F5 (NASDAQ:FFIV) reported fourth-quarter financial results on Tuesday. The transcript from the company’s fourth-quarter earnings call has been provided below.
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View the webcast at https://events.q4inc.com/attendee/466941274
Summary
F5 Inc. reported Q4 revenue of $917 million, a 13% increase year-over-year, driven by product revenue growth of 23%.
For FY26, total revenue reached $3.4 billion, an 11% increase, with product revenue up 19%.
The company highlighted strong demand due to trends like hybrid multicloud adoption, expanding threat landscape, and AI inference.
F5 expects FY27 revenue growth of 8-9%, anticipating a third consecutive year of double-digit product revenue growth.
Operational highlights include the deployment of AI-powered WAF capabilities with over 300 customers and significant competitive takeouts.
Strategic investments in AI security and sales capacity are anticipated, with plans to double headcount in these areas.
The company ended FY26 with $1.62 billion in cash and investments and announced a $1.8 billion share repurchase authorization.
F5’s AI opportunities are expected to grow significantly, with a projected market TAM of $11 billion by 2030.
Full Transcript
OPERATOR
Good afternoon and welcome to the F5 Inc. Fourth Quarter Fiscal 2026 Financial Results conference call. After today’s prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one. To withdraw your question, press star one again. 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.
Suzanne Dulong (Vice President of Investor Relations)
Hello and welcome. I’m Suzanne Dulong, F5’s Vice President of Investor Relations. We’re here to discuss our fourth quarter and fiscal year 2026 financial results. François Locoh-Donou, F5’s chairman, president and CEO, and Cooper Werner, 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 here to answer questions during the Q and A session. Today’s press release is available on our website at f5.com where an archived version of today’s audio will be available through January 26, 2027.
We will post the slide deck accompanying today’s webcast to our IR site following this call. For additional information or follow up questions, please reach out to me directly at sdulongf5.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. We’ve summarized factors that may affect our results in the press release announcing our financial results and in detail in our SEC filings. In addition, we will reference non-GAAP metrics during today’s discussion.
Please see our full GAAP to non-GAAP reconciliation in today’s press release and in the appendix of our earnings slide deck. Please note that F5 has no duty to update any information presented in this call. I will now turn the call over to François.
François Locoh-Donou (Chairman, President, & CEO)
Thank you, Suzanne, and hello, everyone. Fiscal 2026 was an exceptional year for F5 and Q4 closed it out with strong execution and accelerating strategic momentum. We delivered Q4 revenue of $917 million, up 13% year over year and above the top end of our guidance range. Importantly, that top line performance was powered by product revenue growth of 23%. With Q4, we have now delivered nine consecutive quarters of double-digit product revenue growth, a clear signal that our customers are choosing F5 consistently and at scale.
For the full year, total revenue reached $3.4 billion, representing 11% annual growth, including 19% product revenue growth. These results reflect three megatrends we have consistently highlighted: hybrid multicloud adoption, the expanding threat landscape, and accelerating AI inference. We called these trends early and we built for them. Our FY26 results demonstrate how these trends are actively reshaping customer behavior right now. They also frame our FY27 revenue outlook against an FY26 baseline that finished well above our May investor event expectations. We are guiding to FY27 growth of 8 to 9%.
We expect to deliver a third consecutive year of double-digit product revenue growth in FY27, providing a solid foundation to our outlook. Cooper will elaborate on additional guidance details in his remarks. Before I highlight some customer wins from the quarter, I want to speak to another factor driving confidence in our outlook: the pace and quality of our innovation and the structural position it is reinforcing. The fundamental truth of modern enterprise security is that you cannot enforce consistent runtime protection without being in the data path. For three decades F5 has built and defended exactly that position in the flow of traffic for many of the world’s largest enterprise application environments.
That footprint is the foundation. What we are building on it is the advantage. In the last six months that advantage has become more pronounced because the threat environment has fundamentally changed. Frontier AI has accelerated vulnerability discovery to machine speed, expanding the attack surface through APIs, agents, and AI models while compressing the time available to respond. More than 70,000 vulnerabilities were discovered and published through September this year. This is up roughly 50% over all of 2025. NIST reported a 208% year-over-year surge in vulnerabilities between July and September alone.
Meantime, time to exploit has collapsed to negative 7 days. A typical 43-day patching cycle is now a liability. Customers know it, and security is increasingly leading our customer conversations and investment is moving away from fragmented point products towards converged platforms that enforce consistent policy in real time across every environment where applications and AI run. That is precisely where F5 is differentiating. In less than six months since launching in March, we ended Q4 with more than 300 customers deploying our AI-powered WAF capabilities and more than 75% of these deployments are operating in blocking mode. That figure matters. It means customers are not just evaluating AI-assisted security, they are trusting it to stop malicious activity in production. Let me make that real with something that happened just last week. On Wednesday two critical vulnerabilities were disclosed in PHP, the software behind roughly 70% of the world’s websites.
