F5, Inc. (FFIV) Earnings Call Transcript & Summary

Good afternoon, and welcome to F5's call to discuss the acquisition of Volterra. [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'm Suzanne DuLong, F5's Vice President of Investor Relations. Thanks for joining us. Today, we will be discussing F5's acquisition of Volterra as well as our preliminary first quarter fiscal year 2021 financial results. Francois Locoh-Donou, F5's President and CEO, 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 A copy of today's press release and the webcast link are available on our website at f5.com, where an archived version of today's call will also be available. Today's live discussion is accompanied by slides, which are viewable on the webcast. We will also post the slides to our IR site at the conclusion of today's discussion. The replay of today's call will be available through midnight Pacific time, January 8, by dialing (800) 585-8367 or (416) 621-4642. Please use meeting ID 8879455. For additional information or follow-up questions, please reach out to me directly at [email protected]. Our discussion today will contain forward-looking statements. These 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. During our presentation, we will also refer to non-GAAP financial measures. We will provide a complete GAAP to non-GAAP reconciliation when we report our final fiscal first quarter results on January 26, 2021. Please note that F5 has no duty to update any information presented in this call. With that, I will turn the call over to Francois.

Thanks, Suzanne. We are very excited to share several pieces of news with you today, including our first look at our fiscal first quarter results and our acquisition of Volterra. I will spend the majority of today's call on Volterra and how an F5-Volterra combination significantly enhances F5's competitive position and leapfrogs current edge solutions. We are able to make this move based on the success of our transformation to date, so let me start with our preliminary first quarter results, which continue to show strong momentum in the business. As you have likely seen in the press release, we expect to deliver a very strong Q1. We expect revenue growth of approximately 10%, with non-GAAP revenue between $623 million to $626 million. This is above the top end of our guidance of $595 million to $615 million. The success of our software offerings continues to fuel our growth. We expect software revenue growth of approximately 70%, which is above our guidance of at least 50% growth. This includes strong organic growth, which we expect to be approximately 35% excluding Shape. Rounding up the top line contributors, our systems business is proving resilient, delivering revenue growth at or around 5%. We expect total services revenue that is slightly better than flat compared to the year-ago period. Finally, we expect Q1 '21 non-GAAP EPS above the top end of our prior range of $2.26 to $2.38. As Suzanne noted, we expect to report our complete first quarter results on January 26, and we look forward to providing additional detail at that time. As excited as I am to talk to you about Q1, I am more excited to speak to you about our acquisition of Volterra. This transaction fundamentally changes the game at the edge and unlocks tremendous potential for F5. Before we discuss in more detail how the combination of F5 and Volterra leapfrogs current edge technologies and creates an Edge 2.0 platform for enterprises and service providers, I will review our key transaction details. We have paid approximately $440 million in cash and approximately $60 million in deferred consideration and assumed unvested incentive compensation to founders and employees. We financed the deal with balance sheet cash. We expect Volterra to accelerate our Horizon 2 and long-term revenue growth, and we have updated the revenue outlook we provided at our November Analyst and Investor Meeting to reflect its revenue acceleration. We now expect Horizon 2 revenue growth of 7% to 8% CAGR, up from 6% to 7% previously. Longer term, we now expect double-digit revenue growth, up from 8% to 9% previously. Just as importantly, there are no changes to the Horizon 2 non-GAAP operating margin or EPS growth targets we provided at our Analyst Day. And we are reiterating our commitment to repurchase $1 billion in shares over the next 2 years, including $500 million via an accelerated share repurchase in fiscal year 2021. We expect the deal will close in calendar Q1 2021. Following this deal, we do not expect to do further sizable M&A activity, which we defined as deals greater than $100 million, at least until Volterra is substantially integrated. We expect integration will take at least 12 to 18 months. Many of you know F5 and our category but may not be familiar with Volterra. Well, let me introduce you. Volterra brings to F5 a globally distributed application edge platform with unlimited scale. The company emerged from stealth mode about 14 months ago and is led by their founders, CEO Ankur Singla and Harshad Nakil, who is now their CTO. They are early-stage and backed by leading technology investors. They have an incredibly talented team of roughly 125 employees, more than 75% of whom are senior-level