FFIV F5 Inc

For the third quarter of fiscal 2016, F5 Networks, Inc. (NASDAQ: FFIV) announced revenue of $496.5 million, up 3 percent from $483.7 million in the prior quarter and 3 percent from $483.6 million in the third quarter of fiscal 2015.

GAAP net income was $91.8 million ($1.37 per diluted share), compared to $75.4 million ($1.11 per diluted share) in the prior quarter and $93.2 million ($1.29 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 $121.7 million ($1.81 per diluted share), compared to $114.0 million ($1.68 per diluted share) in the prior quarter and $120.2 million ($1.67 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.

“During the third quarter, F5 delivered solid revenue growth and strong earnings despite a relatively challenging spending environment,” said John McAdam, F5 President and Chief Executive Officer. “The Americas and Asia Pacific both contributed strong sequential revenue growth, while EMEA revenues were down from the prior quarter against the backdrop of the UK's referendum to withdraw from the European Union.

“Reflecting steadily increasing deployment of our products in public and private cloud environments, software sales continued to grow as a percentage of overall product revenue. Our expanding footprint in public and private clouds also contributed to sequential growth in sales of our security products during the quarter.”

As previously announced, F5 began the rollout of major product upgrades and a number of new products in Q3. In addition to 100Gb blades for VIPRION, the company introduced version 5.0 of its BIG-IQ management platform, a new standalone appliance for DDoS mitigation, and a new version of TMOS with features designed for the DevOps community and enhanced capabilities for cloud integration. Products scheduled to begin shipping in the current quarter include a refresh of the BIG-IP appliance family and a standalone SSL appliance designed to encrypt and unencrypt traffic in concert with third-party security solutions. New versions of the company’s Virtual Edition products with four times the performance of its existing VE family are scheduled to ship in the first quarter of fiscal 2017.

“I believe the scope and timing of these product introductions will enable our customers and partners to meet the challenges and leverage the opportunities posed by hybrid architectures spanning public and private clouds, as well as more traditional on premise data centers. As a result, I am confident they will help drive a return to product revenue growth over the near term,” McAdam said.

For the quarter ending September 30, 2016, F5 has set a revenue goal of $515 million to $525 million with a GAAP earnings target of $1.44 to $1.47 per diluted share and a non-GAAP earnings target of $1.92 to $1.95 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, 2016   Reconciliation of Expected Non-GAAP Fourth Quarter Earnings Low   High Net income $ 96.2 $ 98.2 Stock-based compensation expense $ 40.0 $ 40.0 Amortization of purchased intangible assets $ 3.5 $ 3.5 Tax effects related to above items $ (11.8 ) $ (11.8 ) Non-GAAP net income excluding stock-based compensation expense and amortization of purchased intangible assets $ 127.9   $ 129.9   Net income per share - diluted $ 1.44   $ 1.47   Non-GAAP net income per share - diluted $ 1.92   $ 1.95  

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. In addition, expense related to a jury verdict and other associated costs of that patent litigation have been excluded from GAAP net income for the purpose of measuring non-GAAP earnings and earnings per share in fiscal 2016.

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,   2016     2015     Assets Current assets Cash and cash equivalents $ 429,597 $ 390,460 Short-term investments 381,111 383,882 Accounts receivable, net of allowances of $1,700 and $1,979 263,249 279,434 Inventories 33,805 33,717 Deferred tax assets 49,460 50,128 Other current assets   50,741     50,519   Total current assets   1,207,963     1,188,140     Property and equipment, net 115,135 95,909 Long-term investments 313,488 397,656 Deferred tax assets 700 6,492 Goodwill 555,965 555,965 Other assets, net   60,532     68,128   Total assets $ 2,253,783   $ 2,312,290     Liabilities and Shareholders’ Equity Current liabilities Accounts payable $ 37,452 $ 50,814 Accrued liabilities 135,122 130,401 Deferred revenue   626,836     573,908   Total current liabilities   799,410     755,123     Other long-term liabilities 30,761 30,136 Deferred revenue, long-term 229,332 209,402 Deferred tax liabilities   7,215     901   Total long-term liabilities   267,308     240,439     Commitments and contingencies   Shareholders’ equity

Preferred stock, no par value; 10,000 shares authorized, no shares outstanding

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Common stock, no par value; 200,000 shares authorized, 66,204 and 70,138 shares issued and outstanding

