A month has gone by since the last earnings report for F5 Networks (FFIV Quick QuoteFFIV - Free Report) . Shares have added about 0.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is F5 due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

F5 Networks Q3 Earnings Top Estimates, Outlook Impressive

F5 Networks reported better-than-expected third-quarter fiscal 2021 results. 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.

Revenue Details

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.

Customer wise, Enterprises, Service providers and Government represented 69%, 15% and 17%, respectively, of product bookings.

Margins

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.

Outlook

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 company anticipates non-GAAP earnings per share in the $2.68-$2.80 band (mid-point $2.74).

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.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 5.88% due to these changes.

VGM Scores

At this time, F5 has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise F5 has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.