For the first quarter of fiscal 2015, F5 Networks, Inc. (NASDAQ:
FFIV) announced revenue of $462.8 million, down slightly from
$465.3 million in the prior quarter and up 14 percent from $406.5
million in the first quarter of fiscal 2014.
GAAP net income was $89.1 million ($1.21 per diluted share),
compared to $94.0 million ($1.26 per diluted share) in the prior
quarter and $68.0 million ($0.87 per diluted share) in the first
quarter a year ago.
Excluding the impact of stock-based compensation and
amortization of purchased intangible assets, non-GAAP net income
was $114.2 million ($1.55 per diluted share), compared to $116.7
million ($1.57 per diluted share) in the prior quarter and $94.8
million ($1.22 per diluted share) in the first quarter of last
year.
A reconciliation of GAAP net income to non-GAAP net income is
included on the attached Consolidated Statements of Operations.
“In addition to the seasonal softness we normally experience in
the first quarter of a new fiscal year, product sales during the
quarter reflected a marked decrease in the number of deals greater
than $1 million,” said John McAdam, F5 president and chief
executive officer. “While this resulted in slower than expected
revenue growth for the quarter, the number of large deals in the
current pipeline is encouraging and indicates that we should see a
resumption of the recent trend toward larger deals in the second
quarter.
“From a product perspective we were also encouraged by the
continuing strong growth of software revenue, which increased 44
percent year over year. The growing percentage of software as a
component of our product offerings highlights increasing customer
demand for hybrid solutions that allow greater flexibility in the
deployment of application services within and across data centers
and out into the cloud.
“During the quarter, we launched two new subscription-based
offerings: Versafe, which provides real-time protection against
malware, phishing, and other cyberthreats; and Defense.Net, a
cloud-based service that provides highly scalable protection
against distributed denial of service (DDoS) attacks and
complements our existing on-premise DDoS protection capabilities.
Later this year, we plan to launch a cloud-based version of
Application Security Manager (ASM), our popular web application
firewall, which will also be available on a subscription basis.
Defense.Net, ASM, and Secure Web Gateway, a malware protection
service, will be available as part of Silverline, a cloud-based
services delivery platform that leverages the scalability and
performance of F5 hardware. Response to these new offerings by
customers and partners has been very positive and we expect to see
sales of these offerings ramp steadily throughout the year,” McAdam
said.
For the current quarter, ending March 31, the company has set a
revenue goal of $465 million to $475 million with a GAAP earnings
target of $1.07 to $1.10 per diluted share and a non-GAAP earnings
target of $1.48 to $1.51 per diluted share.
A reconciliation of the company’s expected GAAP and non-GAAP
earnings is provided in the following table:
Three months ended March 31, 2015
Reconciliation of Expected Non-GAAP Second Quarter
Earnings Low High Net income $ 78.6 $ 80.8
Stock-based compensation expense $ 37.5 $ 37.5 Amortization of
purchased intangible assets $ 3.2 $ 3.2 Tax effects related to
above items $ (10.6 ) $ (10.6 ) Non-GAAP net income excluding
stock-based compensation expense and amortization of purchased
intangible assets $ 108.7 $ 110.9 Net income per
share - diluted $ 1.07 $ 1.10 Non-GAAP net income per
share - diluted $ 1.48 $ 1.51
Share Repurchase Program
The company also announced today that its board of directors had
authorized an additional $750 million for the company's common
stock share repurchase program. This new authorization is
incremental to the $180.7 million currently unused in the existing
program which was initially authorized in October 2010.
Acquisitions for the share repurchase program will be made from
time to time in private transactions or open market purchases as
permitted by securities laws and other legal requirements. The
timing and amounts of any purchases will be based on market
conditions and other factors including but not limited to price,
regulatory requirements and capital availability. The program does
not require the purchase of any minimum number of shares and the
program may be modified, suspended or discontinued at any time.
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) December
31, September 30, 2014
2014 Assets Current assets Cash and
cash equivalents $ 268,954 $ 281,502 Short-term investments 385,150
363,877 Accounts receivable, net of allowances of $3,526 and $4,958
255,864 242,242 Inventories 27,582 24,471 Deferred tax assets
44,963 42,290 Other current assets 44,344
44,466
Total current assets
1,026,857 998,848 Property and
equipment, net 66,636 66,791 Long-term investments 512,538 482,917
Deferred tax assets 1,217 4,434 Goodwill 556,957 556,957 Other
assets, net 72,219 75,003 Total assets
$ 2,236,424 $ 2,184,950
Liabilities and
Shareholders’ Equity Current liabilities Accounts payable $
41,223 $ 43,772 Accrued liabilities 132,685 108,772 Deferred
revenue 521,716 484,437 Total current
liabilities 695,624 636,981
Other long-term liabilities 23,316 22,718 Deferred revenue,
long-term 158,554 152,312 Deferred tax liabilities 3,153
3,629 Total long-term liabilities
185,023 178,659 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, 72,673 and 73,390 shares issued and outstanding
5,105 15,753 Accumulated other comprehensive loss (12,040 ) (9,584
) Retained earnings 1,362,712 1,363,141
Total shareholders' equity 1,355,777 1,369,310
Total liabilities and shareholders' equity $ 2,236,424
$ 2,184,950
F5 Networks, Inc.