engineers. Despite their early stage, the power of Volterra's technology platform has already secured 50-plus enterprise customers, including 3 of the top 15 telcos globally. As we will explain today, combining F5's incredible reach, including its scaled platform of 18,000 global enterprise customers where we enable 450 million apps and websites and deliver leading security solutions, the Volterra's technology platform accelerates the entirety of the F5 portfolio. Near term, the combination with Volterra is immediately additive to our financial performance. It allows F5 to bring application security to our 18,000 customers worldwide as a service. That means F5 can now extend its world-class application security to the Edge, making it much easier to consume via its SaaS model. Volterra meets the clear M&A criteria we laid out at our Analyst and Investor Meeting. In Horizon 2, we expect it will accelerate our revenue growth. At the same time, we are maintaining our Horizon 2 operating margin targets and our commitment to achieving double-digit EPS growth as well as driving to the Rule of 40. We also remain fully committed to our previously discussed $1 billion in share repurchases, including a $500 million accelerated share repurchase in fiscal year 2021. But I want to be clear, we are not acquiring Volterra for what it can do for us short term. In fact, we expect less than $10 million of revenue contribution this fiscal year. The real power of this combination is how it transforms our competitive position. First, we are massively expanding our reach and position in application security, the fastest-growing segment of our $28 billion 2023 TAM. Second, it substantially enhances our competitive position in edge, one of the fastest-growing segments of the market, with a next-generation offering that we are calling Edge 2.0. And finally, it creates a unique platform-as-a-service edge computing platform. Going forward, you will see the benefit of Volterra in the growth of our software, application security and SaaS solutions. Let's shift now to talk about the edge and how, with Volterra, we will redefine the segment for enterprises and service provider customers. Applications run the world, and that has never been so apparent as it is now following a year in which we have all lived with a global pandemic. Banking, curbside pickup, working from home, schooling at home, we depend on our apps more than ever. Because of this, consumer expectations of their apps have never been higher. We discussed in great detail at our Analyst and Investor Meeting the untenable nature of the way apps are delivered and secured. What we all experience when we open an app from our phones and laptops, the elegant app and digital experience we expect every time we engage with an app is very challenging to deliver. It requires multiple networks, multiple clouds, basic CDNs and edges. Enterprise customers must stitch this all together to deliver an app because each platform comes with its unique set of functionality and services. The edge promises many benefits that cannot escape these fundamental challenges. The edge offers incredible promise of low-latency performance and being closer to the end user. But closed platforms remain, forcing customers to stitch together yet another set of technologies that are inconsistent with their existing ones. Why is this so painful even at the edge? Today's edge is a closed platform. Customers often default to what CDNs are offering in their PoPs, or point of presence, for security, load balancing and API management. The alternative is manually stitching it together with everything else. For enterprises, the edge, despite its benefits, increases the pain of building, running and securing apps. Building edge-enabled apps is complex with varying functionality from the CDN vendors. Running the apps on a specific edge platform and network is limiting, and securing apps with commodity security puts the entire system at risk. Our scale with 18,000 enterprise customers has shown us that none of these are legitimate trade-offs for enterprises. End-to-end, consistent security and app time to market will make or break their business. Volterra was built to solve these fundamental challenges at the edge. It is a universal edge as-a-service platform. Its paradigm-shifting open edge technology is designed by the leading experts in the industry to leverage the unparalleled scale of public clouds. Volterra provides a unique combination of SaaS for transparently delivering networking and security offerings anywhere and PaaS, Platform as a Service, for building and running modern container and Kubernetes-based apps. By joining forces with Volterra, we will create the first enterprise-ready edge. We will be the first to bring to the edge the enterprise-grade features, including world-class security and unmatched scale that have been missing until now. Those steeped in the challenges of the current edge recognize the potential of the Volterra platform. SoftBank, a name synonymous with embracing next-gen technology, is intent on building the #1 5G network in Japan. They chose Volterra. They see its unprecedented edge capabilities as key to solving operational challenges and generating increased revenue streams. Now