F5 Networks Inc.
) delivered third quarter 2012 adjusted earnings per share (EPS) of
92 cents, inching past the Zacks Consensus Estimate of 91 cents.
The quarter's earnings also grew 20.5% from the year ago level. The
outperformance was attributable to solid revenues arising from the
growing demand for the company's products, as well as market share
gains. The company also witnessed strong demand from financial and
However, shares slumped 1.09% in after hours reflecting low
investor confidence. F5 Networks delivered a cautious outlook
citing a tough spending environment, and the same did not meet the
F5 Networks reported revenues of $352.6 million in the reported
quarter, up 21.3% from $290.7 million in the year-ago period. The
book-to-bill ratio was less than one.
Revenue was within the company's guidance of $350.0-$355.0 million
and roughly flat with the Zacks Consensus Estimate of $353.0
million. Revenue growth was driven by strong product demand across
all geographic regions and strength in Service Provider biz.
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 15.5% in the Product segment. Revenues from the Services
segment climbed 30.6% 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 22.0% year
over year and represented 57.0% of revenues. EMEA grew 27.0% year
over year, accounting for 21.0% of revenues. Asia-Pacific and Japan
grew a respective 17.0% and 9.0%, representing 15.0% and 7.0% of
By vertical, Financial was the strongest, accounting for 23.0% of
the total revenue. Telco slid a position from the prior quarter and
accounted for 22.0% of revenues, followed by Technology, which
represented about 16%. Government accounted for 12% (including 6%
from U.S. federal). Of the verticals, Telco performed
better-than-expected, amidst a stringent spending environment.
Gross profit in the reported quarter surged 22.7% from the year-ago
quarter to $292.3 million. Gross margin escalated 90 basis points
year over year to 82.9%. The increase was supported by an improved
F5 Networks' operating expenses increased 21.6% year over year,
mainly due to a 33.3% rise in research and development expenses and
19.7% rise in sales and marketing expenses. Expenses hiked due to
continuous hirings. Despite the substantial rise in expenses,
operating income came in at $110.0 million, up 24.6% from $88.3
million reported in the year-ago quarter. Operating margin in the
quarter was 31.2%, up from 30.4% in the year-ago quarter. The
margin improvement could be attributed to higher revenues.
Reported net income was $72.3 million or 91 cents per share
compared with $62.5 million or 77 cents a year ago. The company's
earnings marginally surpassed its own guided range of 88-90 cents.
Excluding the effect of stock-based compensation, amortization of
intangibles and acquisition-related expenses, non-GAAP EPS was
$1.14 versus 97 cents in the prior year quarter. But including the
stock-based compensation and related tax adjustments, EPS was 93
cents, compared to 77 cents in the year ago quarter.
Balance Sheet, Cash Flow & Share Repurchase
Cash, cash equivalents and short-term investments totaled
approximately $519.7 million in the third quarter, up from $489.6
million in the prior quarter. Receivables grew $9.7 million
sequentially to $193.7 million. Inventories remained sequentially
unchanged at $17.0 million.
Total deferred revenue was $433.9 million, compared to $412.8
million in the previous quarter. F5 Networks' balance sheet does
not comprise any long-term debt. Cash flow from operations was
$113.4 million, up from $101.6 million in the prior quarter.
Capital expenditure was $5.7 million versus $6.9 million in the
prior quarter. F5 Networks repurchased 425,088 outstanding shares
for $50.0 million during the quarter.
Management expects favorable growth trajectory in mobile traffic,
data center consolidation, virtual environments and data security.
Management believes that solid revenue could be generated out of
it, going forward. But, at the same, management expressed its
concern about the macro uncertainties that could affect the
Management also remained concerned about an expected budget cut
from the telecom customers.
For the fourth quarter of fiscal 2012, F5 Networks expects revenues
of $360.0 million to $370.0 million representing a sequential
growth excluding any material contribution from the Traffix
acquisition. On a GAAP basis, earnings per share are expected in
the range of 90-93 cents. Excluding stock-based compensation
expense, amortization of purchased intangible assets and related
tax effects, the company estimates non-GAAP earnings per share
between $1.16 and $1.19. The Zacks Consensus Estimate for the
fourth quarter is pegged at $1.11.
F5 Networks delivered impressive third quarter results, beating the
Zacks Consensus Estimate on the bottom line and matching the same
on the top line. Better execution and focus on enterprise and
service providers have placed F5 Networks well in the application
delivery controller (ADC) market and helped it grab share from
Cisco Systems Inc.
Juniper Networks Inc.
). F5 Networks is also keen on expanding its cloud exposure.
With the rollout of TMOS ver.11, F5 Networks is witnessing strong
demand for its VIPRION products. On the other hand, the company
remains optimistic regarding a rebound in its Financial and
Enterprise verticals. This could help the company in trouncing its
own estimates, in our belief.
Though steady geographic contributions, margin expansion and
continuous share repurchases are positives for the quarter, tight
spending environment, book-to-bill ratio of less than 1 and stiff
competitive atmosphere keep us concerned.
Currently, F5 Networks has a Zacks #4 Rank, implying a short-term
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