For the third quarter of fiscal 2014, F5 Networks, Inc. (NASDAQ:
FFIV) announced revenue of $440.3 million, up 5 percent from $420.0
million in the prior quarter and 19 percent from $370.3 million in
the third quarter of fiscal 2013.
GAAP net income was $79.5 million ($1.05 per diluted share),
compared to $69.6 million ($0.91 per diluted share) in the prior
quarter and $68.2 million ($0.86 per diluted share) in the third
quarter a year ago.
Excluding the impact of stock-based compensation and
amortization of purchased intangible assets, non-GAAP net income
was $104.6 million ($1.39 per diluted share), compared to $96.9
million ($1.27 per diluted share) in the prior quarter and $88.4
million ($1.12 per diluted share) in the third quarter of last
year.
A reconciliation of GAAP net income to non-GAAP net income is
included on the attached Consolidated Statements of Operations.
"F5’s solid gains in Q3 were driven by strong growth in product
revenue, up 5 percent sequentially and 20 percent year-over-year,"
said John McAdam, F5 president and chief executive officer.
"Growing demand for our expanding array of systems and application
services was fueled by increasing awareness and uptake of our
security offerings and the appeal of our Good, Better, Best pricing
options. During the quarter, sales of Good, Better, Best bundles
grew 49 percent from the prior quarter and contributed to a
significant increase in sales of software products and of security
solutions in particular.
“Sales were generally solid across all geographic regions and
vertical market segments, with the exception of Japan. EMEA
continued to show signs of strengthening with an increase in
year-over-year revenue growth for the fourth consecutive
quarter.
"As we move toward the close of our fiscal year, ending
September 30, we believe all of the company-specific drivers that
propelled our business through the first three quarters will
continue to generate solid sequential and year-over-year growth in
the current quarter," McAdam said.
For the fourth quarter of fiscal 2014, the company has set a
revenue goal of $453 million to $463 million with a GAAP earnings
target of $1.15 to $1.18 per diluted share and a non-GAAP earnings
target of $1.46 to $1.49 per diluted share.
A reconciliation of the company's expected GAAP and non-GAAP
earnings is provided in the following table:
Three months ended September 30, 2014
Reconciliation of Expected Non-GAAP Fourth Quarter
Earnings Low High Net income $ 86.4 $ 88.7
Stock-based compensation expense $ 27.0 $ 27.0 Amortization of
purchased intangible assets $ 3.2 $ 3.2 Tax effects related to
above items $ (7.2 ) $ (7.1 ) Non-GAAP net income excluding
stock-based compensation expense and amortization of purchased
intangible assets $ 109.4 $ 111.8 Net income per
share - diluted $ 1.15 $ 1.18 Non-GAAP net income per
share - diluted $ 1.46 $ 1.49
About F5 Networks
F5 (NASDAQ: FFIV) provides solutions for an application world.
F5 helps organizations seamlessly scale cloud, data center, and
software defined networking (SDN) deployments to successfully
deliver applications to anyone, anywhere, at any time. F5 solutions
broaden the reach of IT through an open, extensible framework and a
rich partner ecosystem of leading technology and data center
orchestration vendors. This approach lets customers pursue the
infrastructure model that best fits their needs over time. The
world’s largest businesses, service providers, government entities,
and consumer brands rely on F5 to stay ahead of cloud, security,
and mobility trends. For more information, go to f5.com.
You can also follow @f5networks on Twitter or visit us on
Facebook for more information about F5, its partners, and
technology.
