F5 Networks (FFIV) Q3 Earnings and Revenues Top Estimates

Highs and Lows Stock Data

F5 Networks Inc.FFIV reported third-quarter fiscal 2018 GAAP earnings per share (excluding amortization of intangible assets, stock-based compensation and other one-time items) of $2.24, surpassing the Zacks Consensus Estimate of $1.86. Furthermore, earnings increased 20.2% year over year.

F5 Networks' revenues grew 4.7% year over year to $542.2 million and came ahead of the Zacks Consensus Estimate of $540 million. Strong momentum in its software offerings, particularly its multi-cloud architectures solutions, and the services business were the key growth drivers.

Shares of F5 Networks have returned 33.5% year to date, significantly outperforming the industry's 22.5% rally.

Quarter Details

Products revenues (44% of total revenues) during the quarter came in at $238.8 million, up 1.6% from the year-ago quarter.

Software grew 24% year over year and contributed 15% to product revenues. The upside is attributed to the deployments in public and private cloud driven by the surge in demand for security in the multi-cloud environment. The company benefited from acceleration in the pace of Enterprise License Agreement (ELA) and Virtual Edition (VE) subscription software deals.

The company believes the growing trend for flexible consumption models will drive adoption of new cloud offerings, including the recently launched BIG-IP Cloud Edition. Notably, Cloud Edition is expected to be a meaningful driver of software growth.

However, Systems revenues, which represent 85% of product revenues, declined 1.5%.

Services revenues (56%) increased 7.3% year over year to $303.4 million. Deferred revenues of $1 billion increased 9% year over year, driven by continued high-maintenance renewal rates. Management notes that customer satisfaction is a key driver for the segment, given the unparalleled customer support that the team provides.

In order to manage workloads across these hybrid environments, customers continue to utilize F5 security, application services and orchestration.

Geographically, on a year-over-year basis, revenues from the Americas were up 3% and contributed 56% to total revenues.

EMEA increased 8% and accounted for 24% of total revenues. However, macro-economic uncertainties in Europe specifically with the UK and Brexit remain a concern.

Asia Pacific was up 8% on a year-over-year basis, representing 15% of total revenues, driven by growth in China and India. Japan revenues grew 4% and represented 4% of total revenues.

By verticals, Enterprise, Service providers and Government (including 7% from the U.S. federal) accounted for 64%, 19% and 17% of total revenues, respectively.

The company's distributors Ingram Micro accounted for 17% of revenues. Arrow and Westcon contributed 10% each to total revenues, while Tech Data and Synnex contributed 11% each.


F5 Networks' non-GAAP gross profit (excluding amortization of intangible assets, other one-time items and stock-based compensation) was up 5.2% on a year-over-year basis and came in at $458.2 million. Non-GAAP gross margin increased 40 basis points (bps) during the quarter and came in at 84.5%.

The company's non-GAAP operating profit (excluding amortization of intangible assets, other one-time items and stock-based compensation) totaled $195.2 million, up 5.3% from the year-ago quarter. Non-GAAP operating margin increased 20 bps to 36%.

F5 Networks, Inc. Price, Consensus and EPS Surprise

F5 Networks, Inc. Price, Consensus and EPS Surprise | F5 Networks, Inc. Quote

Balance Sheet & Cash Flow

F5 Networks exited the quarter with cash, cash equivalents and short-term investments of approximately $1.08 billion compared with $1.02 billion in the prior quarter.

Long-term liabilities were $351.2 million. It reported cash flow from operations of $556.8 million compared with $374.7 million in the previous quarter.

During the quarter, F5 Networks repurchased shares worth approximately $150 million.


For fourth-quarter fiscal 2018, F5 Networks expects revenues in the range of $555-$565 million. The company expects non-GAAP earnings per share in the range of $2.61-$2.64.

In order to establish itself as a leading provider of multi-cloud application services, F5 announced that it will increase investments in cloud and security, the fastest-growing areas of the company.

The company will launch F5-as-a-Service, which is a "complete self-serve model that would be hosted in a public cloud and would address all of the DevOps buyers that want to go to a pure public cloud buying motion" in 2019.

Zacks Rank and Other Stocks to Consider

F5 currently carries a Zacks Rank #2 (Buy).

A few better-ranked stocks in the broader technology sector are YY Inc. YY , Science Applications SAIC and Verint Systems VRNT , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Long-term earnings growth for YY, Science Applications and Verint is projected to be 26.4%, 5% and 10%, respectively.

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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 Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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