F5 Reports Strong Earnings Growth in its First Quarter of Fiscal Year 2024
- None.
- None.
Insights
The financial results reported by F5, Inc. indicate a robust performance, with revenue and earnings per share (EPS) exceeding the company's own forecasts. The noted improvements in both GAAP and non-GAAP operating margins are significant, with over 1,000 and 900 basis points increases respectively. This suggests a substantial enhancement in operational efficiency, which is an important metric for investors as it can lead to improved profitability and potentially higher returns on investment.
From a financial perspective, the 93% growth in GAAP EPS and 39% in non-GAAP EPS year over year is particularly impressive and exceeds typical market performance standards. Such growth rates may reflect well on the company's ability to scale its operations effectively while managing costs. Investors will likely view these results positively, as EPS is a critical measure of a company's profitability and often influences stock price movements.
Understanding the context of F5's financial results requires analyzing the broader market trends and competitive landscape. F5 operates in the application services and network security sectors, which are experiencing heightened demand due to increased digital transformation initiatives across industries. The company's success in meeting or exceeding revenue targets suggests that it is maintaining or growing its market share in a competitive environment.
Investors should consider the sustainability of F5's growth, particularly in light of the current economic climate, which includes challenges such as supply chain disruptions and potential shifts in IT spending. The strong earnings growth reported may indicate that F5 is well-positioned to navigate these challenges, but it is essential to monitor how external factors could affect future performance.
F5's significant margin improvements highlight the company's ongoing transition from a hardware-centric model to a software and services-focused business. This shift is important because software solutions typically offer higher margins than hardware due to lower manufacturing and distribution costs. The transition is a strategic move in response to evolving customer needs for more agile and scalable application delivery and security solutions.
Investors should note the strategic implications of this shift, as it aligns with broader industry trends towards cloud computing and network virtualization. Companies that effectively capitalize on these trends are likely to experience sustained growth. However, the technology sector is rapidly evolving and F5's ability to continue innovating and adapting to new technologies will be crucial for maintaining its competitive edge and financial performance.
“Our team delivered solid first quarter results, including revenue near the high end and earnings per share above the high end of our guidance ranges,” said François Locoh-Donou, F5’s President and CEO. “As a result of our continued operating discipline we delivered more than 1,000 basis points improvement in GAAP operating margin and more than 900 basis points improvement in non-GAAP operating margin year over year. We also delivered strong earnings growth, with
“Our customers face a growing crisis about how to effectively manage and secure the ever-increasing number of applications and APIs that power their businesses. The situation will be exacerbated by widespread adoption and proliferation of AI, which introduces more demanding, and more distributed applications to the mix,” said Locoh-Donou. “F5 is the application and API expert, with deep expertise built over decades securing, delivering, and optimizing demanding applications. The product portfolio we have created through both organic and inorganic innovation in recent years is designed to assist our customers in addressing exactly these challenges.”
First Quarter Performance Summary
First quarter fiscal year 2024 revenue declined
GAAP gross profit for the first quarter of fiscal year 2024 was
GAAP operating profit for the first quarter was
GAAP net income for the first quarter of fiscal year 2024 was
Performance Summary Tables
| GAAP Measures | Non-GAAP Measures | |||||||||||||
| ($ in millions except EPS) | Q1 FY2024 | Q1 FY2023 | ($ in millions except EPS) | Q1 FY2024 | Q1 FY2023 | |||||||||
| Revenue | $ |
693 |
$ |
700 |
||||||||||
| Gross profit | $ |
556 |
$ |
545 |
Gross profit | $ |
575 |
$ |
563 |
|||||
| Gross margin |
|
|
|
|
Gross margin |
|
|
|
|
|||||
| Operating profit | $ |
165 |
$ |
91 |
Operating profit | $ |
246 |
$ |
185 |
|||||
| Operating margin |
|
|
|
|
Operating margin |
|
|
|
|
|||||
| Net income | $ |
138 |
$ |
72 |
Net income | $ |
205 |
$ |
149 |
|||||
| EPS | $ |
2.32 |
$ |
1.20 |
EPS | $ |
3.43 |
$ |
2.47 |
|||||
A reconciliation of GAAP to non-GAAP measures is included in the attached Consolidated Income Statements. Additional information about non-GAAP financial information is included in this release.
