F5 fiscal 2026: revenue up 11% to $3.42B on hardware, but Q4 EPS slipped to $3.23 as costs outran sales

F5 sells the equipment and software that sit in front of a company's applications: they spread incoming traffic across servers and block attacks. For fiscal 2026 (the twelve months ended September 30, 2026), revenue rose 10.6% to $3.42 billion and diluted earnings per share (EPS, profit divided by the number of shares) rose 6.1% to $12.52. Most of the growth came from hardware: systems revenue, meaning F5's physical appliances, grew 31% to $923 million. The fourth quarter showed the strain behind that growth. Revenue rose 13% to $917 million, faster than the 9.7% of the first nine months, yet GAAP net income fell 2.3% to $186 million, because operating costs rose 18% and the tax rate climbed to 18.9% from 11.4%.

These figures come from F5's October 27, 2026 earnings release (Form 8-K, Exhibit 99.1). The full 10-K, with management's discussion of each line and the segment detail, has not been filed yet, so the release gives no reasons for most of the moves discussed here.

Fiscal 2026 results

*Non-GAAP figures leave out stock-based compensation, amortization of acquired intangible assets, facility-exit costs, acquisition charges, cyber-incident costs net of insurance recoveries, and restructuring charges. The release gives systems and software revenue for fiscal 2025 only as growth rates, so the year-ago dollar amounts are left blank.

Fourth quarter (July–September 2026)

Where the growth came from

Product revenue (hardware plus software licences and subscriptions) grew 18.9% for the year and 23.1% in Q4. Services, which is mostly maintenance and support contracts and is still almost half of revenue, grew 2.8% for the year and 2.9% in Q4. So nearly all of the year's $329 million revenue increase came from products: $285 million, against $44 million from services.

Hardware did more than its share. Systems revenue grew 31% to $923 million, while software grew 8% to $870 million. Software picked up late in the year: Q4 software revenue of $271 million was up 19%, after 4.3% growth over the first nine months, which our fiscal Q3 report noted. The release does not explain the Q4 jump. Subscription and licence deals often land at fiscal year-end, so one quarter is not yet a new trend.

The hardware sales also helped profitability per dollar of product sold. By our calculation from the income statement, the gross margin on products alone (the share of product revenue left after the direct cost of making it) rose to 78.9% from 77.6% for the year, and to 80.1% from 79.4% in Q4.

Why Q4 profit did not grow

Q4 added $107 million of revenue over the year before. Gross profit rose $88 million. But operating expenses rose $82 million, so income from operations grew only $6 million, or 3.0%:

• Sales and marketing: $274.3 million, up 27.0% from $216.0 million.
• R&D: $164.6 million, up 20.7% from $136.4 million.
• General and administrative: $96.5 million, up 2.6%.
• Restructuring: $7.4 million, down from $14.2 million.

Stock-based compensation, a non-cash cost of paying staff in shares, was $67.5 million in the quarter against $57.2 million. That explains part of the rise, but not most of it: the non-GAAP operating margin, which leaves stock pay out, also fell, to 33.7% from 37.0%. So F5 is spending more in cash terms on sales staff and engineering, and the release does not say on what.

Below the operating line, other income, net (F5 held $1.59 billion of cash at year-end and has no borrowings on its balance sheet) rose to $17.8 million from $9.4 million, and pretax income grew 6.7%. Then the tax provision jumped to $43.4 million from $24.6 million. That turned a 6.7% rise in pretax profit into a 2.3% fall in net income.

