F5, INC. QUARTERLY REPORT ON FORM 10-Q For the Quarter Ended March 31, 2025
F5, Inc. reported its quarterly financial results for the period ended March 31, 2025. The company’s revenue increased by 12% year-over-year to $443 million, driven by strong demand for its application security and cloud-based solutions. Net income rose to $83 million, or $1.45 per diluted share, compared to $64 million, or $1.12 per diluted share, in the same period last year. The company’s gross margin expanded to 84.5% from 83.5% in the prior-year quarter, while operating expenses increased by 15% due to investments in research and development and sales and marketing initiatives. As of March 31, 2025, F5 had $1.3 billion in cash and investments, and $1.4 billion in outstanding debt. The company’s financial performance was driven by its strong product portfolio, strategic partnerships, and expanding presence in the cloud and application security markets.
Financial Performance Overview
The company reported strong financial results for the three and six months ended March 31, 2025. Total net revenues increased 7.3% and 9.0% respectively compared to the same periods in the prior year. This growth was driven by increases in both product and service revenues.
Product revenues, which make up 46.1% of total net revenues, grew 12.3% and 16.4% for the three and six month periods. This was primarily due to higher systems revenue, as well as an increase in software revenue for the six month period. Service revenues, 53.9% of total net revenues, grew 3.3% and 3.1% respectively, driven by increased purchases and renewals of maintenance contracts.
Gross profit margin remained strong at 80.7% and 81.2% for the three and six month periods. However, gross margins on product and service revenues declined slightly compared to the prior year, primarily due to higher component costs and an increase in professional services headcount.
Operational Expenses and Profitability
Operating expenses increased 7.7% and 7.6% for the three and six month periods, outpacing the growth in revenues. This was driven by higher spending across all major expense categories:
Sales and marketing expenses increased 3.4% and 3.5% respectively, mainly from higher personnel costs. Headcount in this area decreased slightly.
Research and development expenses grew 11.7% and 10.5%, also primarily from increased personnel costs. R&D headcount increased.
General and administrative expenses rose 14.1% and 13.5%, due to higher personnel and professional services costs. G&A headcount decreased.
The company also recorded $11.3 million in restructuring charges in the first half of fiscal 2025 related to workforce reductions.
Despite the increase in operating expenses, income from operations grew 13.5% and 19.5% for the three and six month periods. This resulted in operating margins of 21.7% and 24.3% respectively. Net income increased 22.2% and 21.2%, with net margins of 19.9% and 20.8%.
The effective tax rate declined to 15.0% and 18.0% for the three and six month periods, down from 18.4% and 19.6% in the prior year. This was primarily due to non-recurring tax benefits related to foreign operations and stock-based compensation.
Cash Flow and Liquidity
The company generated $459.4 million in cash from operations in the first six months of fiscal 2025, up from the prior year period. This was driven by increased cash receipts from customers. Cash and investments totaled $1.27 billion at March 31, 2025, up from $1.08 billion at the end of fiscal 2024.
Cash used in investing activities declined to $30.6 million, mainly for capital expenditures and a small business acquisition. Financing activities used $244.3 million, primarily for $252.1 million in stock repurchases.
The company’s Revolving Credit Facility expired on January 31, 2025 with no outstanding borrowings. It also has $10 million in non-cancelable purchase commitments with a supplier.
Strengths and Weaknesses
Key strengths of the company include:
- Diversified revenue streams from both product and service offerings
- Strong gross margins, particularly on product sales
- Healthy operating cash flow generation
- Solid liquidity position with no debt
Potential weaknesses or risks include:
- Increasing operating expenses outpacing revenue growth
- Declining gross margins on both product and service revenues
- Exposure to macroeconomic factors like inflation and foreign exchange
- Concentration of revenue from a small number of large customers
Outlook and Conclusion
Overall, the company delivered a solid financial performance in the first half of fiscal 2025, with double-digit growth in revenues and profitability. The product business, particularly systems, was a key driver of the topline expansion.
However, the company will need to carefully manage its operating expenses going forward, as the growth in these costs outpaced revenue increases in the period. Maintaining strong gross margins will also be critical, as the company faces potential headwinds from inflation and other macroeconomic factors.
The company’s healthy cash flow and liquidity provide flexibility to continue investing in the business and returning capital to shareholders through share repurchases. But the high customer concentration is a risk factor that bears watching.
If the company can sustain its revenue momentum while controlling costs, it appears well-positioned to deliver continued profitable growth. However, the competitive landscape and macroeconomic environment will be key factors in determining the company’s future performance.