Business Outlook
“Customers continue to watch their budgets closely. However, as we look ahead, we are encouraged by signs of stabilizing demand trends across all of our major geographic theaters,” concluded Locoh-Donou.
For the second quarter of fiscal year 2024, F5 expects to deliver revenue in the range of
In addition, the Company raised its fiscal year 2024 non-GAAP earnings per share outlook to growth of
All forward-looking non-GAAP measures included in the Company’s business outlook exclude estimates for amortization of intangible assets, share-based compensation expenses, significant effects of tax legislation and judicial or administrative interpretation of tax regulations (including the impact of income tax reform), non-recurring income tax adjustments, valuation allowance on deferred tax assets, and the income tax effect of non-GAAP exclusions, and do not include the impact of any future acquisitions or divestitures, acquisition-related charges and write-downs, restructuring charges, facility exit costs, or other non-recurring charges that may occur in the period. F5 is unable to provide a reconciliation of non-GAAP earnings guidance measures to corresponding
Live Webcast and Conference Call
F5 will host a live webcast to review its financial results and outlook today, January 29, 2024, at 4:30 pm ET. The live webcast is accessible from the investor relations page of F5.com. To participate in the live call via telephone in the
Forward Looking Statements
This press release contains forward-looking statements including, among other things, statements regarding F5’s future financial performance including revenue, revenue growth, gross margins, operating leverage, earnings growth, future customer demand and spending, markets, and the performance and benefits of the Company's products. These, and other statements that are not historical facts, are forward-looking statements. These forward-looking statements are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors. Such forward-looking statements involve risks and uncertainties, as well as assumptions and other factors that, if they do not fully materialize or prove correct, could cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to: customer acceptance of offerings; continued disruptions to the global supply chain resulting in inability to source required parts for F5’s products or the ability to only do so at greatly increased prices thereby impacting our revenues and/or margins; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; F5’s ability to successfully integrate acquired businesses’ products with F5 technologies; the ability of F5’s sales professionals and distribution partners to sell new solutions and service offerings; the timely development, introduction and acceptance of additional new products and features by F5 or its competitors; competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into F5’s markets, and new product and marketing initiatives by our competitors; increased sales discounts; the business impact of the acquisitions and potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement of completion of acquisitions; uncertain global economic conditions which may result in reduced customer demand for our products and services and changes in customer payment patterns; litigation involving patents, intellectual property, shareholder and other matters, and governmental investigations; potential security flaws in the Company’s networks, products or services; cybersecurity attacks on its networks, products or services; natural catastrophic events; a pandemic or epidemic; F5’s ability to sustain, develop and effectively utilize distribution relationships; F5’s ability to attract, train and retain qualified product development, marketing, sales, professional services and customer support personnel; F5’s ability to expand in international markets; the unpredictability of F5’s sales cycle; the ability of F5 to execute on its share repurchase program including the timing of any repurchases; future prices of F5’s common stock; and other risks and uncertainties described more fully in our documents filed with or furnished to the Securities and Exchange Commission, including our most recent reports on Form 10-K and Form 10-Q and current reports on Form 8-K and other documents that we may file or furnish from time to time, which could cause actual results to vary from expectations. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in F5’s most recent reports on Forms 10-Q and 10-K as each may be amended from time to time. All forward-looking statements in this press release are based on information available as of the date hereof and qualified in their entirety by this cautionary statement. F5 assumes no obligation to revise or update these forward-looking statements.
