Summary
F5 reported first-quarter fiscal 2023 revenue of $700.38 million, up 1.9% from $687.10 million in the prior-year quarter. The company said services revenue grew while product revenue declined, reflecting a mix shift toward subscriptions and maintenance. Software revenue grew while systems revenue declined. Deferred revenue rose 11.6% to $1.76 billion, and remaining performance obligations increased 12.5% to $1.80 billion. Those figures point to a growing base of recurring business even as product demand softened. The company also noted that customers are focused on minimizing spend and optimizing existing investments. Revenue outside the United States represented 46.4% of total net revenues, compared with 44.5% in the prior-year period. Days sales outstanding was 62. Distributors Ingram Micro and Synnex accounted for 17.6% and 13.6% of total net revenue, respectively.
Profitability weakened. Gross profit was $545.37 million, down 1.2% from $552.03 million. Gross margin fell to 77.9% from 80.3%. Operating income dropped 20.1% to $91.21 million, and operating margin declined to 13.0% from 16.6%. Net income was $72.40 million, down 22.6% from $93.56 million. Diluted EPS was $1.20, down 20.5% from $1.51. The company cited component cost increases, expedite fees, and other sourcing-related costs as pressures on product costs. Restructuring charges also weighed on results. Research and development expenses increased due to headcount growth, while sales and marketing expenses were relatively flat. General and administrative expenses rose due to headcount growth.
Cash generation was a bright spot. Operating cash flow was $157.63 million, up 74.4% from $90.37 million. Capital expenditures were $13.10 million, up 24.0% from $10.56 million. The increase in operating cash flow was primarily due to an increase in cash received from customers, partially offset by strong billings and an increase in accounts receivable. The company used cash to prepay its Term Loan Facility and repurchase shares. Non-GAAP net income was $149 million, or $2.47 per diluted share, compared to $179 million, or $2.89 per diluted share. The non-GAAP figures exclude stock-based compensation, amortization, restructuring, and other items. Deferred revenue growth was driven by the subscriptions business.
Guidance remains unchanged for the full fiscal year 2023. F5 continues to expect 9% to 11% revenue growth. The company said the mix may look different than expected three months ago. For the second quarter of fiscal 2023, the company expects revenue of $690 million to $710 million and non-GAAP earnings of $2.36 to $2.48 per diluted share. F5 also signed a definitive agreement to acquire Lilac Cloud, Inc., a provider of application delivery services, and expects the deal to close in the second quarter of fiscal 2023. F5 currently uses Lilac's Content Delivery Network technology in its F5 Distributed Cloud Services. The acquisition is not expected to have a material impact on operating results. The company remains committed to double-digit non-GAAP earnings growth this year and on an annual basis going forward.
Risks include uncertain macroeconomic conditions, supply chain disruptions, component cost increases, foreign exchange fluctuations, competition, and integration of acquisitions. The company also faces risks related to customer acceptance of new offerings, IT spending, and cybersecurity. F5 noted that worsening economic conditions, including inflation, higher interest rates, slower growth, and fluctuations in foreign exchange rates, may adversely affect results. The company will continue to evaluate its cost base and take further action as needed. The company's risk factors also include customer acceptance of offerings, continued disruptions to the global supply chain, global economic conditions, geopolitical environment, overall IT spending, ability to integrate acquired businesses, competition, pricing pressures, industry consolidation, new competitors, increased sales discounts, litigation, security flaws, cybersecurity attacks, natural catastrophic events, pandemic or epidemic, distribution relationships, ability to attract and retain personnel, international markets, sales cycle, and share repurchase program.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $700.4M | $700.0M | +0.0% | $687.1M | +1.9% |
| Gross profit | $545.4M | $552.6M | -1.3% | $552.0M | -1.2% |
| Gross margin | 77.9% | 78.9% | -1.1 pp | 80.3% | -2.5 pp |
| Research & development | $142.3M | $138.5M | +2.7% | $130.3M | +9.3% |
| Sales & marketing | $233.1M | $237.0M | -1.6% | $234.0M | -0.4% |
| General & administrative | $70.0M | $69.5M | +0.7% | $65.7M | +6.6% |
| Total operating expenses | $454.2M | $445.0M | +2.0% | $437.9M | +3.7% |
| Operating income (loss) | $91.2M | $107.5M | -15.2% | $114.2M | -20.1% |
| Operating margin | 13.0% | 15.4% | -2.3 pp | 16.6% | -3.6 pp |
| Net income (loss) | $72.4M | $89.3M | -19.0% | $93.6M | -22.6% |
| Net margin | 10.3% | 12.8% | -2.4 pp | 13.6% | -3.3 pp |
| Diluted EPS | $1.20 | $1.46 | -$0.26 | $1.51 | -$0.31 |
Risks
MD&A states that toward the end of fiscal 2022 and continuing through the first quarter of fiscal 2023, the company saw changes in customer buying patterns due to the uncertain macroeconomic environment, with inflation, higher interest rates and slower growth cited as pressures. Total revenue rose only 1.9% and net product revenues were relatively flat versus the prior-year quarter.
Cost of net product revenues increased $17.2 million, or 21.1%, for the quarter ended December 31, 2022, driven by component cost increases, expedite fees and other sourcing-related costs, and gross margin fell 2.5 percentage points to 77.9%. In October 2022 the company entered an unconditional purchase commitment obligating it to buy $10 million of component inventory annually over a four-year, $40 million term.
Two distributors each accounted for more than 10% of total net revenue in the quarter ended December 31, 2022 (Ingram Micro 17.6%, Synnex 13.6%), and Synnex represented 13.1% of receivables at that date. Results remain exposed to the loss of, or credit deterioration at, a small number of indirect channel partners.
Operating income fell 20.1% to $91.2 million and operating margin declined 3.6 percentage points to 13.0% in the quarter ended December 31, 2022, as research and development expense rose 9.3% and general and administrative expense rose 6.6% on headcount growth. Diluted EPS declined $0.31, or 20.5%, to $1.20 on the same period.
The effective tax rate rose to 24.5% for the quarter ended December 31, 2022 from 16.3% in the prior-year quarter, primarily due to the tax impact of stock-based compensation and international operations. Net income fell 22.6% to $72.4 million, and the company notes its worldwide effective tax rate may fluctuate with changes in tax laws and the valuation of deferred tax assets.
Summary, forecast, risks and KPIs are extracted from F5, INC.'s SEC filings for Q1 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.