Forward Looking Statements
This press release contains forward-looking statements
including, among other things, statements regarding the continuing
strength and momentum of F5's business, future financial
performance, sequential growth, projected revenues including target
revenue and earnings ranges, income, earnings per share, share
amount and share price assumptions, demand for application delivery
networking, application delivery services, security, virtualization
and diameter products, expectations regarding future services and
products, expectations regarding future customers, markets and the
benefits of products, and other statements that are not historical
facts and which are forward-looking statements. These
forward-looking statements are subject to the safe harbor
provisions created by the Private Securities Litigation Reform Act
of 1995. Actual results could differ materially from those
projected in the forward-looking statements as a result of certain
risk factors. Such forward-looking statements involve risks and
uncertainties, as well as assumptions and other factors that, if
they do not fully materialize or prove correct, could cause the
actual results, performance or achievements of the company, or
industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, but are not
limited to: customer acceptance of our new traffic management,
security, application delivery, optimization, diameter and
virtualization offerings; the timely development, introduction and
acceptance of additional new products and features by F5 or its
competitors; competitive factors, including but not limited to
pricing pressures, industry consolidation, entry of new competitors
into F5’s markets, and new product and marketing initiatives by our
competitors; increased sales discounts; uncertain global economic
conditions which may result in reduced customer demand for our
products and services and changes in customer payment patterns;
global economic conditions and uncertainties in the geopolitical
environment; overall information technology spending; litigation
involving patents, intellectual property, shareholder and other
matters, and governmental investigations; natural catastrophic
events; a pandemic or epidemic; F5's ability to sustain, develop
and effectively utilize distribution relationships; F5's ability to
attract, train and retain qualified product development, marketing,
sales, professional services and customer support personnel; F5's
ability to expand in international markets; the unpredictability of
F5's sales cycle; F5’s share repurchase program; future prices of
F5's common stock; and other risks and uncertainties described more
fully in our documents filed with or furnished to the Securities
and Exchange Commission, including our most recent reports on Form
10-K and Form 10-Q and current reports on Form 8-K that we may file
from time to time, which could cause actual results to vary from
expectations. The financial information contained in this release
should be read in conjunction with the consolidated financial
statements and notes thereto included in F5’s most recent reports
on Forms 10-Q and 10-K as each may be amended from time to time.
All forward-looking statements in this press release are based on
information available as of the date hereof and qualified in their
entirety by this cautionary statement. F5 assumes no obligation to
revise or update these forward-looking statements.
GAAP to non-GAAP Reconciliation
F5’s management evaluates and makes operating decisions using
various operating measures. These measures are generally based on
the revenues of its products, services operations and certain costs
of those operations, such as cost of revenues, research and
development, sales and marketing and general and administrative
expenses. One such measure is net income excluding stock-based
compensation, amortization of purchased intangible assets and
acquisition-related charges, net of taxes, which is a non-GAAP
financial measure under Section 101 of Regulation G under the
Securities Exchange Act of 1934, as amended. This measure consists
of GAAP net income excluding, as applicable, stock-based
compensation, amortization of purchased intangible assets and
acquisition-related charges. This measure of non-GAAP net income is
adjusted by the amount of additional taxes or tax benefit that the
company would accrue if it used non-GAAP results instead of GAAP
results to calculate the company’s tax liability. Stock-based
compensation is a non-cash expense that F5 has accounted for since
July 1, 2005 in accordance with the fair value recognition
provisions of Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 718
Compensation—Stock Compensation (“FASB ASC Topic 718”).
Amortization of intangible assets is a non-cash expense. Investors
should note that the use of intangible assets contribute to
revenues earned during the periods presented and will contribute to
revenues in future periods. Acquisition-related expenses consist of
professional services fees incurred in connection with
acquisitions.
Management believes that non-GAAP net income per share provides
useful supplemental information to management and investors
regarding the performance of the company’s core business operations
and facilitates comparisons to the company’s historical operating
results. Although F5’s management finds this non-GAAP measure to be
useful in evaluating the performance of the core business,
management’s reliance on this measure is limited because items
excluded from such measures could have a material effect on F5’s
earnings and earnings per share calculated in accordance with GAAP.