SoftBank, one of the largest and most ambitious companies in the world, has chosen to use Volterra is a clear testament to their technology and its enterprise-grade capabilities. Today, we are introducing Edge 2.0, the first edge platform built for enterprises and service providers. The edge offers incredible promise, but enterprises have found it has many limitations in terms of scale, security and simplicity. We will get into more detail on Edge 2.0 here. But put very simply, we see the evolution of the edge kind of like the transformation we have seen in content. Cable vastly expanded their content for consumers to consume within a defined infrastructure. Cable, or cable 1.5, started to redefine how you could access and use that content, but did so within the same infrastructure constraints. Streaming, or Cable 2.0, if you will, breaks out of the infrastructure entirely. It is anything anywhere. The evolution of the edge is very similar. Edge 1.0 is just based on traditional CDN, which was built for pictures and videos that require a server close to the end user for low latency. They have commodity security features disconnected from the app. It is also limited to a specific vendor's top network. Edge 1.5 added edge compute, allowing apps and more than just content to run at the edge delivered as SaaS, but the trade-offs are massive for enterprises. App teams must manually integrate custom code into the rest of the app, wasting precious time to market. It is also left unprotected with just good-enough security. And like Edge 1.0, it is locked into a specific vendor's PoPs for going to scale available via our public clouds. F5 and Volterra will introduce Edge 2.0, an open edge platform that will allow every service to run on any server, virtual or otherwise, inclusive of public clouds. Let me share more about what Edge 2.0 will be. Edge 2.0 will be the first Edge platform built for enterprises and service providers. There are 3 core attributes of Edge 2.0 that distinguish this platform from prior generations: Number one, Edge 2.0 will be security first. F5 and Shape's industry-leading security will be more easily deployed to the edge and in public clouds and consistently across all environments. Number two, it will be app-driven. The app is the tentpole, and all the other infrastructure is in service to it. No more manual stitching. With Volterra's universal, build once, deploy globally app delivery technology, enterprises can finally achieve multi-cloud hybrid environments. Edge 2.0 will be software-defined and based on industry standard containers and APIs. And number three, Edge 2.0 will deliver unlimited scale. It breaks the apps out of the CDN jail of the closed edge platforms, enabling enterprises to run any service on any server with cloud scale. I will drill down further into each of these attributes. But why is Edge 2.0 security first? The sophistication of cyber attacks has increased. And as apps moved to the edge, so will the attacks. Good enough check box security is not good enough for enterprises, and the CDNs should not dictate your app portfolio security posture. Today, F5 is the primary line of defense used by the majority of the largest banks, airlines and federal agencies. For instance, a top 10 global airline implemented Shape on their website to recognize their consumers, to know who they were and recognize that they were real customers and not bots. This recognition capability enabled the airlines to extend their consumers' logging time, which in turn increased sales by 1.3%, driving millions in revenue. . In another example, one of America's largest credit unions saw a spike in automated attacks, escalating to 200,000 per day compared to their usual 6,000 to 8,000 per day. They implemented Silverline, and within 2 days, we completely mitigated the attack. The customer is now experiencing the benefits of machine learning and AI, eliminating future attacks. Volterra makes the same level of security and assurance deployable via a SaaS platform. Enterprise customers will benefit from consistent policy and compliance across all clouds, data centers, devices and edges. Edge 2.0 is app-driven. Edge 1.0 and 1.5 also met the mark on enterprises' need for simplicity in a multi-cloud world. Today, when app teams want to incorporate edge benefits for mobile shopping apps safe for rendering photos or running app logic closer to the end user, they must manually stitch and integrate it with other pieces of their tech stack, including cloud, network, compute and security. Edge 2.0 will enable developers to focus on great digital experiences instead of fighting their tech stack. First, it will provide a software-defined edge, putting the app first and seamlessly connecting across data center, edge and cloud with API intelligence. Second, it will provide enterprise-grade DevOps flexibility, features and automation for delivering modern apps. And third, with industry standard Kubernetes containers, developers and DevOps teams will finally be able to build once, deploy globally across modern and traditional apps. Enterprise customers will benefit from simplified operations, lower total cost of ownership and faster time to market. And this brings me to our third value pillar: unlimited scale. Today's