 12 to 18 months integration window. Our recent acquisition of threat stack, a leader in cloud security and workflow protection is designed to accelerate our SaaS security offerings with cloud endpoint telemetry and analytics for better detection and response. Threat stack also augments our telemetry and virtual security and technology expertise and I want to take this opportunity to once again that we welcome the entire Threat Stack team to F5. In closing, we are more confident than ever in our vision and in our ability to continue to execute. The combination of application growth, our expanded solutions platform, our continuously evolving go-to-market strategy and our vision for the future of adaptive application is resonating with customers and puts us at the epicenter of several emerging strong secular trends. I extend my heartfelt thanks to the entire F5 team for their steadfast focus and execution. As a team we have accomplished more faster than anyone even us thought we could. We've got more work ahead, but I am more confident than ever in our ability to achieve our goals. My thanks to our customers and partners for being on our journey with us and providing guidance and support along the way. With that operator, we will open the call to Q&A.

[Operator Instructions] Your first question comes from Sami Badri with Credit Suisse. Your line is open.

Thank you for giving me a question and you've given us quite a bit to talk about on this conference call. I want to shoot the first question over to Frank, and I want to talk about the backlog and the backlog composition. And you mentioned, the majority of system-based backlog, but I wanted to break down the customer mix of that backlog. If you could just tell us a little bit more about what's going on there?

Sami, I don't have a lot more to add. I will say that at the end of the year effectively we just saw a continued increase in the backlog build more so than we could ship. At the end of Q4, a lot of service provider, customers probably fall into that realm, but having said that it's -- that was the 125 that we referenced and almost all of it is in systems.

Got it. Got it. And then, François, just kind of shifting over to you. I want to talk about the U.S. Federal Segment and how that made up about 8% of total revenue mix. Are you expecting elevated levels of U.S. federal activity in the upcoming quarters, which would actually be almost out of the seasonal pattern of your model? François Locoh-Donou: Well, the short answer Sami, is no. I think what we're seeing in the federal business just follows the regular seasonality that we've seen over the years and we don't expect the fundamental change to that pattern.

Got it. Thank you. I'll hand it over to another analyst. François Locoh-Donou: Thank you, Sami.

Your next question comes from Meta Marshall with Morgan Stanley.

Great. Thanks. A couple of questions for me. First on, just you obviously get a couple of instances of Shape security having success when they were facing a threat or there was an entry point where they really needed it. But in the past there have been some delays on proof-of-concept activity. And just wanted to get a sense of are you're seeing a pickup there? And then, on the second point just on the ability -- kind of gross margin impact you're seeing from costs. Is that mostly expediting? Is there any ability to pass that on, just how we should think of the supply chain overhanging the gross margins? Thanks.

Hi, Meta. Thanks for the questions. Let me start on shape. Yes, a couple of quarters ago we did mention we were seeing the elongated times to close on these proof of concepts largely, because customers were not in the office and getting those bonds, were taking a little longer. We have seen that abate over the last few months. And so, we're seeing a pickup in traction and momentum there. And then specifically, I think in the e-commerce area. So we've got a number of customers whose applications are revenue generating and they're constantly under these either account takeover attacks or bot attacks that are causing disruption to their business. And so they want to move pretty quickly on getting things done. Either as an insurance, against future attacks or oftentimes when they're under attacks of course things go very, very quickly because their business is disrupted. So generally, we are happy with the quarter we just had with the Shape. And in general, Meta, I would say, the other thing we're seeing with customers is that the number of customers have been evaluating their security posture, as a result of some of the high profile breaches that have been well publicized and that has resulted overall in a very strong year for the fiscal year for us in security. But especially in the second half where customers have reinvigorated the motion of attaching security to BIG-IP and we've also seen the momentum with Shape and Security. So that's overall the picture we're seeing in security. As it relates to your second question on gross margins. Yes, our gross margins have been impacted by the challenges on the supply chain, whether it's some increase in prices on some components or some expedite fees to get our supply when we need it. So the supply chain generally has been quite a challenging environment. And generally, we have managed that pretty well with our team. But it continues to be a challenging environment. And so, we're going to continue to monitor the development there and we'll adjust over time as you need to.

Great. Thank you.

Your next question comes from James Fish with Piper Sandler.

