(Source: Business Wire)
For the third quarter of fiscal 2009, F5 Networks, Inc. (NASDAQ:FFIV) announced revenue of $158.2 million, up 2.6 percent from $154.1 million in the prior quarter and down 4.4 percent from $165.6 million in the third quarter of fiscal 2008.
GAAP net income was $22.8 million ($0.29 per diluted share), compared to $19.0 million ($0.24 per diluted share) in the prior quarter and $19.1 million ($0.23 per diluted share) in the third quarter a year ago.
Excluding the impact of stock-based compensation net of tax, non-GAAP net income was $31.9 million ($0.40 per diluted share), compared to $30.3 million ($0.38 per diluted share) in the prior quarter and $30.2 million ($0.37 per diluted share) in the third quarter of fiscal 2008.
A reconciliation of GAAP net income to non-GAAP net income is included on the attached Consolidated Statements of Operations.
"While it is still too early to say that the worst is behind us, customer buying patterns did appear to stabilize during the third quarter," said John McAdam, F5 president and chief executive officer.
"As a result, we were able to grow revenue sequentially and exceed our revenue target. Coupled with better top-line performance, modest gross margin improvement and ongoing expense controls further improved our non-GAAP operating margin and enabled us to exceed both our GAAP and non-GAAP earnings targets as well," McAdam said.
During the third quarter, the company continued to strengthen its balance sheet, increasing deferred revenue 6 percent to $170 million and generating $46 million in cash flow from operations. After repurchasing another $15.9 million of the company's outstanding common stock, F5 ended the quarter with $538 million in cash and investments.
Acknowledging that weakness and uncertainty in the global economy persist, McAdam said he is encouraged by the company's third quarter results. For the current quarter, management has set a revenue goal of $160 million to $164 million with a GAAP earnings target of $0.26 to $0.28 per diluted share. Excluding stock-based compensation expense, the company's non-GAAP earnings target is $0.40 to $0.42 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, 2009 Reconciliation of Expected Non-GAAP Fourth Quarter Earnings Low High Net income $20.6 $22.2 Stock-based compensation expense, net of tax $11.0 $11.0 Non-GAAP net income excluding stock-based compensation expense $31.6 $33.2 Net income per share - diluted $0.26 $0.28 Non-GAAP net income per share - diluted $0.40 $0.42 -------------------------------------------------------------------------------
About F5 Networks
F5 Networks is the global leader in Application Delivery Networking (ADN), focused on ensuring the secure, reliable, and fast delivery of applications. F5's flexible architectural framework enables community-driven innovation that helps organizations enhance IT agility and dynamically deliver services that generate true business value. F5's vision of unified application and data delivery offers customers an unprecedented level of choice in how they deploy ADN solutions. It redefines the management of application, server, storage, and network resources, streamlining application delivery and reducing costs. Global enterprise organizations, service and cloud providers, and Web 2.0 content providers trust F5 to keep their business moving forward. For more information, go to www.f5.com.
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, 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. Net income excluding stock-based compensation (non-GAAP) 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 Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment."
Management believes that net income excluding stock-based compensation (non-GAAP) provides useful supplemental information to management and investors regarding the performance of the company's 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 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 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 business, 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. For example, stock-based compensation is an obligation of the Company that should be considered and each line item is important to financial performance generally. 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 its operational performance and financial results.
F5 Networks, Inc. Condensed Consolidated Balance Sheets (unaudited, in thousands) June 30, September 30, 2009 2008 Assets Current assets Cash and cash equivalents $ 88,289 $ 78,303 Short-term investments 175,780 111,883 Accounts receivable, net of allowances of $4,273 and $4,348 91,635 97,057 Inventories 13,590 10,148 Deferred tax assets 5,827 5,910 Other current assets 26,324 20,068 Total current assets 401,445 323,369 Restricted cash 2,731 2,748 Property and equipment, net 40,237 47,557 Long-term investments 273,861 261,086 Deferred tax assets 43,982 46,917 Goodwill 231,892 231,892 Other assets, net 23,440 25,654 Total assets $ 1,017,588 $ 939,223 Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 16,386 $ 13,092 Accrued liabilities 43,080 48,051 Deferred revenue 142,699 125,678 Total current liabilities 202,165 186,821 Other long-term liabilities 13,838 14,822 Deferred revenue, long-term 27,173 19,321 Total long-term liabilities 41,011 34,143 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 78,515 and 79,094 shares issued and outstanding 467,391 477,299 Accumulated other comprehensive loss (3,200 ) (6,076 ) Retained earnings 310,221 247,036 Total shareholders' equity 774,412 718,259 Total liabilities and shareholders' equity $ 1,017,588 $ 939,223 -------------------------------------------------------------------------------