What the headline numbers hide

• Cash conversion is good, but cash flow stopped growing. Operating cash flow of $959.5 million was 1.33 times net income, which is healthy: F5 bills maintenance up front and pays a large part of staff in stock. But it rose only 1.0%, while net income rose 4.3%. Two items absorbed cash: inventories (−$160.3 million, against −$0.9 million the year before) and other current assets (−$184.8 million against −$103.6 million). Capital spending more than doubled to $90.5 million from $43.3 million. As a result, free cash flow fell 4.1% to $868.9 million.
• Inventory is growing far faster than sales. Inventories reached $261.9 million at year-end, up from $77.2 million a year earlier and $126.9 million at the end of June (from our Q3 report). That is a 239% rise against 11% revenue growth. Our Q3 report quoted the 10-Q's warning about "rising costs of memory and storage". Buying parts ahead of price increases would fit, and so would preparing for strong hardware orders. But the release states neither, so treat this as an open question for the 10-K.
• The adjusted figure is $4.97 a share higher than GAAP EPS. Non-GAAP EPS was $17.49, against GAAP EPS of $12.52. The biggest exclusion is stock-based compensation, $4.53 a share ($261.0 million). That is a recurring cost of running F5, not a one-off. The truly one-time items were smaller: cyber-incident costs of $28.0 million, offset by a $10.0 million insurance recovery; acquisition charges of $39.2 million, up from $11.5 million; restructuring of $7.0 million; and facility-exit costs of $4.6 million.
• One-offs and tax pulled reported growth down. Those one-time items total $68.8 million before tax this year, against $48.0 million in fiscal 2025. Add them back and pretax profit grew 9.4% ($936.7 million against $856.4 million), not the reported 7.4%. The full-year tax rate rose to 16.8% from 14.3%, which cost roughly another 3 points of net income growth.
• Buybacks helped a little. F5 spent $601.1 million on its own shares, up from $502.1 million, and diluted share count fell 1.7%. That explains most of the gap between 4.3% net income growth and 6.1% EPS growth. F5 pays no dividend.
• Guidance was beaten. In July, F5 guided to fiscal 2026 revenue growth of about 9% to 10% and non-GAAP EPS of $17.21 to $17.33. It delivered 10.6% and $17.49. Q4 revenue of $917 million beat the $870–890 million range, and Q4 non-GAAP EPS of $4.42 beat the $4.14–4.26 range.

On balance, fiscal 2026's earnings are understated. Reported EPS grew 6.1%. Pretax profit before cyber, deal and restructuring costs grew 9.4%, and a higher tax rate took the rest. The Q4 cost growth, though, is not a one-off: it shows up in the adjusted margin too.

Takeaway: F5's hardware boom is real: systems revenue grew 31% for the year, and Q4 revenue growth sped up to 13%. But it is not reaching profit the way it used to. In Q4, costs grew 18%, and adjusted EPS rose 0.7%. Guidance for fiscal 2027 points to adjusted EPS growth of only about 3% to 5%. That says management expects the higher spending to continue.

Did last time's read hold up?

Our fiscal Q3 report named two things to watch. First, whether the larger deferred-revenue balance would lift services growth. It has not yet. Services grew 2.9% in Q4, about the same as before. Deferred revenue did keep rising, to $2.20 billion from $2.19 billion at the end of June. But most of the growth over the year was in the long-term portion, up 19.5% to $939.2 million, against 4.3% for the current portion. That means more of the revenue is booked further out, and services revenue will rise slowly. Second, whether memory-cost increases would squeeze product gross margin. They did not: product gross margin rose to 80.1% in Q4. But the inventory build suggests the cost question may simply have moved onto the balance sheet. The Q3 report also asked whether hardware demand could last. For one more quarter it did, with systems revenue up 29%.

Outlook

For fiscal 2027, F5 guides to revenue growth of 8% to 9%, roughly $3.69 to $3.72 billion. It expects non-GAAP EPS of $18.00 to $18.30, which is only 2.9% to 4.6% above fiscal 2026's $17.49. For fiscal Q1 2027 (October–December), it guides to revenue of $875 million to $895 million and non-GAAP EPS of $4.25 to $4.37. The board also added $1.5 billion to the buyback program, on top of $322 million still unused.

Our view: the guidance says that fiscal 2027 revenue keeps growing but profit per share barely does. Revenue growth of 8–9% with adjusted EPS growth of 3–5%, even after buybacks shrink the share count, implies a lower adjusted operating margin or a higher tax rate. The release does not say which. The Q4 pattern points to the margin: costs already rose faster than revenue there. Three things will tell whether F5 is running the business well. Will systems growth hold up as the appliance replacement cycle ages? Will software's 19% Q4 growth repeat in Q1, when there is no year-end push? And will the 10-K explain why inventory tripled?