GAAP to non-GAAP Reconciliation
F5’s management evaluates and makes operating decisions using various operating measures. These measures are generally based on the revenues of its products, services operations, and certain costs of those operations, such as cost of revenues, research and development, sales and marketing and general and administrative expenses. One such measure is GAAP net income excluding, as applicable, stock-based compensation, amortization and impairment of purchased intangible assets, facility-exit costs, acquisition-related charges, net of taxes, restructuring charges, and certain non-recurring tax expenses and benefits, which is a non-GAAP financial measure under Section 101 of Regulation G under the Securities Exchange Act of 1934, as amended. This measure of non-GAAP net income is adjusted by the amount of additional taxes or tax benefit that the Company would accrue if it used non-GAAP results instead of GAAP results to calculate the Company’s tax liability.
The non-GAAP adjustments, and F5's basis for excluding them from non-GAAP financial measures, are outlined below:
Stock-based compensation. Stock-based compensation consists of expense for stock options, restricted stock, and employee stock purchases through the Company’s Employee Stock Purchase Plan. Although stock-based compensation is an important aspect of the compensation of F5’s employees and executives, management believes it is useful to exclude stock-based compensation expenses to better understand the long-term performance of the Company’s core business and to facilitate comparison of the Company’s results to those of peer companies.
Amortization and impairment of purchased intangible assets. Purchased intangible assets are amortized over their estimated useful lives, and generally cannot be changed or influenced by management after the acquisition. On a non-recurring basis, when certain events or circumstances are present, management may also be required to write down the carrying value of its purchased intangible assets and recognize impairment charges. Management does not believe these charges accurately reflect the performance of the Company’s ongoing operations; therefore, they are not considered by management in making operating decisions. However, investors should note that the use of intangible assets contributed to F5’s revenues earned during the periods presented and will contribute to F5’s future period revenues as well.
Facility-exit costs. F5 has incurred certain non-recurring right-of-use asset impairment charges, and other related recurring costs in connection with the exit of its leased facilities. These charges are not representative of the ongoing activity or costs to the business. As a result, these charges are being excluded to provide investors with a more comparable measure of costs associated with ongoing operations.
Acquisition-related charges, net. F5 does not acquire businesses on a predictable cycle and the terms and scope of each transaction can vary significantly and are unique to each transaction. F5 excludes acquisition-related charges from its non-GAAP financial measures to provide a useful comparison of the Company’s operating results to prior periods and to its peer companies. Acquisition-related charges consist of planning, execution and integration costs incurred directly as a result of an acquisition.
Restructuring charges. F5 has incurred restructuring charges that are included in its GAAP financial statements, primarily related to workforce reductions and costs associated with exiting facility-lease commitments. F5 excludes these items from its non-GAAP financial measures when evaluating its continuing business performance as such items vary significantly based on the magnitude of the restructuring action and do not reflect expected future operating expenses. In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or past operations of its business.
Management believes that non-GAAP net income per share provides useful supplemental information to management and investors regarding the performance of the Company’s core business operations and facilitates comparisons to the Company’s historical operating results. Although F5’s management finds this non-GAAP measure to be useful in evaluating the performance of the core business, management’s reliance on this measure is limited because items excluded from such measures could have a material effect on F5’s earnings and earnings per share calculated in accordance with GAAP. Therefore, F5’s management will use its non-GAAP earnings and earnings per share measures, in conjunction with GAAP earnings and earnings per share measures, to address these limitations when evaluating the performance of the Company’s core business. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures in accordance with GAAP.
F5 believes that presenting its non-GAAP measures of earnings and earnings per share provides investors with an additional tool for evaluating the performance of the Company’s core business and is used by management in its own evaluation of the Company’s performance. Investors are encouraged to look at GAAP results as the best measure of financial performance. However, while the GAAP results are more complete, the Company provides investors these supplemental measures since, with reconciliation to GAAP, it may provide additional insight into the Company’s operational performance and financial results.
For reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section in our attached Condensed Consolidated Income Statements entitled “Non-GAAP Financial Measures.”