Hey, guys. You guys, -- Frank, a little bit of a raise thereafter running through all those details. But can you help us a bit understand the amount of recurring software that is term license versus SaaS at this point? As it would suggest SaaS is, it's actually north of 10% of the overall product line today. And within that term license piece, while clearly both go together in organic. I guess, how specifically should we think about the growth rate of NGINX we exited this year?

Yes. Fish, thanks so much for the comments and the questions. I think we have not split out those two components, but I -- what we like to see which we have continued to see is what it means to have that subscription piece that makes the number that we have to get for the coming year much less as a percentage of the software revenue given those dynamics of the subscription base. The split between what I would say is the term subscription versus the SaaS subscription, we have not split out that, but stay tuned. We're continuing to monitor and we'll let when that gets substantial. And I'm sorry, but I miss your second question.

Just how should we think about the growth NGINX today?

Yes. NGINX continues to grow incredibly well within the base. Again, this quarter, we saw from our multi-year subscriptions, NGINX was in more than 50% of those, which is driving great use cases on both sides. And on a customer basis, we continue to see strong growth on the overall customer base within NGINX obtain, NGINX customers. So, really, really happy with the progress we've seen in NGINX.

And just quick hallmark piece for me. Threat Stack, so we think about that as a term licensed business or a SaaS business?

That's a SaaS business, but that's ratable.

Cool. Thank you guys.

Thank you, Jim.

Your next question comes from Rod Hall with Goldman Sachs.

Great. Thanks for the question guys. I wanted to just check on the guidance and see whether you guys could give us any idea, what you're thinking on systems and software trajectory into -- in Q1? And then, I've got a follow-up to that. Thanks. François Locoh-Donou: Hey, Rod, as you know, we don't guide on a quarterly basis, do a breakdown of hardware to software. But I mean the indicators that I would give you -- yes, I mean, you saw the annual guidance for revenue around 8% to 9%. For software we're guiding to 35% to 40 % for the full year. And hardware slight to -- slightly up on. On software in particular, I mean, Frank mentioned it, but I want to stress that, we guided to 35% to 40% last year for the full year. We finished the year at 37%. And but in inside the year there was strong variability especially in the first half. And what we -- we still expect to land between 35% to 40%. We do expect we will see less variability this year than we saw last year, in part because we have better visibility into a portion of our revenues that are coming from business that is already contracted. And also in part because of the scale of the business. So expect us to lay in, in the range for the full fiscal year. We've always said that quarter-to-quarter there could be some variability above or below that range, but we expect that variability will be less pronounced.

Okay; Thanks François. And then I guess big picture, I wanted to check the -- just you're thinking on systems in 2022. When I look at 2018, 2019 and 2020, all three years and systems are down. 2020 was down 10%. And then you grew systems 12 and 2021. And I recognize you're saying flat and slightly down, but sort of I'm thinking flattish in 2022. But what gives you confidence that 2021 wasn't an anomaly? We've seen that across a lot of different infrastructure companies that we cover they've seen a lot of demand in 2021. I think people are extrapolating that into 2022, but why is 2021 not a more of an anomaly than it is a new normal for you, I guess? Thanks. François Locoh-Donou: Yes. And Rod, from our perspective, when we look at -- so our revenue grew 12% in 2021. And our demand was even stronger than that because we ended up with a backlog -- a large backlog at the end of the year. So when we look at that demand in 2021, some of it actually we think is, I wouldn't call it an anomaly, but we think some of it are transient factors that will go away. We think there was some element of a catch-up demand, because demand was quite depressed 12 months ago. And they also may have been a couple of specific factors earlier in the year when we announced our end of software development that some customers jumped on that to refresh quickly. So we think some of these are one-off factors, but we also think that there are macro factors that are not transient and that will proceed. And then that specifically, the traffic and usage of traditional application is growing and it's going to continue to grow, because these applications are generating more revenue, more customer loyalty and more large companies depend on these applications. And so, when you look at 2021, there's some element that's one off, there's elements that are not. When we look at that and project to the future, all of that tells us that the demand for BIG-IP as a franchise, so both hardware and software if you take that combination. We feel today that the demands for BIG-IP in the future even beyond 2022 will be better than what we would have said a year ago. Now, what will be the mix between BIG-IP hardware and software in the future is still tough to predict, because a lot of it depends on individual customer situations and when they're ready to migrate to software and when they're not. But if you take the combination of those two things, we certainly feel better about it today than we did 12 months ago and that's because of factors that are not an anomaly, those are factors that are kind of secular forces that will continue on.