When a disclosure like that hits, a race starts. Attackers begin weaponizing exploits within hours. Defenders typically wait for vendors to write, test, and ship a new signature. Last week we all saw websites being taken down so as not to risk attack. Our AI-powered WAF customers did not have to wait. After the disclosure, our researchers hit an F5-protected application with multiple attack variations. Our AI-powered WAF stopped every one of them in blocking mode while letting legitimate traffic through.
Our customers did not have to write a new rule and they stayed protected while they patched. That is the shift. We are betting on security that adapts at the speed of the attacker, not the patch cycle. We are applying that same AI-based detection capability to API security, moving protection beyond static signatures and rules to models that identify and stop malicious API requests in real time. As AI agents drive more machine-to-machine activity, APIs have become the primary pathways agents use to reach models, data, and critical business systems. Protecting those interactions at runtime is becoming essential, and F5 is already doing it.
Protecting customers at runtime is one dimension of our advantage. Strengthening the software itself is another. We are leveraging frontier, open source, and open-weight AI models to identify and remediate vulnerabilities in our own code base faster than was ever previously possible. We are continuously scanning more than 140 million lines of code with F5-built AI harnesses and leveraging AI to remediate thousands of vulnerabilities. As a result, in just the last three months we have implemented engineering fixes that previously would have taken seven years of work.
In Q4, as part of an accelerated security cadence, we delivered two software updates focused entirely on remediating vulnerabilities before they can be exploited. And we are pairing that accelerated cadence with F5 Insight, our solution for fleet-wide visibility, upgrade orchestration, and lifecycle management across BIG-IP environments. Launched in March, F5 Insight has gained the trust of more than 200 customers, with automated fleet management already dramatically reducing upgrade times and operational risk.
Together, accelerated critical releases and F5 Insight’s automated deployment capabilities create a faster path from vulnerability to protection, enabling customers to find, fix, release, and deploy at greater speed and scale. F5’s differentiation in this fundamentally new threat environment is showing up in our pipeline and our wins. It’s also being reflected by the analyst community. In July, F5 was named a Leader in Secure IQ Labs Cloud WAF Cyber Risk Validation Comparative Report. In September, IDC named F5 a Leader in its MarketScape for worldwide WAF platforms. And also in September, just four months after we launched the F5 AI security platform, Gartner recognized F5 as one of only two market shapers in AI application security.
Three recognitions in three months. We believe this progression reflects both the pace of our innovation and strength of our market position. Our application delivery and security platform is one platform, one policy framework, one management plane. We deliver consistent security and delivery policy from data center to edge to cloud for every app, every API, and every AI workload the enterprise runs. No point product vendor can replicate that position, and we are investing and innovating to extend it.
Before I pass the call to Cooper, let me bring our differentiation to life with a few customer wins from the quarter. Each one shows why the megatrends reshaping IT are translating directly into demand for F5. I will start with wins driven by hybrid multicloud adoption, which is driving demand for F5 across data center build-out, digital sovereignty, competitive displacement, and platform consolidation. Customers operating across on-premises, colocation, and cloud environments cannot meet data residency and compliance requirements with disconnected point tools.
They need consistent policy enforced everywhere, and that requires a converged platform. That fact is showing up directly in our business. Twenty-nine percent of our top 1,000 customers now deploy three or more F5 product families, up from 22% in 2025, and we are seeing strong platform traction across all theaters. In an eight-figure win from Q4, a large regional North American financial institution selected F5 as its unified application delivery and security platform across its on-premises, colocation, and cloud environments. The customer had accumulated a fragmented architecture over time, including two incumbent ADC providers and two separate cloud security and CDN toolsets. This approach created policy inconsistency and operational complexity that sovereignty and compliance requirements increasingly prohibit.
Following a competitive evaluation, F5 consolidated the entire estate, displacing all four incumbent vendors. BIG-IP anchors high-performance application delivery across on-premises and colocation environments. Distributed Cloud, WAF, Data Intelligence, and CDN extend consistent protection into the cloud. F5 Insight centralizes visibility and management across their full environment. One platform, one policy framework from on-premises to cloud. In another win from the quarter, a central bank technology authority in Asia selected F5 as the unified platform for a national financial services cloud built to keep critical banking infrastructure under domestic control. Following a rigorous public sector tender on technical merit and cost, F5 displaced two incumbent application delivery competitors. BIG-IP powers high-performance traffic management and high-availability delivery across the customer’s own data centers.
