News

F5, Inc. FFIV reported mixed second-quarter fiscal 2024 results. This Seattle, WA-based company’s non-GAAP earnings of $2.91 per share beat the Zacks Consensus Estimate of $2.88 and increased 13.8% from the year-ago quarter’s $2.53.

The bottom line was at the higher end of management’s guidance range of $2.79-$2.91 per share. The robust bottom-line performance reflects the combined impact of gross margin improvement and disciplined operating expense management.

F5’s revenues of $681 million for the fiscal second quarter missed the consensus mark of $686.9 million and declined 3.1% on a year-over-year basis. However, revenues came within the company’s guidance range of $675-$695 million.

Top Line in Detail

Product revenues (44% of total revenues), which comprise the Software and Systems sub-divisions, decreased 12% year over year to $300.2 million. The decline in Product revenues was mainly due to lower Systems sales, partially offset by increased Software sales. The company’s reported non-GAAP Product revenues were lower than our estimate of $317.8 million.

Systems revenues plunged 32% year over year to $142 million, accounting for approximately 47% of the total Product revenues. The company revealed that the decline reflects a lower level of backlog-related shipments compared with prior quarters, while the demand shows some signs of stabilization. Our estimate for Systems revenues was pegged at $157.2 million.

The negative impacts of lower Systems sales were partially offset by the improved performance of Software. Software revenues climbed 20% year over year to $159 million in the fiscal second quarter, mainly driven by 28% growth in subscription software revenues. Software revenues mainly grew on the back of renewals. Our estimate was pegged at $160.6 million.

Global Service revenues (56% of the total revenues) grew 5% to $381 million. The robust growth was mainly driven by price increases introduced in fiscal 2022. Our estimate for Global Services revenues was pegged at $367.8 million.

F5 registered lower sales across the EMEA and APAC regions, witnessing a year-over-year decrease of 6% and 9%, respectively. However, revenues from the Americas region grew 1% on a year-over-year basis. Revenue contributions from the Americas, EMEA and APAC regions were 57%, 26% and 17%, respectively.

Customer-wise, Enterprises, Service providers and Government represented 69%, 13% and 19% of product bookings, respectively.

Margins

On a year-over-year basis, GAAP and non-GAAP gross margins expanded 140 basis points (bps) and 170 bps to 79.3% and 82.1%, respectively. The improvement was driven by price realization and ease in supply-chain constraints, as well as reductions in ancillary supply-chain costs.

The company’s fiscal second-quarter GAAP operating expenses declined 9.3% to $400.3 million, while non-GAAP operating expenses decreased 6.8% to $348.8 million. GAAP operating expenses as a percentage of revenues decreased to 58.8% in the second quarter of fiscal 2024 from 62.8% reported in the year-ago quarter. Meanwhile, non-GAAP operating expenses as a percentage of revenues declined to 53% from 51% in the year-ago quarter.

F5’s GAAP operating profit jumped 32.1% to $140 million, while the margin expanded 540 bps to 20.5%. Moreover, the non-GAAP operating profit jumped 9.94% year over year to $210 million, while the margin improved 370 bps to 30.9%. An increase in the non-GAAP operating margin was primarily driven by an improvement in the gross margin and lower operating expenses as a percentage of revenues.

Balance Sheet & Cash Flow

F5 exited the March-ended quarter with cash and short-term investments of $903.4 million compared with the previous quarter’s $826 million. The company generated an operating cash flow of $386.95 million in the fiscal second quarter.

During the fiscal second quarter, FFIV repurchased shares worth $100 million. As of Apr 29, 2024, F5 had $672 million remaining under its current authorized share repurchase program. The company is committed to using at least 50% of free cash flow for share repurchases.

Guidance

F5 projects non-GAAP revenues in the $675-$695 million band (midpoint of $685 million) and non-GAAP earnings per share (EPS) in the range of $2.89-$3.01 (midpoint of $2.95) for the third quarter of fiscal 2024. The non-GAAP gross margin is forecasted between 82% and 83%.

The company expects non-GAAP operating expenses between $340 million and $352 million for the fiscal third quarter. Share-based compensation expenses are anticipated in the range of $55-$57 million.

For fiscal 2024, F5 reaffirms revenue growth forecast of flat to a low-single-digit-percentage decline. Non-GAAP gross and operating margins are still anticipated in the ranges of 82-83% and 33-34%, respectively.

However, the company raised the non-GAAP EPS growth guidance range to 7-9% from 6-8% projected earlier. F5 now projects the effective tax rate for fiscal 2024 to be 20-22% from the 21-22% projected previously.

Moreover, FFIV still intends to return at least 50% of its fiscal 2024 free cash flow to shareholders through share buybacks.

Zacks Rank and Other Stocks to Consider

Currently, F5 carries a Zacks Rank #2 (Buy). Shares of the company have returned 35.7% in the past year.

Some other top-ranked stocks from the broader technology sector are Dell Technologies DELL, Arista Networks ANET and Crexendo CXDO, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for DELL’s 2024 earnings per share has been revised upward by 54 cents to $7.64 in the past 60 days. Shares of DELL have surged 191.4% in the past year.

The Zacks Consensus Estimate for ANET's 2024 earnings per share has been revised upward by 3 cents to $7.49 in the past 30 days. Shares of ANET have gained 64.7% in the past year.

The Zacks Consensus Estimate for CXDO’s 2024 earnings per share has been revised upward by 6 cents to 23 cents in the past 60 days. Shares of CXDO have skyrocketed 202.2% in the past year.

Zacks Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

It’s an American AI company that’s riding low right now, but it has rounded up clients like BMW, GE, Dell Computer, and Bosch. It has prospects for not just doubling but quadrupling in the year to come. Of course, all our picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.

Free: See Our Top Stock And 4 Runners Up

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.