A month has gone by since the last earnings report for F5 Networks (
FFIV Quick Quote FFIV - Free Report) . Shares have lost about 6.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is F5 due for a breakout? 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 drivers.
F5 Networks Q2 Earnings & Revenues Top Estimates
F5 delivered second-quarter fiscal 2022 non-GAAP earnings per share of $2.13 beating the Zacks Consensus Estimate of $2.01. The figure decreased 14.8% from the year-ago quarter but came within management’s guidance of $1.75-$2.15 per share.
During the fiscal second quarter, non-GAAP revenues dipped 1.7% year on year to $634.2 million but surpassed the Zacks Consensus Estimate of $633.6 million. The top line came in higher than the mid-point $630 million of the guided range $610-$650 million. Top Line in Detail
Product revenues (47% of total revenues), which comprise Software and Systems sub-divisions, decreased 3.8% year on year to $297.5 million. Software sales jumped 40% year over year to $152 million, accounting for approximately 51% of the total Product revenues. System revenues slumped 27% to $146 million, making up the remaining 49% of the total Product revenues.
Global Service revenues (53.2% of total revenues) remained flat at $337 million. F5 Networks registered sales growth across the Americas, witnessing year-over-year increase of 4%. Meanwhile, it registered a 6% and 9% decrease in sales growth from the APAC and EMEA regions, respectively. Revenue contributions from the Americas, EMEA and APAC regions were 57%, 25% and 19%, respectively. Customer wise, Enterprises, Service providers and Government represented 65%, 15% and 20% of product bookings, respectively. Margins
GAAP gross margin remained flat year over year at 80.1%, while the non-GAAP margin shrunk 50 basis points (“bps”) to 82.9%.
The GAAP operating expenses fell 6.5% year over year to $433.2 million, while the non-GAAP operating expenses rose 4.5% to $357.8 million. F5 Networks’ GAAP operating margin expanded 350 bps to 11.8%, while non-GAAP operating margin contracted 380 bps to 26.5%. Balance Sheet & Cash Flow
F5 Networks exited the March-ended quarter with cash and short-term investments of $887.1 million compared with the previous quarter’s $859 million.
During the fiscal second quarter, the company generated $127 million of operating cash flow compared with $90.4 million reported in the previous quarter. F5 Networks repurchased shares worth $125 million during the quarter reported. Guidance
F5 Networks projects non-GAAP revenues to be $660-$680 million (mid-point of $670 million) for the third quarter of fiscal 2022.
The company anticipates non-GAAP earnings per share in the $2.18-$2.30 band (mid-point of $2.24). F5 Networks anticipates that supply-chain disruptions caused by the pandemic might restrict its ability to meet high demand for its solutions across on-premise and cloud environments. Hence, the company revised its revenue growth outlook for the fiscal 2022. For fiscal 2022, F5 Networks now expects revenues to grow 1.5-4% on a year-over-year basis compared with the previous range of 4.5-8% year-over-year growth. However, it expects increase in software sales to remain in-line with its prior guidance of 35-40%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -13.51% due to these changes.
Currently, F5 has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise F5 has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.