Great. Okay François. Appreciate it. Thanks for the time. François Locoh-Donou: Thank you, Rod.

Your next question comes from Tim Long with Barclays.

Thank you. Yes, two questions if I could as well. First maybe you guys mentioned the true forwards. Could you just give us an update on kind of what you guys are seeing on some of those larger term deals as it goes to usage, traffic growth, things like that? I think they were running ahead. So, any color you can give us on true forwards and what that means for your visibility into next year? And then second, thanks for the update on overall security. At the Analyst Day you also gave us a look into the cloud vertical. So I'm just wondering if you could kind of update us on how that cloud vertical performed in fiscal 21 and what you're expecting moving forward there? Thank you.

Yes, Absolutely, Tim. So on the on the true forward, but we weren't specific. I would say though that the data that we saw this quarter was actually better than what we saw in Q3. I have to preference that by, it's a small group of customers that have hit their second term and they're in their multi-year subscription agreements with us. But we saw a fairly healthy step up between that initial term and the second term. And so that's all very quite positive. And then, in terms of the true forward expansions within the terms for those customers, that's a growing customer base. Again, that was a bit higher than where we were last quarter. I can't say that that's going to absolutely continue, but we're very, very optimistic by the progress that we've seen in the data that we've gotten so far today. François Locoh-Donou: So, Tim, on your second question, just to clarify, when you said the cloud vertical. So when we talked about our cloud revenue at Analyst Day, we're talking about F5 solutions being deployed in public cloud environment very specifically. So in that number, which at the time we said was greater than 100 million, we do not include a lot of the business we do with hyperscalers, SaaS providers, cloud providers where we are in their infrastructure and helping them deliver applications. So that - but our -- what that definition clarified, are 12 number continued to grow. As you know, it's 100% software of course. And it has grown faster than our overall software growth rate continued this year. And where we are seeing a lot of traction in the last 12 months is -- in what we call private offers on marketplaces. And so essentially that is consumed as a utility by large enterprises. And it is increasingly the case that large enterprises have spent commitments with the major public cloud providers, and we've done all the integrations both technical and commercial that allow these enterprises to retire their spend commitment on F5. And we've seen an acceleration of that trend. And it's yet another way that we are removing friction in the consumption of F5 software in public cloud and we're getting the benefit of that in terms of growth. The other big area of growth team in public cloud is NGINX. A number of the NGINX deployment continued to happen in public cloud and cloud native environments. And we are seeing in NGINX, I think as I've shared before when you step back and you look at the success of the BIG-IP franchise over the last 20 years, one of the things that we did well was that BIG-IP consolidated a lot of functionality initially load balancing, but then security, authentication, encryption on a single platform. And that made things operationally much simpler for our customers and that that created the BIG-IP franchise. And we're essentially seeing the emergence of the same playbook with NGINX, both on-prem and in public cloud environments for modern applications. And the type of application security and delivery that we do in modern app is not necessarily exactly the same. There are things like ingress controllers, people feel that they have to secure, authenticate their API, so we offer API gateways. They need to encrypt their traffic inside their service mesh, so we offer that as well. And of course we offer security and protection. But when you take that suite of application security and delivery services we're seeing that playbook grow for NGINX and that's also one of the factors of growth in public cloud for F5.

Okay. Thank you. That's great.

Your next question comes from Samik Chatterjee with JPMorgan.

