Summary
F5 Networks reported fiscal 2021 third quarter revenue of $651.5 million, up 11.7% from the prior-year quarter. Gross profit was $530.6 million, up 11.2%. Operating income was $96.4 million, up 10.0%. Net income was $89.6 million, up 28.2%. Diluted EPS was $1.46, up 28.1%. Gross margin was 81.4%, down 0.4 percentage points. Operating margin was 14.8%, down 0.2 percentage points. The company said robust software growth and resilient systems demand drove the top line. Non-GAAP revenue growth was driven by 21% product revenue growth and 4% global services revenue growth. Within non-GAAP product revenue, software revenue grew 34% and systems revenue grew 13%.
For the first nine months of fiscal 2021, revenue was $1.92 billion, up 10.7%. Gross profit was $1.56 billion, up 8.1%. Operating income was $267.7 million, down 8.9%. Net income was $220.5 million, down 4.0%. Diluted EPS was $3.55, down 5.6%. Gross margin was 81.0%, down 1.9 percentage points. Operating margin was 13.9%, down 3.0 percentage points. Operating cash flow was $448.1 million, down 7.6%. Capital expenditures were $23.5 million, down 50.8%. Deferred revenue at quarter end was $1.44 billion, up 13.0% from the prior-year quarter. Remaining performance obligations were $1.40 billion, up 7.7%.
The quarter's mix continued to shift toward software. F5's application security and delivery portfolio spans on-premises, cloud, and multi-cloud deployments. Management pointed to Kubernetes adoption for new applications and continued engagement with traditional applications. The Volterra acquisition added to the subscription business and deferred revenue. Distributor concentration remains a watch item. Ingram Micro accounted for 20.7% of total net revenue in the quarter, and Synnex accounted for 12.0%. International revenue was 46.5% of total net revenue. Days sales outstanding was 53 at quarter end. Headcount rose in all major functions, including research and development at 1,881, sales and marketing at 2,449, general and administrative at 802, and professional services at 997.
Non-GAAP net income was $169 million, or $2.76 per diluted share, compared with $134 million, or $2.18 per diluted share, in the prior-year quarter. Guidance for the fourth quarter of fiscal year 2021, ending September 30, 2021, covers revenue and non-GAAP earnings of $2.68 to $2.80 per diluted share. The outlook excludes amortization of intangible assets, share-based compensation, acquisition-related charges, restructuring charges, facility exit costs, and certain tax items. F5 also excludes the impact of future acquisitions or divestitures. The company said it cannot reconcile non-GAAP earnings guidance to GAAP without unreasonable effort because of high variability and low visibility on those excluded items.
Risks include supply chain disruptions that could delay or raise the cost of required parts, which would pressure revenue and margins. Competition, pricing pressure, industry consolidation, and new product initiatives by rivals could affect results. The Volterra integration carries execution risk, including customer acceptance and the ability to sell acquired products through F5's channels. COVID-19 remains an uncertain factor for demand and operations. Other risks include cybersecurity attacks, litigation, global economic conditions, and the unpredictability of the sales cycle. F5 ended the quarter with no outstanding borrowings under its revolving credit facility and had available borrowing capacity of $350.0 million.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $651.5M | $645.3M | +1.0% | $583.3M | +11.7% |
| Gross profit | $530.6M | $516.7M | +2.7% | $477.2M | +11.2% |
| Gross margin | 81.4% | 80.1% | +1.4 pp | 81.8% | -0.4 pp |
| Research & development | $133.3M | $140.5M | -5.1% | $116.0M | +14.9% |
| Sales & marketing | $237.4M | $244.9M | -3.1% | $211.8M | +12.1% |
| General & administrative | $63.5M | $77.8M | -18.4% | $61.8M | +2.8% |
| Total operating expenses | $434.2M | $463.2M | -6.3% | $389.6M | +11.4% |
| Operating income (loss) | $96.4M | $53.5M | +80.2% | $87.6M | +10.0% |
| Operating margin | 14.8% | 8.3% | +6.5 pp | 15.0% | -0.2 pp |
| Net income (loss) | $89.6M | $43.2M | +107.2% | $69.9M | +28.2% |
| Net margin | 13.8% | 6.7% | +7.0 pp | 12.0% | +1.8 pp |
| Diluted EPS | $1.46 | $0.70 | +$0.76 | $1.14 | +$0.32 |
Risks
Distributor concentration is high and rising: Ingram Micro accounted for 20.7% of total net revenue in the quarter ended June 30, 2021, up from 16.0% in the prior-year quarter, while Synnex was 12.0% and Arrow ECS was 11.1% in the prior-year quarter. The same three distributors each exceeded 10% of total receivables at June 30, 2021, so a loss or disruption of any one channel partner could materially reduce revenue and collections.
Gross margin fell to 81.4% in the quarter ended June 30, 2021 from 81.8% in the prior-year quarter, and to 81.0% year to date from 83.0% in the prior-year period, a decline of 1.9 percentage points. Operating margin year to date fell 3.0 percentage points to 13.9%, with operating income down 8.9% and net income down 4.0% year to date, as cost of net product revenues rose 37.1% year to date on software revenue growth.
Management states the full impacts of the COVID-19 pandemic on the business and financial outlook are currently unknown, and it continues to operate with substantial modifications to employee travel, work locations and sales and marketing events. The filing flags pandemic-related uncertainty as a factor that could significantly impact gross margins from quarter to quarter and affect cash from operations.
F5 outsources manufacturing of its hardware platforms to contract manufacturers and is contractually obligated to purchase component inventory procured on its behalf under a rolling production forecast unless it gives notice of order cancellation in advance of applicable lead times. Component price increases, inventory obsolescence and pandemic-related supply chain disruption are cited as factors that could significantly impact gross margins.
Operating expenses grew faster than revenue in several areas, with research and development up 20.8% year to date and sales and marketing up 11.9% year to date, driven by personnel cost increases and headcount growth across all functions. The nine months ended June 30, 2021 also included $34.4 million of facility exit impairment charges split across sales and marketing, research and development, and general and administrative.
The effective tax rate was 4.9% for the quarter and 16.3% year to date, down from 20.4% and 23.1% in the prior-year periods, and management warns the worldwide rate may fluctuate with changes in tax law, stock-based compensation, and resolution of tax exposures. Net deferred tax assets rose to $126.9 million at June 30, 2021 from $44.6 million at September 30, 2020, including valuation allowances of $41.6 million.
As of June 30, 2021, $375.0 million of principal remained outstanding under the Term Loan Facility, which carries a financial covenant requiring maintenance of a leverage ratio of consolidated total indebtedness to consolidated EBITDA measured each fiscal quarter. The covenant may result in a higher interest rate on outstanding borrowings depending on company performance.
Summary, forecast, risks and KPIs are extracted from F5, INC.'s SEC filings for Q3 FY2021 (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.