F5 Networks Announces Third Quarter 2013 Results Business Wire SEATTLE -- July 24, 2013 F5 Networks, Inc. (NASDAQ: FFIV) today announced revenue of $370.3 million for the third quarter of fiscal 2013, up 6 percent from $350.2 million in the prior quarter and 5 percent from $352.6 million in the third quarter of fiscal 2012. GAAP net income for the third quarter was $68.2 million ($0.86 per diluted share) compared to $63.4 million ($0.80 per diluted share) in the second quarter of 2013 and $72.3 million ($0.91 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 for the third quarter was $88.4 million ($1.12 per diluted share), compared to $84.7 million ($1.07 per diluted share) in the prior quarter and $90.6 million ($1.14 per diluted share) in the third quarter of fiscal 2012. A reconciliation of GAAP net income to non-GAAP net income is included on the attached Consolidated Statements of Operations. “Results for the third quarter exceeded our expectations,” said John McAdam, F5 president and chief executive officer. “Strong sales in the Americas led to a 6 percent sequential increase in both product and overall revenue. “Product sales during the quarter were driven by growing demand for our BIG-IP 4000 appliances and our new entry-level BIG-IP 2000 series. In late June, we released our new midrange BIG-IP 5000 and BIG-IP 7000 series appliances, and initial customer response has been very encouraging. “The significant performance and scalability enhancements of the new appliances have helped drive growing sales of our security software, including our new Advanced Firewall Manager and our recently upgraded Application Security Manager and Access Policy Manager. Sales of our other software modules have also grown, and demand for our software-only virtual edition products has increased steadily. Along with major enhancements to TMOS, designed to strengthen our SDN integration and cloud scaling capabilities, we recently introduced new 5-gigabit versions of our virtual edition products which run on all major hypervisors including AWS,” McAdam said. Positive customer response to the company’s new products has contributed to a strong and growing sales pipeline. In spite of ongoing weakness in the global economy, McAdam said he believes that demand for the new products in combination with other business drivers could be a significant catalyst for continued growth. For the fourth quarter of fiscal 2013, ending September 30, the company has set a revenue target of $378 million to $388 million and a GAAP earnings target of $0.93 to $0.96 per diluted share. Management’s GAAP earnings target includes an anticipated charge of $2.5million related to a loss on a facility sublease. Excluding this charge, as well as stock-based compensation expense and amortization of purchased intangible assets, the company's non-GAAP earnings target is $1.17 to $1.20 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, 2013 Reconciliation of Expected Non-GAAP Fourth Quarter Low High Earnings Net income $ 73.0 $ 75.4 Stock-based compensation expense $ 22.0 $ 22.0 Amortization of purchased intangible assets $ 1.0 $ 1.0 Loss on facility sublease $ 2.5 $ 2.5 Tax effects related to above items ($ 6.6 ) ($ 6.6 ) Non-GAAP net income excluding stock-based compensation expense, amortization of purchased intangible assets and loss $ 91.9 $ 94.3 on facility sublease Net income per share - diluted $ 0.93 $ 0.96 Non-GAAP net income per share - diluted $ 1.17 $ 1.20 About F5 Networks F5 Networks (NASDAQ: FFIV) makes the connected world run better. F5 helps organizations meet the demands and embrace the opportunities that come with the relentless growth of voice, data, and video traffic, mobile workers, and applications—in the data center, the network, and the cloud. The world’s largest businesses, service providers, government entities, and consumer brands rely on F5’s intelligent services framework to deliver and protect their applications and services while ensuring people stay connected. Learn more at www.f5.com. You can also follow @f5networks on Twitter or visit us on Facebook for more information about F5, its partners, and technology. For a complete listing of F5 community sites, please visit www.f5.com/news-press-events/web-media/community.html. Forward Looking Statements Statements in this press release concerning the continuing strength of F5’s business, sequential growth, the target revenue and earnings range, share amount and share price assumptions, demand for application delivery networking and storage virtualization products and other statements that are not historical facts are forward-looking statements. 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, WAN optimization and storage virtualization offerings; the timely development, introduction and acceptance of additional new products and features by F5 or its competitors; competitive pricing pressures; 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; 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; the 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. 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 Section101 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 July1, 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. The reconciliation of the company’s expected GAAP and non-GAAP fourth quarter earnings also excludes an anticipated loss on a facility sublease from net income (non-GAAP). This loss will be incurred during the quarter ending September30, 2013 in connection with the extension of certain subleases at the company’s corporate headquarters. 