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F5 Networks (FFIV) Q1 Earnings and Revenues Beat Estimates

Zacks Equity Research

F5 Networks Inc. FFIV reported first-quarter fiscal 2018 non-GAAP earnings per share (excluding amortization of intangible assets, stock-based compensation and other one-time items) of $2.26, surpassing the Zacks Consensus Estimate of $2.04 per share as well as the guidance of $2.02-$2.05. Furthermore, earnings improved from $1.98 per share reported in the year-ago quarter.


F5 Networks’ revenues grew 1.4% year over year to $523.2 million and came ahead of the Zacks Consensus Estimate of $521.4 million. Notably,  revenues were also above the mid-point of the  guided range of $515-$525 million.

Revenues were boosted by a 7% increase in service revenues, which accounted for 57% of total revenues. However, product revenues witnessed a decrease of 5% on a year-over-year basis.

Geographically, on a year-over-year basis, revenues from the Americas were up 2% and contributed 56% to total revenues. EMEA increased 7% and accounted for 27% of total revenues. Asia-Pacific was down 5% on a year-over-year basis, representing 14% of total revenues. Japan revenues decreased 12% and represented 4% of total revenues.

By verticals, Enterprise, Service providers and Government (including 8% from the U.S. federal) accounted for 64%, 20% and 16% of total revenues, respectively.

The company’s distributors Ingram Micro, Tech Data TECD, Arrow, Westcon and Cynics accounted for 15%, 12%, 11%, 10% and 11%, of total revenues, respectively.

F5 Networks, Inc. Price, Consensus and EPS Surprise

F5 Networks, Inc. Price, Consensus and EPS Surprise | F5 Networks, Inc. Quote


Operating Results

F5 Networks’ non-GAAP gross profit (excluding amortization of intangible assets, other one-time items and stock-based compensation) was up 1% on a year-over-year basis and came in at $443.3 million. Non-GAAP gross margin decreased 30 basis points (bps) during the quarter and came in at 84.7%, primarily due to higher cost of sales.

The company’s non-GAAP operating margin (excluding amortization of intangible assets, other one-time items and stock-based compensation) decreased 80 bps from the year-ago quarter to 35.5%, primarily due to higher non-GAAP operating expenses as a percentage of revenues.

The company’s non-GAAP net income (excluding amortization of intangible assets, other one-time items and stock-based compensation) came in at approximately $141.6 million compared with $130.3 million reported in the year-ago quarter. On a GAAP basis, net income came in at $88.4 million compared with $94.2 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 $1.004 billion compared with $1.017 billion in the prior quarter. Receivables were $291.1 million at the end of the quarter.

The company’s balance sheet does not have any long-term debt. It reported cash flow from operations of $190 million during the quarter. During the quarter, F5 Networks repurchased approximately 1.24 million shares for $150 million.


For second-quarter fiscal 2018, F5 Networks expects revenues in the range of $525-$535 million. The Zacks Consensus Estimate is pegged at $528.6 million. Non-GAAP gross margin is anticipated to be roughly 84.5%. The company expects non-GAAP earnings for second-quarter fiscal 2018 in the range of $2.24-$2.27 per share. The Zacks Consensus Estimate is pegged at $2.11 per share.

Bottom Line

F5 Networks reported better-than-expected fiscal first-quarter 2018 results were backed by growth in services and software solutions segment. Management was particularly optimistic about deployment of solutions by customers on cloud and on-premise environment, which is expected to drive revenues going ahead.

Management stated that proper execution of their “organizational changes and go to market initiatives” positively impacted the quarter’s results.

Additionally, the company is also taking steps to address the growing need of multi-cloud environment and better scaling of applications in an era where organizations are taking up digital transformation at an accelerated pace.

To meet the requirement of the “per application based cloud decision” of companies, F5 Networks came up with per application VE solutions in the first quarter. These offerings are meant to support web application firewall and management of traffic. The company also reduced the boot time and footprint of its software solutions by 50% for deployment in public cloud environments.

Management noted that increased usage of cloud architecture is also leading to greater opportunities in the security related business. Additionally, the company was honored with “Amazon Web Services networking competency designation” in the just reported quarter.

However, management was disappointed with the performance of the product segment in the quarter. Nevertheless, the company is hopeful about the iSeries platform, which is useful for new age applications such as Internet of Things (IoT).

Zacks Rank and Stocks to Consider

F5 Networks carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Cray Inc CRAY and IntriCon Corporation IIN, both sporting a Zacks Rank #1 (Strong Buy). You can see

the complete list of today’s Zacks #1 Rank stocks here.

Both Cray and IntriCon have a long-term earnings growth rate of 20%.

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