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F5 Networks Inc. (FFIV - Free Report) reported third quarter fiscal 2016 adjusted earnings per share (excluding amortization of intangible assets but including stock-based compensation) on a proportionate tax basis of $1.41, which surpassed the Zacks Consensus Estimate of $1.38 per share. Also, earnings increased from $1.32 per share reported in the year-ago quarter.
Revenues
F5 Networks’ revenues grew 2.7% year over year to $496.5 million and were within the guided range of $490 million to $500 million. Reported revenues also beat the Zacks Consensus Estimate of $495 million.
Revenues were boosted by a 12.9% increase in service revenues, which more than offset a 6.9% decline in Product 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. According to John McAdam, F5 President and CEO, “Reflecting steadily increasing deployment of our products in public and private cloud environments, software sales continued to grow as a percentage of overall product revenue.”
Geographically, on a year-over-year basis, revenues from the Americas were down and contributed 56% of total revenue. EMEA decreased 1% and accounted for 24% of total revenue. Asia-Pacific was up 20% on a year-over-year basis, representing 15% of total revenue while Japan revenues increased 15% and represented 5% of total revenue.
By verticals, Enterprise, Service providers and Government (including 6% from the U.S. federal) accounted for 64%, 21% and 15% of total revenue, respectively.
The company’s distributors Ingram Micro , Avnet (AVT - Free Report) and Westcon accounted for 14.9%, 13.7% and 18.8%, respectively of total revenue.
Operating Results
F5 Networks’ adjusted gross margin (excluding amortization of intangible assets but including stock-based compensation) expanded 72 basis points (bps) on a year-over-year basis to 83.6%, primarily due to a higher revenue base.
The company’s adjusted operating margin (excluding amortization of intangible assets but including stock-based compensation) decreased 99 bps from the year-ago quarter to 28.7%, primarily due to higher adjusted operating expenses as a percentage of revenues. Adjusted operating expenses, as a percentage of revenues, increased 171 bps on a year-over-year basis.
The company’s adjusted net income (excluding amortization of intangible assets but including stock-based compensation) came in at $94.9 million or $1.41 per share compared with $95.4 million or $1.32 per share reported in the year-ago quarter. On a GAAP basis, net income came in at $91.8 million compared with $93.2 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 $810.7 million. Receivables were $263.2 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 $170.5 million. During the quarter, F5 Networks repurchased approximately 1.4 million shares for $150 million.
Guidance
For the fourth quarter of fiscal 2016, F5 Networks expects revenues in the range of $515 million to $525 million (mid-point $520 million). The Zacks Consensus Estimate is pegged at $516 million. Non-GAAP gross margin is expected to be roughly 84.5%. The company expects non-GAAP earnings for the fourth quarter of fiscal 2016 in the range of $1.92 per share to $1.95 per share. The Zacks Consensus Estimate is pegged at $1.47 per share. Non-GAAP effective tax rate is expected to be 34%.
F5 Networks reported better-than-expected third quarter fiscal 2016 results. Also, year-over-year comparisons on both counts were favorable. The company provided encouraging fourth-quarter 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, a volatile spending atmosphere and competition from Juniper Networks Inc. (JNPR - Free Report) remain concerns.
Currently, F5 Networks has a Zacks Rank #2 (Buy).
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F5 Networks (FFIV) Q3 Earnings & Revenues Top, View Solid
F5 Networks Inc. (FFIV - Free Report) reported third quarter fiscal 2016 adjusted earnings per share (excluding amortization of intangible assets but including stock-based compensation) on a proportionate tax basis of $1.41, which surpassed the Zacks Consensus Estimate of $1.38 per share. Also, earnings increased from $1.32 per share reported in the year-ago quarter.
Revenues
F5 Networks’ revenues grew 2.7% year over year to $496.5 million and were within the guided range of $490 million to $500 million. Reported revenues also beat the Zacks Consensus Estimate of $495 million.
Revenues were boosted by a 12.9% increase in service revenues, which more than offset a 6.9% decline in Product 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. According to John McAdam, F5 President and CEO, “Reflecting steadily increasing deployment of our products in public and private cloud environments, software sales continued to grow as a percentage of overall product revenue.”
Geographically, on a year-over-year basis, revenues from the Americas were down and contributed 56% of total revenue. EMEA decreased 1% and accounted for 24% of total revenue. Asia-Pacific was up 20% on a year-over-year basis, representing 15% of total revenue while Japan revenues increased 15% and represented 5% of total revenue.
By verticals, Enterprise, Service providers and Government (including 6% from the U.S. federal) accounted for 64%, 21% and 15% of total revenue, respectively.
The company’s distributors Ingram Micro , Avnet (AVT - Free Report) and Westcon accounted for 14.9%, 13.7% and 18.8%, respectively of total revenue.
Operating Results
F5 Networks’ adjusted gross margin (excluding amortization of intangible assets but including stock-based compensation) expanded 72 basis points (bps) on a year-over-year basis to 83.6%, primarily due to a higher revenue base.
The company’s adjusted operating margin (excluding amortization of intangible assets but including stock-based compensation) decreased 99 bps from the year-ago quarter to 28.7%, primarily due to higher adjusted operating expenses as a percentage of revenues. Adjusted operating expenses, as a percentage of revenues, increased 171 bps on a year-over-year basis.
The company’s adjusted net income (excluding amortization of intangible assets but including stock-based compensation) came in at $94.9 million or $1.41 per share compared with $95.4 million or $1.32 per share reported in the year-ago quarter. On a GAAP basis, net income came in at $91.8 million compared with $93.2 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 $810.7 million. Receivables were $263.2 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 $170.5 million. During the quarter, F5 Networks repurchased approximately 1.4 million shares for $150 million.
Guidance
For the fourth quarter of fiscal 2016, F5 Networks expects revenues in the range of $515 million to $525 million (mid-point $520 million). The Zacks Consensus Estimate is pegged at $516 million. Non-GAAP gross margin is expected to be roughly 84.5%. The company expects non-GAAP earnings for the fourth quarter of fiscal 2016 in the range of $1.92 per share to $1.95 per share. The Zacks Consensus Estimate is pegged at $1.47 per share. Non-GAAP effective tax rate is expected to be 34%.
F5 NETWORKS INC Price, Consensus and EPS Surprise
F5 NETWORKS INC Price, Consensus and EPS Surprise | F5 NETWORKS INC Quote
Our Take
F5 Networks reported better-than-expected third quarter fiscal 2016 results. Also, year-over-year comparisons on both counts were favorable. The company provided encouraging fourth-quarter 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, a volatile spending atmosphere and competition from Juniper Networks Inc. (JNPR - Free Report) remain concerns.
Currently, F5 Networks has a Zacks Rank #2 (Buy).
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