About F5
F5 is a multi-cloud application services and security company committed to bringing a better digital world to life. F5 partners with the world’s largest, most advanced organizations to secure and optimize every app and API anywhere—on premises, in the cloud, or at the edge. F5 enables organizations to provide exceptional, secure digital experiences for their customers and continuously stay ahead of threats. For more information, go to f5.com. (NASDAQ: FFIV)
You can also follow @F5 on X (Twitter) or visit us on LinkedIn and Facebook for more information about F5, its partners, and technologies. F5 is a trademark, service mark, or tradename of F5, Inc., in the
| F5, Inc. | ||||||||
| Consolidated Balance Sheets | ||||||||
| (unaudited, in thousands) | ||||||||
| December 31, | September 30, | |||||||
|
2023 |
|
|
|
2023 |
|
||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ |
822,572 |
|
$ |
797,163 |
|
||
| Short-term investments |
|
3,287 |
|
|
6,160 |
|
||
| Accounts receivable, net of allowances of |
|
513,176 |
|
|
454,832 |
|
||
| Inventories |
|
35,840 |
|
|
35,874 |
|
||
| Other current assets |
|
586,876 |
|
|
554,744 |
|
||
| Total current assets |
|
1,961,751 |
|
|
1,848,773 |
|
||
| Property and equipment, net |
|
167,113 |
|
|
170,422 |
|
||
| Operating lease right-of-use assets |
|
192,174 |
|
|
195,471 |
|
||
| Long-term investments |
|
6,170 |
|
|
5,068 |
|
||
| Deferred tax assets |
|
307,119 |
|
|
295,308 |
|
||
| Goodwill |
|
2,288,678 |
|
|
2,288,678 |
|
||
| Other assets, net |
|
425,850 |
|
|
444,613 |
|
||
| Total assets | $ |
5,348,855 |
|
$ |
5,248,333 |
|
||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ |
60,084 |
|
$ |
63,315 |
|
||
| Accrued liabilities |
|
278,920 |
|
|
282,890 |
|
||
| Deferred revenue |
|
1,185,456 |
|
|
1,126,576 |
|
||
| Total current liabilities |
|
1,524,460 |
|
|
1,472,781 |
|
||
| Deferred tax liabilities |
|
5,210 |
|
|
4,637 |
|
||
| Deferred revenue, long-term |
|
644,654 |
|
|
648,545 |
|
||
| Operating lease liabilities, long-term |
|
235,001 |
|
|
239,565 |
|
||
| Other long-term liabilities |
|
78,553 |
|
|
82,573 |
|
||
| Total long-term liabilities |
|
963,418 |
|
|
975,320 |
|
||
| Commitments and contingencies | ||||||||
| Shareholders’ equity | ||||||||
| Preferred stock, no par value; 10,000 shares authorized, no shares outstanding |
|
- |
|
|
- |
|
||
| Common stock, no par value; 200,000 shares authorized, 58,797 and 59,207 | ||||||||
| shares issued and outstanding |
|
18,348 |
|
|
24,399 |
|
||
| Accumulated other comprehensive loss |
|
(20,668 |
) |
|
(23,221 |
) |
||
| Retained earnings |
|
2,863,297 |
|
|
2,799,054 |
|
||
| Total shareholders' equity |
|
2,860,977 |
|
|
2,800,232 |
|
||
| Total liabilities and shareholders' equity | $ |
5,348,855 |
|
$ |
5,248,333 |
|
||
| F5, Inc. | |||||||
| Consolidated Income Statements | |||||||
| (unaudited, in thousands, except per share amounts) | |||||||
| Three Months Ended | |||||||
| December 31, | |||||||
|
2023 |
|
|
|
2022 |
|
|
| Net revenues | |||||||
| Products | $ |
305,859 |
|
$ |
340,558 |
|
|
| Services |
|
386,738 |
|
|
359,820 |
|
|
| Total |
|
692,597 |
|
|
700,378 |
|