enterprise edge apps are limited to their CDN serve occasions. They are locked in. Edge 2.0 will let apps break out of their cages. So why do we say unlimited scale? Betting on Edge 1.x technologies means confining your enterprise apps to a single hardware network, which creates significant app limitations in vendors. For instance, performance is limited by the PoP hardware. Location-wise, it stops at the far out access edge and does not go the last mile to the user edge, where more of the compute is moving. And if you want to leverage cloud scale, manual stitching is required. Edge 2.0 allows every F5 and Volterra service to run on any server in any public cloud, data center or within the Volterra operated network. This allows enterprises to move workloads between clouds and data centers when a security breach or other disaster occurs. It mitigates switching costs and gives control back to the enterprise. Plus F5 and Volterra will be compatible with the public clouds' intelligent edges, providing superior performance and security over third-party CDN edge solutions. Enterprise customers gain greater flexibility, breaking them out of the CDN jail and enabling them to elastically scale with the cloud. Today, we are introducing Edge 2.0. Not only will our Edge 2.0 platform be an advancement for the industry. It will also advance our Adaptive Apps vision for a world in which our customers' app portfolio adapts to their environment. An adaptive app will automate redundant processes, protect itself, securing all points of vulnerability, expand and contract based on performance needs and learning the process getting smarter and becoming self-healing. Edge 2.0 will honor the enterprise's heterogeneous environment, automating what was manual switching with universal app delivery for the edge, modern apps and traditional apps. And with this ease of deployment, enterprises can consistently deliver advanced security across all environments and collect telemetry in every environment, including the edge. F5 and Volterra's Edge 2.0 will advance our reach and role across the portfolio. It will create a universal build once, deploy globally app delivery platform that automates app distribution across data center, cloud and edge. By honoring industry standard containers and APIs, it will accelerate customers' modern app and digital experience's time to market. In addition, F5 can now extend our world-class app security to the edge, making it much easier to consume via a SaaS model. And lastly, customers will get an end-to-end view of app performance inclusive of edge. This rich telemetry is captured by the F5 platform, making the platform smaller and truly adaptive. Clearly, we are laying out a big vision here. Let's talk about how you will see us putting the power of this technology into the market. We will be disciplined and deliberate in driving the value creation we see possible from this combination. We expect we will see progress across a number of vectors: Number one, we will bring F5 security to the edge, integrating F5's industry-leading app security into Volterra's platform. Number two, we will reach new applications with the added benefit of Volterra, simplifying deployment of both BIG-IP and NGINX. Number three, our SaaS offerings will be brought to market faster using the Volterra platform. And number four, we will have new compelling service provider edge computing use cases for 5G and IoT. It is these outcomes that have caused us to increase our revenue growth outlook for both Horizon 2 and long term. In closing, adding the Volterra technology platform to F5 complements the entirety of our portfolio. It makes our business stronger and more competitive. The strength of our transformation and the substantial progress we have already made have put us in a position to do this transaction within the M&A guidelines we set out for ourselves at our Analyst and Investor Meeting. The combination is immediately additive to our near-term performance, increasing our Horizon 2 revenue growth expectations to 7% to 8% CAGR from 6% to 7% previously. And we are reiterating our commitment to double-digit non-GAAP EPS growth and to achieving the Rule of 40 in Horizon 2. This further strengthens our ability to deliver sustainable double-digit EPS growth over the long term. We have also increased our long-term revenue growth expectation to double digits from the 8% to 9% we shared with you at our Analyst and Investor Day. More importantly, though, we believe this acquisition, and what it enables us to do with Edge 2.0, transforms our competitive position in the medium term, which means we are better positioned to claim our share of our $28 billion 2023 TAM and expand beyond that. In summary, the investment proposition we laid out at our Analyst Day remains unchanged, but our path to delivery is significantly strengthened and accelerated. We are encouraged by our results. Our strategy is delivering real business momentum, and we look forward to continued execution to capture the potential we see ahead of us. We are very excited about this opportunity and what it will do for F5, our customers and our investors, and we are looking forward to welcoming the Volterra team to F5. Operator, we will now open the call to Q&A.

