F5 Networks, Inc. (NASDAQ: FFIV) today announced revenue of
$465.3 million for the fourth quarter of fiscal year 2014, up 6
percent from $440.3 million in the prior quarter and 18 percent
from $395.3 million in the fourth quarter of fiscal year 2013. For
fiscal year 2014, revenue was $1.73 billion, up 17 percent from
$1.48 billion in fiscal year 2013.
GAAP net income for the fourth quarter was $94.0 million ($1.26
per diluted share) compared to $79.5 million ($1.05 per diluted
share) in the third quarter of 2014 and $76.2 million ($0.97 per
diluted share) in the fourth quarter a year ago. GAAP net income
for the year was $311.2 million ($4.09 per diluted share) versus
$277.3 million ($3.50 per diluted share) in fiscal year 2013.
Excluding the impact of stock-based compensation and
amortization of purchased intangible assets, non-GAAP net income
for the fourth quarter was $116.7 million ($1.57 per diluted
share), compared to $104.6 million ($1.39 per diluted share) in the
prior quarter and $99.2 million ($1.26 per diluted share) in the
fourth quarter of fiscal 2013. For fiscal year 2014, non-GAAP net
income was $413.0 million ($5.43 per diluted share) versus $362.9
million ($4.59 per diluted share) in fiscal year 2013.
A reconciliation of GAAP net income to non-GAAP net income is
included on the attached Consolidated Statements of Operations.
“The fourth quarter of fiscal 2014 was a solid finish to a year
characterized by positive customer and partner response to our
Synthesis architecture, the array of new products we rolled out in
fiscal 2013, our Good Better Best pricing strategy, and the
enhanced capabilities of our BIG-IQ management platform,” said John
McAdam, F5 president and chief executive officer.
“During the quarter, product revenue grew 20 percent from the
fourth quarter of 2013, driven by strong sequential growth of
Enterprise sales in the Americas and solid year-over-year growth in
EMEA and APAC. Contributing to that growth, rising concern over the
increasing number and variety of security threats helped stimulate
demand for our security solutions and drive sales of our Better and
Best software bundles, which include our most popular security
products. This quarter, we will expand our portfolio of security
offerings with the launch of our WebSafe and MobileSafe
anti-malware solutions, available as software modules on TMOS, and
Defense.Net, cloud-based DDoS protection that complements our
on-premise DDoS solution.
“Revenue for the quarter and the year also benefited from a
steady increase in the number of deals greater than $500,000 and a
significant rebound in deals greater than $1 million. In addition,
sales of our Virtual Edition (software-only) products continued to
gain traction, with annual revenue up 49 percent from fiscal
2013.
“Revenue from consulting not only contributed to another year of
solid growth in service revenue but helped drive follow-on product
sales in major accounts, particularly in replacing other vendors’
products.
“Looking forward, I am confident that all of the
company-specific drivers that propelled our growth in the fourth
quarter and fiscal 2014 will continue to have a positive impact on
our business throughout 2015. In addition, I believe our
partnerships with major SDN and cloud providers will open up new
opportunities for growth as the year progresses,” McAdam said.
For the first quarter of fiscal 2015, ending December 31, the
company has set a revenue target of $460 million to $470 million
with a GAAP earnings target of $1.10 to $1.13 per diluted share.
Excluding stock-based compensation expense and amortization of
purchased intangible assets, the company’s non-GAAP earnings target
is $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 December 31, 2014
Reconciliation of Expected Non-GAAP First Quarter Earnings
Low High Net income $ 81.5 $ 83.7 Stock-based
compensation expense $ 31.0 $ 31.0 Amortization of purchased
intangible assets $ 3.2 $ 3.2 Tax effects related to above items $
(8.1 ) $ (8.1 ) Non-GAAP net income excluding stock-based
compensation expense and amortization of purchased intangible
assets $ 107.6 $ 109.8 Net income per share - diluted
$ 1.10 $ 1.13 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) September 30,
September 30, 2014 2013
ASSETS Current assets Cash and cash equivalents $ 281,502 $
189,693 Short-term investments 363,877 352,450 Accounts receivable,
net of allowances of $4,958 and $3,259 242,242 204,205 Inventories
24,471 19,026 Deferred tax assets 42,290 16,342 Other current
assets 44,466 34,655
Total current assets
998,848 816,371 Property and equipment, net 66,791
63,522 Long-term investments 482,917 728,981 Deferred tax assets
4,434 22,389 Goodwill 556,957 523,727 Other assets, net 75,003
75,564 Total assets $ 2,184,950 $ 2,230,554
LIABILITIES AND SHAREHOLDERS’ EQUITY Current
liabilities Accounts payable $ 43,772 $ 37,313 Accrued liabilities
108,772 92,608 Deferred revenue 484,437 421,429 Total