|
| Cost of net revenues (1)(2)(3)(4) | |||||||
| Products |
|
82,708 |
|
|
98,855 |
|
|
| Services |
|
53,681 |
|
|
56,152 |
|
|
| Total |
|
136,389 |
|
|
155,007 |
|
|
| Gross profit |
|
556,208 |
|
|
545,371 |
|
|
| Operating expenses (1)(2)(3)(4) | |||||||
| Sales and marketing |
|
198,927 |
|
|
233,105 |
|
|
| Research and development |
|
119,575 |
|
|
142,323 |
|
|
| General and administrative |
|
64,718 |
|
|
69,991 |
|
|
| Restructuring charges |
|
8,472 |
|
|
8,740 |
|
|
| Total |
|
391,692 |
|
|
454,159 |
|
|
| Income from operations |
|
164,516 |
|
|
91,212 |
|
|
| Other income, net |
|
9,882 |
|
|
4,702 |
|
|
| Income before income taxes |
|
174,398 |
|
|
95,914 |
|
|
| Provision for income taxes |
|
36,016 |
|
|
23,512 |
|
|
| Net income | $ |
138,382 |
|
$ |
72,402 |
|
|
| Net income per share - basic | $ |
2.34 |
|
$ |
1.20 |
|
|
| Weighted average shares - basic |
|
59,122 |
|
|
60,096 |
|
|
| Net income per share - diluted | $ |
2.32 |
|
$ |
1.20 |
|
|
| Weighted average shares - diluted |
|
59,653 |
|
|
60,387 |
|
|
| Non-GAAP Financial Measures | |||||||
| Net income as reported | $ |
138,382 |
|
$ |
72,402 |
|
|
| Stock-based compensation expense |
|
56,002 |
|
|
62,874 |
|
|
| Amortization and impairment of purchased intangible assets |
|
14,315 |
|
|
12,685 |
|
|
| Facility-exit costs |
|
1,538 |
|
|
2,006 |
|
|
| Acquisiton-related charges | 801 |
7,737 |
|||||
| Restructuring charges |
|
8,472 |
|
|
8,740 |
|
|
| Tax effects related to above items |
|
(14,783 |
) |
|
(17,170 |
) |
|
| Net income excluding stock-based compensation expense, amortization and impairment of purchased intangible assets, facility-exit costs, acquisition-related charges, and restructuring charges, net of tax effects (non-GAAP) - diluted | $ |
204,727 |
|
$ |
149,274 |
|
|
Net income per share excluding stock-based compensation expense, amortization and impairment of purchased intangible assets, facility-exit costs, acquisition-related charges, and restructuring charges, net of tax effects (non-GAAP) - diluted |
$ |
3.43 |
|
$ |
2.47 |
|
|
| Weighted average shares - diluted |
|
59,653 |
|
|
60,387 |
|
|
| (1) Includes stock-based compensation expense as follows: | |||||||
| Cost of net revenues | $ |
7,684 |
|
$ |
7,636 |
|
|
| Sales and marketing |
|
21,596 |
|
|
25,721 |
|
|
| Research and development |
|
16,018 |
|
|
18,542 |
|
|
| General and administrative |
|
10,704 |
|
|
10,975 |
|
|
$ |
56,002 |
|
$ |
62,874 |
|
||
| (2) Includes amortization and impairment of purchased intangible assets as follows: | |||||||
| Cost of net revenues | $ |
11,233 |
|
$ |
9,959 |
|
|
| Sales and marketing |
|
2,788 |
|
|
2,389 |
|
|
| Research and development |
|
94 |
|
|
- |
|
|
| General and administrative |
|
200 |
|
|
337 |
|
|
$ |
14,315 |
|
$ |
12,685 |
|
||
| (3) Includes facility-exit costs as follows: | |||||||
| Cost of net revenues | $ |
156 |
|
$ |
201 |
|
|
| Sales and marketing |
|
483 |
|
|
663 |
|
|
| Research and development |
|
542 |
|
|
641 |
|
|
| General and administrative |
|
357 |
|
|
501 |
|
|
$ |
1,538 |
|
$ |
2,006 |
|
||
| (4) Includes acquisition-related charges as follows: | |||||||
Cost of net revenues |