Hey. Hi, thanks for taking the question. Also I guess, I just wanted to ask you on the out your targets that you have for 2025. You're already delivering 8% to 9% is your target for next year, that's about Horizon 2. In -- how you're thinking about kind of progress from here? Does it actually be moved towards the 2025 targets of double digit growth? Do you see this kind of setting up a base where you get to those targets faster than you expected? The reason I'm asking is I guess with all the enterprise, IT companies talking about strong demand, we often get the question from investors of how much of this strength is really secular versus maybe in some parts cyclical and driven by an investment cycle from the enterprise customer? So just trying to get better -- kind of how you're thinking about how this sets up for the out-years. And I have a follow-up. Thank you. François Locoh-Donou: Yes. Thank you Samik. Of course, there is quite a bit of time between now and 2025, but here's I think the way if we look at it, Samik. I think when you look back at where we were 12 months ago on our Analyst Day and we talked about a long-term target of getting to double-digit revenue growth. We didn't put a year on it, but we felt that we wanted to get to that in a long-term target. If I look at back at where we're at today -- but I would say, the things that we thought would help us out around growth in SaaS and security growth with NGINX and our new value proposition. That's going roughly per plan and a part of view hat we had at the time. What is showing better is overall the demand for BIG-IP. And I think in that going better there's an element of it that is more of a secular trend that will go on for several years. And so that's kind of the mix. Now, if you step back from it, Samik, what we are seeing is three or four years ago, there was a view of the world, let's say, all apps are going to go to a public cloud and that's kind of the future of the world. I'm sure you're seeing from a number of industry data points including cloud providers actually saying that themselves that the reality for large enterprises is -- for the last many decades they have always been told that they just have to get to the next thing and everything is going to go to the next thing. And the practical reality of that is it hasn't happened. And there's a realization now that it's not about the next thing, it's about managing a heterogeneous environment and being able to run applications in on-prem environment, in public cloud increasingly at the edge, in co-location environment and enterprises are very comfortable that that's going to be the reality and the conversation has shifted not to how do I get to a single public cloud in the future, but more of an architectural conversation around, okay, I'm going to be in all these places. What is the simplest way, because that creates complexity for me. What is the simplest way in which I can manage and run my applications across this hybrid environment. And those conversations, like F5 has spent like five years positioning ourselves for this environment and we're having a lot of joy, because we're able to support customers on-prem in public cloud, in private cloud, in modern application increasingly at the edge and we feel that that's going to be a secular trend that's going to last for several years. So that that's what we're positioning for, Samik and that's what generally we feel good about the next few years.

So just to follow up there in terms of positioning the company and you talked about application security being one of the strongest growth areas that you're looking at. I mean, should we assume that most of the M&A that you evaluate going forward is going to be focused on that segment? Thank you.

Well, first of all, we have -- I think I said before that we did three acquisitions in quick succession, it's pretty substantial acquisition between Shape, NGINX and Volterra. And so, when we acquired Volterra, we felt that we needed to really focus on the completing integrations of Shape and NGINX and Volterra in that period, and we're well on our way of doing that. And I think that's going to -- we continue to be focused on those organic integrations and extensions and now Threat Stack brings a very interesting new capability to F5 in giving us visibility into these cloud environments and being able to observe the environments in which cloud workloads are running, which complements very nicely the rest of our security portfolio, which as you can see is 100% focused on application security and essentially building the broadest portfolio and application security stack. So that's been the focus. In terms of potential future M&A, over time, we'll continue to evaluate building versus buying. You've heard me say before, we're very disciplined about that. We start always with our preferences to build, but if for a time to market reasons or there's an opportunity to do something that accelerates our vision, then we look at that. The focus of that will continue to be on fulfilling this vision for adaptive applications, which is essentially about the world of running applications for large enterprises, it's still very manual, fraught with complexity and fraught with fragility. And we have a an architectural vision that we think is going to bring way more automation to this world, way better uptime for applications, way stronger security and way better intelligence and insights about the performance of applications. And that's what we will focus on bringing that vision to our customers, bringing it to reality. And every single quarter organically or inorganically down the road we are making that vision more and more of a reality. And I think elevating F5 to more of a strategic a partner for our customer's digital transformation rather than a point solution player.

Okay. Got it. Thank you.

Your next question comes from Alex Henderson with Needham.

Thank you very much. So I was hoping you talk a little bit about, now that the fiscal year has ended, what the transition between last year and this year in terms of market share for NGINX looks like? It looks to me like you picked up substantial share over the course of the year. Can you talk about that a little bit? My guess is you're up around 65% to 67% market share. Is that accurate within kubernetes workloads?