current liabilities 636,981 551,350 Other long-term
liabilities 22,718 25,202 Deferred revenue, long-term 152,312
109,944 Deferred tax liabilities 3,629 5,346 Total
long-term liabilities 178,659 140,492 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, 73,390 and 78,090 shares
issued and outstanding 15,753 262,505 Accumulated other
comprehensive loss (9,584 ) (7,414 ) Retained earnings 1,363,141
1,283,621 Total shareholders’ equity 1,369,310
1,538,712 Total liabilities and shareholders’ equity $
2,184,950 $ 2,230,554
F5
Networks, Inc. Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)
Three Months Ended Twelve Months Ended September
30, September 30, 2014 2013
2014 2013 Net revenues
Products $ 255,461 $ 212,291 $ 936,130 $ 798,856 Services 209,805
183,038 795,916 682,458 Total 465,266
395,329 1,732,046 1,481,314 Cost of net
revenues (1)(2) Products 43,351 35,151 158,788 129,066 Services
38,601 31,792 151,171 123,981 Total
81,952 66,943 309,959 253,047 Gross
profit 383,314 328,386 1,422,087 1,228,267
Operating expenses (1)(2) Sales and marketing 143,284
119,836 558,284 483,041 Research and development 65,401 54,464
263,792 209,614 General and administrative 27,148 26,512 106,454
102,401 Loss on facility sublease — 2,393 —
2,393 Total 235,833 203,205 928,530
797,449 Income from operations 147,481 125,181 493,557
430,818 Other income, net 2,323 732 3,785
7,274 Income before income taxes 149,804 125,913 497,342
438,092 Provision for income taxes 55,783 49,682
186,159 160,778 Net income $ 94,021 $ 76,231
$ 311,183 $ 277,314 Net income per
share — basic $ 1.27 $ 0.97 $ 4.13 $ 3.53
Weighted average shares — basic 73,817 78,353
75,395 78,565 Net income per share — diluted $
1.26 $ 0.97 $ 4.09 $ 3.50 Weighted
average shares — diluted 74,366 78,674 76,092
79,136
Non-GAAP Financial Measures Net income
as reported $ 94,021 $ 76,231 $ 311,183 $ 277,314 Stock-based
compensation expense (3) 25,159 22,031 127,156 104,212 Amortization
of purchased intangible assets 3,147 1,033 9,488 4,131 Loss on
facility sublease — 2,393 — 2,393 Tax effects related to above
items (5,585 ) (2,538 ) (34,859 ) (25,114 ) Net income excluding
stock-based compensation, amortization of purchased intangible
assets and loss on facility sublease (non-GAAP) - diluted $ 116,742
$ 99,150 $ 412,968 $ 362,936 Net
income per share excluding stock-based compensation, amortization
of purchased intangible assets and loss on facility sublease
(non-GAAP) - diluted $ 1.57 $ 1.26 $ 5.43 $
4.59 Weighted average shares - diluted 74,366
78,674 76,092 79,136 (1) Includes
stock-based compensation as follows: Cost of net revenues $ 2,591 $
2,258 $ 13,985 $ 11,118 Sales and marketing 9,521 7,945 50,091
39,478 Research and development 9,029 7,638 43,633 32,668 General
and administrative 4,018 4,190 19,447 20,948
$ 25,159 $ 22,031 $ 127,156 $ 104,212
(2) Includes amortization of purchased intangible
assets as follows: Cost of net revenues $ 2,651 $ 958 $ 7,890 $
3,831 Sales and marketing 496 75 1,598 300
$ 3,147 $ 1,033 $ 9,488 $ 4,131
(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) Years
Ended September 30, 2014
2013 Operating activities Net income $ 311,183
$ 277,314 Adjustments to reconcile net income to net cash provided
by operating activities: Realized gain on disposition of assets and
investments (195 ) (187 ) Stock-based compensation 127,156 104,212
Provisions for doubtful accounts and sales returns 2,870 1,025
Depreciation and amortization 46,121 40,005 Deferred income taxes
(3,090 ) 474 Changes in operating assets and liabilities, net of
amounts acquired: Accounts receivable (40,895 ) (18,867 )
Inventories (5,445 ) (1,617 ) Other current assets (9,828 ) (3,614
) Other assets (2,502 ) 683 Accounts payable and accrued
liabilities 18,339 16,790 Deferred revenue 105,278 83,475
Net cash provided by operating activities 548,992
499,693
Investing activities Purchases of investments
(515,737 ) (938,571 ) Maturities of investments 523,983 613,927
Sales of investments 214,493 212,011 Decrease (increase) in
restricted cash 59 (612 ) Acquisition of businesses, net of cash
acquired (49,439 ) (212,642 ) Purchases of property and equipment
(22,718 ) (26,583 ) Net cash provided by (used in) investing
activities 150,641 (352,470 )
Financing activities
Excess tax benefit from stock-based compensation 10,283 4,091
Proceeds from the exercise of stock options and purchases of stock
under employee stock purchase plan 35,299 29,591 Repurchase of
common stock (650,542 ) (200,000 ) Net cash used in financing
activities (604,960 ) (166,318 ) Net increase (decrease) in cash
and cash equivalents 94,673 (19,095 ) Effect of exchange rate
changes on cash and cash equivalents (2,864 ) (2,393 ) Cash and
cash equivalents, beginning of year 189,693 211,181
Cash and cash equivalents, end of year $ 281,502 $ 189,693
F5 Networks, Inc.Investor RelationsJohn Eldridge,
206-272-6571j.eldridge@f5.comorPublic RelationsNathan
Misner, 206-272-7494n.misner@f5.com
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