10-QPeriod: Q3 FY2019

F5, INC. Quarterly Report for Q3 Ended Jun 30, 2019

Filed August 2, 2019For Securities:FFIV

Summary

F5, Inc. (FFIV) reported its financial results for the nine months ended June 30, 2019. The company demonstrated steady revenue growth, with total net revenues increasing by 3.3% year-over-year for the nine-month period. This growth was driven by an increase in software sales and service revenues, indicating a positive trend in their core business. A significant event during this period was the acquisition of Nginx, Inc. on May 8, 2019, which is expected to enhance F5's multi-cloud application services capabilities. Financially, F5 maintained a strong balance sheet with substantial cash and investments, although total cash and investments decreased primarily due to the Nginx acquisition. The company also continued its share repurchase program, albeit with a temporary suspension of its automatic component following the acquisition. Operating expenses, particularly in sales and marketing and R&D, saw increases, largely attributed to headcount growth and the Nginx integration, impacting operating income, which decreased year-over-year for both the three and nine-month periods. Despite these investments, the company reported positive net income and continued to generate strong operating cash flows.

Financial Highlights

53 data points
Beta

Revenue

$563.39M

83.9% Gross Margin

Net Income

$85.91M

15.2% Net Margin

EPS (Diluted)

$1.43

Total Assets

$3.18B

Cash & Equivalents

$691.36M

Free Cash Flow

$117.39M

Financial Statements
Beta
Revenue$563.39M
Cost of Revenue$90.77M
Gross Profit$472.63M
R&D Expenses$116.89M
Operating Expenses$369.89M
Operating Income$102.74M
Net Income$85.91M
EPS (Basic)$1.43
EPS (Diluted)$1.43
Shares Outstanding (Basic)59.98M
Shares Outstanding (Diluted)60.20M

Key Highlights

  • 1Total net revenues increased by 3.3% for the nine months ended June 30, 2019, reaching $1.65 billion, primarily driven by software and services growth.
  • 2Acquisition of Nginx, Inc. completed on May 8, 2019, for approximately $643.2 million, aiming to bolster multi-cloud application services.
  • 3Income from operations decreased by 12.1% for the nine months ended June 30, 2019, to $403.7 million, impacted by increased operating expenses.
  • 4Net income for the nine months ended June 30, 2019, was $332.9 million, a slight increase of 3.8% compared to the prior year.
  • 5The company's cash and investments decreased by $302.5 million to $1.15 billion, largely due to the Nginx acquisition.
  • 6Operating expenses increased across sales & marketing (5.4%), R&D (12.6%), and G&A (23.4%) for the nine months, reflecting investments in growth and integration.
  • 7The company continues to repurchase its common stock, with $1.4 billion remaining authorized for repurchases as of June 30, 2019, although the automatic component of the program was suspended.

Frequently Asked Questions

The primary drivers of F5's revenue growth were increased software sales, including subscription-based products, and growth in service revenues, which benefited from an expanding installed base of products.

The acquisition of Nginx, completed in May 2019, resulted in a significant cash outlay of approximately $643.2 million, leading to a decrease in F5's total cash and investments. Nginx's financial results have been included in F5's consolidated statements since the acquisition date. For the nine months ended June 30, 2019, Nginx contributed $5.1 million to F5's net revenues and $5.9 million in losses to net income on a pro forma basis, and the integration led to increased operating expenses, particularly in general and administrative costs.

F5 maintains a strong liquidity position with significant cash and investments totaling $1.15 billion as of June 30, 2019. The company believes its current cash and investment balances, along with cash generated from operations, will be sufficient to meet operating requirements for at least the next twelve months. Capital expenditures are expected for facility expansion and IT infrastructure.

F5 adopted ASC 606 on October 1, 2018. The adoption resulted in a net increase to retained earnings of $36.0 million and impacted the balance sheet by reclassifying capitalized contract acquisition costs and unbilled receivables. For the three months ended June 30, 2019, ASC 606 increased net revenues by $29.3 million and net income by $24.0 million. For the nine months ended June 30, 2019, it increased net revenues by $36.5 million and net income by $25.4 million, largely due to changes in deferred revenue and the capitalization of contract acquisition costs.