FFIV F5 Inc

For the third quarter of fiscal 2015, F5 Networks, Inc. (NASDAQ: FFIV) announced revenue of $483.6 million, up 2 percent from $472.1 million in the prior quarter and 10 percent from $440.3 million in the third quarter of fiscal 2014.

GAAP net income was $93.2 million ($1.29 per diluted share), compared to $85.7 million ($1.18 per diluted share) in the prior quarter and $79.5 million ($1.05 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 $120.2 million ($1.67 per diluted share), compared to $115.3 million ($1.59 per diluted share) in the prior quarter and $104.6 million ($1.39 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.

“Solid sequential and year-over-year revenue growth during the quarter was driven primarily by continuing growth in software sales,” said Manny Rivelo, F5 President and Chief Executive Officer. “Within the past three years, quarterly revenue from the sale of software modules and virtual editions has more than doubled, accounting for more than a third of product revenue in Q3. As more of our customers deploy hybrid solutions and adoption of our software modules increases, we believe this trend will continue, augmented by a steady ramp in sales of our cloud-based Silverline subscription offerings.

“From a vertical market perspective, Enterprise and US Federal were significant contributors to the quarter’s revenue gains. Within our geographical regions, the US, the UK and northern Europe all delivered solid year-over-year growth.

“As F5 continues to evolve and adapt our technology to the rapidly changing IT landscape, we believe our strategy, product roadmap, and ongoing investment in people will enable us to drive top-line growth. In the near term, we remain confident that the company can continue to deliver solid year-over-year growth as we adjust our organization and business model to exploit the growing market opportunity for our expanding solutions portfolio,” Rivelo said.

For the quarter ending September 30, 2015, the company has set a revenue goal of $500 million to $510 million with a GAAP earnings target of $1.26 to $1.29 per diluted share and a non-GAAP earnings target of $1.72 to $1.75 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, 2015   Reconciliation of Expected Non-GAAP Fourth Quarter Earnings Low   High Net income $ 90.0 $ 92.2 Stock-based compensation expense $ 42.5 $ 42.5 Amortization of purchased intangible assets $ 3.4 $ 3.4 Tax effects related to above items $ (13.1 ) $ (13.1 ) Non-GAAP net income excluding stock-based compensation expense and amortization of purchased intangible assets $ 122.8   $ 125.0   Net income per share - diluted $ 1.26   $ 1.29   Non-GAAP net income per share - diluted $ 1.72   $ 1.75    

About F5 Networks

F5 (NASDAQ: FFIV) provides solutions for an application world. F5 helps organizations seamlessly scale cloud, data center, telecommunications, and software defined networking (SDN) deployments to successfully deliver applications and services 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 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 LinkedIn and Facebook for more information about F5, its partners, and technologies.

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,   2015     2014     Assets Current assets Cash and cash equivalents $ 562,180 $ 281,502 Short-term investments 235,527 363,877 Accounts receivable, net of allowances of $2,885 and $4,958 261,068 242,242 Inventories 30,026 24,471 Deferred tax assets 46,493 42,290 Other current assets   50,214     44,466   Total current assets   1,185,508     998,848     Property and equipment, net 83,507 66,791 Long-term investments 361,665 482,917 Deferred tax assets 3,557 4,434 Goodwill 556,957 556,957 Other assets, net   71,157     75,003   Total assets $ 2,262,351   $ 2,184,950     Liabilities and Shareholders’ Equity Current liabilities Accounts payable $ 48,986 $ 43,772 Accrued liabilities 115,397 108,772 Deferred revenue   553,064     484,437   Total current liabilities   717,447     636,981     Other long-term liabilities 25,914 22,718 Deferred revenue, long-term 189,481 152,312 Deferred tax liabilities   2,407     3,629   Total long-term liabilities   217,802     178,659     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, 71,003 and 73,390 shares issued and outstanding 5,987 15,753 Accumulated other comprehensive loss (13,355 ) (9,584 ) Retained earnings   1,334,470     1,363,141   Total shareholders' equity   1,327,102     1,369,310   Total liabilities and shareholders' equity $ 2,262,351   $ 2,184,950             F5 Networks, Inc. Consolidated Statements of Operations (unaudited, in thousands, except per share amounts)     Three Months Ended Nine Months Ended June 30, June 30,   2015     2014     2015     2014     Net revenues Products $ 248,767 $ 236,933 $ 733,820 $ 680,669 Services   234,819     203,352     684,702     586,111   Total 483,586 440,285 1,418,522 1,266,780   Cost of net revenues (1)(2) Products 44,050 40,387 129,720 115,437 Services   41,609     39,075     117,883     112,570   Total   85,659     79,462     247,603     228,007   Gross profit 397,927 360,823 1,170,919 1,038,773   Operating expenses (1)(2) Sales and marketing 150,833 139,945 450,887 415,000 Research and development 74,337 67,026 218,918 198,391 General and administrative   32,627     27,773     95,814     79,306  

