F5 Networks, Inc. (NASDAQ: FFIV) today announced revenue of
$517.8 million for the third quarter of fiscal 2017, up 4.3% from
$496.5 million in the third quarter of fiscal 2016. Growth compared
with the third quarter of fiscal 2016 was driven by iSeries
appliance and security solutions adoption and Services revenue.
Results were impacted by slower activity in EMEA and Japan.
GAAP net income for the third quarter of fiscal 2017 was $97.7
million, or $1.52 per diluted share, compared to $91.8 million, or
$1.37 per diluted share in the third quarter of 2016. Non-GAAP net
income for the third quarter of fiscal 2017 was $130.8 million, or
$2.03 per diluted share, compared to $121.7 million, or $1.81 per
diluted share in the third quarter of fiscal 2016.
A reconciliation of net income, earnings per share, and other
measures on a GAAP to non-GAAP basis is included on the attached
Consolidated Income Statements.
F5’s 2017 State of Application Delivery report shows that while
customers are shifting application workloads to both public and
private clouds, many are choosing to invest in multiple cloud
technologies. Multi-cloud creates complexities for organizations
around managing application services across multiple cloud
platforms, compliance risks from inconsistent security policies,
and diminished return on the cloud’s value as multiple cloud
architectures put pressure on IT skills gaps.
In the just completed quarter, several new products were
introduced that enhanced F5’s position in enabling multi-cloud
deployments. These new products include Application Connector 1.0
for connecting public and private cloud application
infrastructures, support for BIG-IP in the Google Cloud Platform,
and Container Connector and Application Services Proxy for
microservices environments.
“While we delivered year-over-year revenue growth and strong
profitability in the third quarter, our product revenue performance
fell short of our expectations, in particular in Europe and Japan,”
said François Locoh-Donou, F5 President and Chief Executive
Officer. “As we look at the broader environment, we continue to see
some pause in activity as customers evaluate how a long-term cloud
strategy could impact their application deployment architectures.
Where customers have made these decisions around the cloud, the
evidence shows we are their critical partner in providing
consistent application services and security across
environments.
“The reacceleration of product revenue growth is our top
priority and we believe we are well positioned to deliver on this
over the coming periods. The entire F5 team is focused on ensuring
our solutions fit our customers' evolving application deployment
needs and we continue to grow our relevance in providing secure
application services.”
For the fourth quarter of fiscal 2017, ending September 30, the
company has set a revenue goal of $530 million to $540 million with
a GAAP earnings target of $1.64 to $1.67 per diluted share and a
non-GAAP earnings target of $2.20 to $2.23 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,
2017 Reconciliation of Expected Non-GAAP Fourth
Quarter Earnings Low High Net income $
104.8 $ 106.8 Stock-based compensation expense $ 44.0 $ 44.0
Amortization of purchased intangible assets $ 2.8 $ 2.8 Tax effects
related to above items $ (11.3 ) $ (11.3 ) Non-GAAP net income
excluding stock-based compensation expense and amortization of
purchased intangible assets $ 140.3 $ 142.3 Net
income per share - diluted $ 1.64 $ 1.67 Non-GAAP net
income per share - diluted $ 2.20 $ 2.23
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 and 2017.
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 Income Statements entitled “Non-GAAP
Financial Measures.”
About F5
F5 (NASDAQ: FFIV) makes apps go faster, smarter, and safer for
the world’s largest businesses, service providers, governments, and
consumer brands. F5 delivers cloud and security solutions that
enable organizations to embrace the application infrastructure they
choose without sacrificing speed and control. 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.
