F5 Networks Inc.
(
FFIV
) delivered fourth quarter 2012 adjusted earnings per share (EPS)
of 87 cents, which missed the Zacks Consensus Estimate of 94
cents but was 20.5% above the year-ago level. The miss could well
be attributed to slowing Product revenue growth, higher expenses
and tax rate.
However, shares slumped 10.6% in after hours reflecting low
investor confidence. F5 Networks delivered a cautious outlook
citing a tough spending environment, which did not meet the
Street's expectation.
Revenues
F5 Networks reported revenues of $362.6 million in the reported
quarter, up 15.2% from $314.6 million in the year-ago period.
Revenue was at the lower end of the company's guidance of
$360.0-$370.0 million and below the Zacks Consensus Estimate of
$367.0 million. Higher Services revenue was partially offset by
slowing Product revenue. Also, strong growth in Europe, the
Middle East and Africa (EMEA) and Asia-Pacific regions was
somewhat muted by weak contribution from Americas.
Continuous enhancement of product suites and strong demand for
its VIPRION, BIG-IP suites during the quarter led to a
year-over-year growth of 6.2% in the Product segment. But this
was partially offset by smaller deal sizes, particularly among
large U.S. enterprise and telecommunications customers. Revenues
from the Services segment climbed 30.4% year over year, fueled by
growth in new and renewed service maintenance contracts booked
during the quarter.
Geographically, on a year-over-year basis, Americas grew 8.0% and
represented 56.0% of revenues. EMEA grew 29.0%, accounting for
22.0% of revenues. Asia-Pacific and Japan grew a respective 31.0%
and 13.0%, representing 15.0% and 7.0% of revenue.
By vertical, Financial was the strongest, accounting for 20.0% of
the total revenue. Telco accounted for 19.0% of revenues,
followed by Technology, which represented about 17%. Government
accounted for 17% (including 10% from U.S. federal).
Operating Results
Gross profit in the reported quarter surged 15.9% from the
year-ago quarter to $299.9 million. Gross margin escalated 50
basis points year over year to 82.7%.
F5 Networks' operating expenses increased 18.0% year over year,
mainly due to a 30.6% rise in research and development expenses
and 15.2% rise in sales and marketing expenses. Expenses hiked
due to continuous hiring. Operating income came in at $111.8
million, up 12.6% from $99.3 million reported in the year-ago
quarter. Operating margin in the quarter was 30.8%, down from
31.6% in the year-ago quarter.
Reported net income was $67.7 million or 85 cents per share
compared with $67.6 million or 84 cents a year ago. The company's
earnings missed its own guided range of 90-93 cents.
Excluding the effect of stock-based compensation, amortization of
intangibles and acquisition-related expenses, non-GAAP EPS was
$1.12 versus $1.06 in the prior-year quarter. But including
stock-based compensation and related tax adjustments, EPS was 87
cents, compared with 84 cents in the year-ago quarter.
Balance Sheet & Cash Flow
Cash, cash equivalents and short-term investments totaled
approximately $532.2 million in the fourth quarter, up from
$519.7 million in the prior quarter. Receivables declined $8.5
million sequentially to $185.2 million. Inventories remained
sequentially unchanged at $17.4 million.
Total deferred revenue was $447.3 million, compared with $433.9
million in the previous quarter. F5 Networks' balance sheet does
not comprise any long-term debt. Cash flow from operations was
$148.6 million, up from $113.4 million in the prior quarter.
Capital expenditure was $11.3 million versus $5.7 million in the
prior quarter. F5 Networks repurchased 514,000 million
outstanding shares for $50.0 million during the quarter.
Guidance
Management stated that F5 will be introducing a range of
products, which will drive solid revenue growth, going forward.
But, at the same time, management expressed its concern about the
macro uncertainties that could affect the near-term fundamentals.
Management also remained concerned about an expected budget cut
from the telecom customers.
For the first quarter of fiscal 2013, F5 Networks expects
revenues of $363.0 million to $370.0 million representing flat
sequential comparison. On a GAAP basis, earnings per share are
expected in the range of 86-88 cents. Excluding stock-based
compensation expense, amortization of purchased intangible assets
and related tax effects, the company estimates non-GAAP earnings
per share between $1.14 and $1.16. The Zacks Consensus Estimates
for the first quarter and fiscal 2013 are pegged at 87 cents and
$4.22, respectively.
Our Take
F5 Networks delivered unimpressive fourth quarter results,
missing the Zacks Consensus Estimates both on the bottom and top
lines. The company provided bleak first quarter guidance citing
macro uncertainties. We have been noticing that over the past few
quarters, despite consistent product launches, revenue generation
is gradually slowing down. This could prove hazardous to the
company's fundamentals if the new product lineups in 2013 fail to
ramp up demand.
Better execution and focus on enterprise and service providers
have placed F5 Networks well in the application delivery
controller (ADC) market and helped it to grab market share from
Cisco Systems Inc.
(
CSCO
) and
Juniper Networks Inc.
(
JNPR
). F5 Networks is also keen on expanding its cloud exposure.
However, we remain concerned on F5 due to a tight spending
environment and stiff competitive atmosphere.
Currently, F5 Networks has a Zacks #4 Rank, implying a short-term
"Sell" rating.
CISCO SYSTEMS (CSCO): Free Stock Analysis
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F5 NETWORKS INC (FFIV): Free Stock Analysis
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JUNIPER NETWRKS (JNPR): Free Stock Analysis
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