F5 CEO: Customers are cautious, but renewals remain strong

F5 (FFIV) earnings beat estimates with a reported fiscal fourth-quarter adjusted earnings of $3.50 per share. However, it remains cautious warning customer spending may temper 2024 revenue growth. F5 CEO François Locoh-Donou joins Yahoo finance to explain the caution as well as providing insight as to how the company will deploy and integrate AI into the company's offerings.

Locoh-Donou expounds upon evolving cybersecurity threats: "Whats driving that epidemic is the availability of tools for attackers to attack companies... the availability of generative AI gives new tools to attackers to drive that even further, so I expect an acceleration in that epidemic. I think enterprises are going to have to tool up to protect against that... We've invested heavily, specifically, in machine learning and AI to be able to detect automated attacks."

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Video Transcript

- Turning on a multi-cloud application services and security company, F5, out with a beat on estimates in its latest quarter. F5 seen double-digit earnings growth in 2023. However, more cautious customer spending tempering 2024 revenue growth. Here to discuss is F5 CEO and President, Francois Lokoh-Donou. So Francois, thank you so much for joining us.

Thank you for having me.

- I want to start just with that September, the quarter results and the outlook. For 2024, Francois, you expect revenues to be flat to down low single-digits versus street expectations of plus 1% growth. I'm just interested, Francois, what you're seeing there. And why you were a bit more cautious, at least relative to street expectations, about the near term?

FRANCOIS LOCOH-DONOU: Thank you, Josh. Well, we had a solid Q4 with a strong beat. A beat on the top and the bottom line. And that's driven by what our customers are doing around their applications. How they're securing and protecting their applications.

When we look at 2024, Josh, what we're seeing, generally, in the macro environment, is enterprise customers are still cautious. They're still reluctant to engage in large transformational projects, and budget scrutiny is still quite intense with the vast majority of our customers.

On the other hand, customers are actually consuming existing agreements. We are seeing very strong renewals and expansion of those agreements. And that is largely driven by the growth in applications, the growth in APIs that need to be secured. And we think that as digital transformations continue to progress, we're going to see more and more of the growth in apps and APIs that our company is focused on securing and protecting.

- And Francois, though, in the near to intermediate term, that's the macro, it is what it is if it's more uncertain. How do you navigate that though as the CEO? Are there levers you're pulling, are you making changes to where you're focused? Your investment or your spending.

FRANCOIS LOCOH-DONOU: Well, we are laser focused, Josh, on the opportunity we see in multi-cloud. And what you're seeing in large enterprises is multi-cloud has gone mainstream. Meaning most enterprises have now their applications running in multiple public clouds on Prem at the Edge.

And the task of securing and delivering and optimizing these applications across these infrastructure environments is actually dauntingly complex. And F5 is laser focused on the mission of making it way easier for enterprise customers to secure and deliver their apps against in these multi-cloud environments.

And so the way we're balancing with the macro environment is-- of course, we're being disciplined about how we spend our dollars, but really doubling down on our investments to pursue this multi-cloud opportunity for which we think we're quite differentiated.

- And of course, as are most companies right now, you're talking about AI as well, Francois, as a way to differentiate, as a way to push customer demand. Talk to us about-- and I guess as much layman's terms as you're able-- talk to us about that integration and what it means for F5.

FRANCOIS LOCOH-DONOU: The AI opportunity so far, and the AI story, has really largely been about the chip providers like NVIDIA and the hyperscalers, the big public clouds, where a lot of these large language models are being trained. And we see that opportunity playing out in companies like Microsoft, for example, even yesterday.

Where we think the next opportunity will be in AI is in the adoption of AI by enterprises. And we think that large enterprises will run their AI workloads everywhere. We're hearing from customers, they will want to run these AI workloads in data centers in public clouds. But also, for manufacturing companies, on the manufacturing floor close to the machines. For retailers, they'll want to run them in branches.

And so we think that these AI workloads will be highly distributed in where they run over time. And this is where F5 has a very interesting opportunity. Is that we're uniquely positioned to be able to secure and deliver these workloads. Not just in public clouds, not just in data centers, but in any environment where any enterprise would want to run AI workloads.

- And Francois, I want to get you out of here on this, which is just get your take on that cybersecurity landscape. You have unique insight there, Francois. What are you seeing there? Because I've heard you describe it as a ransomware epidemic right now. So I'm interested in what is driving that epidemic? And how is F5 positioned to help customers meet and deal with that challenge?

FRANCOIS LOCOH-DONOU: Well, what's driving that epidemic is the availability of tools for attackers to attack companies. And so even attackers that are not sophisticated can now mount pretty simple attacks pretty quickly. And the availability of generative AI gives new tools to attackers to drive that even further. So I expect an acceleration in that epidemic. And I think enterprises are going to have to tool up to be able to protect against that.

F5 has invested in AI to protect against automated attacks. We've invested heavily, specifically, in machine learning and AI to be able to detect automated attacks. And protect from not just financial services crime or account takeovers in financial services, but also manipulation of social media and distortion of the digital world as we see it.

And we think that really is, in the next decade, where the fight is going to be. Is AI used by the good guys, if you will, against AI used by the bad guys.

- All right, Francois Locoh-Donou, thank you so much for joining us today, Francois. Appreciate it.

FRANCOIS LOCOH-DONOU: Thank you.