Distributed Cloud, WAF, Data Intelligence, and CDN extend consistent application security and API protection into the cloud, all managed through a single F5 management plane. The expanding threat landscape continues to accelerate demand for F5, and the data from our own solutions tell the story. In Q4, F5 Distributed Cloud telemetry recorded an 84% year-over-year increase in WAF requests and a 103% surge in API security events. Frontier AI models have escalated the threat level for organizations globally. As a result, the volume and velocity of attacks at the application layer is compounding and organizations are taking action to defend themselves.
During Q4, a leading European financial institution determined that signature-based tools could no longer keep pace with the speed and scale of AI-driven threats. Following a competitive evaluation, the customer standardized on F5 as their single application delivery and security vendor across EMEA, APAC, and the Americas. They deployed our AI-powered WAF and Bot Defense on Distributed Cloud alongside Advanced WAF on BIG-IP. This approach established proactive, signatureless virtual patching across their global digital banking infrastructure.
The ability to consolidate onto a single vendor while maintaining consistent protection across every region and every environment was the decisive factor. This win reflects both the urgency customers feel around post-Mythos threat velocity and the growing demand for platform standardization at global scale. The expanding threat landscape is also driving demand for purpose-built API security. A central bank and financial regulator in our APAC region selected Distributed Cloud API Security to protect a rapidly expanding API ecosystem underpinning the nation’s digital payment and banking infrastructure. The customer had invested in an API management platform expecting it to provide sufficient security. But shadow APIs were going undetected and critical banking APIs were exposed to operational and reputational risk.
Tightening regulatory requirements made the status quo untenable. Following a competitive proof of concept, F5 displaced three security incumbents. Distributed Cloud API Security now delivers automated discovery across public, external, and internal APIs. F5 brings real-time OWASP API Top 10 threat mitigation that integrates seamlessly with the customer’s existing BIG-IP infrastructure, deepening F5’s platform footprint in a strategically important regulated account.
Finally, the AI inference inflection is driving multiple vectors of growth. The center of gravity in enterprise AI has shifted decisively from training models to operationalizing inference. Industry analysts estimate that industry spending on AI inference has reached $23 billion, surpassing training-related spend of $19 billion. Within our customer base, 78% of organizations now run their own inferencing and 77% say inference, not training, is their main AI activity.
The AI inference inflection is benefiting F5 across two dimensions: through our direct AI use cases and indirectly across our business. During Q4 we saw accelerating demand across our three direct AI use cases: AI data delivery, AI runtime security, and AI factory load balancing. Direct AI use case bookings for the year more than doubled from the first half to well over $100 million. In FY26, this is up nearly 300% year over year. In addition, in FY26 our active direct AI use case customer count grew 4x to more than 200. Those numbers reflect strong momentum today and we see significant runway ahead as enterprises move from AI experimentation into production at scale.
In AI data delivery, we are accelerating secure AI data pipelines, ensuring high-throughput storage, networking, and data delivery that keeps AI clusters fully utilized across hybrid and multicloud deployments, and demand is scaling. Customers deployed 29.2 terabits of F5-powered AI data delivery capacity in Q4 alone. This is up nearly 250% year over year, with our banking, financial services, and healthcare verticals leading adoption. In an AI data delivery win from Q4, a large conglomerate spanning energy, retail, and digital services in our APAC region put a planned BIG-IP capacity expansion out to competitive evaluation.
F5 successfully defended and grew the account against three challengers. BIG-IP is now the single high-throughput control point for data moving between storage and GPU compute at scale. In AI runtime security, we are safeguarding AI applications, APIs, and models from abuse, data leaks, and attacks like prompt injection. We are delivering real-time threat defense, red teaming, and robust guardrails. And we are seeing a noticeable uptick in momentum that we believe reflects AI moving from pilots into production. In addition, open-weight models now account for 34% of enterprise token volume. Because safety and guardrail behaviors vary widely across open-weight models, enterprises cannot rely on the models for security.
Protection must be enforced in the inference path. Customers are choosing F5 because best-in-class security for AI models requires runtime protection that hyperscalers and frontier model providers cannot deliver. Runtime protection at scale and with specificity is precisely where F5 is differentiated. In a milestone win, a global AI infrastructure leader selected F5 AI Guardrails as the production safety layer for up to 500 AI models hosted on its flagship model platform.
The customer’s requirements were out-of-the-box protection against prompt injection and sensitive data leakage, custom guardrails built to their own framework, and self-hosted deployment at scale. With the EU AI Act mandating in-production monitoring of frontier AI models, the urgency was regulatory as well as operational. This customer also selected F5 as a launch partner in its Zero Trust AI agent security architecture, embedding F5 at the center of how they think about AI safety at scale.