[Operator Instructions] Your first question comes from the line of James Fish of Piper Sandler.

Congrats on the deal here and the preliminary results for the quarter. A big part of edge as a service is kind of the global edge scale. And Francois, you did touch upon this here in the last couple of minutes. But I guess, how much will F5 need to invest to continue to build out Volterra's edge to be able to meet any demand, especially as you think about the smaller CDNs having a few hundred points of presence and even the larger ones having thousands? And really, what makes Volterra's edge different than those CDNs beyond the kind of the lock-in that you were describing?

Jim, thanks for the question. Jim, just given the timing of this call, before I respond to your question, I would like to just comment on the violence yesterday and the attempt to disrupt the democratic process at the U.S. Capitol. As a global company, we have employees who are citizens in places where democracy is not always guaranteed. And I say this in all humility as someone who was not born in the U.S., that the U.S. has always been a shining symbol of how democracy is intended to serve the will of the people. And yesterday was a tragedy and a horrible message for the world. I was, however, extremely encouraged as the Congress returned to work, affirm the outcome of the presidential election and continue the peaceful transfer of power. I just wanted to say that given where we've been. Jim, let me now turn to your question. So what's different about Volterra's platform is that it creates a virtual edge. So Jim, you probably know this, but we have a solution at F5 called Silverline, where we have a few tens of PoPs ourselves and deliver security as a managed service to PoPs. When we were looking at the evolution of the edge, one of the options that was available to us was to scale that solution organically. And we could have gone out and spent significant amounts of CapEx to scale that solution to hundreds of PoPs. But that was more of an Edge 1.0 architecture, and Volterra leapfrogs that completely because they have put together a software stack and a global network that allows them to leverage any compute infrastructure, including that of public clouds. And as a result, the edge platform that they've created is unlimited in scale and can go to thousands -- or tens of thousands of PoPs by leveraging any compute infrastructure, whether it's a public cloud or a data center, or anywhere. It could be a [ passive ] branch. Anywhere where there is a compute stack, we can put essentially our edge in a box back on that infrastructure. And so we do not have to go and spend a lot of CapEx to try and replicate a large number of PoPs that others have built. And that's a big part of the differentiation here and the leapfrog versus Edge 1.0 and 1.5 architectures.

And just a follow up on the preliminary results. Systems was actually up year-to-year. I guess how sustainable systems growth given the strength this quarter? And any comment as if there was a pull-in of demand from calendar Q1 or fiscal Q2?

Yes. A couple of things on that, James. Number one, there was no pulling of demand from Q2. Number two, there was -- the strength that we saw in systems was actually broad-based across geographies and across customer segments. So it's early days, and we still have to go through our QBRs, and we will comment more on that when we get to our earnings call a little bit later in the month. But that's what I'll say about the hardware. And then you also saw that there was very strong performance on software, including organic software growth.

Congrats again, guys.

Thank you, James.

Your next question will come from the line of Alex Kurtz with KeyBanc Capital Markets.

Yes. One strategic one, financials. So on the acquisition, Francois, what would you say Volterra is known for as far as their best use case? Is it DDoS? Is it application delivery? So just if there's something you could just -- they found really good traction, that would be helpful. And then on the model, just I understand this company is still pretty small, maybe 100 people, maybe a little bit more. What does this mean for OpEx as we go through Q2 and into the rest of the year?

I'll address the first part of the question, and Frank will probably take the second part. So Volterra is known largely for the capabilities of the platform and the way they have architected an edge platform that is unlimited in scale. That is a universal virtual edge as a service. And the integration that they've completed between the application security and delivery capabilities, the network and the orchestration of network, edge infrastructure and application security and delivery. When you look at their current customers, there are a couple of telco customers that are more for 5G and IoT use cases. And then the majority of enterprises are on application delivery and security use cases. Frank?

Alex, in terms of your question on operating margins, we'll be more specific in a couple of weeks when we actually talk about the quarter end guidance specifically. I will say, what we talked about last quarter's earnings call, where I said Q1 will be at a certain rate, Q2 will be below that rate and then building back up in Q3 and Q4, is going to be the same pattern that we explained. And what we also said today is that we were not changing our outlook for operating margins in Horizon 2, including what we expected in FY '21.

So on FY '21, Alex, we said 31% to 32% operating margin, and that stands unchanged.

Okay. So still that Q1 to Q2 dip, though, right, in op margin?

Yes. Still that Q1 to Q2 -- yes, it's a seasonal thing for us. We'll experience it again.

Okay. And we'll talk about the OpEx load at another time on the earnings call?

Correct. Yes, in a couple of weeks.

Yes.

And your next question will come from the line of Alex Henderson of Needham.

Just to follow up on that last question. So it sounds like the upside to revenues and margins that you've occurred as a result of stronger-than-expected demand is offsetting the dilution from the acquisition on an OpEx basis. Is that kind of the right way to think about it?

It is the right way to think about it. I think we've -- obviously, it's early in the year. And so as we look at the plan and what this consumes in terms of the OpEx envelopes that we had planned for, we can absorb that within the margin guidance that we give.

The second question I wanted to ask is just a little bit more on the technical side. You guys have been making a very strong play to microservices, Kubernetes-based application deployment technology, CI/CD pipeline and the like. It sounds pretty clear that this is an extension of that, particularly with the app-centric elements of Volterra. It's been a little less than a year since I visited the company, but my sense is they're very sensitive to that. And so I guess, to what extent the microservice implementations and those type of frameworks are critical to this acquisition. And what are you going to -- is all of the management from Volterra expected to come over? Or is anybody leaving?

