F5 Networks Falls on Q4 Revenue Miss, Earnings In Line
F5 Networks Inc. FFIV reported fourth-quarter fiscal 2015 adjusted earnings per share (excluding amortization and other one-time items but including stock-based compensation) on a proportionate tax basis of $1.40, which came in line with the Zacks Consensus Estimate. However, earnings increased from $1.29 per share reported in the year-ago quarter.
F5 Networks Inc. - Earnings Surprise | FindTheBest
Shares of this network equipment maker plunged more than 7% in after-hour trading yesterday due to lower-than-expected revenues and tepid first quarter of fiscal 2016 revenue guidance.
Revenues
F5 Networks’ revenues grew 7.8% year over year to $501.3 million and remained toward the lower end of its guidance range of $500 million to $510 million. Reported revenues lagged the Zacks Consensus Estimate of $507 million. The company’s revenues increased on a year-over- year basis, primarily due to better-than-expected software sales and growth in EMEA and Americas.
Revenues were also boosted by a 0.9% increase in Product revenues and a 16.1% increase in service revenues on a year-over-year basis.
Notably, F5 Networks’ “Good, Better, Best” (GBB) pricing strategies and higher competencies of BIG-IQ platform also helped to streamline its product portfolio and drive year-over-year revenue growth.
Geographically, on a year-over-year basis, revenues from the Americas increased 7% and contributed 58% of total revenue. EMEA also increased 11% and accounted for 23% of total revenue. Asia-Pacific was up 12% on a year-over-year basis, representing 15% of total revenues while Japan revenues decreased 6% and represented 4% of total revenue.
By verticals, Enterprise, Service providers and Government (including 9% from the U.S. federal) accounted for 65%, 17% and 17% of total revenue, respectively.
The company’s distributors Ingram Micro IM, Avnet AVT and Westcon accounted for 15.6%, 14.3% and 17.2%, respectively of total revenue.
Operating Results
F5 Networks’ adjusted gross margin (excluding amortization and other one-time items but including stock-based compensation) improved 69 basis points (bps) on a year-over-year basis to 83.7%, primarily due to a higher revenue base.
The company’s adjusted operating margin (excluding amortization and other one-time items but including stock-based compensation) decreased 225 bps from the year-ago quarter to 30.1%, primarily due to higher adjusted operating expenses as a percentage of revenues. Adjusted operating expenses, as a percentage of revenues, increased 294 bps on a year-over-year basis.
The company’s adjusted net income (excluding amortization and other one-time items but including stock-based compensation) came in at $99.6 million or $1.40 per share, which improved from $96.5 million or $1.29 per share reported in the year-ago quarter. On a GAAP basis, net income came in at $97 million compared with $94 million reported in the year-ago period.
Balance Sheet & Cash Flow
F5 Networks exited the quarter with cash, cash equivalents and short-term investments of approximately $774.3 million. Receivables were $279.4 million at the end of the quarter.
F5 Networks’ balance sheet does not have any long-term debt. The company reported cash flow from operations of $183 million. During the quarter, F5 Networks repurchased approximately 1.18 million shares for $150 million. The company still has $474 million authorized under the share buyback program.
Guidance
For the first quarter of fiscal 2016, F5 Networks expects revenues in the range of $480 million to $490 million (mid-point $485 million). The Zacks Consensus Estimate is pegged at $506 million. Non-GAAP gross margin is expected to be roughly 84%. The company expects non-GAAP earnings for the first quarter of fiscal 2016 in the range of $1.58 per share to $1.61 per share. The Zacks Consensus Estimate is pegged at $1.41 per share. Non-GAAP effective tax rate is expected to be 34.5%.
Amid macro concerns and a tight federal budget, management remains positive on the company’s upcoming product launches and growing demand for its security solutions.
F5 Networks also mentioned that it will continue investing in technology and headcount to keep pace with changing market trends.
Our Take
F5 Networks reported not-so-encouraging fourth-quarter fiscal 2015 results, with its bottom line matching the Zacks Consensus Estimate but the top line missing the same. However, year-over-year comparisons on both counts were favorable, primarily due to better-than-expected software sales. Nonetheless, the company provided tepid first-quarter revenue guidance.
It is worth mentioning that the company’s GBB pricing strategy and its BIG-IQ platform remain tailwinds. Revenue growth seems to be steady and was positively impacted by strength across all its business segments and higher software revenues.
We believe that the company’s product refreshes will boost revenues, going forward. Moreover, these initiatives are expected to expand the company’s total addressable market and result in client wins.
Better execution and focus on enterprise and service providers have placed F5 Networks well in the application delivery controller market. Nevertheless, the volatile spending atmosphere and competition from Juniper Networks Inc. JNPR remain concerns.
Currently, F5 Networks has a Zacks Rank #4 (Sell).
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