0001048695-26-000051
SEC filingF5's Q2 FY26 revenue grew 11.0% YoY, driven by 21.7% product growth, with gross margin expanding 70 bps.
For the three months ended March 31, 2026, F5 reported total net revenues of $811.7 million, an increase of 11.0% compared to $731.1 million in the same period last year. The growth was driven by a 21.7% increase in product revenues to $410.5 million, while service revenues grew modestly by 1.8% to $401.2 million. Within products, systems revenue surged 26.2% to $226.4 million and software revenue rose 16.7% to $184.1 million, reflecting strong customer demand and increased subscription offerings.
Gross profit increased 12.0% to $660.8 million, with gross margin expanding 70 basis points to 81.4% from 80.7% in the prior year. Product gross margin, however, declined to 22.1% from 24.1%, pressured by systems revenue growth and component costs. Service gross margin remained relatively stable at 15.0%.
Operating expenses rose 11.7% to $481.8 million, driven by higher personnel costs and Cyber Incident-related professional services. Sales and marketing expenses increased 9.8%, R&D rose 10.6%, and G&A jumped 19.6%. Income from operations grew 12.7% to $179.0 million, with operating margin improving to 22.1% from 21.7%. Net income increased 1.5% to $147.8 million, impacted by a higher effective tax rate (5.1% vs. 3.5%).
Product revenue mix shifted to 50.6% of total revenue (up from 46.1% a year ago), reflecting strong systems and software momentum. Systems revenue accounted for 55.1% of product revenue, up from 53.2%, while software's share declined to 44.9% from 46.8%. The services segment, while growing slower, remains a stable annuity stream, with deferred revenue increasing to $2.1 billion. Two distributor customers (Customer A and Customer B) each represented over 15% of total revenue, indicating moderate concentration.
Management did not provide explicit forward guidance in this MD&A. However, the strong cash generation ($525.1M operating cash flow in H1 FY26) and continued share repurchases ($401.1M) signal confidence in the business. The increase in deferred revenue and subscription growth suggests a favorable revenue trajectory. Key risks include macroeconomic uncertainties (inflation, tariffs, supply chain) and the ongoing impact of the Cyber Incident, which drove $7.5 million in professional services costs in Q2. No material changes to critical accounting estimates were noted.
F5's cash and cash equivalents stood at $1.44B at March 31, 2026, up from $1.34B at September 30, 2025. The company has no outstanding debt, as its $350M revolving credit facility expired in January 2025 with no borrowings. Inventory increased to $90.3M from $77.2M, driven by higher raw materials and finished goods. Deferred revenue (current and noncurrent) totaled $2.12B, reflecting strong upfront collections, while remaining performance obligations were $2.1B, with 59.9% expected to be recognized within 12 months.
F5 had no material non-cancelable purchase commitments as of March 31, 2026. A prior four-year supply agreement for $40M in component inventory has been fully utilized, with no remaining obligations under the fourth year. Operating lease liabilities totaled $259.9M, with future payments of $298.2M over a weighted average term of 7.6 years. Legal contingencies are disclosed but no accrual recorded as outcomes are not probable.
During the six months ended March 31, 2026, F5 repurchased 1.576 million shares for $400.0M at an average price of $253.87 per share. As of period end, $522.4M remained authorized under the share repurchase program. No dividends were declared, and no debt issuance or repayment occurred. Capital expenditures are not disclosed in the notes but are included in the cash flow statement; the notes do not provide separate capex figures.
F5 operates as a single reportable segment. Geographic revenue for the three months ended March 31, 2026: Americas $406.9M (50.1%), EMEA $260.9M (32.1%), APAC $144.0M (17.7%). Product revenue split: systems $226.4M (55.2% of product) and software $184.1M (44.8%). No segment-level operating income is disclosed; the CODM uses consolidated net income for performance assessment.
Operating cash flow (CFO) of $525.1M exceeded net income of $327.8M, reflecting strong cash generation. The primary non-cash add-backs were stock-based compensation ($128.0M) and depreciation/amortization ($49.2M). Deferred revenue grew $119.1M, a positive working capital tailwind, partially offset by an increase in accounts receivable ($11.8M) and inventories ($13.1M). The $20.6M deferred tax benefit was a non-cash reduction to CFO.
Capital expenditure intensity remained moderate at 5.3% of CFO, up slightly from 4.0% a year ago. Free cash flow (CFO minus capex) was approximately $497.1M, covering share repurchases of $401.1M and leaving ample room for other capital allocation. The company did not pay dividends during the period.
One notable item is the $59.7M increase in other current assets, which weighed on operating cash flow; this may relate to prepaid expenses or tax receivables. No one-time tax payments were observed beyond routine settlement of equity awards.