Total

  257,797     234,744     765,619     692,697     Income from operations 140,130 126,079 405,300 346,076 Other income, net   720     1,193     6,580     1,462   Income before income taxes 140,850 127,272 411,880 347,538 Provision for income taxes   47,678     47,799     143,903     130,376   Net Income $ 93,172   $ 79,473   $ 267,977   $ 217,162       Net income per share - basic $ 1.30   $ 1.06   $ 3.70   $ 2.86   Weighted average shares - basic   71,509     74,812     72,370     75,926     Net income per share - diluted $ 1.29   $ 1.05   $ 3.67   $ 2.84   Weighted average shares - diluted   71,957     75,369     72,937     76,581       Non-GAAP Financial Measures   Net income as reported $ 93,172 $ 79,473 $ 267,977 $ 217,162 Stock-based compensation expense (3) 36,517 31,833 103,919 101,997 Amortization of purchased intangible assets 3,359 2,172 9,822 6,341 Tax effects related to above items   (12,862 )   (8,912 )   (32,047 )   (29,274 )

Net income excluding stock-based compensation and amortization of purchased intangible assets (non-GAAP) - diluted

$ 120,186   $ 104,566   $ 349,671   $ 296,226    

Net income per share excluding stock-based compensation and amortization of purchased intangible assets (non-GAAP) - diluted

$ 1.67   $ 1.39   $ 4.79   $ 3.87     Weighted average shares - diluted   71,957     75,369     72,937     76,581     (1) Includes stock-based compensation as follows: Cost of net revenues $ 3,740 $ 3,522 $ 10,497 $ 11,394 Sales and marketing 14,775 12,350 42,762 40,570 Research and development 11,867 10,976 34,500 34,604 General and administrative   6,135     4,985     16,160     15,429   $ 36,517   $ 31,833   $ 103,919   $ 101,997     (2) Includes amortization of purchased intangible assets as follows: Cost of net revenues $ 2,651 $ 1,786 $ 7,968 $ 5,239 Sales and marketing 486 386 1,459 1,102 General and administrative   222     -     395     -   $ 3,359   $ 2,172   $ 9,822   $ 6,341     (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,   2015     2014     Operating activities Net income $ 267,977 $ 217,162 Adjustments to reconcile net income to net cash provided by operating activities: Realized gain on disposition of assets and investments (69 ) (179 ) Stock-based compensation 103,919 101,997 Provisions for doubtful accounts and sales returns 1,268 2,109 Depreciation and amortization 39,225 34,055 Deferred income taxes (5,203 ) (4,389 ) Changes in operating assets and liabilities, net of amounts acquired: Accounts receivable (20,094 ) (40,964 ) Inventories (5,556 ) (4,117 ) Other current assets (6,127 ) (9,800 ) Other assets 437 (1,056 ) Accounts payable and accrued liabilities 19,625 (1,659 ) Deferred revenue   105,796     85,968   Net cash provided by operating activities   501,198     379,127     Investing activities Purchases of investments (347,683 ) (387,147 ) Maturities of investments 391,900 437,752 Sales of investments 198,401 144,790 (Increase) decrease in restricted cash (401 ) 5 Acquisition of intangible assets (6,224 ) - Acquisition of businesses, net of cash acquired - (49,439 ) Purchases of property and equipment   (41,715 )   (15,636 ) Net cash provided by investing activities   194,278     130,325     Financing activities Excess tax benefit from stock-based compensation 6,611 8,155 Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan 40,426 35,247 Repurchase of common stock   (456,863 )   (500,542 ) Net cash used in financing activities   (409,826 )   (457,140 )   Net increase in cash and cash equivalents 285,650 52,312 Effect of exchange rate changes on cash and cash equivalents (4,972 ) (32 ) Cash and cash equivalents, beginning of period   281,502     189,693   Cash and cash equivalents, end of period $ 562,180   $ 241,973  

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F5 Networks, Inc.Investor RelationsJohn Eldridge, 206-272-6571j.eldridge@f5.comorPublic RelationsNathan Misner, 206-272-7494n.misner@f5.com