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 Condensed Consolidated Statement of Operations entitled “GAAP to Non-GAAP Reconciliation.” F5 Networks, Inc. Consolidated Balance Sheets (unaudited, in thousands) June 30, September 30, 2013 2012 Assets Current assets Cash and cash equivalents $ 198,280 $ 211,181 Short-term investments 353,045 320,970 Accounts receivable, net of allowances of 205,138 185,172 $3,094 and $3,254 Inventories 18,260 17,410 Deferred tax assets 10,617 10,362 Other current assets 48,969 30,986 Total current assets 834,309 776,081 Property and equipment, net 63,720 59,604 Long-term investments 714,331 662,803 Deferred tax assets 33,085 35,478 Goodwill 447,799 348,239 Other assets, net 54,559 28,996 Total assets $ 2,147,803 $ 1,911,201 Liabilities and Shareholders’ Equity Current liabilities Accounts payable $ 28,691 $ 27,026 Accrued liabilities 89,780 86,409 Deferred revenue 411,477 352,594 Total current liabilities 529,948 466,029 Other long-term liabilities 21,391 21,078 Deferred revenue, long-term 108,278 94,694 Total long-term liabilities 129,669 115,772 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, 78,305 and 78,715 shares issued 290,143 326,922 and outstanding Accumulated other comprehensive loss (9,347 ) (3,829 ) Retained earnings 1,207,390 1,006,307 Total shareholders' equity 1,488,186 1,329,400 Total liabilities and shareholders' equity $ 2,147,803 $ 1,911,201 F5 Networks, Inc. Consolidated Statements of Operations (unaudited, in thousands, except per share amounts) Three Months Ended Nine Months Ended June 30, June 30, 2013 2012 2013 2012 Net revenues Products $ 196,746 $ 207,118 $ 586,565 $ 608,837 Services 173,556 145,516 499,420 405,851 Total 370,302 352,634 1,085,985 1,014,688 Cost of net revenues (1)(2) Products 32,350 34,482 93,915 101,350 Services 32,567 25,805 92,189 72,137 Total 64,917 60,287 186,104 173,487 Gross Profit 305,385 292,347 899,881 841,201 Operating expenses (1)(2)(3) Sales and marketing 121,906 112,064 363,205 329,297 Research and 54,075 46,985 155,150 129,675 development General and 25,327 23,298 75,889 67,760 administrative Total 201,308 182,347 594,244 526,732 Income from 104,077 110,000 305,637 314,469 operations Other income, net 2,874 1,713 6,542 5,002 Income before 106,951 111,713 312,179 319,471 income taxes Provision for 38,773 39,377 111,096 112,002 income taxes Net Income $ 68,178 $ 72,336 $ 201,083 $ 207,469 Net income per $ 0.87 $ 0.91 $ 2.56 $ 2.62 share - basic Weighted average 78,516 79,135 78,636 79,188 shares - basic Net income per $ 0.86 $ 0.91 $ 2.54 $ 2.60 share - diluted Weighted average 78,864 79,655 79,207 79,834 shares - diluted Non-GAAP Financial Measures Net income as $ 68,178 $ 72,336 $ 201,083 $ 207,469 reported Stock-based compensation 27,861 23,537 82,181 69,005 expense (4) Amortization of purchased 1,032 1,894 3,098 3,233 intangible assets (5) Acquisition-related - - - 750 charges (5) Tax effects related (8,650 ) (7,191 ) (22,576 ) (20,530 ) to above items Net income excluding stock-based compensation, amortization of purchased $ 88,421 $ 90,576 $ 263,786 $ 259,927 intangible assets and acquisition-related charges (non-GAAP) - diluted Net income per share excluding stock-based compensation, amortization of purchased $ 1.12 $ 1.14 $ 3.33 $ 3.26 intangible assets and acquisition-related charges (non-GAAP) - diluted Weighted average 78,864 79,655 79,207 79,834 shares - diluted (1) Includes stock-based compensation as follows: Cost of net $ 2,966 $ 2,706 $ 8,860 $ 7,828 revenues Sales and marketing 10,259 8,537 31,533 26,945 Research and 8,966 7,504 25,030 19,840 development General and 5,670 4,790 16,758 14,392 administrative $ 27,861 $ 23,537 $ 82,181 $ 69,005 (2) Includes amortization of purchased intangible assets as follows: Cost of net $ 957 $ 1,704 $ 2,873 $ 2,903 revenues Sales and marketing 75 190 225 330 $ 1,032 $ 1,894 $ 3,098 $ 3,233 (3) Includes acquisition-related charges as follows: General and $ - $ - $ - $ 750 administrative $ - $ - $ - $ 750 (4) 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”) (5) Beginning with the second quarter of fiscal 2012, the company will exclude amortization of purchased intangible assets and acquisition-related charges in addition to stock-based compensation expense as a non-GAAP financial measure F5 Networks, Inc. Consolidated Statements of Cash Flows (unaudited, in thousands) Nine Months Ended June 30, 2013 2012 Operating activities Net income $ 201,083 $ 207,469 Adjustments to reconcile net income to net cash provided by operating activities: Realized (gain) loss on disposition of assets (190 ) 552 and investments Stock-based compensation 82,181 69,005 Provisions for doubtful accounts and sales 584 1,061 returns Depreciation and amortization 29,705 24,987 Deferred income taxes (3,601 ) (1,057 ) Changes in operating assets and liabilities, net of amounts acquired: Accounts receivable (20,550 ) (28,229 ) Inventories (850 ) 111 Other current assets (18,069 ) (13,852 ) Other assets 1,517 (244 ) Accounts payable and accrued liabilities 7,420 (3,089 ) Deferred revenue 72,468 90,168 Net cash provided by operating activities 351,698 346,882 Investing activities Purchases of investments (744,557 ) (780,493 ) Maturities of investments 509,381 584,085 Sales of investments 138,171 76,444 Increase in restricted cash (713 ) (30 ) Acquisition of intangible assets - (250 ) Acquisition of businesses, net of cash acquired (124,918 ) (128,335 ) Purchases of property and equipment (21,434 ) (18,544 ) Net cash used in investing activities (244,070 ) (267,123 ) Financing activities Excess tax benefit from stock-based compensation 3,656 9,426 Proceeds from the exercise of stock options and purchases of stock under employee stock purchase 29,405 24,942 plan Repurchase of common stock (150,000 ) (134,776 ) Net cash used in financing activities (116,939 ) (100,408 ) Net decrease in cash and cash equivalents (9,311 ) (20,649 ) Effect of exchange rate changes on cash and cash (3,590 ) (528 ) equivalents Cash and cash equivalents, beginning of period 211,181 216,784 Cash and cash equivalents, end of period $ 198,280 $ 195,607 Contact: F5 Networks, Inc. Investor Relations John Eldridge, 206-272-6571 firstname.lastname@example.org or Public Relations Alane Moran, 206-272-6850 email@example.com
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F5 Networks Announces Third Quarter 2013 Results
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