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F5 Networks (FFIV) Q1 Earnings Miss, Outlook Encouraging
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F5 Networks Inc. (FFIV - Free Report) reported first-quarter fiscal 2017 adjusted earnings per share (excluding amortization of intangible assets and other one-time items but including stock-based compensation) on a proportionate tax basis of $1.48, which missed the Zacks Consensus Estimate of $1.53 per share. However, earnings increased from $1.32 per share reported in the year-ago quarter.
Revenues
F5 Networks’ revenues grew 5.4% year over year to $515.9 million and were within the guided range of $510 million to $520 million. Reported revenues beat the Zacks Consensus Estimate of $515 million by a slight margin.
Revenues were boosted by an 8.5% increase in service revenues and 2% increase 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.
Geographically, on a year-over-year basis, revenues from the Americas were up 7% and contributed 56% of total revenue. EMEA increased 2% and accounted for 25% of total revenue. Asia-Pacific was up 4% on a year-over-year basis, representing 14% of total revenue while Japan revenues increased 9% and represented 5% of total revenue.
By verticals, Enterprise, Service providers and Government (including 5% from the U.S. federal) accounted for 65%, 21% and 15% of total revenue, respectively.
The company’s distributors Ingram Micro, Avnet (AVT - Free Report) and Westcon accounted for 16%, 12.3% and 18.8%, respectively of total revenue.
Operating Results
F5 Networks’ adjusted gross margin (excluding amortization of intangible assets and other one-time items but including stock-based compensation) expanded 97 basis points (bps) on a year-over-year basis to 84%, primarily due to a higher revenue base.
The company’s adjusted operating margin (excluding amortization of intangible assets and other one-time items but including stock-based compensation) decreased 15 bps from the year-ago quarter to 27.3%, primarily due to higher adjusted operating expenses as a percentage of revenues. Adjusted operating expenses, as a percentage of revenues, increased 112 bps on a year-over-year basis.
The company’s adjusted net income (excluding amortization of intangible assets and other one-time items but including stock-based compensation) came in at $96.7 million or $1.48 per share compared with $92.2 million or $1.32 per share reported in the year-ago quarter. On a GAAP basis, net income came in at $94.2 million compared with $89.7 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 $973.8 million. Receivables were $313.2 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 $189.3 million during the quarter. During the quarter, F5 Networks repurchased approximately 1.06 million shares for $150 million.
Guidance
For the second quarter of fiscal 2017, F5 Networks expects revenues in a range of $518 million to $528 million. The Zacks Consensus Estimate is pegged at $521 million. Non-GAAP gross margin is expected to be roughly 84.5%. The company expects non-GAAP earnings for the second quarter of fiscal 2017 in a range of $1.95 per share to $1.98 per share. The Zacks Consensus Estimate is pegged at $1.52 per share. Non-GAAP effective tax rate is expected to be 32%.
Share Price
Over the past one year, the stock surged roughly 52.9% and outperformed the Zacks categorized Internet Software industry, which witnessed an increase of just 20.8%.
Our Take
F5 Networks reported not-so encouraging first-quarter fiscal 2017 results, as the bottom line missed the Zacks Consensus Estimates and the top line beat the same by a slight margin. However, year-over-year comparisons on both counts were favorable. The company also provided an encouraging second-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 #4 (Sell).
Seagate has a long-term expected EPS growth rate of 8.79%.
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F5 Networks (FFIV) Q1 Earnings Miss, Outlook Encouraging
F5 Networks Inc. (FFIV - Free Report) reported first-quarter fiscal 2017 adjusted earnings per share (excluding amortization of intangible assets and other one-time items but including stock-based compensation) on a proportionate tax basis of $1.48, which missed the Zacks Consensus Estimate of $1.53 per share. However, earnings increased from $1.32 per share reported in the year-ago quarter.
Revenues
F5 Networks’ revenues grew 5.4% year over year to $515.9 million and were within the guided range of $510 million to $520 million. Reported revenues beat the Zacks Consensus Estimate of $515 million by a slight margin.
Revenues were boosted by an 8.5% increase in service revenues and 2% increase 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.
Geographically, on a year-over-year basis, revenues from the Americas were up 7% and contributed 56% of total revenue. EMEA increased 2% and accounted for 25% of total revenue. Asia-Pacific was up 4% on a year-over-year basis, representing 14% of total revenue while Japan revenues increased 9% and represented 5% of total revenue.
By verticals, Enterprise, Service providers and Government (including 5% from the U.S. federal) accounted for 65%, 21% and 15% of total revenue, respectively.
The company’s distributors Ingram Micro, Avnet (AVT - Free Report) and Westcon accounted for 16%, 12.3% and 18.8%, respectively of total revenue.
Operating Results
F5 Networks’ adjusted gross margin (excluding amortization of intangible assets and other one-time items but including stock-based compensation) expanded 97 basis points (bps) on a year-over-year basis to 84%, primarily due to a higher revenue base.
The company’s adjusted operating margin (excluding amortization of intangible assets and other one-time items but including stock-based compensation) decreased 15 bps from the year-ago quarter to 27.3%, primarily due to higher adjusted operating expenses as a percentage of revenues. Adjusted operating expenses, as a percentage of revenues, increased 112 bps on a year-over-year basis.
The company’s adjusted net income (excluding amortization of intangible assets and other one-time items but including stock-based compensation) came in at $96.7 million or $1.48 per share compared with $92.2 million or $1.32 per share reported in the year-ago quarter. On a GAAP basis, net income came in at $94.2 million compared with $89.7 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 $973.8 million. Receivables were $313.2 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 $189.3 million during the quarter. During the quarter, F5 Networks repurchased approximately 1.06 million shares for $150 million.
Guidance
For the second quarter of fiscal 2017, F5 Networks expects revenues in a range of $518 million to $528 million. The Zacks Consensus Estimate is pegged at $521 million. Non-GAAP gross margin is expected to be roughly 84.5%. The company expects non-GAAP earnings for the second quarter of fiscal 2017 in a range of $1.95 per share to $1.98 per share. The Zacks Consensus Estimate is pegged at $1.52 per share. Non-GAAP effective tax rate is expected to be 32%.
Share Price
Over the past one year, the stock surged roughly 52.9% and outperformed the Zacks categorized Internet Software industry, which witnessed an increase of just 20.8%.
Our Take
F5 Networks reported not-so encouraging first-quarter fiscal 2017 results, as the bottom line missed the Zacks Consensus Estimates and the top line beat the same by a slight margin. However, year-over-year comparisons on both counts were favorable. The company also provided an encouraging second-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 #4 (Sell).
A better-ranked stock in the technology sector is Seagate Technology plc (STX - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here
Seagate has a long-term expected EPS growth rate of 8.79%.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>