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F5 Networks (FFIV) Q4 Earnings Top, Revenues Lag Estimates

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F5 Networks Inc. (FFIV - Free Report) reported fourth-quarter fiscal 2017 non-GAAP earnings per share (excluding amortization of intangible assets, stock-based compensation and other one-time items) of $2.44, surpassing the Zacks Consensus Estimate of $2.20 per share. Further, earnings improved from $2.11 per share reported in the year-ago quarter.

Revenues

Although F5 Networks’ revenues grew 2.4% year over year to $537.9 million, it missed the Zacks Consensus Estimate of $539 million. However, reported revenues came toward the higher end of management guided range of $530-$540 million.

Revenues were boosted by 6.1% increase in service revenues. However, product revenues witnessed a decrease of 1.6% on a year-over-year basis.

Geographically, on a year-over-year basis, revenues from the Americas were up 1% and contributed 58% to total revenues. EMEA increased 7% and accounted for 24% of total revenues. Asia-Pacific was up 1% on a year-over-year basis, representing 14% of total revenues while Japan revenues increased 1% and represented 4% of total revenues.

By verticals, Enterprise, Service providers and Government (including 7% from the U.S. federal) accounted for 64%, 19% and 16% of total revenues, respectively.

The company’s distributors Ingram Micro, Tech Data , Westcon and Arrow accounted for 15%, 13%, 15% and 10%, of total revenues, respectively.

Operating Results

F5 Networks’ non-GAAP gross profit (excluding amortization of intangible assets, other one-time items and stock-based compensation) was up 1.6% on a year-over-year basis and came in at $454.8 million. Non-GAAP gross margin decreased 70 basis points (bps) during the quarter and came in at 84.5%, 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 60 bps from the year-ago quarter to 38.4%, 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 $154.9 million compared with $139.9 million reported in the year-ago quarter. On a GAAP basis, net income came in at $135.7 million compared with $108.9 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 $1.017 billion. Receivables were $291.9 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 $213 million during the quarter. During the quarter, F5 Networks repurchased approximately 1.26 million shares for $150 million. Moreover, the company authorized an additional $1 billion share repurchase program.

Fiscal 2017 Highlights

For fiscal 2017, the company reported revenues of $2.1 billion, up 4.8% year over year. Non-GAAP net income for fiscal 2017 came in at $8.38 per share, compared with $7.30 per share reported in the year-ago period.

Guidance

For first-quarter fiscal 2018, F5 Networks expects revenues in the range of $515-$525 million. The Zacks Consensus Estimate is pegged at $529 million. Non-GAAP gross margin is anticipated to be roughly 84.5%. The company expects non-GAAP earnings for first-quarter fiscal 2018 in the range of $2.02-$2.05 per share. The Zacks Consensus Estimate is pegged at $2.08 per share. Non-GAAP effective tax rate is anticipated to be 31%.

Price Movement

In the last one year, the company’s stock yielded a negative return of 8.9%, against the industry‘s gain of 16.5%.

Our Take

F5 Networks reported mixed fourth-quarter fiscal 2017 results, wherein the bottom line topped the Zacks Consensus Estimate but the top line missed the same. However, year-over-year comparisons on both counts were favorable. Nonetheless, the company provided tepid first-quarter guidance.

Revenue growth seems to be steady and was positively impacted by strength across all business segments along with higher software revenues. We believe that the company’s product refreshes will boost revenues, going forward. Moreover, these initiatives are expected to expand 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 Cisco Systems (CSCO - Free Report) and Juniper Networks Inc. (JNPR - Free Report) remain concerns.

Currently, F5 Networks carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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