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F5 Networks (FFIV) Q3 Earnings Lag Estimates, Revenues Beat

Zacks Equity Research

F5 Networks Inc. FFIV reported third-quarter fiscal 2019 GAAP earnings per share of $2.52, missing the Zacks Consensus Estimate of $2.57 but inching up 3.3% year over year. Excluding the impact of the NGINX buyout, non-GAAP earnings would have been in line with estimates.

F5 Networks revenues rose 4% year over year to $563.4 million and also surpassed the Zacks Consensus Estimate of $555 million. The acquisition of NGINX contributed $5.1 million to revenues in the quarter under review.

Quarterly Details

Products revenues (44.2% of total revenues) during the reported quarter totaled $248.9 million, up 4.2% from the year-ago period, driven by software. NGINX contributed to $4 million of subscription software revenues.

Software soared 91% year over year and represented 27% of product revenues. This upside can be attributed to the growing adoption of the Enterprise License Agreement (ELA) and annual subscriptions among customers.

Excluding NGINX, software revenues surged 79% year over year and accounted for 26% of the product revenues.

Software growth is consistently aided by security use cases, which include web application firewall, bot-defense and mitigation. A few multimillion-dollar ELA deals were also a tailwind in the quarter under consideration.

Systems revenues, denoting 73% of product revenues, declined 11% on a year-over-year basis.

Services revenues (55.8%) increased 3.7% year over year to $314.5 million with $1.1 million contributed by NGINX.

Geographically, on a year-over-year basis, revenues from the Americas — reflecting 53% of the total count — dipped 1%. Asia Pacific and Japan revenues rose 22% and generated 23% of the total top line. EMEA was nudged up 2% and accounted for 24% of the total revenue tally.

Going by the verticals, Enterprise, Service providers and Government (including 8% from the U.S. Federal) depicted 60%, 20% and 19% of the total revenue stream, respectively.

The company’s distributor Ingram Micro translated to 18% of the company’s revenues. Tech Data and Westcon contributed 11% and 10%, respectively, to the total revenue base.

F5 Networks, Inc. Price, Consensus and EPS Surprise

F5 Networks, Inc. Price, Consensus and EPS Surprise

F5 Networks, Inc. price-consensus-eps-surprise-chart | F5 Networks, Inc. Quote


Non-GAAP gross margin expanded 90 basis points (bps) to 85.4% during the quarter.

Non-GAAP operating margin contracted 290 bps to 33.1%. Excluding NGINX, non-GAAP operating margin was 34.2% in the quarter under discussion.

Balance Sheet & Cash Flow

F5 Networks exited the reported quarter with cash, cash equivalents and short-term investments of approximately $986.5 million compared with $1.31 billion in the sequential quarter.

Long-term liabilities were $481 million compared with $448 million in the previous reported quarter.

The company reported cash flow of $150 million from operations in the quarter under consideration.


Management remains optimistic that increasing demand for the multi-cloud application services will be a stable key driver. Rising traction of subscription and ELA offerings is a tailwind.

For fourth-quarter fiscal 2019, F5 Networks expects revenues in the range of $577-$587 million (mid-point $582 million). Of the same, NGINX is anticipated to contribute less than $8 million. The Zacks Consensus Estimate for revenues is pegged at $577.4 million.

The company anticipates non-GAAP earnings per share in the band of $2.53-$2.56, lower than the current Zacks Consensus Estimate of $2.79.

The company will incur capital expenditure of $25-$35 million for the development of its new corporate headquarters in the fiscal fourth quarter.

Zacks Rank and Stocks to Consider

Currently, F5 Networks has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader technology sector are Rosetta Stone RST, Lattice Semiconductor Corporation LSCC and Alteryx AYX, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Rosetta Stone, Lattice and Alteryx is currently projected at 12.5%, 12.5% and 13.7%, respectively.

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