AI is moving so fast that new threats emerge almost monthly and customers are turning existing F5 capabilities against them. Recently, one of the world’s largest financial institutions used its F5 Bot Defense to solve a problem that barely existed six months ago: personal AI agents logging into customer accounts. The bank decided the risk to its clients and to itself was too high. F5 Bot Defense now identifies and blocks those agents at the front door.
And this bank is not alone. Several other large enterprises are turning on the same advanced detection and protection. This is what we mean when we say AI is changing everything. Across our Bot Defense deployments, traffic from self-identifying AI agents more than doubled in a single quarter. Agents are becoming a new class of user and we believe we are at the very beginning of that curve. Since F5 sits in the data path, we can respond in real time, often with capabilities customers already have.
In AI factory load balancing, we are optimizing traffic and GPU utilization both across and within AI factories, increasing token throughput, reducing time to first token, and lowering per-token cost. While this remains our most nascent direct AI opportunity, we saw a notable pickup in activity in Q4. Earlier this month we announced that Indosat Ooredoo Hutchison, one of Southeast Asia’s largest telecommunications providers, selected F5 to power the Indosat Intelligence Suite.
This is an enterprise AI platform purpose-built to solve a challenge we are hearing consistently across regulated markets. Enterprises are ready to move AI from pilot to production but cannot do so without sovereignty, governance, and cost predictability in place. The Indosat Intelligence Suite addresses all three, giving businesses governed access to more than 300 open and closed AI models through a single interface. BIG-IP Next for Kubernetes provides the infrastructure layer, delivering tenant isolation, container security, and GPU-aware load balancing to optimize latency and token throughput at scale.
For organizations with data residency requirements, workloads can be processed in market with policy governing what can be routed to global models. A similar sovereign AI dynamic is playing out in Europe. Last week we announced that Telenor AI Factory selected F5 BIG-IP Next for Kubernetes as the intelligent service plane for its sovereign AI infrastructure. The Telenor platform is purpose-built to give Norwegian and European enterprises access to trusted, high-performance AI services under full domestic control. Where Indosat is solving the model access and governance challenge, Telenor is solving the infrastructure governance challenge, including how to operate shared sovereign GPU capacity securely across multiple tenants while meeting European data residency and compliance requirements.
BIG-IP Next for Kubernetes on NVIDIA BlueField-3 DPUs delivers secure multi-tenancy, policy-based traffic control, and real-time observability directly in the AI service path, preserving host CPU capacity for AI workloads. Together, Indosat and Telenor illustrate that as AI factories transition from infrastructure projects and into commercial service platforms, service providers need a governed, policy-enforced delivery layer and F5’s AI factory load balancing offers a proven solution.
I noted we also continue to benefit from indirect AI demand. While it’s challenging to quantify, as AI adoption accelerates broadly, it is generating exponentially more traffic, driving higher security requirements and accelerating digital sovereignty investments, all of which are showing up in systems demand and the rapid adoption of solutions like our AI-powered WAF. Now I will turn the call over to Cooper, who will walk through our Q4 results and our outlook.
Thank you, Cooper. Let me close with this. When I step back and think about what we have built and where the market is going, I keep coming back to the same conclusion. The world is deploying more applications, more AI, more agents, across more environments, under more regulatory scrutiny, against a faster and more sophisticated threat landscape than at any point in our history. Every one of those dynamics is a reason for our customers to have F5 in their architectures.
That is not a coincidence. It is the result of decisions we made years ago about where to build and what to build for. We are meeting this moment, and our opportunities are growing as a result. Operator, please open the call to questions.
OPERATOR
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one. Again, we ask that you pick up your handset when answering and asking a question to allow for optimum sound quality. If you’re muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.
Your first question is from the line of Matt Hedberg with RBC Capital Markets. Your line is now open. Please go ahead.
Matt Hedberg (Analyst)
Great. Thanks for taking my questions, guys. Congrats, really, on a very strong year and a really great outlook. A lot of things to parse through here. I wanted to start out with the direct AI use cases. François, you talked about it, I think, reaching over $100 million in bookings—I think that grew 300% year on year. Can you kind of help us just step back and think about, you know, what is the addressable TAM that you guys are focused on from an AI perspective?
And how should we think about the scaling of that bookings trajectory and its potential to accelerate overall growth?
François Locoh-Donou (Chairman, President, & CEO)
Matt, thank you. So let me just start with your question about Tim. You know, I think we shared at our investor day that we expected our addressable market by 2030 to be around $11 billion in AI, of which $9 billion was security, about $1 billion in AI data delivery and $1 billion in AI factory load balancing. $11 billion in 2030, up from what we believe is about a billion dollars this year. So it would be a 10x increase in the addressable market over the next four years.
