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F5 Networks’ FFIV stock gained 5.9% during Monday’s extended trading session after the company came up with better-than-expected third-quarter fiscal 2021 results and issued an upbeat outlook for the fourth quarter. The company posted fiscal third-quarter non-GAAP earnings per share of $2.76, beating the Zacks Consensus Estimate of $2.47.
Moreover, the quarterly earnings came in higher than management’s guidance of $2.36-$2.54 per share. Also, non-GAAP earnings increased 26.6% from the year-ago quarter, mainly on solid revenues and efficient cost management.
Non-GAAP revenues climbed 11% year on year to $651.5 million, surpassing the Zacks Consensus Estimate of $636.9 million on robust software growth. The top-line figure also comes in higher than the company’s guided range of $620-$650 million.
F5 Networks, Inc. Price, Consensus and EPS Surprise
F5 Networks, Inc. price-consensus-eps-surprise-chart | F5 Networks, Inc. Quote
Product revenues (48% of total revenues), which comprise Software and Systems sub-divisions, went up 21% year on year to $309.9 million. Software sales jumped 34% year over year to $129 million, accounting for approximately 42% of the total Product revenues.
Systems revenues climbed 13% to $180 million. During the earnings conference call, F5 Networks’ executive vice president and chief financial officer, Frank Pelzer, stated, “We see continued strong system demand based on broad-based increases in application usage, continued growth of system-based security use cases, and 5G service provider usage.”
Global Service revenues (52% of total revenues) increased 4% to $352 million.
Additionally, the company noted that it is moving ahead with its strategy of transitioning the business into a subscription-based model. During the fiscal third quarter, subscriptions represented 78% of Software revenues, up from the year-ago quarter’s 73%.
Furthermore, F5 Networks registered sales growth across all regions, with the Americas, EMEA and APAC witnessing year-over-year increase of 10%, 19% and 3%, respectively. Revenue contributions from the Americas, EMEA and APAC regions were 57%, 26% and 18%, respectively.
Customerwise, Enterprises, Service providers and Government represented 69%, 15% and 17%, respectively, of product bookings.
GAAP gross margin contracted 400 basis points (bps) to 81.4%. Non-GAAP gross margin shrunk 30 bps to 84.1%.
GAAP operating expenses flared up 11.3% year on year to $434 million, while non-GAAP operating expenses rose 6.7% to $349 million. The company’s GAAP operating margin shrunk 20 bps to 14.8%, while non-GAAP operating margin improved 190 bps to 30.5%.
Balance Sheet & Cash Flow
F5 Networks exited the April-June quarter with cash and investments of $863 million compared with the prior-year quarter’s $662million.
During the fiscal third quarter, the company generated $182million of operating cash flow. During the reported quarter, it repurchased shares worth $100 million through Accelerated Share Repurchase transaction.
During the first nine months of fiscal 2021, the company generated operating cash flow of $448.1 million and bought back $500 million worth of its common stock.
The company issued an upbeat business outlook for the fourth quarter of fiscal 2021.
For the fiscal fourth quarter, F5 Networks projects non-GAAP revenues at $660-$680 million (mid-point $670 million). The Zacks Consensus Estimate for revenues is pegged at $663.2 million.
The company anticipates non-GAAP earnings per share in the $2.68-$2.80 band (mid-point $2.74). The Zacks Consensus Estimate is pinned at $2.73.
We believe surging demand for multi-cloud application services will be a key growth driver during the fiscal fourth quarter. Besides, solid demand for software solutions is a tailwind. Rising traction from subscription and Enterprise License Agreement (ELA) offerings is another driving factor.
Apart from this, F5 Networks and NGINX’s first combined solution — Controller 3.0 — will likely boost the total addressable market and deal sizes by spending more use cases across DevOps and Super-NetOps customer profiles.
Zacks Rank and Key Picks
F5 Networks currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the broader technology sector include Digital Turbine APPS, Intuit INTU and Zoom Video Communications ZM, all sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term earnings growth rate for Digital Turbine, Intuit and Zoom is currently pegged at 50%, 14.7% and 15.6%, respectively.
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