Hi Alex, it's Kara. We have - we're very happy with what we're seeing in terms of the adoption of NGINX. Now François mentioned that NGINX plays a variety of roles in an application. For example, one thing that is commonly reported is the use of NGINX as a web server. And it is true that we have overtaken apache and NGINX is the number one leading web server. There's other uses like reverse proxy, NGINX used as an API gateway and API management capability, and NGINX use now increasingly as a workload protection capability. And in those areas there's less l reporting on shares. And so at least the one that has very regularly been reported and we see consistent gains is the web server piece and we're very happy with the outcome there.

Okay. And could you talk a little bit about the degree to which you're able to identify the number of coders that are working with your technology, and to what extent there's a growth rate or a rate of adoption among the coding community. Can you talk about your outreach there and to what extent that that's one of the key building blocks as we go forward?

Yes. So, we've always had a very active community of engaged individuals around F5 technologies. Even if you go and you look at our capability in BIG-IP given it was one of the most programmable proxy solutions available in the market. We had a very active community of contributors who were sharing iRules-based solutions and are actively contributing and continue to actively contribute through our developer community. Now that community has grown even further as we extended our portfolio with NGINX. As just given NGINX has an open -- it's an open core model and the NGINX open source attracts a wide variety of application developers that use that as a fundamental technology for their solutions. That's an additional expansion of the developer community around that. And as we look ahead, as we're expanding our portfolio and looking into building what François talked about with the Volterra offering. We expect that to continue to be a very important part of our technology and our strategic direction as appealing to developers and providing them the tools they need to deliver excellent digital experiences.

So, no quantification though?

No quantification at this time.

Okay. If I could slide one last one and then -- can you talk a little bit about competition between Cloudflare, Akamai and other players in that space? Thanks. François Locoh-Donou: Yes, Alex. So we are - but for the most part I would say we don't compete very directly with Cloudflare, that's not a significant overlap today. I think that will grow more as we introduced our Volterra platform to wide distribution post the integration, because we will play way more at the edge with SaaS security offerings for a wide range of customers. We do see Akamai specifically with Shape security in the -- protecting customers against bot attacks. And I think their approach is to bundle security with their CDN especially for customers that are using their CDN. We have an approach that's more about best-in-class efficacy for enterprise customers that place a significant premium on having world-class efficacy against bot attacks, and we do very well with that customer segment. So we're starting to see more and more competition with these players. And I think as a disruptor with our universal edge platform that competition is going to grow. But we feel very good about the attributes of Volterra. And when you combine these all these attributes that Volterra being as an Edge universal platform and you put there the best-in-class security stack that F5 provides from shapes, from BIG-IP. Yeah. I think you have a formidable offering for customers that want to consume security as a service at the Edge. I think that's going to be a best-in-class offering.

Great. Thanks thank. François Locoh-Donou: Thank you Alex.

Your next question comes from Paul Silverstein with Cowen.

Thank you for squeezing me in. And I'm going to assume and hope on the last one, so I could ask my five questions. Put on a serious note, François and Frank, I'll apologize if you all have already answered these questions, because you all talk faster than I can listen. So with that big wind up. First off, with respect to the operating margin rebound as you all have referenced in the past, can you all give us any insight on the glide path considering the significant supply chain challenges that you face along with everybody else in the industry? And before you respond since it's on the same topic. If I heard you correctly, the 8% to 9% of your revenue guidance you provided for fiscal 2022, what are the supply chain assumptions with respect to that growth rate? What assumptions you're making underlying that? And finally also related can you address? I assume your visibility is that 8% to 9% visibility in general has improved as an increasing number of customers you provided with longer term forecasts. But I just would like to confirm that that is in fact the case that was fully has been continuing to improve if in fact customers are providing this longer term forecast. Thanks so much. François Locoh-Donou: Yes, Paul. So let me let me start with your second question I guess first. So, in terms of what we what we think about for our outlook on the 8% to 9% and supply chain. As we said in the in the prepared remarks, it does not anticipate a materially better outlook in terms of our supply chain, even though you're able to get components, able for everything else. And so, we are assuming that we are looking at that 8% to 9% on what we believe we can ship and what we believe the demand will be for those products. In terms of the specific operating margin expansion, as you recall we had a 32% to 34% range that we tightened up to 32% to 33% largely driven by the gross margin hits that we have been seeing and what we expect to see, because of some of those supply chain constraints through FY 2022. And so, we are increasing obviously the efficiencies that we're seeing in the business by lifting that up from where we ended at that 31.6%. So at the midpoint almost 100 basis points increase. But we're doing that on the backs of having higher costs on the gross margin side, So actually some more efficiencies coming through the operating margin line.