So that’s in terms of the TAM, in terms of the opportunity we’re seeing. Let me break this down into those three categories, because what we’ve seen this year is very promising. So I’ll start with AI data delivery, which represents the majority of— we said the bookings had grown to over $100 million for the year, which is up 300% year on year. The majority of that is actually AI data delivery. And what we’re seeing there is increasingly the AI data delivery features are important criteria in selection of ADC technologies by our customers.
So in our core ADC market, AI data delivery is playing an important role. We are already differentiated and we accelerated that differentiation with new features for data delivery, specifically support for S3 protocol, support for MCP protocol, our partnerships with some of the key storage players. And so we see that market continuing to grow and we feel very, very good about the opportunities that we are seeing in data delivery this year and will continue to grow next year.
The next use case that we’ve talked about is AI security, and this one is, I think, still early days. We launched our AI security platform earlier this year, just about three or four months ago, but we are already seeing very significant traction in this area. If you look at the last six months in cybersecurity, one of the things that has become painfully clear is that model providers, frontier model providers, cannot provide appropriate guardrails and security for their models or agents, number one.
And number two, the dynamic we’re seeing with our customers is that all of them are really deploying AI in environments that are hybrid, multi-cloud, and also multi-multimodal, meaning they’re deploying open-weight models, open-source models, and frontier models for cost reasons, for compliance reasons, for protecting their intellectual property. And all of that calls for a player that can secure all of these models, whether in the cloud or on premise.
And that’s where our hybrid multi-cloud advantage we think is going to be pretty significant. And we’re already seeing a number of use cases on that. One of the ones I mentioned in my prepared remarks is that one of the largest companies in the world that’s at the heart of the AI revolution is using F5 to protect 500 of their models that are being accessed by developers, external developers, and their requirements are pretty stringent. But they’ve chosen F5 because we have this programmability, we have the ability to customize models for the most demanding environments, and that’s one of the reasons that we also have had this recognition from Gartner as one of the two market shapers in AI security. So we feel really good about AI security, but we feel this market is just going to grow substantially over the next several years.
And then in the third area, Matt, AI factory load balancing, we saw a pickup in activity this quarter. You saw the announcement of the two sovereign AI implementations we have in Asia and in Europe. I shared earlier that the neoclouds, which will be a target market and is growing in terms of the infrastructure spend, initially have been very focused on offering GPU as a service, basically bare metal GPU as a service, primarily for hyperscalers. That’s not a use case where there is a significant need for F5.
But as we see either the neoclouds or sovereign AI players start to offer token as a service for enterprises, then F5’s benefits become very clear around tenant isolation, helping with governance, helping with security. And those are the initial wins that we’ve had in this market. But I expect more to come in 2027. When you take all that together, we are looking at a TAM that is going to grow very significantly over the next four or five years. And in all three of these areas we have initial wins and traction that we believe can accelerate in 27.
Matt Hedberg (Analyst)
Great answer. Thanks a lot, guys. Congrats.
François Locoh-Donou (Chairman, President, & CEO)
Thank you, Matt.
OPERATOR
The next question is from the line of Joseph Cardoso of J.P. Morgan. Your line is now open. Please go ahead.
Joseph Cardoso (Analyst)
Hey, thank you for the question here and congrats on the results. You know, maybe just wanted to touch on the operating leverage. You know, it was a bit lighter this quarter and the outlook for Q1 and next year, I guess in aggregate, kind of suggests more of the same. Can you maybe just walk through what drove that this quarter? It looks like OPEX investments stepped up meaningfully. And then as we kind of look ahead, seems like the guide is also implying, you know, a little bit of limited flow-through of revenue and obviously there’s a bunch of moving pieces there around margins and OPEX, etc. But maybe just talk about the key assumptions that’s driving the outlook here and, maybe more importantly, what needs to go right for you to kind of flip the script here on that trend and maybe see a better flow-through than what’s implied in the outlook. Thank you.
Cooper Werner (Chief Financial Officer)
Sure. Thanks. Joe, this is Cooper. So, yeah, I can talk to both Q4 and Q1, but essentially the biggest driver on the OPEX are investments that we’re making to drive future growth. So we’ve been increasing our sales capacity, started in Q4, and we’ve been aggressively ramping additional capacity, both kind of broad-based capacity as well as specialists for the AI security opportunity. And really what you’re seeing is a reflection on our belief that that’s a growth opportunity that we think extends beyond FY27.
We’re being a little bit earlier in the cycle in terms of making those investments to ensure that we’ve got that capacity fully ramped as that opportunity continues to mature. We’re also making other go-to-market investments across market to support our sellers and raise visibility. We think that we’re really positioned to win in the AI security space. And so we just want to make sure that we’re capitalizing on that opportunity. And that’s largely what you see in the Q1 guide with OPEX. And then over the course of the year we do expect that you’ll see OPEX as a percentage of revenue come down. For the full year it should be down year over year as a percentage of revenue as we start to see the growth continue to flow through in the year.
