F5 Networks Announces Results for First Quarter of Fiscal 2013

F5 Networks Announces Results for First Quarter of Fiscal 2013

SEATTLE--(BUSINESS WIRE)-- For the first quarter of fiscal 2013, F5 Networks, Inc. (NAS: FFIV) announced revenue of $365.5 million, up 1 percent from $362.6 million in the prior quarter and 13 percent from $322.4 million in the first quarter of fiscal 2012.

GAAP net income was $69.5 million ($0.88 per diluted share), compared to $67.7 million ($0.85 per diluted share) in the prior quarter and $66.5 million ($0.83 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 $90.6 million ($1.14 per diluted share), compared to $88.7 million ($1.12 per diluted share) in the prior quarter and $82.2 million ($1.03 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.

"During the first quarter, strong sales to North American enterprises and service providers were offset by a substantial slowdown in U.S. Federal sales," said John McAdam, F5 president and chief executive officer. "Japan sales were also weak during the quarter, in contrast to continuing strength in Europe and solid year-over-year growth in the rest of the Asia-Pacific region.

"A key driver of product revenue in the quarter was strong demand for BIG-IP 4200v, the first in our series of new ADC appliances, which we introduced in mid-October. Recently, we began shipping our new entry-level appliances, the 2000 series, which will be announced during the next few weeks along with our new high-end appliance, BIG-IP 10200, and our 8-blade VIPRION 4800 chassis.

"During the quarter, sales of our software modules and virtual edition (VE) products continued to gain traction. Very shortly, we will be announcing general availability of our Advanced Firewall Manager (AFM), as well as enhanced versions of Application Security Manager (ASM) and Access Policy Manager (APM), key components of our Application Delivery Firewall solution. In addition we will be launching new high-performance versions of all our BIG-IP VE products.

"As these and other new products enter the market over the next two quarters, we believe they will have a positive impact on our product revenue and continue to expand our addressable market," McAdam said.

F5 added 95 employees during the quarter and achieved a non-GAAP operating margin of 37.4 percent. The company also continued to strengthen its financial position, generating $145 million in cash from operations. After repurchasing 555,243 shares of outstanding common stock the company ended the quarter with $1.29 billion in cash and investments.

For the current quarter, ending March 31, management has set a revenue goal of $370 million to $380 million with a GAAP earnings target of $0.93 to $0.96 per diluted share and a non-GAAP earnings target of $1.21 to $1.24 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, 2013



Reconciliation of Expected Non-GAAP Second Quarter Earnings







Net income$74.0$76.4
Stock-based compensation expense$28.5$28.5
Amortization of purchased intangible assets$1.0



Tax effects related to above items







Non-GAAP net income excluding stock-based compensation expense and amortization of purchased intangible assets

$ 96.0 




Net income per share - diluted$ 






Non-GAAP net income per share - diluted$ 







About F5 Networks

F5 Networks (NAS: 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 Platform 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 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 Condensed Consolidated Statement of Operations entitled "GAAP to Non-GAAP Reconciliation."

F5 Networks, Inc.
Consolidated Balance Sheets
(unaudited, in thousands)
December 31,September 30,
Current assets
Cash and cash equivalents$184,563$211,181
Short-term investments333,174320,970
Accounts receivable, net of allowances of $3,309 and $3,254209,078185,172
Deferred tax assets10,33510,362
Other current assets 35,916  30,986 
Total current assets 791,789  776,081 
Property and equipment, net62,02659,604
Long-term investments771,300662,803
Deferred tax assets36,23435,478
Other assets, net 28,064  28,996 
Total assets$2,037,652 $1,911,201 
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable$32,221$27,026
Accrued liabilities117,41386,409
Deferred revenue 379,944  352,594 
Total current liabilities 529,578  466,029 
Other long-term liabilities21,16321,078
Deferred revenue, long-term 100,612  94,694 
Total long-term liabilities 121,775  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, 78,574 and 78,715 shares issued and outstanding

Accumulated other comprehensive loss(4,540)(3,829)
Retained earnings 1,075,800  1,006,307 
Total shareholders' equity 1,386,299  1,329,400 
Total liabilities and shareholders' equity$2,037,652 $1,911,201 
F5 Networks, Inc.

Consolidated Statements of Operations

(unaudited, in thousands, except per share amounts)
Three months endedThree months endedThree months ended
December 31,September 30,December 31,
Net revenues
Services 160,739  152,841  125,878 
Cost of net revenues (1)(2)
Services 29,093  26,929  22,406 
Total 60,885  62,681  55,606 
Gross profit304,566299,878266,826
Operating expenses (1)(2)
Sales and marketing122,268116,298106,238
Research and development48,54147,73139,122
General and administrative 24,673  24,015  21,677 
Total 195,482  188,044  167,037 
Income from operations109,084111,83499,789
Other income, net 1,550  909  1,861 
Income before income taxes110,634#112,743101,650
Provision for income taxes 41,141  45,026  35,158 
Net Income$69,493 $67,717 $66,492 
Net income per share - basic$0.88 $0.86 $0.84 
Weighted average shares - basic 78,789  78,980  79,272 
Net income per share - diluted$0.88 $0.85 $0.83 
Weighted average shares - diluted 79,278  79,425  79,822 
Non-GAAP Financial Measures
Net income as reported$69,493$67,717$66,492
Stock-based compensation expense (3)26,71026,34322,123
Amortization of purchased intangible assets (4)1,0331,610-
Tax effects related to above items
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