F5 Networks (FFIV) Up 4% on Q4 Earnings Beat, Upbeat Outlook

F5 Networks’ FFIV stock gained 4.5% during Tuesday’s extended trading session after the company came up with better-than-expected fourth-quarter fiscal 2021 results and issued an upbeat outlook for the first quarter of fiscal 2022. The company posted fiscal fourth-quarter non-GAAP earnings per share of $3.01, beating the Zacks Consensus Estimate of $2.77.

Moreover, the quarterly earnings came in higher than management’s guidance of $2.68-$2.80 per share. Also, the non-GAAP earnings increased 23.9% from the year-ago quarter, mainly on solid revenues and efficient cost management.

Non-GAAP revenues climbed 11% year on year to $682 million, surpassing the Zacks Consensus Estimate of $673.6 million on robust software and system growth. The top-line figure also comes in higher than the company’s guided range of $660-$680 million.

F5 Networks, Inc. Price, Consensus and EPS Surprise

F5 Networks, Inc. price-consensus-eps-surprise-chart | F5 Networks, Inc. Quote

Revenue Details

Product revenues (50% of total revenues), which comprise Software and Systems sub-divisions, went up 21%, year on year, to $340 million. Software sales jumped 35% year over year to $152 million, accounting for approximately 45% of the total Product revenues. System revenues climbed 12% to $188 million and accounted for the remaining 55% of the total Product revenues.

Global Service revenues (50% of total revenues) increased 2% to $342 million.

François Locoh-Donou, F5’s President and CEO said, "Skyrocketing application usage and heightened security awareness are driving strong demand for F5 solutions on premises, in the cloud, and across multiple clouds. Our expanded solutions portfolio and vision for enabling Adaptive Applications puts us at the intersection of these strong and sustainable secular trends and positions F5 for continued strong revenue and earnings growth."

Additionally, the company noted that it is moving ahead with its strategy of transitioning the business into a subscription-based model. During the fiscal fourth quarter, subscriptions represented 80% of Software revenues, up from the previous quarter’s 78%.

Furthermore, F5 Networks registered sales growth across all regions, with the Americas, EMEA and APAC witnessing year-over-year increase of 11%, 11% and 9%, respectively. Revenue contributions from the Americas, EMEA and APAC regions were 59%, 24% and 17%, respectively.

Customerwise, Enterprises, Service providers and Government represented 69%, 13% and 18%, respectively, of product bookings.

Margins

The GAAP gross margin contracted 70 basis points (bps) to 81.1%. The non-GAAP gross margin shrunk 70 bps to 83.7%.

The GAAP operating expenses flared up 5.7% year on year to $427 million, while the non-GAAP operating expenses rose 4.5% to $350 million. The company’s GAAP operating margin expanded 250 bps to 18.5%, while the non-GAAP operating margin improved 230 bps to 32.4%.

Balance Sheet & Cash Flow

F5 Networks exited the July-September quarter with cash and investments of $911 million compared with the previous quarter’s $863 million.

During the fiscal fourth quarter, the company generated $197 million of operating cash flow. During the reported quarter, it repurchased shares worth $100 million through Accelerated Share Repurchase transaction.

During fiscal 2021, the company generated operating cash flow of $645 million and bought back $500 million worth of its common stock.

Outlook

The company issued an upbeat business outlook for the first quarter of fiscal 2022.

For the fiscal first quarter, F5 Networks projects non-GAAP revenues at $665-$685 million (mid-point $675 million). The Zacks Consensus Estimate for revenues is pegged at $667.8 million.

The company anticipates non-GAAP earnings per share in the $2.71-$2.83 band (mid-point $2.77). The Zacks Consensus Estimate is pinned at $2.73.

For fiscal 2022, F5 Networks expects revenues to grow 8-9% on a year-over-year basis, including a 35-40% increase in software sales.

We believe surging demand for multi-cloud application services will be a key growth driver during the fiscal first quarter. In addition, solid demand for software solutions is a tailwind. Rising traction from subscription and Enterprise License Agreement (ELA) offerings is another driving factor.

Apart from this, F5 Networks and NGINX’s first combined solution — Controller 3.0 — will likely boost the total addressable market and deal sizes by spending more use cases across the DevOps and Super-NetOps customer profiles.

Zacks Rank and Key Picks

F5 Networks currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include Applied Materials AMAT, Advanced Micro Devices AMD and CACI International CACI, all carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Applied Materials, Advanced Micro Devices and CACI is currently pegged at 19.4%, 44.6% and 5.5%, respectively.

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