Shares of F5 Networks (FFIV 158.93, -0.71, -0.44%) are trading slightly lower today
despite the company’s report of a sizeable EPS beat in its 1Q19 (Dec) results
last night. The company’s non-GAAP EPS jumped 19% year/year to $2.70, which was
well above prior guidance of $2.51-2.54.
Other metrics detailed in the report may have induced the stock’s move this morning. Revenue for the quarter was a bit light, up 3.9% year/year to $543.8 mln, reaching the low end of the company’s prior guidance for revenue of $542-552 mln but not quite meeting consensus targets. Another problem was some weak guidance for Q2 (Mar): the company calls for revenues of $543-553 mln and non-GAAP EPS of $2.53-2.56, both of which are below market expectations.
Among the company’s software categories, the public cloud space continued to represent the strongest growth area during the quarter. FFIV also reported seeing increasing demand for its security offerings, particularly Advanced Web Application Firewalls. New software consumption models, including Virtual Edition subscriptions and ELAs (Enterprise License Agreements), also contributed to growth in the software category.
Having accelerated in Q1, the company’s ELA pipeline continues to grow, and FFIV expects ELA sales to continue to pick up as customers continue to shift to multi-cloud deployments. Overall, FFIV noted that it is on pace to achieve its Horizon 1 target of 30-35% software growth in FY19-FY20. Meanwhile, on the services side, this business had another strong quarter, delivering 5% growth.
Taking a region-by-region look at the company’s performance, Americas revenue was flat year/year and represented 54% of total revenue. Revenue in Europe, the Middle East, and Africa grew 7% and accounted for 27% of overall revenue. In the Asia Pacific region and Japan, revenue grew 11% year/year and accounted for the remaining 19% of total revenue. By customer, FFIV reported that sales to enterprise customers represented 65% of total sales while service providers accounted for 14% and government sales were 21%.
Investors may be a bit disappointed with FFIV's DecQ results. While there was nice EPS upside, revenue and guidance were on the weaker side. in the company’s last quarterly report, from SepQ, provided a similar result; EPS then was much better than expected, but revenue was generally in-line. The combination of in-line revenue line and big EPS upside generally implies that margins came in better than expected, and that's what happened here. Non-GAAP operating margin was 37% in DecQ, above prior guidance for a margin in the mid-30% range. The upside was driven largely by gross margin strength and operating expense efficiency.
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