Therefore, F5’s management will use its non-GAAP earnings and
earnings per share measures, in conjunction with GAAP earnings and
earnings per share measures, to address these limitations when
evaluating the performance of the company’s core business.
Investors should consider these non-GAAP measures in addition to,
and not as a substitute for, financial performance measures in
accordance with GAAP.
F5 believes that presenting its non-GAAP measure of earnings and
earnings per share provides investors with an additional tool for
evaluating the performance of the company’s core business and which
management uses in its own evaluation of the company’s performance.
Investors are encouraged to look at GAAP results as the best
measure of financial performance. However, while the GAAP results
are more complete, the company provides investors this supplemental
measure since, with reconciliation to GAAP, it may provide
additional insight into the company’s operational performance and
financial results.
For reconciliation of this non-GAAP financial measure to the
most directly comparable GAAP financial measure, please see the
section in our Consolidated Statements of Operations entitled
“Non-GAAP Financial Measures.”
F5 Networks, Inc. Consolidated Balance
Sheets (unaudited, in thousands) June 30,
September 30, 2014 2013
ASSETS Current assets Cash and cash equivalents $ 241,973 $
189,693 Short-term investments 369,390 352,450 Accounts receivable,
net of allowances of $4,611 and $3,259 243,072 204,205 Inventories
23,143 19,026 Deferred tax assets 22,898 16,342 Other current
assets 44,647 34,655 Total current assets 945,123
816,371 Property and equipment, net 62,650 63,522
Long-term investments 508,581 728,981 Deferred tax assets 25,285
22,389 Goodwill 556,957 523,727 Other assets, net 76,889
75,564 Total assets $ 2,175,485 $ 2,230,554
LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities
Accounts payable $ 36,399 $ 37,313 Accrued liabilities 94,445
92,608 Deferred revenue 480,376 421,429 Total current
liabilities 611,220 551,350 Other long-term
liabilities 22,377 25,202 Deferred revenue, long-term 137,062
109,944 Deferred tax liabilities 4,112 5,346 Total
long-term liabilities 163,551 140,492 Commitments and
contingencies Shareholders’ equity Preferred stock, no par value;
10,000 shares authorized, no shares outstanding — — Common stock,
no par value; 200,000 shares authorized, 74,415 and 78,090 shares
issued and outstanding 18,712 262,505 Accumulated other
comprehensive loss (6,834 ) (7,414 ) Retained earnings 1,388,836
1,283,621 Total shareholders’ equity 1,400,714
1,538,712 Total liabilities and shareholders’ equity $
2,175,485 $ 2,230,554
F5 Networks, Inc.
Consolidated Statements of Operations
(unaudited, in thousands, except per
share amounts)
Three Months Ended Nine Months Ended
June 30, June 30, 2014
2013 2014 2013 Net
revenues Products $ 236,933 $ 196,746 $ 680,669 $ 586,565 Services
203,352 173,556 586,111 499,420 Total
440,285 370,302 1,266,780 1,085,985
Cost of net revenues (1)(2) Products 40,387 32,350 115,437 93,915
Services 39,075 32,567 112,570 92,189
Total 79,462 64,917 228,007 186,104
Gross profit 360,823 305,385 1,038,773 899,881
Operating expenses (1)(2) Sales and marketing 139,945
121,906 415,000 363,205 Research and development 67,026 54,075
198,391 155,150 General and administrative 27,773 25,327
79,306 75,889 Total 234,744 201,308
692,697 594,244 Income from operations 126,079
104,077 346,076 305,637 Other income, net 1,193 2,874
1,462 6,542 Income before income taxes 127,272
106,951 347,538 312,179 Provision for income taxes 47,799
38,773 130,376 111,096 Net income $ 79,473
