F5 Networks continued to benefit from its expansion into software and services, boosting revenue by 4% overall to $586 million, including 43% growth in software revenue, beating Wall Street’s expectations for its fiscal third quarter, ended June 30.
Now the Seattle-based networking and security technology company is looking to the next phase of its evolution.
In an unusual move, F5 CEO François Locoh-Donou spent nearly 15 minutes of the company’s quarterly earnings call Monday afternoon presenting analysts and investors with F5’s vision for “adaptive applications,” and its strategy to help enable them in the years ahead.
“We see a future where an application, like a living organism, will naturally adapt based on the environment,” Locoh-Donou said. “It will grow, shrink, defend and heal itself as needed. The combination of application services, telemetry and automation will enable it to become an adaptive application. Ultimately, adaptive applications will deliver increased revenue, reduced costs and better protection for application owners.”
It’s part of a larger trend of automation and artificial intelligence driving advances in software applications and computer networks. F5 plans to leverage its traditional application delivery technologies along with its $1 billion acquisition of Shape Security and $670 million acquisition of web server NGINX to position itself as a key player in this world.
In the short run, F5’s business is proving more resilient in the second half of its fiscal year than the company initially expected, he said. That’s due largely to efforts by its customers to “accelerate their digital transformation” to meet their short- and long-term business needs, Locoh-Donou said.
However, he cited some areas where F5 is seeing headwinds, including caution from customers in sectors severely impacted by the COVID-19 pandemic, such as transportation, entertainment, travel and retail. (Those sectors combined make up less than 10% of F5’s bookings.) In addition, he cited sales delays in India and Southeast Asian nations due to COVID-19.
Lastly, he said, “while our sales team has kept up strong virtual engagement levels of customers, the prolonged lack of face-to-face engagement is causing some delays with new strategic projects.”
For the quarter, F5 posted profits of $134 million, or $2.18 per share, beating Wall Street’s expectations of $2.03 per share. That was down 12% from profits of $152 million a year ago.
Those results are not based on generally accepted accounting principles (GAAP), because they exclude the financial impact of accounting rules related to long-term revenue booked by Shape Security prior to the F5 acquisition. Presented in accordance with GAAP, the company posted profits of $70 million, down from profits of $86 million a year ago.
“Together, we delivered a very strong third-quarter despite it also being the first quarter closed without a single face-to-face customer interaction,” Locoh-Donou said.
The company has overhauled its business in recent years, expanding beyond its traditional networking hardware business, and further into software and services.
Locoh-Donou last quarter told employees that F5 won’t make layoffs during its current fiscal year, which ends in September.
Nearly 100% of F5’s more than 6,000 employees are working from home, the company said. F5 expects the majority of employees to work remotely for the remainder of the 2020 calendar year.
F5 is starting to allow employees to return to the office voluntarily in some geographies on a phased basis. It’s lifting travel restrictions in some parts of the world, as well, while asking employees “to consider carefully whether travel is essential and to quarantine upon return.”
