F5 Networks, Inc. (NASDAQ:FFIV) reported mixed results for the fourth quarter of fiscal year 2023, with strength in enterprise verticals but a decline in systems revenue. The company anticipates flat to low-single-digit revenue growth for fiscal year 2024, despite a projected revenue headwind from backlog fulfillment in systems.
Key takeaways from the call:
- F5 Networks reported Q4 revenue of $707 million, a 1% YoY growth, driven by a 9% increase in global services revenue and 11% growth in software revenue.
- The company's operating results were strong, with gross margin improvement and operating expense discipline leading to an increase in operating margin. According to InvestingPro data, F5 Networks' Gross Profit Margin for LTM2023.Q3 was 78.63%.
- F5 Networks secured contracts with a large retailer in Latin America and an APAC-based financial services provider, demonstrating the company's competitive strength in the cloud services market.
- The company's Distributed Cloud Services SaaS offerings gained traction, with over 500 customers.
- F5 Networks returned 58% of its annual free cash flow to shareholders through share repurchases. This aligns with InvestingPro Tips that indicate a high shareholder yield for the company.
- Looking ahead to FY '24, F5 expects customer spending caution to continue but anticipates reinvestment later in the year.
F5 Networks reported a 4% revenue growth to $2.8 billion for FY '23, with 7% growth in global services revenue and 1% growth in product revenue. Software revenue remained flat at $664 million due to customers delaying transformational projects. However, the company expects a rebound in the hardware business in FY '24, driven mainly by the term subscription business.
The company's GAAP net income was $395 million, while non-GAAP net income was $705 million, representing a growth of 14.8% compared to the previous year. Looking ahead to FY '24, F5 expects improved gross margin and an operating margin between 33% and 34%. Additionally, the company plans to use at least 50% of its annual free cash flow for share repurchases.
During the call, CEO Francois Locoh-Donou discussed the company's transition to Distributed Cloud services, expressing confidence in its growth potential. He highlighted the success of its WAF and multi-cloud networking services and the company's aim to make it easier for customers to secure and deliver applications through Distributed Cloud.
Looking ahead, F5 Networks expects flat to modest growth in software, driven mainly by the term subscription business. The company anticipates a rebound in the hardware business in FY '24, with a strong visibility into renewals and expansions in their term subscription business expected to drive double-digit software growth in FY '25.
The company also addressed the transition from Silverline to Distributed Cloud Services, stating that it is a multi-year headwind that contributed to weakness in ARR in FY '23 and will continue to impact FY '24 and '25. However, they have seen strong utilization and expansion from their term subscription business, which provides confidence in future growth.
InvestingPro Tips suggest that F5 Networks holds more cash than debt on its balance sheet and has high earnings quality, with free cash flow exceeding net income. These factors, along with the company's impressive gross profit margins and its high return on invested capital, could provide a solid foundation for future growth. For more detailed insights, readers can visit InvestingPro.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.