9,996 10,159 Accumulated other comprehensive loss (13,317 ) (15,288 ) Retained earnings   1,190,386     1,321,857   Total shareholders' equity   1,187,065     1,316,728   Total liabilities and shareholders' equity $ 2,253,783   $ 2,312,290             F5 Networks, Inc. Consolidated Statements of Operations (unaudited, in thousands, except per share amounts)   Three Months Ended Nine Months Ended June 30, June 30,   2016     2015     2016     2015     Net revenues Products $ 231,366 $ 248,767 $ 691,485 $ 733,820 Services   265,156     234,819     778,200     684,702   Total 496,522 483,586 1,469,685 1,418,522   Cost of net revenues (1)(2) Products 40,474 44,050 123,033 129,720 Services   43,869     41,609     129,223     117,883   Total   84,343     85,659     252,256     247,603   Gross profit 412,179 397,927 1,217,429 1,170,919   Operating expenses (1)(2) Sales and marketing 156,620 150,833 470,545 450,887 Research and development 83,042 74,337 250,481 218,918 General and administrative 34,182 32,627 103,238 95,814 Litigation expense   (527 )   -     8,421     -   Total   273,317     257,797     832,685     765,619     Income from operations 138,862 140,130 384,744 405,300 Other income, net   978     720     2,246     6,580   Income before income taxes 139,840 140,850 386,990 411,880 Provision for income taxes   48,051     47,678     130,070     143,903   Net Income $ 91,789   $ 93,172   $ 256,920   $ 267,977       Net income per share - basic $ 1.37   $ 1.30   $ 3.78   $ 3.70   Weighted average shares - basic   66,851     71,509     67,990     72,370     Net income per share - diluted $ 1.37   $ 1.29   $ 3.75   $ 3.67   Weighted average shares - diluted   67,235     71,957     68,429     72,937     Non-GAAP Financial Measures   Net income as reported $ 91,789 $ 93,172 $ 256,920 $ 267,977 Stock-based compensation expense (3) 38,437 36,517 118,443 103,919 Amortization of purchased intangible assets 3,518 3,359 10,440 9,822 Litigation expense (527 ) - 8,421 - Tax effects related to above items (11,515 ) (12,862 ) (37,952 ) (32,047 )

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

$ 121,702   $ 120,186   $ 356,272   $ 349,671    

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

$ 1.81   $ 1.67   $ 5.21   $ 4.79     Weighted average shares - diluted   67,235     71,957     68,429     72,937     (1) Includes stock-based compensation as follows: Cost of net revenues $ 4,643 $ 3,740 $ 13,929 $ 10,497 Sales and marketing 15,130 14,775 45,962 42,762 Research and development 12,987 11,867 39,601 34,500 General and administrative   5,677     6,135     18,951     16,160   $ 38,437   $ 36,517   $ 118,443   $ 103,919     (2) Includes amortization of purchased intangible assets as follows: Cost of net revenues $ 2,666 $ 2,651 $ 7,999 $ 7,968 Sales and marketing 486 486 1,459 1,459 General and administrative   366     222     982     395   $ 3,518   $ 3,359   $ 10,440   $ 9,822     (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,   2016     2015     Operating activities Net income $ 256,920 $ 267,977 Adjustments to reconcile net income to net cash provided by operating activities: Realized loss (gain) on disposition of assets and investments 22 (69 ) Stock-based compensation 118,443 103,919 Provisions for doubtful accounts and sales returns 876 1,268 Depreciation and amortization 42,284 39,225 Deferred income taxes 9,295 (5,203 ) Changes in operating assets and liabilities: Accounts receivable 15,307 (20,094 ) Inventories (87 ) (5,556 ) Other current assets (80 ) (6,127 ) Other assets 549 437 Accounts payable and accrued liabilities (8,922 ) 19,625 Deferred revenue   72,858     105,796   Net cash provided by operating activities   507,465     501,198     Investing activities Purchases of investments (225,226 ) (347,683 ) Maturities of investments 244,905 391,900 Sales of investments 62,836 198,401 Decrease (increase) in restricted cash 29 (401 ) Acquisition of intangible assets (3,250 ) (6,224 ) Purchases of property and equipment   (45,909 )   (41,715 ) Net cash provided by investing activities   33,385     194,278     Financing activities Excess tax benefit from stock-based compensation 1,596 6,611 Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan 44,848 40,426 Repurchase of common stock   (550,101 )   (456,863 ) Net cash used in financing activities   (503,657 )   (409,826 )   Net increase in cash and cash equivalents 37,193 285,650 Effect of exchange rate changes on cash and cash equivalents 1,944 (4,972 ) Cash and cash equivalents, beginning of period   390,460     281,502   Cash and cash equivalents, end of period $ 429,597   $ 562,180  

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F5 Networks, Inc.Investor Relations:John Eldridge, 206-272-6571j.eldridge@f5.comorPublic Relations:Nathan Misner, 206-272-7494n.misner@f5.com