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F5 Networks (FFIV) Gains 6% on Q3 Earnings Beat, Upbeat Outlook

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F5 Networks’ (FFIV - Free Report) stock gained 5.9% during Monday’s extended trading session after the company came up with better-than-expected third-quarter fiscal 2021 results and issued an upbeat outlook for the fourth quarter. 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.

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

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.

Customerwise, 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 Zacks Consensus Estimate for revenues is pegged at $663.2 million.

The company anticipates non-GAAP earnings per share in the $2.68-$2.80 band (mid-point $2.74). The Zacks Consensus Estimate is pinned at $2.73.

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.

Zacks Rank and Key Picks

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

Better-ranked stocks in the broader technology sector include Digital Turbine (APPS - Free Report) , Intuit (INTU - Free Report) and Zoom Video Communications (ZM - Free Report) , all sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Digital Turbine, Intuit and Zoom is currently pegged at 50%, 14.7% and 15.6%, respectively.

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