And then just from Q4 this year, the other dynamic was, at the end of the year, just with the outperformance that we had, there’s an impact to accelerators both on a commission and bonus perspective across the employee base.
Suzanne Dulong (Vice President of Investor Relations)
Connor, can we go to the next question, please?
OPERATOR
Yep, absolutely. The next question is from Tim Long of Barclays. Your line is now open. Please go ahead.
Tim Long (Analyst)
Thank you. Yeah, I’ll start with one on the systems side and then I’ll come back with a follow-up on software. Yeah, thanks for the, you know, the color on the linearity into the year. Sounds like, you know, strong first half, so more front-end loaded. Just curious when looking at, you know, kind of a medium, longer-term trend here and knowing that you guys have seen a lot of these refreshes, which has obviously been a very good one. So when you look at the kind of first half/second half deceleration, is this just timing of, you know, the impact of the refresh kind of running its course?
Is it, you know, you’ve had enough, you know, you’ve had the bulk of the share wins, you know, competitive takeouts, or is there something else at play? And then I had a software follow-up.
Cooper Werner (Chief Financial Officer)
Hey, thanks, Tim. Yeah, it’s entirely around the cyclical part of the refresh motion. And you’ve heard us refer to it as a refresh plus. Where we see a deceleration is just on the replace part of that motion, and as we pass those end-of-software-support dates, we expect that the revenue we’re getting just from replacing legacy installed base, you’re going to see that decline over the back half of the year. But I think what’s more interesting is that the growth that we’re seeing in new use cases and expansion continues to be very strong.
In fact, it accelerated over the back half of the year. And then the competitive opportunity, we don’t think that that’s slowing down. We actually think that that’s going to grow over time. But the real story around the growth over the course of the year is going to be the AI data delivery opportunity that François already referenced. We think that’s really early, continued expansion. And then, of course, the digital sovereignty concerns that we’re seeing in international theaters, those are all still relatively early as well. So I think on balance you’ll see growth through the year. That growth likely will be slower in the second half just from the cyclical part of the refresh.
But on balance the underlying kind of secular drivers we’ll continue to see drive a lot of opportunity in our systems business.
Tim Long (Analyst)
Okay, thank you. And then just the software follow-up. I think you beat Q4 pretty handily on the software number. Curious if that means that more likely to be term, and just would love any color on whether it’s true ups or whatever you call them now, or new activity that drove that. Just curious how that would carry into next year, the upside in Q4. Thanks.
Cooper Werner (Chief Financial Officer)
Yeah, it’s really just new use cases and expansion that were driving that. I mean a lot of that does come through in the form of these renewals, but where we saw the upside growth, it was a higher rate of expansion. We also won some perpetual use case opportunities. We largely had visibility going into the quarter. But broadly, I think the trend that we’re excited about is that we’ve had a long history of driving healthy expansion. The adoption we’re seeing across the full portfolio, customers that are leveraging multiple product families, continues to increase.
And just given that we’ve got a large base that comes up for renewal next year, it’s important that we see those strong utilization rates. It gives us that visibility on a strong growth opportunity. And then the second one, which we’ve talked a little bit about, is our SaaS and Managed Service business, which historically we hadn’t seen growth because we were undertaking a transition from some legacy offerings. You saw that the ARR on that grew pretty substantially in FY26. That’s the ratable part of our software business, so that growth that we saw in the ARR in FY26 will come through in the month model as revenue growth in FY27. So it’s, for the first time, an additional leg to our software growth opportunity, and we expect that growth to continue beyond FY27.
François Locoh-Donou (Chairman, President, & CEO)
Tim, I’ll just add, I want to come back to the competitive dynamics that you mentioned in your question because part of it is taking out kind of more traditional ADC competitor directly that continues. In fact, I think this quarter was one of our strongest quarters of the last several years in terms of direct competitive takeouts for ADC. We expect that to continue to grow because in a lot of cases what we’ve taken out is just an initial implementation of a very large installed base in a customer.
So we expect to continue to take wallet share existing customers where we have had an initial takeout win. But the other phenomenon that we’re seeing from a competition perspective is consolidation with a lot of our customers as the, you know, 93% of enterprises are now deploying these hybrid multi-cloud architectures and to, you know, try and remove the complexity of hybrid multi-cloud, many of our customers really want to consolidate across, you know, private cloud and public cloud environment and have a single platform providers for both.
In fact, in our prepared remarks to mention one such win this quarter, which was an eight figure deal with a financial institution where we took out not one or two competitors but four competitors to replace both ADC players and CDN players and cloud players into the single platform of F5 on-prem hardware and software plus F5 Distributed Cloud. And that ability for us to consolidate for large enterprise customers in hybrid multi-cloud environment is core to our strategy.
