F5 Networks Announces Fourth Quarter and Fiscal 2008 Results
SEATTLE--(BUSINESS WIRE)--
F5 Networks, Inc. (NASDAQ:FFIV) today announced revenue of $171.3 million for the fourth quarter of fiscal 2008, up 3 percent from $165.6 million in the prior quarter and 18 percent from $145.6 million in the fourth quarter of fiscal 2007. For fiscal year 2008, revenue was $650.2 million, up 24 percent from $525.7 million in fiscal 2007.
GAAP net income for the fourth quarter was $19.7 million ($0.24 per diluted share) compared to $19.1 million ($0.23 per diluted share) in the third quarter of 2008 and $12.9 million ($0.15 per diluted share) in the fourth quarter a year ago. GAAP net income for the year was $74.3 million ($0.89 per diluted share) versus $77.0 million ($0.90 per diluted share) in fiscal year 2007.
Excluding the impact of stock-based compensation and a non-recurring loss on facility exit and sublease, non-GAAP net income for the fourth quarter was $33.4 million ($0.41 per diluted share), compared to $30.2 million ($0.37 per diluted share) in the prior quarter and $34.1 million ($0.40 per diluted share) in the fourth quarter of fiscal 2007 (which also excluded in-process research and development expenses related to the company's acquisition of Acopia Networks, Inc. in September 2007). For fiscal year 2008, non-GAAP net income was $121.3 million ($1.45 per diluted share) versus $122.9 million ($1.44 per diluted share) in fiscal year 2007.
A reconciliation of GAAP net income to non-GAAP net income is included on the attached Consolidated Statements of Operations.
Noting that the fourth quarter of 2008 marked F5's 23rd consecutive quarter of sequential revenue growth, president and chief executive officer John McAdam said he was generally pleased with the results in the context of a difficult global economy.
"Although fourth quarter revenue was slightly below our expectations and guidance, robust demand for our new entry-level products outstripped our ability to fill all the orders we received during the quarter and resulted in a significant year-end backlog of orders for those products. Despite lower than expected revenue, our non-GAAP operating margin continued to improve, and earnings exceeded our targets on both a GAAP and non-GAAP basis," McAdam said.
During the fourth quarter, F5 also continued to strengthen its balance sheet. Deferred revenue, principally from service maintenance contracts, was $145 million at year end. Cash flow from operations was $59 million in the fourth quarter and $194 million for the year. During fiscal 2008, the company repurchased $200 million of F5 common stock and ended the year with $451 million in cash and investments.
For first quarter of fiscal 2009, ending December 31st, the company has set a revenue target of $172 million to $174 million and a GAAP earnings target of $0.26 to $0.27 per diluted share. Excluding stock-based compensation expense, the company's non-GAAP earnings target is $0.41 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
December 31, 2008
Reconciliation of Expected Non-GAAP First Quarter
Earnings Low High
----------------------------------------------------------------------
Net income $ 21.2 $ 22.0
Stock-based compensation expense, net of tax 11.9 11.9
--------- --------
Pro forma net income excluding stock-based
compensation expense $ 33.1 $ 33.9
========= ========
Net income per share - diluted $ 0.26 $ 0.27
========= ========
Pro forma net income per share - diluted $ 0.41 $ 0.42
========= ========
Share Repurchase Program
The company also announced today that its board of directors approved the repurchase of up to an additional $200 million of the company's outstanding common stock.
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 program does not require the purchase of any minimum number of shares and may be suspended, modified or discontinued at any time without prior notice.
Analyst/Investor Meeting
F5 will hold a meeting for analysts and investors at the company's corporate headquarters in Seattle, Washington, from 8:00 a.m. to noon Pacific Time on Tuesday, November 4, 2008.
To register online for this event go to:
f5.com
For more information contact Darlene Henderson (206.272.6170) or email 2008analystmeeting@f5.com.
The meeting will also be webcast live and an archived version will be available through Thursday, December 4. The link for the live webcast and the archived version is f5.com.
About F5 Networks
F5 Networks is the global leader in Application Delivery Networking. F5 provides solutions that make applications secure, fast, and available for everyone. By adding intelligence and manageability into the network to offload applications and optimize the data storage layer, F5 extends the power of intelligent networking to all levels of application delivery. F5's extensible architecture optimizes applications, delivers application reliability, and protects the application and network. Enterprise organizations, service providers and Web 2.0 content providers worldwide trust F5 to keep their applications running. The company is headquartered in Seattle, Washington with offices worldwide. 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." In addition, in-process research and development ("IPR&D") expenses and a loss on facility exit and sublease have been excluded from GAAP net income for the purpose of measuring non-GAAP earnings and earnings per share in the fourth fiscal quarters of 2007 and 2008, respectively. IPR&D is a non-recurring, non-cash expense which reflects the amount allocated to IPR&D that the company acquired in connection with its acquisition of Acopia Networks, Inc. in the fourth fiscal quarter of 2007. The loss on facility exit and sublease is a non-recurring loss related to the closure of F5's office in Bellevue, Washington and the subleasing of a portion of the office space in the 333 Elliott West building in Seattle, Washington in the fourth fiscal quarter of 2008.