Consolidated Statements of Operations (unaudited, in
thousands, except per share amounts) Three months
ended Three months ended Three months ended
December 31, September 30, December 31,
2014 2014 2013
Net revenues Products $ 240,937 $ 255,461 $ 218,601
Services 221,856 209,805 187,851
Total 462,793 465,266 406,452 Cost of net revenues
(1)(2) Products 42,070 43,351 37,244 Services 37,278
38,601 35,639 Total 79,348
81,952 72,883 Gross profit
383,445 383,314 333,569 Operating expenses (1)(2) Sales and
marketing 148,816 143,284 134,803 Research and development 70,060
65,401 64,133 General and administrative 32,254
27,148 25,500 Total 251,130
235,833 224,436 Income
from operations 132,315 147,481 109,133 Other income, net
2,594 2,323 246 Income before
income taxes 134,909
149,804 109,379 Provision for income taxes 45,833
55,783 41,331 Net Income $ 89,076
$ 94,021 $ 68,048 Net income per
share - basic $ 1.21 $ 1.27 $ 0.88 Weighted
average shares - basic 73,350 73,817
77,438 Net income per share - diluted $ 1.21
$ 1.26 $ 0.87 Weighted average shares -
diluted 73,857 74,366 77,822
Non-GAAP Financial Measures Net
income as reported $ 89,076 $ 94,021 $ 68,048 Stock-based
compensation expense (3) 30,625 25,159 34,528 Amortization of
purchased intangible assets 3,149 3,147 2,086 Tax effects related
to above items (8,629 ) (5,585 ) (9,899 )
Net income excluding stock-based
compensation and amortization of purchased intangible assets
(non-GAAP) - diluted
$ 114,221 $ 116,742 $ 94,763
Net income per share excluding stock-based
compensation and amortization of purchased intangible assets
(non-GAAP) - diluted
$ 1.55 $ 1.57 $ 1.22 Weighted average
shares - diluted 73,857 74,366
77,822 (1) Includes stock-based compensation as
follows: Cost of net revenues $ 2,931 $ 2,591 $ 3,858 Sales and
marketing 12,627 9,521 14,002 Research and development 10,440 9,029
11,638 General and administrative 4,627 4,018
5,030 $ 30,625 $ 25,159 $ 34,528
(2) Includes amortization of purchased intangible
assets as follows: Cost of net revenues $ 2,651 $ 2,651 $ 1,727
Sales and marketing 486 496 359 General and administrative
12 - - $ 3,149 $ 3,147
$ 2,086
(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) Three
months ended December 31, 2014
2013 Operating activities Net
income $ 89,076 $ 68,048 Adjustments to reconcile net income to net
cash provided by operating activities: Realized loss (gain) on
disposition of assets and investments 7 (59 ) Stock-based
compensation 30,625 34,528 Provisions for doubtful accounts and
sales returns 345 1,168 Depreciation and amortization 13,042 11,437
Deferred income taxes 231 (8,702 ) Changes in operating assets and
liabilities: Accounts receivable (13,967 ) (17,746 ) Inventories
(3,111 ) (25 ) Other current assets (120 ) 2,189 Other assets 460
(1,876 ) Accounts payable and accrued liabilities 26,286 33,611
Deferred revenue 43,521 36,353
Net cash provided by operating
activities
186,395 158,926
Investing
activities Purchases of investments (177,936 ) (147,534 )
Maturities of investments 120,982 168,026 Sales of investments
2,693 54,660 Decrease (increase) in restricted cash 43 (6 )
Acquisition of intangible assets (1,005 ) - Purchases of property
and equipment (10,319 ) (4,980 ) Net cash (used in)
provided by investing activities (65,542 ) 70,166
Financing activities Excess tax benefit from
stock-based compensation 2,638 182
Proceeds from the exercise of stock
options and purchases of stock under employee stock purchase
plan
16,573 13,188 Repurchase of common stock (149,980 )
(200,000 ) Net cash used in financing activities (130,769 )
(186,630 ) Net (decrease) increase in cash and cash
equivalents (9,916 ) 42,462 Effect of exchange rate changes on cash
and cash equivalents (2,632 ) (827 ) Cash and cash equivalents,
beginning of period 281,502 189,693
Cash and cash equivalents, end of period $ 268,954 $ 231,328
F5 Networks, Inc.Investor RelationsJohn Eldridge,
206-272-6571j.eldridge@f5.comorPublic
RelationsNathan Misner,
206-272-7494n.misner@f5.com
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