I think on the visibility question, and Frank, just to be clear, if the supply chain improves does that translate to better than 8% to 9%? François Locoh-Donou: It could, but I don't anticipate that from what we see right now, Paul. I mean, if you know, again, we're early in Q1, so anything is possible. But what we've seen the -- obviously all of the things that we've been reading from the other vendors collectively, I don't think people are seeing the material - starting to see some improvement in the back half of FY '22 calendar which is our Q4 obviously. So it doesn't leave us a ton of room to catch up.

Understood. And has visibility improved, because of long-term forecasting from customers? François Locoh-Donou: The visibility on demand I think has improved. I think the visibility on supply has not. And so, matching those two up with long lead times it's hard to say that you catch up within a reasonable period of time.

I appreciate the responses. Thanks so.

Due to time constraints we'll be taking our last question from Fahad Najam with MKM Partners.

Thank you for squeezing me in. I just want a classification. Your fiscal 2022 revenue guidance assumes $15 million of revenue contribution from Threat Stack. And am I correct that that is almost all entirely software recovering in nature? François Locoh-Donou: Yes. 15 just to be clear, you broke up the first second, Fahad.

Okay. So the question is, if we exclude the Threat Stack acquisition, then you would hypothetically not have roughly 50% of your revenue coming from software, given the strength that you're seeing in systems. So, one, do you -- so it's kind of like undershooting your targets as you laid out in at the analyst day. Is there like something that you see there's a slowdown in terms of organic software growth? Just trying to understand how -- because I think at the Analyst Day you had highlighted that you would expect to achieve roughly 50% of you're revenue, greater than 50% of the revenue coming from software. So if fiscal 2021 is kind of 47% if my math is right then you'd expect significant acceleration in software in fiscal 2022? So just trying to understand what would change in software adoption going forward that hasn't yet happened in fiscal 2021? François Locoh-Donou: Yes. No, Fahad, thank you. Okay, to be clear, we are in fact hitting our targets that we laid out our aim. So we said 35% to 40%, we did 37% this year and we guided to 35% to 40% next year. Whether or not we exit next year at a mix between hardware and software that is 50 or more of software. We've -- I think we will get there eventually because the trajectory on software is one of growth and we said over time, we don't think hardware will be an engine of growth. But frankly, if we don't hit that target largely because our hardware has totally overperformed, we will be very happy with that. And not just happy because of what's going on in the short term, but happy because what it translates to is A, that the BIG-IP franchise overall is doing better than we thought. And B, all these customers that are extending that time purchasing hardware and not making a transition to software, it creates a bigger install base for us to migrate to software down the road. So it actually it is very good news over time even for our software business. Because we have a much bigger real estate. So what we're focused on of course is if you look at it in absolute dollars, we will absolutely hit the target that we gave for software revenue for F5 in our Horizon 2. If those absolute dollars translate to 50 mix, that's fine. If they don't because hardware has over performed, we'll be happy with that.

And Fahad just is there -- Francois stating what we said before. We said our exit rate 50%, that would be the equivalent of the 45% of what we just did in Q4. And so, the trajectory is absolutely heading in that direction and stay tuned, it's Q1.

Yes. And actually just to kind of follow up on that. So to your longer term targets circa 25, it seems like your business is actually projecting pass the -- towards software given the strength in hardware. I think I'm just trying to make sure that I'm understanding it correctly, but maybe there is actually fundamental improvement beyond for the -- what was laid out at the Analyst Day. It seems like the longer term targets of how you're going to be better than what was paid out. But again, it's -- as you've mentioned it's early days, but just trying to understand the framework. François Locoh-Donou: I just would point to the obvious, but if we just did over 10% total growth in the first year of a Horizon 2 and so your basis comes out much bigger on which to build going forward. And so, we're incredibly excited about the trajectory of the business that we've been seeing. We talked specifically about FY 2022 guidance, more to come on the long-term target updates, but our focus is really on ending Horizon 2 at or above any of the expectations that we set at our Analyst and Investor Day as well as what we updated after the Volterra acquisition.

Appreciate the answers. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may not disconnect.