F5 Networks, Inc. Condensed Consolidated Statements of Operations (unaudited, in thousands, except per share amounts) Three Months Ended Nine Months Ended June 30, June 30, 2009 2008 2009 2008 Net revenues Products $ 95,619 $ 114,786 $ 297,649 $ 337,139 Services 62,612 50,799 180,300 141,771 Total 158,231 165,585 477,949 478,910 Cost of net revenues (1) Products 21,955 26,158 70,915 75,816 Services 11,710 12,020 35,355 34,289 Total 33,665 38,178 106,270 110,105 Gross Profit 124,566 127,407 371,679 368,805 Operating expenses (1) Sales and marketing 55,427 60,483 166,798 176,714 Research and development 25,070 26,277 78,149 77,027 General and administrative 12,764 13,459 40,624 41,369 Restructuring charges - - 4,329 - Total 93,261 100,219 289,900 295,110 Income from operations 31,305 27,188 81,779 73,695 Other income, net 3,027 3,716 8,042 15,437 Income before income taxes 34,332 30,904 89,821 89,132 Provision for income taxes 11,556 11,770 26,636 34,502 Net Income $ 22,776 $ 19,134 $ 63,185 $ 54,630 Net income per share - basic $ 0.29 $ 0.24 $ 0.80 $ 0.66 Weighted average shares - basic 78,603 81,096 78,958 83,218 Net income per share - diluted $ 0.29 $ 0.23 $ 0.79 $ 0.65 Weighted average shares - diluted 79,612 81,951 80,014 84,308 Non-GAAP Financial Measures Net income as reported $ 22,776 $ 19,134 $ 63,185 $ 54,630 Stock-based compensation expense, net of tax (4) 9,157 11,037 27,494 33,310 Restructuring charges, net of tax (2) - - 2,957 - Legal settlement, net of tax (3) - - 913 - Net income excluding stock-based compensation, restructuring charges and legal settlement $ 31,933 $ 30,171 $ 94,549 $ 87,940 Net income per share excluding stock-based compensation, restructuring charges & legal settlement (non-GAAP) - diluted $ 0.40 $ 0.37 $ 1.18 $ 1.04 Weighted average shares - diluted 79,612 81,951 80,014 84,308 (1) Includes stock-based compensation as follows: Cost of net revenues $ 1,211 $ 1,065 $ 3,680 $ 3,170 Sales and marketing 5,136 5,846 16,519 18,438 Research and development 3,816 4,116 12,198 12,220 General and administrative 2,394 3,790 8,330 11,992 Tax effect of stock-based compensation (3,400 ) (3,780 ) (13,233 ) (12,510 ) $ 9,157 $ 11,037 $ 27,494 $ 33,310 (2) Includes restructuring charges as follows: Loss on facility exit $ - $ - $ 2,194 $ - Restructuring charges - - 2,135 - Tax effect of loss on facility exit and restructuring charges - - (1,372 ) - $ - $ - $ 2,957 $ - (3) Includes legal settlement as follows: Legal settlement $ - $ - $ 1,337 $ - Tax effect of legal settlement - - (424 ) - $ - $ - $ 913 $ - (4) Stock-based compensation is accounted for in accordance with Financial Accounting Standards Board Statement No. 123(R), "Share-Based Payments" using the attribution method for recognizing compensation expense. -------------------------------------------------------------------------------
F5 Networks, Inc. Condensed Consolidated Statements of Cash Flows (unaudited, in thousands) Nine months ended June 30, 2009 2008 Operating activities Net income $ 63,185 $ 54,630 Adjustments to reconcile net income to net cash provided by operating activities: Loss on disposition of assets and investments 20 18 Stock-based compensation 40,727 45,820 Provisions for doubtful accounts and sale returns 2,552 1,887 Depreciation and amortization 20,432 17,362 Deferred income taxes 1,352 478 Gain on auction rate securities put option (3,788 ) - Loss on trading auction rate securities 3,788 - Changes in operating assets and liabilities, net of amounts acquired: Accounts receivable 2,869 (8,083 ) Inventories (3,442 ) 1,009 Other current assets (6,201 ) (5,595 ) Other assets (512 ) (1,673 ) Accounts payable and accrued liabilities (2,490 ) (9,554 ) Deferred revenue 24,873 38,448 Net cash provided by operating activities 143,365 134,747 Investing activities Purchases of investments (329,694 ) (421,697 ) Maturities of investments 256,091 500,672 Investment of restricted cash 5 - Acquisition of intangible assets (706 ) - Acquisition of businesses, net of cash acquired - (995 ) Purchases of property and equipment (8,232 ) (23,201 ) Net cash (used in) provided by investing activities (82,536 ) 54,779 Financing activities Tax expense from nonqualified stock options (2,758 ) (664 ) Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan 15,326 17,075 Repurchase of common stock (63,311 ) (150,000 ) Net cash used in financing activities (50,743 ) (133,589 ) Net increase in cash and cash equivalents 10,086 55,937 Effect of exchange rate changes on cash and cash equivalents (100 ) (1,049 ) Cash and cash equivalents, beginning of period 78,303 54,296 Cash and cash equivalents, end of period $ 88,289 $ 109,184 -------------------------------------------------------------------------------
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