$ |
20 |
|
$ |
93 |
|
|
Sales and marketing |
|
65 |
|
|
1,315 |
|
|
Research and development |
|
153 |
|
|
3,768 |
|
|
General and administrative |
|
563 |
|
|
2,561 |
|
|
$ |
801 |
|
$ |
7,737 |
|
||
| F5, Inc. | |||||||
| Consolidated Statements of Cash Flows | |||||||
| (unaudited, in thousands) | |||||||
| Three months ended | |||||||
| December 31, | |||||||
|
2023 |
|
|
2022 |
|
||
| Operating activities | |||||||
| Net income | $ |
138,382 |
|
$ |
72,402 |
|
|
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Stock-based compensation |
|
56,002 |
|
|
62,874 |
|
|
| Depreciation and amortization |
|
29,266 |
|
|
27,472 |
|
|
| Non-cash operating lease costs |
|
8,392 |
|
|
10,167 |
|
|
| Deferred income taxes |
|
(11,203 |
) |
|
(25,070 |
) |
|
| Other |
|
722 |
|
|
358 |
|
|
| Changes in operating assets and liabilities: | |||||||
| Accounts receivable |
|
(58,713 |
) |
|
(15,837 |
) |
|
| Inventories |
|
34 |
|
|
9,168 |
|
|
| Other current assets |
|
(32,164 |
) |
|
(20,602 |
) |
|
| Other assets |
|
2,949 |
|
|
(1,252 |
) |
|
| Accounts payable and accrued liabilities |
|
(13,447 |
) |
|
(19,981 |
) |
|
| Deferred revenue |
|
54,990 |
|
|
68,540 |
|
|
| Lease liabilities |
|
(9,892 |
) |
|
(10,608 |
) |
|
| Net cash provided by operating activities |
|
165,318 |
|
|
157,631 |
|
|
| Investing activities | |||||||
| Purchases of investments |
|
(1,000 |
) |
|
(680 |
) |
|
| Maturities of investments |
|
2,913 |
|
|
63,519 |
|
|
| Sales of investments |
|
- |
|
|
12,167 |
|
|
| Purchases of property and equipment |
|
(9,048 |
) |
|
(13,104 |
) |
|
| Net cash (used in) provided by investing activities |
|
(7,135 |
) |
|
61,902 |
|
|
| Financing activities | |||||||
| Proceeds from the exercise of stock options and | |||||||
| purchases of stock under employee stock purchase plan |
|
21,876 |
|
|
22,180 |
|
|
| Payments for repurchase of common stock |
|
(150,018 |
) |
|
(40,005 |
) |
|
| Payments on term debt agreement |
|
- |
|
|
(350,000 |
) |
|
| Taxes paid related to net share settlement of equity awards |
|
(6,830 |
) |
|
(7,037 |
) |
|
| Net cash used in financing activities |
|
(134,972 |
) |
|
(374,862 |
) |
|
| Net increase (decrease) in cash, cash equivalents and restricted cash |
|
23,211 |
|
|
(155,329 |
) |
|
| Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
2,264 |
|
|
3,079 |
|
|
| Cash, cash equivalents and restricted cash, beginning of period |
|
800,835 |
|
|
762,207 |
|
|
| Cash, cash equivalents and restricted cash, end of period | $ |
826,310 |
|
$ |
609,957 |
|
|
| Supplemental disclosures of cash flow information | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ |
12,982 |
|
$ |
13,665 |
|
|
| Cash paid for interest on long-term debt |
|
- |
|
|
2,970 |
|
|
| Supplemental disclosures of non-cash activities | |||||||
| Right-of-use assets obtained in exchange for lease obligations | $ |
4,846 |
|
$ |
6,193 |
|
|
SOURCE: F5, Inc.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240129977135/en/
Investors
Suzanne DuLong
+1 (206) 272-7049
s.dulong@f5.com
Media
Rob Gruening
+1 (206) 272-6208
r.gruening@f5.com
Source: F5, Inc.
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