Alex, I'll start with another part, and then I'll ask Shuman to chime in on the first part of your question. All of the management team is coming. So no one is leaving. Everybody is coming to F5. And then, yes, the capabilities -- one of the capabilities of Volterra is the ability for app developers to kind of build their app and deploy containers on a global basis without having to worry about the networking components of deploying that solution. And therefore, for modern applications that are built in Kubernetes environment, this is the right platform that allows them to deploy these apps across multi-cloud and without having to worry and having to stitch together a lot of kind of networking and compute and orchestration components. And in that way, it is a complete leapfrog from the current edge solution that were built more for content delivery or caching as opposed to built for modern application deployment and delivery. Shuman, did you want to add anything to that?

Sure. Alex, this is Shuman Ghosemajumder, I'm our Global Head of AI, and I think you hit the nail on the head, that we see microservices as an essential part of how modern applications are built. They're used throughout enterprises across the world. And in order to be able to create those cumulative application experiences through microservices now, there's a great deal of complexity that the edge-only adds to. And so what Volterra is designed to do is to be able to simplify all of that into a single stack and a platform that can allow you to be able to implement microservices in such a way that you get a consistent experience from a security perspective as well.

Your next question will come from the line of Samik Chatterjee of JPMorgan.

Francois, I was just wondering, just in relation to the 12- to 18-month integration time line that you outlined here, and you did outline kind of 4 drivers starting with securing apps anywhere that kind of how the portfolio -- F5 portfolio benefits from this Volterra acquisition. Like are most of these revenue synergies -- to put kind of a buzzword or jargon around it, if you think of these as revenue synergies, are most of these post the 12- to 18-month integration? Or does the security or kind of more of the benefit to Shape come through even before the integration is done? And I have a follow-up, please.

Thank you, Samik. Yes, the -- most of these are, in fact, security -- sorry, revenue synergies. The key about this acquisition, Samik, is it isn't about an individual product. It's that Volterra platform has the potential to accelerate growth for the entire F5 portfolio because we can bring all of our security capabilities, including Shape and [indiscernible] then on the Volterra platform, which will accelerate our growth in security at the edge. But it also makes the deployment of BIG-IP and NGINX easier. So for customers that want to deploy BIG-IP and NGINX in multi-cloud environment, once we do the integration with Volterra, deploying that in multi-cloud without having to worry about stitching a bunch of things together gets greatly simplified. And what we've seen over time is when a technology is easier to consume and easier to deploy, it gets consumed a lot more. And so the acceleration in the potential revenue synergy are across the entire portfolio. And then there is an opportunity to even expand our TAM beyond the $28 billion with use cases in edge computing and IoT that the platform enables. Because this platform, unlike kind of current edge solutions that are limited by their CapEx and the PoP infrastructure, the platform can leverage tens of thousands of nodes from any type of infrastructure to address edge computing use cases that are much closer to the user than a PoP of CDN. So those are the elements of synergies, potential growth and breakout from the acquisition.

Got it. And just a quick follow-up on the results that you reported, preliminary results that you gave, any kind of changes in the enterprise spending landscape that you're seeing? Obviously, you've kind of had strong results and you have acceleration in software revenue growth as well as better results on systems. But how much of that would you say is a function of like much better spending coming through from customers, what you see on that front?

Samik, just to clarify, how much of that is much better spending from our customers?

Yes. Like how much of that would you attribute to just a much better spending environment versus momentum on the product side?

Samik, I think we'll say more at the end of the month on this. I don't think we have seen a vastly different environment in terms of spending macro environment than I think we saw in the prior quarters. But in general, Samik, we have seen, through the COVID period, everybody is going to doing things -- more and more things digitally. And we see, call it, strong resilience of the F5 business through that period. And I think as a result, there's more demand for application furnaces and application infrastructure, and we're seeing that across the business.

Your next question will come from the line of Meta Marshall with Morgan Stanley.

Francois, as you laid out your Edge 2.0 vision, do you think of expanding upon that primarily through security-based products or applications? And do you think you can accomplish that organically? Or will there be kind of other acquisitions necessary? And then maybe just some mix. Did you mention whether there was any meaningful customer overlap today or just how Volterra kind of primarily charges for their products?

So let me try and address these in turn. So the last part, Meta, Volterra is a SaaS platform, and their business model is software-as-a-service. So that's the charging model. There is some customer overlap. Volterra has roughly around 60 customers. I think about half of those are actually F5 customers. The customer overlap, per se, was not a driver of the acquisition. However, the types of customers was because it was clear from our discussions that Volterra had actually architected a platform for large enterprises and service providers, and it really is the first edge platform that is built for that. So -- and then to the first part of your question around whether we will need more acquisitions to deploy our strategy at the edge, the answer to that is no. I think we have a phenomenal position at the edge when you combine the security capabilities that we already have and the platform that Volterra has built. We are an application delivery and security company, and this platform will accelerate our security business, but also our delivery business, especially for modern application environments.