$ 68,178 $ 217,162 $ 201,083 Net
income per share — basic $ 1.06 $ 0.87 $ 2.86
$ 2.56 Weighted average shares — basic 74,812 78,516
75,926 78,636 Net income per share —
diluted $ 1.05 $ 0.86 $ 2.84 $ 2.54
Weighted average shares — diluted 75,369 78,864
76,581 79,207
Non-GAAP Financial
Measures Net income as reported $ 79,473 $ 68,178 $ 217,162 $
201,083 Stock-based compensation expense (3) 31,833 27,861 101,997
82,181 Amortization of purchased intangible assets 2,172 1,032
6,341 3,098 Tax effects related to above items (8,912 ) (8,650 )
(29,274 ) (22,576 ) Net income excluding stock-based compensation
and amortization of purchased intangible assets (non-GAAP) -
diluted $ 104,566 $ 88,421 $ 296,226 $ 263,786
Net income per share excluding stock-based
compensation and amortization of purchased intangible assets
(non-GAAP) - diluted $ 1.39 $ 1.12 $ 3.87 $
3.33 Weighted average shares - diluted 75,369
78,864 76,581 79,207 (1) Includes
stock-based compensation as follows: Cost of net revenues $ 3,522 $
2,966 $ 11,394 $ 8,860 Sales and marketing 12,350 10,259 40,570
31,533 Research and development 10,976 8,966 34,604 25,030 General
and administrative 4,985 5,670 15,429 16,758
$ 31,833 $ 27,861 $ 101,997 $ 82,181
(2) Includes amortization of purchased intangible
assets as follows: Cost of net revenues $ 1,786 $ 957 $ 5,239 $
2,873 Sales and marketing 386 75 1,102 225
$ 2,172 $ 1,032 $ 6,341 $ 3,098
(3) Stock-based compensation is accounted for in accordance
with the fair value recognition provisions of Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 718, Compensation – Stock Compensation (“FASB ASC Topic 718”)
F5 Networks, Inc. Consolidated Statements
of Cash Flows (unaudited, in thousands) Nine
Months Ended June 30, 2014
2013 Operating activities Net income $ 217,162
$ 201,083 Adjustments to reconcile net income to net cash provided
by operating activities: Realized gain on disposition of assets and
investments (179 ) (190 ) Stock-based compensation 101,997 82,181
Provisions for doubtful accounts and sales returns 2,109 584
Depreciation and amortization 34,055 29,705 Deferred income taxes
(4,389 ) (3,601 ) Changes in operating assets and liabilities, net
of amounts acquired: Accounts receivable (40,964 ) (20,550 )
Inventories (4,117 ) (850 ) Other current assets (9,800 ) (18,069 )
Other assets (1,056 ) 1,517 Accounts payable and accrued
liabilities (1,659 ) 7,420 Deferred revenue 85,968 72,468
Net cash provided by operating activities 379,127
351,698
Investing activities Purchases of investments
(387,147 ) (744,557 ) Maturities of investments 437,752 509,381
Sales of investments 144,790 138,171 Decrease (increase) in
restricted cash 5 (713 ) Acquisition of businesses, net of cash
acquired (49,439 ) (124,918 ) Purchases of property and equipment
(15,636 ) (21,434 ) Net cash provided by (used in) investing
activities 130,325 (244,070 )
Financing activities
Excess tax benefit from stock-based compensation 8,155 3,656
Proceeds from the exercise of stock options and purchases of stock
under employee stock purchase plan 35,247 29,405 Repurchase of
common stock (500,542 ) (150,000 ) Net cash used in financing
activities (457,140 ) (116,939 ) Net increase (decrease) in cash
and cash equivalents 52,312 (9,311 ) Effect of exchange rate
changes on cash and cash equivalents (32 ) (3,590 ) Cash and cash
equivalents, beginning of year 189,693 211,181 Cash
and cash equivalents, end of year $ 241,973 $ 198,280
F5 Networks, Inc.Investor RelationsJohn Eldridge,
206-272-6571j.eldridge@f5.comorPublic
RelationsAlane Moran, 206-272-6850a.moran@f5.com
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