UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported):
October 29, 2014
F5 Networks, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Washington
 
000-26041
 
91-1714307
 
 
 
 
 
(State or other jurisdiction
 
(Commission
 
(IRS Employer
of incorporation)
 
File Number)
 
Identification No.)
 
 
 
401 Elliott Avenue West
 
 
Seattle, WA
 
98119
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (206) 272-5555
Not Applicable
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 






Item 2.02 Results of Operations and Financial Condition
On October 29, 2014, F5 Networks, Inc. issued a press release regarding its financial results for the fourth quarter ended September 30, 2014. The press release is attached hereto as Exhibit 99.1. The information in this report shall not be treated as filed for purposes of the Securities Exchange Act of 1934, as amended.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits:
99.1
 
Press Release of F5 Networks, Inc. announcing quarterly earnings dated October 29, 2014.




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
F5 NETWORKS, INC.
 (Registrant)
  
 
Date: October 29, 2014
By:
/s/ John McAdam  
 
 
 
John McAdam
 
 
 
President and Chief Executive Officer
 





EXHIBIT INDEX
 
 
 
Exhibit No.
 
Description
99.1
 
Press Release of F5 Networks, Inc. announcing quarterly earnings dated October 29, 2014.




4Q14/FY14 Earnings Release
 
Page 1 of 4

FOR IMMEDIATE RELEASE
CONTACT:
Investor Relations
 
 
 
 
John Eldridge
 
 
 
 
(206) 272-6571
 
 
 
 
j.eldridge@f5.com
 
 
 
 
 
 
 
 
 
Public Relations
 
 
 
 
Nathan Misner
 
 
 
 
(206) 272-7494
 
 
 
 
n.misner@f5.com
 
 
 

F5 Networks Announces Fourth Quarter and Fiscal 2014 Results
SEATTLE, WA - October 29, 2014 - 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.



4Q14/FY14 Earnings Release
 
Page 2 of 4

“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




4Q14/FY14 Earnings Release
 
Page 3 of 4

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.



4Q14/FY14 Earnings Release
 
Page 4 of 4

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



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