F5 Networks Announces Third Quarter 2013 Results

  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
j.eldridge@f5.com
or
Public Relations
Alane Moran, 206-272-6850
a.moran@f5.com
 
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