Francois Locoh-Donou
President, Chief Executive Officer and Director at F5
Thank you, Frank. Our very strong fourth quarter results are the perfect cap to our robust outperformance in FY '21. In the last 18 months, our reliance on application both as businesses and as consumers has escalated sharply and likely forever changed. Our customers are massively accelerating digital transformation to keep up with current demand and forecasted growth. They are doing this while also working to consistently meet consumers' high expectations for application performance and availability, and while also ensuring their application and the consumers data are secure.
In my conversation with investors, I am often asked what is potentially misunderstood about F5? Let me address the key points here. First, traditional on-premise applications continue to grow counter to the prevailing expectations from two to three years ago. In fact, traditional apps are generating more traffic and more revenue than ever because every aspect of life and business relies on applications. For F5, this means BIG-IP demand will continue to grow in both software and systems form factors.
Second, contrary to early cloud hype, the vast majority of traditional applications are not being re-factored. They are either remaining on-premise or they are moving to the cloud with a lift and shift motion. In other words, F5 run applications are remaining attached to F5. As a result, BIG-IP is growing both on-premise and in public clouds.
Third, modern container-based applications continue to grow at a rapid pace, and not only for new applications. Customers are bolting new modern components onto traditional applications to improve the user experience. In many cases, Cloud Native application security and delivery simply are not robust enough to meet the application's needs. For F5 this means accelerating NGINX demand, enabling app security and scale for modern application often as a complement to BIG-IP.
And finally, given the volume of business and data that is now flowing through application, and the increasingly distributed nature of applications, application security has taken on new significance where in the past, network and infrastructure security was a focus for customers and vendors alike. We expect application security will be one of the hottest areas of investment over the next decade.
F5 is one of the few players 100% focused on application security and we protect not just access to applications, but also how they are used. As a result, we expect our role and reputation as a leading application security provider will accelerate. To sum up these points, F5 is differentiated and well-positioned to benefit from significant emerging secular trend. There are some companies focused on applications. There also are some focused on application security. F5 is the only one that is at the epicenter of these two secular forces with a focused, expertise and the technology assets to secure and deliver any application anywhere. That's grown our opportunity in real customer trends and use cases. Last quarter, I talked about five sustainable customer trends we expected to drive demand across our portfolio. Let's revisit those trends with some customer examples from Q4.
Number one, enterprise customers developers and DevOps teams are using NGINX to insert security earlier in the application lifecycle. NGINX with App Protect delivers robust application security for microservices with the flexibility and agility developers demand. In one example during Q4, we secured an NGINX win with a global insurance group. They are migrating their consumer-facing insurance services into a public cloud. For risk mitigation and security reasons, they required a scalable and container-friendly solution. They also needed enterprise-grade security capable of protecting their strategic high-value apps and guaranteeing risk management compliance. And they wanted all of this within a lightweight footprint that could drive automation, saving time and money. NGINX with App Protect was the natural choice.
Trend number two, heightened security concerns and high profile ransomware attacks are escalating demand for top-notch application security and fraud and abuse mitigation. With pronounced application growth and an ever-expanding threat landscape, including high profile ransomware and potential stuffing attacks, we see growing demand for application security in cloud environment and rising demand for fraud and bot defense. During Q4, a North American electric utility experienced a credential stuffing attack resulting in substantial infrastructure failure. More than 6 million customers had to reset their account passwords. Based on their experience of the BIG-IP customer, the utility turned to F5 for help. Shape was emergency onboarded, identified high volumes of automated traffic and deployed highly effective mitigation measures to stop the attack.