It is a part of our differentiation that is accelerating and where we’re going to see more wins in the future as our platform develops. This quarter we just introduced capability called F5 Insight that gives our customers basically one policy, one place to look at all their environments and monitor the performance of their applications and get a lot of AI-powered insights. And that just further accelerates this ability to consolidate environments and simplify operations for customers. So we’ll come back to that more as our competitive differentiation develops. But that is, that’s core to what we’re doing and to our growth.
Tim Long (Analyst)
Okay, thank you, appreciate it.
François Locoh-Donou (Chairman, President, & CEO)
Thank you, Tim.
OPERATOR
The next question is from the line of George Nautter of Wolfe Research. Your line is now open. Please go ahead.
George Nautter (Analyst)
Hi guys. Thanks a lot. I wanted to ask about sort of the sales and marketing push behind the AI guardrails product. You know, I hear the commentary about increasing expenses in sales and marketing. I get that. But I’m just wondering if you’re putting enough of a push behind guardrails. Is there any way you could quantify how much you’re investing there from a selling and marketing perspective? Maybe talk about anything you’re doing in terms of incentivizing the sales force headcount.
I’d just be really interested to learn more about that because it seems like it’s a terrific opportunity. But at the same time, there are a lot of competitors with products that trip upon some of the functionality that you guys have. And obviously I think a lot of this is going to be a sales and marketing game. So anything you can tell us there would be great. Thanks.
François Locoh-Donou (Chairman, President, & CEO)
Well, thank you. There may be a lot of competitors, but if you look at the initial recognitions that we have received and the perceptions of the market, we are clearly one of the top companies in this area already and we are investing significantly. First is of course, our platform, because it isn’t just about guardrails. It is the ability to discover vulnerabilities in models through red teaming, turn these vulnerabilities into mitigations, custom mitigations for customers, the ability to discover shadow AI and have usage control.
All of these are capabilities that are converging and we’re converging all of that in a single platform and we’re going to expand from that. Of course, sales and marketing investments are absolutely critical to our success. We have been ramping our sales and marketing resources throughout the year in this area. We will be doubling our headcount. The specialist seller headcount that we have will be doubling in 2027. Our marketing investment in this area will be more than doubling in 2027. And in addition to the specialist organization that we have put in place for that, we have put also incentives for all of our field force to engage customers in AI security conversations.
Because our belief is that every single one of our large enterprise customers is looking to solve the problem of securing AI. So all of our field sellers will have incentives to engage in AI security in terms of their compensation structure.
George Nautter (Analyst)
Great. Thank you very much.
François Locoh-Donou (Chairman, President, & CEO)
Thank you.
OPERATOR
The next question is from the line of James Fish of Piper Sandler. Your line is now open. Please go ahead.
James Fish (Analyst)
Hey guys. Cooper, do you feel like you have enough supply today in terms of visibility to meet the guidance and then some, or will you need to find more and that’s why we have the continued meaningful increase in inventory just kind of help us bridge inventory to kind of what you’re seeing on the system side and just overall how the transition towards the latest memory is going.
Cooper Werner (Chief Financial Officer)
Yeah, thanks. No, we’ve, we’ve been investing pretty aggressively as you’ve seen. We’ve talked about that over the course of the year and there are long lead times on these parts, which is why we got in, you know, started making these investments early. And what you’re seeing is they’re starting to flow through onto our balance sheet. So we feel very good, particularly around memory and storage, which is the area that we felt like would be at most at risk.
And just based on the inventory we’ve been able to secure, we’re very well positioned not just for our guidance, but for upside. Now it doesn’t mean to say that the supply chain has been completely de-risked. I mean there are always different areas of components where there can be risk from time to time. And it’s something that we aggressively monitor. Our inventory strategy is not just around raw materials, but it’s also being, you know, having an upside build forecast that we put out to our manufacturers early to make sure that we’re driving the full set of components. The other thing that we’re doing is we’re also investing in the supply for our next generation of appliances.
Just given the nature of lead times, we’re getting in front of that as well. And so that’s what, that’s really kind of what’s behind the continued growth that we expect to see in our inventory balance over the course of this year. So we’re not just thinking short term, we’re making sure we’re well positioned to support growth going beyond FY27.
James Fish (Analyst)
Helpful. And just as a follow up to the guide side of things, you’re talking double digit software growth. We’ve been talking about that level for a little while, but is there a way to think about, you know, it sounds like SaaS we should think about as that 14% ARR growth continuing at roughly mid-teens in terms of the translation to revenue. And we should roughly expect that in terms of term license then or how should we think about each of the pieces?
Thanks guys.