Management believes that net income excluding stock-based compensation, in-process research and development and non-recurring one-time losses such as those related to the facility exit and sublease (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)
September 30, September 30,
2008 2007
------------- -------------
Assets
Current assets
Cash and cash equivalents $ 78,303 $ 54,296
Short-term investments 111,883 204,169
Accounts receivable, net of allowances
of $4,348 and $3,161 97,057 91,774
Inventories 10,148 10,672
Deferred tax assets 5,910 5,305
Other current assets 20,068 20,434
------------- -------------
Total current assets 323,369 386,650
------------- -------------
Restricted cash, long-term 2,748 3,959
Property and equipment, net 47,557 36,024
Long-term investments 261,086 216,366
Deferred tax assets 46,917 38,036
Goodwill 231,892 233,997
Other assets, net 25,654 29,256
------------- -------------
Total assets $ 939,223 $ 944,288
============= =============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 13,092 $ 25,525
Accrued liabilities 48,051 39,990
Deferred revenue 125,678 87,895
------------- -------------
Total current liabilities 186,821 153,410
------------- -------------
Other long-term liabilities 14,822 7,679
Deferred revenue, long-term 19,321 12,622
------------- -------------
Total long-term liabilities 34,143 20,301
------------- -------------
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 79,094 and 84,379
shares issued and outstanding 477,299 598,436
Accumulated other comprehensive loss (6,076) (564)
Retained earnings 247,036 172,705
------------- -------------
Total shareholders' equity 718,259 770,577
------------- -------------
Total liabilities and shareholders'
equity $ 939,223 $ 944,288
============= =============
F5 Networks, Inc.
Condensed Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)
Three months ended Twelve months ended
September 30, September 30,
------------------- -------------------
2008 2007 2008 2007
------------------- -------------------
Net revenues
Products $115,790 $106,982 $452,929 $392,921
Services 55,473 38,625 197,244 132,746
--------- --------- --------- ---------
Total 171,263 145,607 650,173 525,667
Cost of net revenues (1)
Products 26,584 23,683 102,400 84,094
Services 12,329 9,665 46,618 34,230
--------- --------- --------- ---------
Total 38,913 33,348 149,018 118,324
--------- --------- --------- ---------
Gross Profit 132,350 112,259 501,155 407,343
Operating expenses (1)
Sales and marketing 60,461 48,165 237,175 175,555
Research and development 26,367 19,929 103,394 69,030
General and administrative 14,632 11,196 56,001 49,256
In-process research and
development - 14,000 - 14,000
Loss on facility exit and
sublease 5,271 - 5,271 -
--------- --------- --------- ---------
Total 106,731 93,290 401,841 307,841
--------- --------- --------- ---------
Income from operations 25,619 18,969 99,314 99,502
Other income, net 3,513 7,355 18,950 28,191
--------- --------- --------- ---------
Income before income taxes 29,132 26,324 118,264 127,693
Provision for income taxes (1) 9,431 13,442 43,933 50,693
--------- --------- --------- ---------
Net Income $ 19,701 $ 12,882 $ 74,331 $ 77,000
========= ========= ========= =========
Net income per share - basic $ 0.25 $ 0.15 $ 0.90 $ 0.93
========= ========= ========= =========
Weighted average shares -
basic 79,754 84,305 82,290 83,205
========= ========= ========= =========
Net income per share - diluted $ 0.24 $ 0.15 $ 0.89 $ 0.90
========= ========= ========= =========
Weighted average shares -
diluted 80,785 85,792 83,428 85,137
========= ========= ========= =========
Non-GAAP Financial Measures
Net income as reported $ 19,701 $ 12,882 $ 74,331 $ 77,000
Stock-based compensation
expense, net of tax (3) 10,328 7,258 43,638 31,949
In-process research and
development - 14,000 - 14,000
Loss on facility exit and
sublease, net of tax (2) 3,321 - 3,321 -
Net income excluding stock-
based compensation, in-
process research and
development and loss on
facility exit and sublease
(Non-GAAP) $ 33,350 $ 34,140 $121,290 $122,949
========= ========= ========= =========
Net income per share excluding
stock-based compensation, in-
process research and
development and loss on
facility exit and sublease
(Non-GAAP) - diluted $ 0.41 $ 0.40 $ 1.45 $ 1.44
========= ========= ========= =========
Weighted average shares -
diluted 80,785 85,792 83,428 85,137
========= ========= ========= =========
(1) Includes stock-based
compensation as follows:
Cost of net revenues $ 1,175 $ 753 $ 4,345 $ 2,569
Sales and marketing 5,623 3,906 24,061 15,784
Research and development 4,106 2,689 16,326 10,230
General and administrative 3,858 2,857 15,850 12,630
Tax effect of stock based
compensation (4,434) (2,947) (16,944) (9,264)
--------- --------- --------- ---------
$ 10,328 $ 7,258 $ 43,638 $ 31,949
========= ========= ========= =========
(2) Includes loss on facility
exit and sublease as follows:
Loss on facility exit and
sublease $ 5,271 $ 5,271
Tax effect of loss on
facility exit and sublease (1,950) (1,950)
--------- ---------
$ 3,321 $ 3,321
========= =========
(3) 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.
Source: F5 Networks, Inc.
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