Your next question will come from the line of Tal Liani of Bank of America.

Two quick questions. First, do you need to adjust your go-to-market channels for the acquisition? Or can existing organization deal with the different type of sale?

Tal, it's a great question. So the answer is no for the most part and yes for some parts. So where we are already very well set up to serve and to create value from Volterra is in terms of selling security as a service at the edge. As you know, we have a very scalable security business and relationships with SecOps personnel and CSOs at large enterprises already and have already had experience selling packaged software to them, but also managed software in the service security. So for security, I think we're all set. For ease of deployment of BIG-IP and NGINX and sort of multi-cloud networking use cases, we are all set. We have the right go-to-market personnel, and we also have the right channel partners that will support that. The one area where we will adjust, if you will, is this platform also appeals to app developers and more DevOps personnel. And we have amazing capability there with the go-to-market team that came from NGINX, but we will want to put more muscle behind that because there's a real opportunity there to attract a new buyer persona to F5.

Got it. My second question is more about the quarter. I know this question was asked multiple ways, but I'll ask it again. The growth in systems is very different from what we have seen before. And I'm trying to understand if there was any fundamental change in the environment that drives growth now versus declines before or whether there's something more unique to this quarter that drove this number now. I'm trying to understand the sustainability of the trend of the growth.

Yes. And Tal, I will say what I said before, which is that we will say more about all of that at the end of January. But I do want to answer your question as best I can right now. The -- I think the most important data point for you is the strength in hardware, it wasn't linked to a single customer or customer segment or a single geography. It was across the board, number one. Number two is, I think at a macro level, we are benefiting from the acceleration in digital transformations that a number of companies have embarked on as a result of COVID. We're seeing an acceleration of everything digital and everything done through application. And for F5, yes, of course, that translates into growth in software, but there's also an element of people having our hardware installed and wanting to increase the capacity to support the need of applications, which leads to what we're seeing in hardware. I would say -- I mean we said that -- at our Analyst and Investor Day, we said that our -- we expected our hardware -- the hardware decline to moderate and to evolve to the mid-single-digit decline. What we're seeing here is mid-single-digit growth. So yes, we are somewhat surprised relative to where we were 2 months ago with what -- with the strength that we have seen, but we've seen it across the board. So we're going to continue to look into this and be able to say more at the end of January.

Your next question will come from the line of Paul Silverstein with Cowen.

Francois, I actually did hear your response to Tal's question. But if I may, and I do apologize because you may want to leave it to when you formally announce your results. I'm trying to ask a question a different way, which is, if we look at your bookings, what were your bookings for the quarter? What was your book-to-bill?

We don't disclose that one, but we had strong bookings.

So your quality demand metrics were strong?

Yes.

Yes. Let's just say it this way, Paul. I mean I'm just going to -- if this -- the thing behind your question is, did we pull in from demand, bookings were not strong, then we pulled in demand to have strong revenue. That is absolutely not the case. Demand was very strong.

Okay. Let me move on. And I apologize we wanted to hear -- so if you've already given this, I do apologize. But if I see the -- if I saw the numbers correctly, it looks like -- and I heard you correctly, Francois, I think you said you're expecting $10 million revenue contribution this year, this fiscal year, and you've increased your growth forecast for fiscal '21, '22 by 1 percentage point on the -- each end of the range. That would suggest that you are expecting at least an incremental $25 million -- or if I heard the $10 million correctly, $35 million in total revenue at least in terms of contribution in fiscal '22 from Volterra. Did I get that right?

Roughly, Paul. But I don't know that I split it so finely between $10 million now and $35 million next year. But we did say less than $10 million, and the offset of that is the Horizon 1, Horizon 2 guidance is the organic growth of the business.

So it's not you're increasing by 1 percentage point. It's not just reflecting your expectation from Volterra? That's also reflecting that you feel more confident about organic growth? Or does that make sense?

That's correct.

Okay. And if we look at Volterra's demand metrics, forward-looking metrics, in particular bookings, I assume -- if you're talking about less than $10 million in revenue, I assume your bookings are running at least 2, if not, 5-plus x revenue levels at this point. Is there any insight you could give us? I heard you say 60 customers. Anything you can share with us in terms of the progression of demand? I heard you say they only came out in stealth mode 14 months ago. So I appreciate it's early, but again, as you look at those demand metrics and translate that into revenue going forward, anything you can share with us?

