A month has gone by since the last earnings report for F5 Networks (FFIV). Shares have lost about 1.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is F5 due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

F5 Q1 Earnings and Revenues Surpass Expectations

F5 delivered outstanding first-quarter fiscal 2025 results with non-GAAP earnings of $3.84 per share. F5’s first-quarter fiscal 2025 earnings surpassed the Zacks Consensus Estimate by 14% and came ahead of management’s guidance of $3.29-$3.41 (midpoint of $3.35). The bottom line grew 12% annually, illustrating the combined effects of strong top-line growth, disciplined operating expense management and improved gross margin.

F5’s revenues of $766.5 million for the first quarter of fiscal 2025 surpassed the consensus mark by 7.1%. The top line increased 11% on a year-over-year basis. Revenues also surpassed management’s guidance of $705-$725 million (midpoint of $715 million). Strong growth across all segments, together with FFIV's excellent execution and conformity to secular trends, have driven the robust top line.

FFIV’s Q1 Top-Line Details

Product revenues (48% of total revenues), which comprise the Software and Systems sub-divisions, increased 21% year over year to $368.5 million. The increase in Product revenues was mainly due to strong growth in Software and Systems sales. The company’s non-GAAP Product revenues were higher than our estimate of $308.8 million.

Systems revenues increased 18% year over year to $160 million, accounting for approximately 20.9% of the total Product revenues. The company revealed that it is experiencing an improvement in the Systems division, driven by increased demand for systems upgrades among customers. Our estimate for Systems revenues was pegged at $136.5 million.

Software revenues increased 22% year over year to $209 million in the first quarter of fiscal 2025. Software revenues grew on the back of subscriptions. Our estimate was pegged at $172.3 million.

Global Service revenues (51.9% of the total revenues) grew 3% to $398 million. The growth was mainly driven by price increases introduced in fiscal 2022. Our estimate for Global Services revenues was pegged at $405.8 million.

F5 registered sales growth across the Americas, APAC and EMEA regions, witnessing a year-over-year increase of 15%, 6% and 6%, respectively. Revenue contributions from the Americas, EMEA and APAC regions were 56%, 27% and 17%, respectively. Customer-wise, Enterprises, Government and Service providers represented 71%, 16% and 13% of product bookings, respectively.

F5’s Operating Details

On a year-over-year basis, non-GAAP gross margin expanded 80 basis points (bps) to 83.9%.

Non-GAAP operating expenses increased to $356.4 million from $329.7 million registered in the year-ago quarter.

F5’s non-GAAP operating profit increased 17% year over year to $286.4 million, while the margin improved 190 bps to 37.4%. 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.

F5’s Balance Sheet & Cash Flow

F5 exited the December-ended quarter with cash and short-term investments of $1.16 billion compared with the previous quarter’s $1.08 billion. The company generated an operating cash flow of $203 million in the fiscal first quarter, down from the previous quarter’s $247 million.

During the fiscal first quarter, FFIV repurchased shares worth $125 million. The company is committed to using at least 64% of free cash flow for share repurchases.

FFIV also announced that its board of directors has authorized an additional $1.3 billion for its common stock repurchase program.

F5 Raises Guidance for 2025

FFIV released its outlook for the fiscal second quarter and full-fiscal 2025. For the second quarter, F5 projects non-GAAP revenues in the $705-$725 million band, implying 5% year-over-year growth at the midpoint. Non-GAAP earnings per share are projected in the range of $3.02-$3.14 for the second quarter of fiscal 2025.

For fiscal 2025, FFIV expects its revenues to grow in the band of 6-7% compared with fiscal 2024, up from the prior guided range of 4-5%. Non-GAAP earnings per share are expected to grow in the range of 6.5-8.5% year over year, up from prior guidance of 5-7%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, F5 has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, F5 has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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F5, Inc. (FFIV) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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