10-QPeriod: Q2 FY2018

F5, INC. Quarterly Report for Q2 Ended Mar 31, 2018

Filed May 2, 2018For Securities:FFIV

Summary

F5 Networks, Inc. (FFIV) reported for the six months ended March 31, 2018, a total revenue of $1.056 billion, representing a 2.2% increase year-over-year. This growth was primarily driven by a 6.9% increase in service revenues, benefiting from a growing installed product base and increased maintenance contract renewals. Product revenues, however, experienced a slight decline of 3.3%. Net income for the period rose by 5.7% to $198.1 million, leading to diluted EPS of $3.18, an increase from $2.87 in the prior year. The company maintained a strong financial position with $1.37 billion in cash and investments and no long-term debt. Significant share repurchases of $300 million were executed during the period. The company also highlighted the impact of the Tax Cuts and Jobs Act of 2017, which resulted in a lower effective tax rate for the period. Management expressed confidence in their ability to meet operating requirements for the next twelve months through existing cash reserves and operational cash flow.

Financial Highlights

49 data points
Beta

Revenue

$533.30M

83.2% Gross Margin

Net Income

$109.64M

20.6% Net Margin

EPS (Diluted)

$1.77

Total Assets

$2.52B

Cash & Equivalents

$595.92M

Free Cash Flow

$175.00M

Financial Statements
Beta
Revenue$533.30M
Cost of Revenue$89.64M
Gross Profit$443.66M
R&D Expenses$91.06M
Operating Expenses$300.30M
Operating Income$143.36M
Net Income$109.64M
EPS (Basic)$1.79
EPS (Diluted)$1.77
Shares Outstanding (Basic)61.42M
Shares Outstanding (Diluted)62.06M

Key Highlights

  • 1Total net revenues increased by 2.2% to $1,056.5 million for the six months ended March 31, 2018.
  • 2Service revenues grew by 6.9% to $591.6 million, driven by maintenance contracts and an expanding installed base.
  • 3Product revenues declined by 3.3% to $464.9 million for the six months ended March 31, 2018.
  • 4Net income increased by 5.7% to $198.1 million, with diluted EPS rising to $3.18 from $2.89 in the prior year.
  • 5The company maintained a robust balance sheet with $1,374.9 million in cash and investments and no long-term debt.
  • 6Significant share repurchases totaled $300.0 million for the six months ended March 31, 2018.
  • 7The effective tax rate decreased significantly due to the Tax Cuts and Jobs Act of 2017.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in service revenues, which grew by 6.9% to $591.6 million. This was largely due to higher purchase and renewal rates of maintenance contracts, reflecting the company's growing installed product base.

The Tax Cuts and Jobs Act enacted in December 2017 led to a significant reduction in F5's effective tax rate. For the six months ended March 31, 2018, the rate was 31.8% compared to 33.1% in the prior year. This was primarily due to the reduction in the U.S. federal income tax rate from 35% to 24.5%, though partially offset by a provisional tax expense for the deemed repatriation of foreign earnings.

F5 maintains a strong liquidity position with $1.37 billion in cash and investments as of March 31, 2018. A significant portion of cash flow from operations was used for share repurchases totaling $300 million during the period. The company believes its current cash and investment balances are sufficient to meet its operating requirements for at least the next twelve months.

Product revenues saw a decline of 3.3% to $464.9 million for the six months ended March 31, 2018. This decrease was attributed to a reduction in sales of their Application Delivery Networking (ADN) products. The company is also transitioning older generation appliances to its new iSeries platform.