10-QPeriod: Q3 FY2017

F5, INC. Quarterly Report for Q3 Ended Jun 30, 2017

Filed August 2, 2017For Securities:FFIV

Summary

F5 Networks, Inc. (FFIV) reported solid financial results for the nine months ended June 30, 2017, demonstrating consistent revenue growth and strong profitability. Total net revenues increased by 5.6% to $1.55 billion, driven by both product and service sales, with services representing a growing portion of the revenue mix. The company maintained healthy gross margins around 83% and effectively managed operating expenses, leading to a 11.3% increase in income from operations to $415.1 million. Financially, F5 Networks maintained a strong balance sheet with over $1.2 billion in cash and investments and no long-term debt. Operating activities generated robust cash flow of $527.2 million, which was largely utilized for significant share repurchases totaling $450.1 million, reflecting a commitment to returning capital to shareholders. The company also announced plans for a new corporate headquarters in Seattle, indicating a strategic investment in future growth and operations.

Financial Highlights

49 data points
Beta

Revenue

$517.84M

82.7% Gross Margin

Net Income

$97.66M

18.9% Net Margin

EPS (Diluted)

$1.52

Total Assets

$2.42B

Cash & Equivalents

$690.91M

Free Cash Flow

$155.10M

Financial Statements
Beta
Revenue$517.84M
Cost of Revenue$89.77M
Gross Profit$428.07M
R&D Expenses$88.60M
Operating Expenses$288.92M
Operating Income$139.14M
Net Income$97.66M
EPS (Basic)$1.53
EPS (Diluted)$1.52
Shares Outstanding (Basic)63.94M
Shares Outstanding (Diluted)64.36M

Key Highlights

  • 1Total net revenues increased 5.6% year-over-year for the first nine months of fiscal year 2017 to $1.55 billion.
  • 2Service revenues grew by 7.5% year-over-year for the nine months ended June 30, 2017, indicating an increasing reliance on recurring revenue streams.
  • 3Gross profit margin remained strong, hovering around 83.1% for the nine-month period.
  • 4Income from operations increased by 7.9% to $415.1 million for the nine months ended June 30, 2017.
  • 5The company generated $527.2 million in cash from operating activities for the nine-month period.
  • 6F5 Networks repurchased $450.1 million of its common stock during the nine months ended June 30, 2017, underscoring a strong commitment to shareholder returns.
  • 7The company ended the period with a substantial cash and investment balance of $1.25 billion and no long-term debt.

Frequently Asked Questions

For the nine months ended June 30, 2017, product revenues were $715.7 million (46.1% of total), and service revenues were $836.4 million (53.9% of total). Service revenues showed a stronger year-over-year growth rate (7.5%) compared to product revenues (3.5%), indicating a growing contribution from services.

Operating expenses increased by 5.0% year-over-year for the first nine months of fiscal 2017. While sales and marketing, R&D, and G&A expenses all saw increases, they were largely in line with revenue growth, and the company managed to maintain its operating expense percentage of net revenue around 56.3%. Significant increases in sales and marketing and R&D personnel costs were noted.

F5 Networks has a strong liquidity position, with $1.25 billion in cash and investments as of June 30, 2017, and no long-term debt. The company generated $527.2 million in operating cash flow during the first nine months of fiscal 2017. A significant portion of this cash, $450.1 million, was used for share repurchases, demonstrating a focus on returning value to shareholders.

The company is involved in ongoing patent infringement litigation with Radware, Ltd. and Radware, Inc. While F5 has had some success in summary judgments, a jury awarded Radware $6.4 million in damages, with the total judgment amount being approximately $6.87 million after prejudgment interest. An appeal is pending. The company believes it has meritorious defenses in its legal matters but acknowledges potential material adverse effects on its business from litigation.