F5 Networks, a leading provider of multi-cloud application security and delivery solutions, has reported its financial results for the second quarter of fiscal year 2024, showcasing strong performance and raising its outlook for the full year.
Financials
In the second quarter, F5 generated revenue of $695.5 million, surpassing analyst estimates of $686 million. This represents a 1.4% year-over-year decline, but F5's non-GAAP earnings per share of $3.36 significantly beat the consensus estimate of $2.97, a 13.1% surprise.
F5's software revenue grew 3% year-over-year and 13% sequentially, driven by strong subscription renewals and an uptick in new business activity. Global services revenue also grew 3% in the quarter. However, systems revenue declined 16% year-over-year to $130 million, as customers continued to digest existing hardware inventory.
Full Year Outlook
For the full fiscal year 2024, F5 now expects revenue of approximately $2.8 billion, which would be roughly flat compared to fiscal year 2023. This is despite a $180 million headwind from the systems backlog that F5 has had to overcome this year. F5 also expects mid-to-high single digit software revenue growth for the year, up from its prior expectation of flat to modest growth.
On the profitability front, F5 is targeting non-GAAP operating margins in the range of 33% to 34% for fiscal year 2024, an improvement of 280 to 380 basis points from the prior year. F5 also expects its non-GAAP effective tax rate to be in the range of 19.5% to 20%, down from its prior range of 20% to 22%. As a result, F5 now anticipates non-GAAP earnings per share growth of approximately 12% for the full year, up from its previous guidance of 7% to 9% growth.
Business Overview
F5's strong performance in the quarter and improved outlook for the year can be attributed to several factors. Firstly, F5's software and global services offerings continue to demonstrate resilience, with software revenue growth and strong subscription renewals. Secondly, F5's focus on optimizing its operations and disciplined cost management have enabled it to expand its profitability.
Geographic Performance
From a geographic perspective, F5's revenue from the Americas region, which includes the United States, declined 4% year-over-year and represented 55% of total revenue. EMEA region revenue grew 5% and accounted for 27% of revenue, while the APAC region declined 1% and made up 18% of revenue.
Product Revenue Breakdown
In terms of product revenue breakdown, systems revenue declined 16% year-over-year, while software revenue grew 3% and now represents 54% of total product revenue. F5's subscription-based software revenue, which includes its BIG-IP and NGINX offerings, grew 2% year-over-year and contributed 87% of total software revenue.
Outlook
F5's management team remains confident in F5's ability to navigate the current macroeconomic environment and capitalize on the growing demand for its multi-cloud application security and delivery solutions. F5's unique positioning in the market, with its comprehensive portfolio of hardware, software, and SaaS offerings, allows it to address the complex challenges faced by its enterprise customers as they modernize their IT infrastructures and adopt AI-driven applications.
Looking ahead, F5 expects to see continued momentum in its software and global services businesses, driven by strong subscription renewals and an improving pipeline of new business opportunities. F5 also anticipates a stabilization in its systems revenue, with potential upside from technology refresh cycles and the growing demand for its solutions in the AI infrastructure market.
Conclusion
Overall, F5's second quarter results and raised guidance for the full year demonstrate F5's ability to execute its software-led transformation and deliver value to its customers and shareholders. With its robust product portfolio, operational discipline, and favorable market trends, F5 appears well-positioned to continue its growth trajectory in the coming years.