F5 Networks Earnings: Not Enough to Please Shareholders

S&P 500 (NYSE:SPY) component F5 Networks Inc. (NASDAQ:FFIV) reported net income above Wall Street’s expectations for the fourth quarter. F5 Networks provides technology that optimizes the security and performance of servers, data storage devices and other network resources.

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F5 Networks Inc. Earnings Cheat Sheet

Results: Net income for F5 Networks Inc. rose to $67.7 million (85 cents per share) vs. $67.6 million (84 cents per share) in the same quarter a year earlier. This marks a rise of 0.2% from the year-earlier quarter.

Revenue: Rose 15.2% to $362.6 million from the year-earlier quarter.

Actual vs. Wall St. Expectations: F5 Networks Inc. reported adjusted net income of $1.12 per share. By that measure, the company beat the mean estimate of 94 cents per share. It beat the average revenue estimate of $352.9 million.

Quoting Management: “F5 grew sequentially and year over year throughout fiscal 2012,” said F5 president and chief executive officer John McAdam. “But after a strong first half, revenue growth slowed in the second half of the year. Beginning in the third quarter and continuing through Q4, slowing growth in product revenue reflected smaller deal sizes, particularly among large U.S. enterprise and telecommunications customers. Annual U.S. revenue grew just over 16 percent from fiscal 2011. By contrast, international revenue grew nearly 24 percent in fiscal 2012, resulting in overall revenue growth of 20 percent for the year. We maintained strong product gross margins for the quarter and the year at 83 percent and as a result, we were able to add 540 employees in fiscal 2012, including 125 in Q4, while delivering a non-GAAP operating margin of 39 percent,” said McAdam. “As we enter fiscal 2013, it is difficult to predict what turns the economy will take. But as we look out over the year, we believe that changes in the evolving technology landscape are creating new opportunities for growth and that our technology roadmap and product deliverables will enable us to capitalize on those changes. On October 16, 2012 we introduced BIG-IP 4200v, the first in a series of new appliances that will replace our entry-level and mid-range BIG-IP platforms and extend our market leadership in price/performance and functionality. In addition to these new platforms, we will be introducing significant performance and functionality enhancements to TMOS and new software modules that will expand the array of integrated application delivery functions currently available on our platforms and in virtual editions. We will also expand and upgrade our VIPRION family of chassis products over the next several quarters. While we are excited about these new products and their potential to drive revenue growth, current macroeconomic conditions and our expectation of normal Q1 seasonality have tempered our outlook for the near term,” said McAdam.

Key Stats:

The company has enjoyed double-digit year-over-year percentage revenue growth for the past five quarters. Over that span, the company has averaged growth of 20.5%, with the biggest boost coming in the fourth quarter of the last fiscal year when revenue rose 23.7% from the year earlier quarter.

Last quarter marked the fifth consecutive quarter of increasing gross margins, as the company’s gross margin expanded 0.5 percentage point from the year-earlier quarter to 82.7%. Over that span, margins have grown, on average, 0.9 percentage point per quarter on a year-over-year basis.

The company has now seen its net income rise for three quarters in a row. In the third quarter, net income rose 15.6% and in the second quarter, the figure rose 23.5%.

The company has now topped analyst estimates for the last four quarters. It beat the mark by one cent in the third quarter, by 2 cents in the second quarter, and by 2 cents in the first quarter.

Looking Forward: Expectations for the first quarter of the next fiscal year have not changed from 96 cents. The average estimate for the fiscal year has remained at $3.55 per share.

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(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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