F5 Networks, Inc. Consolidated Balance Sheets
(unaudited, in thousands)
June 30, September 30, 2017 2016
Assets Current assets Cash and cash equivalents $
690,912 $ 514,571 Short-term investments 323,336 367,824 Accounts
receivable, net of allowances of $1,857 and $2,062 295,085 268,175
Inventories 31,045 34,051 Deferred tax assets 54,010 51,601 Other
current assets 51,513 52,579 Total
current assets 1,445,901 1,288,801
Property and equipment, net 125,139 123,248 Long-term
investments 234,587 276,375 Deferred tax assets 2,050 2,044
Goodwill 555,965 555,965 Other assets, net 54,930
59,890 Total assets $ 2,418,572 $ 2,306,323
Liabilities and Shareholders’ Equity Current
liabilities Accounts payable $ 44,544 $ 34,117 Accrued liabilities
178,712 178,353 Deferred revenue 686,085
631,768 Total current liabilities 909,341
844,238 Other long-term liabilities 41,293
34,138 Deferred revenue, long-term 257,777 238,473 Deferred tax
liabilities 5,554 4,212 Total long-term
liabilities 304,624 276,823
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, 63,544 and 65,315 shares issued and outstanding
17,532 13,191 Accumulated other comprehensive loss (15,458 )
(13,194 ) Retained earnings 1,202,533
1,185,265 Total shareholders' equity 1,204,607
1,185,262 Total liabilities and shareholders' equity
$ 2,418,572 $ 2,306,323
F5 Networks,
Inc. Consolidated Income Statements (unaudited, in
thousands, except per share amounts)
Three Months
Ended Nine Months Ended June 30, June 30,
2017 2016 2017 2016 Net revenues
Products $ 235,109 $ 231,366 $ 715,672 $ 691,485 Services
282,728 265,156 836,371
778,200 Total 517,837 496,522 1,552,043 1,469,685
Cost of net revenues (1)(2) Products 43,787 40,474 129,391 123,033
Services 45,983 43,869 133,553
129,223 Total 89,770
84,343 262,944 252,256 Gross
profit 428,067 412,179 1,289,099 1,217,429 Operating
expenses (1)(2) Sales and marketing 160,952 156,620 490,171 470,545
Research and development 88,602 83,042 264,886 250,481 General and
administrative 39,368 34,182 119,055 103,238 Litigation expense
1 (527 ) (134 ) 8,421
Total 288,923 273,317 873,978
832,685 Income from operations 139,144
138,862 415,121 384,744 Other income, net 2,589
978 6,534 2,246 Income
before income taxes 141,733 139,840 421,655 386,990 Provision for
income taxes 44,071 48,051
136,637 130,070 Net income $ 97,662 $
91,789 $ 285,018 $ 256,920 Net
income per share - basic $ 1.53 $ 1.37 $ 4.42
$ 3.78 Weighted average shares - basic 63,935
66,851 64,539 67,990
Net income per share - diluted $ 1.52 $ 1.37 $
4.38 $ 3.75 Weighted average shares - diluted
64,361 67,235 65,116
68,429
Non-GAAP Financial Measures
Net income as reported $ 97,662 $ 91,789 $ 285,018 $ 256,920
Stock-based compensation expense (3) 43,234 38,437 133,740 118,443
Amortization of purchased intangible assets 2,788 3,518 9,483
10,440 Litigation expense 1 (527 ) (134 ) 8,421 Tax effects related
to above items (12,910 ) (11,515 ) (40,060 )
(37,952 )
Net income excluding stock-based
compensation expense, amortization of purchased intangible assets
and litigation expense (non-GAAP) - diluted
$ 130,775 $ 121,702 $ 388,047 $ 356,272
Net income per share excluding stock-based
compensation expense, amortization of purchased intangible assets
and litigation expense (non-GAAP) - diluted
$ 2.03 $ 1.81 $ 5.96 $ 5.21
Weighted average shares - diluted 64,361
67,235 65,116 68,429 (1)
Includes stock-based compensation expense as follows: Cost of net
revenues $ 5,384 $ 4,643 $ 16,155 $ 13,929 Sales and marketing
17,577 15,130 52,737 45,962 Research and development 13,579 12,987
41,395 39,601 General and administrative 6,694
5,677 23,453 18,951 $ 43,234
$ 38,437 $ 133,740 $ 118,443 (2)
Includes amortization of purchased intangible assets as follows:
Cost of net revenues $ 2,028 $ 2,666 $ 7,345 $ 7,999 Sales and
marketing 251 486 754 1,459 General and administrative 509
366 1,384 982 $
2,788 $ 3,518 $ 9,483 $ 10,440
(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, 2017 2016 Operating activities
Net income $ 285,018 $ 256,920 Adjustments to reconcile net income
to net cash provided by operating activities: Realized (gain) loss
on disposition of assets and investments (463 ) 22 Stock-based
compensation 133,740 118,443 Provisions for doubtful accounts and
sales returns 385 876 Depreciation and amortization 45,603 42,284
Deferred income taxes (1,307 ) 9,295 Changes in operating assets
and liabilities: Accounts receivable (27,295 ) 15,307 Inventories
3,007 (87 ) Other current assets 1,063 (80 ) Other assets (425 )
549 Accounts payable and accrued liabilities 14,270 (8,922 )
Deferred revenue 73,620 72,858 Net cash
provided by operating activities 527,216
507,465
Investing activities Purchases of
investments (255,386 ) (225,226 ) Maturities of investments 271,878
244,905 Sales of investments 65,857 62,836 (Increase) decrease in
restricted cash (87 ) 29 Acquisition of intangible assets (4,000 )
(3,250 ) Purchases of property and equipment (31,175 )
(45,909 ) Net cash provided by investing activities
47,087 33,385
Financing
activities Excess tax benefit from stock-based compensation
6,471 1,596
Proceeds from the exercise of stock
options and purchases of stock under employee stock purchase
plan
46,959 44,848 Repurchase of common stock (450,065 )
(550,101 ) Net cash used in financing activities (396,635 )
(503,657 ) Net increase in cash and cash equivalents
177,668 37,193 Effect of exchange rate changes on cash and cash
equivalents (1,327 ) 1,944 Cash and cash equivalents, beginning of
period 514,571 390,460 Cash and cash
equivalents, end of period $ 690,912 $ 429,597
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170726006284/en/
F5 Networks, Inc.Investor RelationsJason Willey,
206-272-7908j.willey@f5.comorPublic RelationsNathan Misner,
206-272-7494n.misner@f5.com
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