Trend number 3, customers are leveraging F5 for Kubernetes, containers, and cloud-native architectures. Our growth in modern application continues to accelerate driven by NGINX Kubernetes and cloud-native deployments. We are seeing several top use cases emerge for NGINX including managing API, optimizing Kubernetes traffic management and load balancing cloud-native and hybrid cloud application. With customers modern applications experiencing significant and constant swings in user demand, they need infrastructure that scales up automatically to meet user demands or down to save cloud costs. During Q4, the Canadian online investment manager selected NGINX to move their Kubernetes-based application into production at scale. Initially, they attempted to use a competitive solution, but it lacked performance and did not integrate well with the HashiCorp console or with AWS autoscaling. NGINX Plus delivered low latency and high uptime to improve user experience and integrated seamlessly with AWS autoscaling to spin down half of their instances during off-peak traffic demand.
Trend number four. Customers are scaling their existing hardware-based infrastructures to handle accelerating application growth, driving continued strength for BIG-IP systems. We are finding that customers are often looking to scale both their existing infrastructure and their modern apps infrastructure simultaneously. This is particularly true among stack and SaaS provider customers who continue to experience rapid adoption and growth of their digital products and services.
In the latest of a growing list of examples, during Q4, a high growth SaaS provider selected F5 to help them scale both the traditional apps on BIG-IP and their modern public cloud apps with NGINX. This deal was made sweeter by the fact that NGINX displaced the competitor that wasn't performing as promised.
Finally, trend number five. Customers are leveraging BIG-IP for transformation including cloud migration and automation initiatives. The demand we are seeing for BIG-IP systems and software is about more than just capacity additions. Customers also are using BIG-IP to drive transformation often combining it with NGINX. F5 is particularly well suited for enterprises that operate both modern and traditional applications, which most do. NGINX integrations with BIG-IP provide differentiation over competitor and cloud-native offering and we will extend this with integrations into Volterra at the edge.
During Q4, the BIG-IP and NGINX combination was selected by one of the largest online betting companies in Asia Pacific. The customer who processes more than $1 billion annual transaction needed hybrid on-premise's data security as well as the ability to support modern app development and new engaging multimedia capability. They selected BIG-IP and NGINX as the foundation for their digital transformation. Let me touch briefly on service providers and our Volterra integration progress before concluding our prepared remarks.
We had a good year with service providers in FY '21. While it's true that several of the trends I have just described also apply to our service provider customers, they also face unique challenges as a result of 4G to 5G migration and growing 5G traffic demands. Thus far, our service provider demand has come largely from 4G core network upgrades as they expand hardware capacity and upgrade existing infrastructures to handle 5G traffic. We expect software use cases will begin to emerge as carriers virtualize their 5G course.
Looking forward, our Volterra platform is generating significant interest from service provider. They view it as a way to insert their capabilities at the edge thus creating 5G in a box offerings.
That offers a good transition to discussing progress on the integration of Volterra. Volterra is a universal edge platform, which will enable us to insert critical application services at the edge and allow our customers to consume the services in a SaaS format. Our initial priority is on security offerings. We have one of the best, if not the best application security software stacks in the industry, including our Web Application Firewall, our DDoS protection, API security, and WAF capabilities. We are taking that entire security stack and integrating it natively into the Volterra platform.
Our first priority is a SaaS security offering that will address the shift towards modern web apps and API, and we are on track to deliver within our committed 12 to 18 months integration window. Our recent acquisition of Threat Stack, a leader in cloud security and workload protection is designed to accelerate our SaaS security offerings with cloud endpoint telemetry and analytics for better detection and response. Threat Stack also augments our telemetry and virtual security and technology expertise and I want to take this opportunity to once again welcome the entire Threat Stack team to F5.
In closing, we are more confident than ever in our vision and in our ability to continue to execute. The combination of application growth, our expanded solutions platform, our continuously evolving go-to-market strategy and our vision for the future of adaptive applications is resonating with customers and puts us at the epicenter of several emerging strong secular trends. I extend my heartfelt thanks to the entire F5 team for their steadfast focus and execution. As a team, we have accomplished more faster than anyone, even us, thought we could. We've got more work ahead, but I am more confident than ever in our ability to achieve our goals. My thanks to our customers and partners for being on our journey with us and providing guidance and support along the way.
With that, operator, we will open the call to Q&A.
