10-QPeriod: Q2 FY2017

F5, INC. Quarterly Report for Q2 Ended Mar 31, 2017

Filed May 10, 2017For Securities:FFIV

Summary

F5 Networks, Inc. (FFIV) reported solid financial results for the quarter ended March 31, 2017, demonstrating continued revenue growth and a healthy increase in profitability. Total net revenues rose by 7.1% year-over-year, driven by robust demand for its core application delivery networking (ADN) products, particularly security solutions and software-only Virtual Editions, as well as a growing services revenue stream from an expanding installed base. The company maintained strong gross margins at 83.0% and improved operating income by 20.5%, showcasing effective cost management alongside revenue expansion. Key financial strengths include a strong balance sheet with a substantial increase in cash and cash equivalents to $655.8 million, supported by robust operating cash flow generation of $364.7 million for the first six months. The company continues to return value to shareholders through its share repurchase program, repurchasing $300 million in common stock during the period. Management expressed confidence in their liquidity, projecting that existing cash balances and operational cash flow will be sufficient to meet operating requirements for at least the next twelve months. The company also noted the upcoming CEO transition, with François Locoh-Donou set to take over on April 3, 2017, and highlighted ongoing efforts to address potential accounting standard changes.

Financial Highlights

49 data points
Beta

Revenue

$518.25M

83.0% Gross Margin

Net Income

$93.14M

18.0% Net Margin

EPS (Diluted)

$1.43

Total Assets

$2.39B

Cash & Equivalents

$655.77M

Free Cash Flow

$165.76M

Financial Statements
Beta
Revenue$518.25M
Cost of Revenue$87.91M
Gross Profit$430.34M
R&D Expenses$89.23M
Operating Expenses$291.81M
Operating Income$138.52M
Net Income$93.14M
EPS (Basic)$1.44
EPS (Diluted)$1.43
Shares Outstanding (Basic)64.48M
Shares Outstanding (Diluted)65.03M

Key Highlights

  • 1Total net revenues increased by 7.1% to $518.2 million for the three months ended March 31, 2017, compared to the prior year period, driven by product and service revenue growth.
  • 2Gross profit reached $430.3 million for the quarter, maintaining a strong gross margin of 83.0%.
  • 3Income from operations grew by 20.5% to $138.5 million, indicating improved operational efficiency and leverage.
  • 4Net income increased by 23.5% to $93.1 million for the quarter, translating to diluted earnings per share of $1.43, up from $1.11 in the prior year.
  • 5Cash and cash equivalents significantly increased by $140.2 million sequentially to $655.8 million, with total cash, short-term, and long-term investments at $1.21 billion.
  • 6The company repurchased $300 million of its common stock during the six months ended March 31, 2017, as part of its ongoing stock repurchase program.
  • 7The company reported continued strength in its core ADN products, with notable growth in security solutions and software-only Virtual Editions.

Frequently Asked Questions

F5 Networks is a global provider of software-defined application delivery services. The company's revenue is segmented into 'Products' (primarily hardware-based software solutions like BIG-IP appliances and Virtual Editions) and 'Services' (including annual maintenance contracts, training, and consulting). For the three months ended March 31, 2017, product revenue was $241.1 million (46.5% of total) and service revenue was $277.2 million (53.5% of total).

F5 Networks manages its operating expenses by closely monitoring personnel and related overhead costs, which are the main drivers. For the three months ended March 31, 2017, total operating expenses increased by 1.8% year-over-year. While sales and marketing, R&D, and G&A expenses saw increases largely due to headcount growth, the company also benefited from a significant decrease in litigation expenses, which were $0.1 million in the current quarter compared to $8.9 million in the prior year quarter. Overall, operating expenses as a percentage of net revenue decreased to 56.3% from 59.2% in the prior year.

F5 Networks maintains a strong liquidity position with $1.21 billion in cash, short-term, and long-term investments as of March 31, 2017. Operating activities generated $364.7 million in cash for the first six months. The company's capital allocation strategy includes significant investment in its stock repurchase program, with $300 million used for repurchases in the first six months of fiscal 2017. Management believes its current cash and projected operating cash flows are sufficient to meet its needs for at least the next twelve months.

Yes, the company announced that its CEO, John McAdam, will retire and François Locoh-Donou will become CEO effective April 3, 2017. The filing also notes that future success depends on attracting and retaining qualified personnel, and that the transition to a new CEO could be disruptive. Additionally, the company is preparing for the adoption of new accounting standards, specifically ASC 606 (Revenue from Contracts with Customers), which is expected to impact revenue recognition for term licenses and commission costs.