F5 Networks missed third-quarter revenue expectations by a sizable margin, as slower demand outside the U.S. and customer hesitation around some of its cloud products hurt its business, the company announced Wednesday.
Revenue for F5’s third fiscal quarter was $517.8 million, just a 4.3 percent increase from the same quarter last year and well below the midpoint of F5’s previous guidance for the quarter of $525 million. Net income was also up slightly to $97.7 million, and net income excluding special items was $130.8 million, or $2.03 a share, in line with analyst expectations according to Yahoo Finance.
“As we look at the broader environment, we continue to see some pause in activity as customers evaluate how a long-term cloud strategy could impact their application deployment architectures,” said CEO Francois Locoh-Donou, who just went through his first full quarter in the top job at F5, in a press release announcing the results.
On a conference call following the release of the results, Locoh-Donou fielded several tough questions from financial analysts about the company’s performance during the quarter.
“We didn’t have the performance that we expected out of a couple of geographies,” he said, pointing to the uncertainty in Europe and especially the U.K. as they grapple with Brexit and the implementation of data-protection laws.
Still, “we are definitely seeing that some deals are getting pushed out as some of our customers think through their architectures,” Locoh-Donou said. Customers who were running F5’s application delivery products inside their own data centers were pretty stable for a while, but as those customers look into how they can take advantage of public cloud services, they’re either delaying upgrades of their hardware or considering other providers for cloud services.
And it’s not just a macroeconomic problem. “There are things that have more to do with the execution at F5,” he said. The company is “realigning” (read: cutting jobs) in certain locations where demand is slow, and in Europe, that takes longer than it does in the U.S.
It’s been a tough year for F5’s stock, down 14.4 percent since January on concerns it isn’t transitioning its product line fast enough to serve customers who want to run its services in the cloud. Wednesday’s results didn’t help: after-hours investors sent the stock price down 4.1 percent on the news.
During the quarter, the company released several products in May that allow customers to use its technology on all major public cloud services. It also announced in May that it would be leasing the renamed F5 Tower at 801 Fifth Avenue in Seattle, starting in 2019, in what was (so far) the biggest lease deal in Seattle this year.
Products made up $235 million of F5’s overall revenue, while services accounted for $283 million. Services are growing faster, as F5 attempts to help its customers navigate the transition to the cloud.
For the next fiscal quarter, F5 expects to record between $530 million to $540 million in revenue, which would be just two percent growth over last year’s fourth fiscal quarter revenue.
Locoh-Donou also announced that Julian Eames, the company’s longtime head of operations, will be retiring at the end of this fiscal year. Eames will stay on throughout the current quarter to manage the transition to a new operations chief.