Impressive First Quarter at F5 - Analyst Blog

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F5 Networks Inc. ( FFIV ) delivered first quarter 2012 earnings per share ( EPS ) of 83 cents, edging out the Zacks Consensus Estimate of 81 cents.

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 has also witnessed strong demand from its enterprise customers owing to data center consolidations in order to reduce expenses.

Revenues

F5 Networks reported revenues of $322.4 million in the reported quarter, up 19.9% from $268.9 million in the year-ago period. The book-to-bill ratio was greater than one.

Revenue during the quarter surpassed the higher end of the company's guidance of $315.0-$320.0 million. Revenue growth was driven by strong demand for the new mid-range VIPRION 2400 across all geographic regions and market verticals, Americas and Telecom in particular.

Continuous enhancement of product suites during the quarter led to a year-over-year growth of 14.6% in the Product segment. Revenues from the Services segment climbed 29.2% 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 20.3% year over year and represented 59.0% of revenues. EMEA grew 13.9% year over year, accounting for 21% of revenues. Asia-Pacific and Japan grew a respective 27.6% and 21.7%, representing 14.0% and 6.0% of revenues, respectively.

By vertical, telco was the strongest verticals, accounting for 23% of the total revenue. Finance came second with 21% of revenues followed by technology, which represented 17% of revenues, while Government accounted for 9% (including 4% from U.S. federal).

Operating Results

Gross profit in the reported quarter surged 21.3% from the year-ago quarter to $266.8 million. Gross margin escalated 100 basis points year over year at 82.8%. The increase was supported by a stable pricing environment for the company's products and an improved product mix.

F5 Networks' operating expenses increased 19.2% year over year, mainly due to a 22.4% rise in sales and marketing expenses resulting from increased hiring. Despite the substantial rise in expenses, operating income came in at $99.8 million, up 25.0% from $79.9 million reported in the year-ago quarter. Operating margin in the quarter was 30.9%, up from 29.7% in the year-ago quarter. The margin improvement could be attributed to higher revenues.

Net income was $66.5 million or 83 cents per share compared with $55.7 million or 68 cents a year ago. The company's earnings also exceeded its own guided range of 79-81 cents.

All the figures in the quarter include the effect of stock-based compensation expense. There was no other one-time item in the quarter.

Balance Sheet, Cash Flow & Share Repurchase

Cash, cash equivalents and short-term investments totaled approximately $556.5 million at the end of the December quarter, up from $542.6 million in the prior quarter. Receivables grew $22.2 million sequentially to $187.9 million. Inventories were $17.5 million versus $17.1 million in the prior quarter.

Total deferred revenue was $380.0 million, compared to $343.3 million in the previous quarter. F5 Networks' balance sheet does not comprise any long-term debt. Cash flow from operations was $131.9 million, up from $121.5 million in the prior quarter. Capital expenditure was $5.9 million versus $9.9 million in the prior quarter. F5 Networks repurchased 320,100 outstanding shares for $34.5 million during the quarter.

Guidance

For the second quarter of fiscal 2012, F5 Networks expects revenues of $332.0 million to $337.0 million. On a GAAP basis, earnings per share are expected in the range of 84-86 cents. The Zacks Consensus Estimate for the first quarter is pegged at 84 cents. Excluding stock-based compensation expense, the company estimates non-GAAP earnings per share between $1.05 and $1.07.

Our Take

F5 Networks delivered impressive first quarter results, beating the Zacks Consensus Estimate on the bottom line. Better execution and focus on enterprise and service providers has placed F5 Networks well in the application delivery controller ( ADC ) market and helped it grab share from Cisco Systems Inc. ( CSCO ). 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 about its North American business and seasonal strength in the U.S. federal business.

However, we believe that the positives are not reflected in the company's guidance and this could be due to the stiff competition in the networking market, concerns relating to margin sustainability, Europe-U.S. federal spending and a tightening of budgets in financial services.

Currently, F5 Networks has a Zacks #4 Rank, implying a short-term Sell rating.


 
CISCO SYSTEMS ( CSCO ): Free Stock Analysis Report
 
F5 NETWORKS INC ( FFIV ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ADC , CSCO , EPS , FFIV

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