Not at this time, Paul. I think we generally don't talk about bookings, particularly on a per product line basis. But I would say we are really excited about the stand-alone business, but we're much more excited about what the combination is going to mean for the entire F5 portfolio, as Francois mentioned. That's going to take some time to fully integrate and see that value, but that's the -- that's where our focus is going to be for the next 12 or 18 months.

One last question, if I may. Francois, I heard you say 3 major carriers, 1 was SoftBank. How many Fortune 10 or Fortune 100 customers in only 60?

I don't know, Paul, off the top of my head. We can probably come back to that later on in the month, but it is large enterprises.

And they're names we recognize?

Some, yes.

All right. I appreciate the response. I'll pass along.

Your next question will come from the line of Sami Badri of Credit Suisse.

First question is, Francois, you made the comment regarding unlimited scale. And you compared -- or at least you're making a case that with unlimited scale, it's going to be better than the CDNs that have limited performance due to their hardware. Can you just tell us how Volterra actually does this differently? And then kind of with that, does Volterra currently build out or deploy its PoPs using F5 hardware? Or are they using something else that will eventually all become F5 hardware?

Great question. Let me ask -- Shuman, let me ask you to answer this question.

Sure. So the core of the argument is that you want to be able to have as much universality as possible in terms of being able to build out that edge capacity. So the way that the more recent CDN-based vendors have done this is by creating flexible servers that are built around the world that allow them to be able to execute a variety of different services on every single one of those servers. What Volterra does is it uses industry standard containers so that those containers can then be executed not only on their own hardware, which they have in PoPs that they've built around the world, of course, but also on public cloud, on other enterprise data centers and basically wherever you can execute a container, which is a very flexible set of places all around the world. And so that gives you the ability to get closer to users than ever before, including being able to extend all the way to the user Edge. In terms of the hardware that Volterra uses, I don't know exactly where they're using F5's hardware. But they do have the ability to run on all of these different platforms, which can be supported by a variety of different hardware methods.

Okay. Perfect. The other kind of question I have related to that one is the majority of Volterra's PoPs are currently across Europe. There's a Seattle location, Bay Area and Ashburn. Is the goal here to just get Volterra deployed across every single major enterprise hub as fast as is possible? Or can they automatically just deploy across public clouds to get there?

They can automatically deploy. So they've already created that software capability to be able to run in all of those major public clouds and data centers.

Okay. Got it. Got it.

And Sami, that was -- that's actually -- that point was actually very key for us in making this decision. I said earlier, we could have gone out and said, hey, we had to spend a lot of CapEx to build out our Edge 1.0 architecture and scale it to hundreds and hundreds of PoPs. And when we were looking at this build, buy or partner decision, we decided to buy and partner. And part of our decision, we have already very strong relationships with public clouds like AWS or Azure, and we felt we could build on these relationships and leverage the way that Volterra has built their platform to deploy at scale, leveraging their infrastructure. Because ultimately, we believe that the public clouds have the muscle, the CapEx and the ambition to build out edge infrastructure in a way that is going to be very difficult for third-party CDNs to compete with and replicate.

Got it. And that was helpful. Maybe just to think about everything pre-deal. How integrated are the -- how integrated F5 on Volterra even before you guys even got started to the integration process? Is there already like already integration efforts in the background, combined solutions, anything in the channel that has been -- that overlapped before this? Can you just give us an idea here in terms of like where your -- where the start line really is for this path?

No, there hasn't been integration already done. Of course, there's been a phenomenal amount of technical due diligence to understand how rapidly we could do the integration. And we've walked away from this feeling very comfortable as to how we would approach the integration and the sort of time scales in which we would do it. But there was not -- no technical integration that was done prior to that in the market, if you will, to serve a specific customer.

Got it. Got it. And then I have one fun question for Frank. Accelerated repurchase program in fiscal year 2021, how accelerated are we talking about here? Is this like front-end loaded fiscal year 2021? Or does it -- just give us an idea on how accelerated are we talking about here.

Sami, we don't preannounce when we're actually going to be in the market so I'm not going to talk about it specifically. But obviously, as part of the definition of accelerated share repurchase, when we go out in the market, there will be all at once what that means.

And due to time, this concludes today's conference call. Thank you very much for joining. You may now disconnect.