Cooper Werner (Chief Financial Officer)
Yeah, thanks. No, great question. And we wouldn’t specifically guide, but that’s kind of the right way to think about it. We think we’re going to see very healthy growth across both of those areas of our software business. You know, of course the ARR growth, you have really good visibility there because the ratable nature and we expect to continue to see strong momentum with new bookings and expansion across the SaaS business. And then the term license piece we think will also see really strong growth.
That’s where that growth will be weighted higher in the back half just because the timing of when some of those opportunities come up for prosecution. But the growth, we think it’ll be pretty good growth across the year, just a little bit more growth on the back half.
OPERATOR
The next question is from the line of Meta Marshall of Morgan Stanley. Your line is now open. Please go ahead.
Meta Marshall (Analyst)
Great, thanks. Wanted to ask a couple of questions first just on the continued strength out of EMEA and a lot of that having to do with data sovereignty projects. Just are those anything that we should be mindful of just in terms of project-based nature of those that create difficult comps? And then maybe just as a second question on disaggregating some of the product growth that we saw this year. I know last year at the end of the fiscal year you guys kind of gave how much of the product growth you thought was attributable to the product refresh, just any sort of disaggregation you were doing this year.
François Locoh-Donou (Chairman, President, & CEO)
I will start with the question about EMEA. No, we’ve seen consistent growth in Europe, Middle East and Africa over the last several quarters that been at or about 30% and that is driven by a few things. One of course is the continued adoption of hybrid multi-cloud architectures. Specifically in Europe, sovereignty is a driver, you know, customers repatriating to local clouds or repatriating applications to private data centers that we are, you know, we expect that to continue.
And it’s not a project-based one-off set of decisions that are made. It’s generally a change in philosophy and a change in architecture that then drives an ongoing relationship with a customer on ongoing set of deployments or expansion of deployments into new data centers. So that’s how I would think about it and I wouldn’t as a result expect a dramatic shift in what we’re seeing not just in Europe, but internationally in our business. Yeah. And then just in terms of kind
Cooper Werner (Chief Financial Officer)
of disaggregating, I think you’re talking about just the systems piece of our business with the refresh. The mix that we’ve seen over the last couple of years is about a third of the business has been coming in as new opportunities, whether that’s AI, direct AI use cases or capacity expansion or competitive takeouts. And then about two thirds of the business has been coming through that refresh plus motion. The good news is that the growth has been very high across both of those categories.
So the mix has actually stayed stable in spite of the fact that we’ve been having such a strong refresh. And so as we go into next year, we think the mix will be more weighted towards the new and expansion opportunities. Some of that business that’s come through the refresh motion, where it was expansion that was just timed with the refreshment, that business will start to come through in the form of net new opportunities that’ll be kind of outside of a refresh opportunity.
So we would expect in the second half of the year that replacement bookings will be down year over year and that we’ll continue to see strong growth from new and expansion leading to an overall positive growth profile.
Meta Marshall (Analyst)
Great. Thank you.
OPERATOR
The next question is from the line of Taliani of Bank of America. Your line is now open. Please go ahead. Be sure to unmute your headset if you were muted before.
Suzanne Dulong (Vice President of Investor Relations)
Connor, why don’t we move on and we’ll come back to Tal.
OPERATOR
Yes, we are having problems hearing Tal, so we will move on to Jeffrey Hopson from Needham. Your line is now open. Please go ahead.
Jeffrey Hopson (Analyst)
Hi, thank you for the, for the question. Just wanted your updated thoughts on, you know, the pricing environment. I think you guys had gotten into a, you know, a yearly kind of re. Revisiting the pricing cadence. Just wanted your thoughts on a, on a go forward basis considering the memory situation is, you know, changing quarterly or even monthly. Thank you.
Cooper Werner (Chief Financial Officer)
Yeah, in general, we’ve had a program where we revisit pricing on an annual basis to capture the value of the innovation and adjust to any cost component pressures that we’re seeing. That’s still our philosophy. From time to time, if we see an acceleration in costs, we may make an off-cycle adjustment, but our plans right now would be to stick to an annual cadence with price increases.
Jeffrey Hopson (Analyst)
Thank you very much.
OPERATOR
The next question is from the line of Simon Leopold of Raymond James. Your line is now open. Please go ahead, Simon. You may still be muted. All right. I believe we are having trouble hearing Simon, so at this point, there are no more questions. I will now turn the call back to Suzanne Dulong for closing remarks.
Suzanne Dulong (Vice President of Investor Relations)
Thank you, Connor. Appreciate it. Apologies if there’s any technical difficulties. We’ll definitely look into it with the provider here. But if those of you that weren’t able to ask questions, need anything in follow-up, please reach out to me directly, broadly. Thank you all for joining us today. We look forward to seeing you during the quarter, we’ll be at several conferences. Thanks so much for your time today.
OPERATOR
This concludes today’s call. Thank you for attending. You may now disconnect.
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