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F5 Networks (FFIV) Q4 Earnings, Revenues Top; Guides Well

Shares of F5 Networks Inc.FFIV went up more than 2% yesterday, after the company reported better-than-expected fourth-quarter fiscal 2016 results. Also, an impressive first-quarter guidance positively impacted the share price.

The company reported 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 $1.69, which surpassed the Zacks Consensus Estimate of $1.54 per share. Also, earnings increased from $1.40 per share reported in the year-ago quarter.

Revenues

F5 Networks' revenues grew 4.8% year over year to $525.3 million and were above the guided range of $515 million to $525 million. Reported revenues also beat the Zacks Consensus Estimate of $520 million.

Revenues were boosted by an 11.8% increase in service revenues, which more than offset a 1.8% decline 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 5% and contributed 58% of total revenue. EMEA increased 4% and accounted for 23% of total revenue. Asia-Pacific was up 1% on a year-over-year basis, representing 14% of total revenue while Japan revenues increased 13% and represented 4% of total revenue.

By verticals, Enterprise, Service providers and Government (including 10% from the U.S. federal) accounted for 64%, 18% and 18% of total revenue, respectively.

The company's distributors Ingram Micro IM , Avnet AVT and Westcon accounted for 15.2%, 12.5% and 18%, 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 70 basis points (bps) on a year-over-year basis to 84.4%, 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) increased 150 bps from the year-ago quarter to 31.6%, primarily due to lower adjusted operating expenses as a percentage of revenues. Adjusted operating expenses, as a percentage of revenues, decreased 79 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 $111.9 million or $1.69 per share compared with $99.6 million or $1.40 per share reported in the year-ago quarter. On a GAAP basis, net income came in at $108.9 million compared with $97 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 $882.4 million. Receivables were $268.2 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 $711.5 million during the twelve months ended Sep 30, 2016. During the quarter, F5 Networks repurchased approximately 1.2 million shares for $150 million.

Guidance

For the first quarter of fiscal 2017, F5 Networks expects revenues in the range of $510 million to $520 million. The Zacks Consensus Estimate is pegged at $515 million. Non-GAAP gross margin is expected to be roughly 84.5%. The company expects non-GAAP earnings for the first quarter of fiscal 2017 in the range of $1.92 per share to $1.95 per share. The Zacks Consensus Estimate is pegged at $1.49 per share. Non-GAAP effective tax rate is expected to be 31.5%.

F5 NETWORKS INC Price, Consensus and EPS Surprise

F5 NETWORKS INC Price, Consensus and EPS Surprise | F5 NETWORKS INC Quote

Our Take

F5 Networks reported better-than-expected fourth-quarter fiscal 2016 results and provided an encouraging first-quarter guidance. Also, year-over-year comparisons on both counts were favorable.

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 remain concerns.

Currently, F5 Networks has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here

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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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