F5 Networks Inc. (FFIV) reported fourth-quarter fiscal 2014 adjusted earnings per share (excluding amortization and other one-time items but including stock-based compensation) on a proportionate tax basis of $1.29 per share, which not only beat the Zacks Consensus Estimate of $1.22 per share but also increased 31.6% on a year-over-year basis.
Revenues
F5 Networks reported revenues of $465.3 million, which not only increased 17.8% from the year-ago quarter but also came ahead of the Zacks Consensus Estimate of $460 million. Improvement in revenues was primarily due to broad-based strength across its business segments, and higher customer wins coupled with new products rollout.
Moreover, revenues were impacted positively by a 20.3% increase in Product revenues, primarily driven by higher Enterprise revenues in the Americas and better-than-expected growth in EMEA and Asia Pacific regions. Also, a 14.6% increase in service revenues on a year-over-year basis positively impacted the quarter’s revenues.
Notably, F5 Networks’ “Good, Better, Best” (GBB) pricing strategies and higher competencies of BIG-IQ platform also helped to streamline the company's product portfolio and drive year-over-year revenue growth.
Geographically, on a year-over-year basis, revenues from the Americas increased 16% and represented 59% of total revenue. Europe, the Middle East and Africa (EMEA) increased 22% and accounted for 22% of total revenue. The Asia-Pacific was up 25% on a year-over year basis, representing 14% of total revenue while Japan revenues increased 4% and represented 5% of revenues.
By vertical, Enterprise accounted for 67% of total revenue. Service providers represented 19% of revenues while Government accounted for 13% of total revenue (including 7% from the U.S. federal).
The company also reported that 16.3% of total revenue came from distributor Ingram Micro (IM), 14% from Avnet (AVT) and 16.9% from Westcon.
During the quarter, F5 Networks unveiled the latest Synthesis of Software Defined Application Services (SDAS) for its flagship Big-IP solutions. We believe that the latest release will augment the demand for F5 Networks’ BIG-IP products, thereby securing revenue streams in the quarters to come.
Operating Results
The company’s adjusted gross margin (excluding amortization and other one-time items but including stock-based compensation) decreased 35 basis points (bps) on a year-over-year basis to 82.9%, primarily due to higher cost of services.
F5 Networks’ adjusted operating margin (excluding amortization and other one-time items but including stock-based compensation) decreased 16 bps from the year-ago quarter to 32.4%, primarily due to higher operating expenses (up 17.2% on a year over year basis). However, operating expenses, as a percentage of revenues, decreased 20 bps on a year-over-year basis, which helped in year-over-year growth of operating income (up 17.1%).
The company’s adjusted net income (excluding amortization and other one-time items but including stock-based compensation) came in at $96.5 million or $1.29 per share, which improved from $76.9 million or 98 cents reported in the year-ago quarter. On a GAAP basis net income came in at $94 million or $1.26 per share cents compared with $76.2 million or 97 cents reported in the year-ago quarter.
Balance Sheet & Cash Flow
F5 Networks exited the fourth quarter with cash, cash equivalents and short-term investments of approximately $645.4 million compared with $611.4 million in the previous quarter. Receivables were $242.2 million versus $243.1 million in the previous quarter.
F5 Networks’ balance sheet does not comprise any long-term debt. The company reported cash flow from operations of $548.9 million for the twelve months ended Sep 30, 2014. F5 Networks repurchased approximately 1.32 million shares for $150 million during the quarter.
Guidance
For the first quarter of fiscal 2015, F5 Networks expects revenues in the range of $460 million to $470 million (mid-point $465 million). The Zacks Consensus Estimate is pegged at $463 million. Non-GAAP gross margin is expected to be approximately 83.5%. The company expects non-GAAP earnings for the first quarter of fiscal 2015 to be in the range of $1.46 to $1.49, well above the Zacks Consensus Estimate of $1.19 per share. Non-GAAP effective tax rate is expected to be 35.5%.
Amid macro concerns and a tight federal budget, management remains positive on the company’s upcoming product launches and growing demand for its security solutions.
F5 Networks also mentioned that it will continue investing in technology and headcount to keep pace with changing market trends.
Also, management stated that the partnership with Software Defined Networks (SDN) and other cloud providers will be a long term positive for the company.
Our Take
F5 Networks reported better-than-expected fourth-quarter fiscal 2014 results and provided an encouraging first-quarter guidance. Moreover, the company’s “Good, Better, Best” (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 Enterprise 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 (TAM) 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. The company is also keen on expanding its cloud exposure. Nevertheless, the volatile spending atmosphere and competition from Juniper Networks Inc. (JNPR) remain concerns.
Currently, F5 Networks has a Zacks Rank #3 (Hold).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment