Market Overview

F5 Networks Announces Fourth Quarter and Fiscal 2012 Results

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SEATTLE--(BUSINESS WIRE)--

F5 Networks, Inc. (NASDAQ: FFIV) today announced revenue of $362.6 million for the fourth quarter of fiscal year 2012, up 3 percent from $352.6 million in the prior quarter and 15 percent from $314.6 million in the fourth quarter of fiscal year 2011. For fiscal year 2012, revenue was $1.38 billion, up 20 percent from $1.15 billion in fiscal year 2011.

GAAP net income for the fourth quarter was $67.7 million ($0.85 per diluted share) compared to $72.3 million ($0.91 per diluted share) in the third quarter of 2012 and $67.6 million ($0.84 per diluted share) in the fourth quarter a year ago. GAAP net income for the year was $275.2 million ($3.45 per diluted share) versus $241.4 million ($2.96 per diluted share) in fiscal year 2011.

Excluding the impact of stock-based compensation and amortization of purchased intangible assets, non-GAAP net income for the fourth quarter was $88.7 million ($1.12 per diluted share), compared to $90.6 million ($1.14 per diluted share) in the prior quarter and $85.2 million ($1.06 per diluted share) in the fourth quarter of fiscal 2011. For fiscal year 2012, non-GAAP net income was $348.6 million ($4.37 per diluted share) versus $308.3 million ($3.78 per diluted share) in fiscal year 2011.

The company's GAAP and non-GAAP net income reflect higher than expected effective tax rates for fiscal year 2012. This resulted from a higher than expected impact of foreign permanent tax differences and a higher blended effective state tax rate which resulted in a GAAP effective tax rate for the fourth quarter of 39.9 percent. The non-GAAP effective tax rate for the quarter was 37.0 percent.

A reconciliation of GAAP net income to non-GAAP net income is included on the attached Consolidated Statements of Operations.

“F5 grew sequentially and year over year throughout fiscal 2012,” said F5 president and chief executive officer John McAdam. “But after a strong first half, revenue growth slowed in the second half of the year. Beginning in the third quarter and continuing through Q4, slowing growth in product revenue reflected smaller deal sizes, particularly among large U.S. enterprise and telecommunications customers. Annual U.S. revenue grew just over 16 percent from fiscal 2011. By contrast, international revenue grew nearly 24 percent in fiscal 2012, resulting in overall revenue growth of 20 percent for the year.

“We maintained strong product gross margins for the quarter and the year at 83 percent and as a result, we were able to add 540 employees in fiscal 2012, including 125 in Q4, while delivering a non-GAAP operating margin of 39 percent,” said McAdam.

During the fourth quarter, the company increased deferred revenue by $13.4 million to $447.3 million, up 30 percent from the fourth quarter of fiscal 2011. Cash flow from operations was $149 million in the fourth quarter and $495 million for the year. After repurchasing approximately 1.7 million shares of F5 common stock during fiscal 2012, the company ended the year with $1.2 billion in cash and investments.

“As we enter fiscal 2013, it is difficult to predict what turns the economy will take. But as we look out over the year, we believe that changes in the evolving technology landscape are creating new opportunities for growth and that our technology roadmap and product deliverables will enable us to capitalize on those changes. On October 16, 2012 we introduced BIG-IP 4200v, the first in a series of new appliances that will replace our entry-level and mid-range BIG-IP platforms and extend our market leadership in price/performance and functionality. In addition to these new platforms, we will be introducing significant performance and functionality enhancements to TMOS and new software modules that will expand the array of integrated application delivery functions currently available on our platforms and in virtual editions. We will also expand and upgrade our VIPRION family of chassis products over the next several quarters.

“While we are excited about these new products and their potential to drive revenue growth, current macroeconomic conditions and our expectation of normal Q1 seasonality have tempered our outlook for the near term,” said McAdam.

For the first quarter of fiscal 2013, ending December 31, the company has set a revenue target of $363 million to $370 million with a GAAP earnings target of $0.86 to $0.88 per diluted share. Excluding stock-based compensation expense and amortization of purchased intangible assets, the company's non-GAAP earnings target is $1.14 to $1.16 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, 2012

 

Reconciliation of Expected Non-GAAP First Quarter Earnings

 

Low

 

High

 
Net income   $ 68.6 $ 70.2
Stock-based compensation expense $ 28.5

$

28.5

Amortization of purchased intangible assets

 

$

1.0

$

1.0

Tax effects related to above items

($

7.5)

 

($

7.5)

 

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

90.6

  $ 92.2  
 
Net income per share - diluted $ 0.86

$

0.88

Non-GAAP net income per share - diluted $ 1.14

$

1.16

 

Analyst/Investor Meeting

F5 will hold a meeting for analysts and investors at The Roosevelt Hotel in New York City, from 8:00 a.m. to 12:30 p.m. Eastern Time on Thursday, November 15, 2012.

To register online, please visit: https://www.f5.com/about/investor-relations/analyst-meeting/

For more information contact Darlene Henderson (206.272.6170) or email 2012AIM@f5.com.

The meeting will also be webcast live and an archived version will be available through January 23, 2013. The link for the live webcast and the archived version is http://www.f5.com/about/investor-relations/events-calendar.html.

About F5 Networks

F5 Networks, Inc., the global leader in Application Delivery Networking (ADN), helps the world's largest enterprises and service providers realize the full value of virtualization, cloud computing, and on-demand IT. F5® solutions help integrate disparate technologies to provide greater control of the infrastructure, improve application delivery and data management, and give users seamless, secure, and accelerated access to applications from their corporate desktops and smart devices. An open architectural framework enables F5 customers to apply business policies at “strategic points of control” across the IT infrastructure and into the public cloud. F5 products give customers the agility they need to align IT with changing business conditions, deploy scalable solutions on demand, and manage mobile access to data and services. Enterprises, service and cloud providers, and leading online companies worldwide rely on F5 to optimize their IT investments and drive business forward. For more information, go to 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.

Use of non-GAAP Financial Information

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)
 
 

September 30,

September 30,
  2012     2011  
 

Assets

Current assets
Cash and cash equivalents $ 211,181 $ 216,784
Short-term investments 320,970 325,766
Accounts receivable, net of allowances of $3,254 and $2,898 185,172 165,676
Inventories 17,410 17,149
Deferred tax assets 10,362 8,391
Other current assets   30,986     29,907  
Total current assets   776,081     763,673  
 
Property and equipment, net 59,604 47,998
Long-term investments 662,803 470,203
Deferred tax assets 35,478 34,762
Goodwill 348,239 234,691
Other assets, net   28,996     17,222  
Total assets $ 1,911,201   $ 1,568,549  
 
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 27,026 $ 33,525
Accrued liabilities 86,409 67,902
Deferred revenue   352,594     270,880  
Total current liabilities   466,029     372,307  
 
Other long-term liabilities 21,078 18,388
Deferred revenue, long-term   94,694     72,418  
Total long-term liabilities   115,772     90,806  
 
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, 78,715 and 79,145
shares issued and outstanding 326,922 380,737
Accumulated other comprehensive loss (3,829 ) (6,422 )
Retained earnings   1,006,307     731,121  
Total shareholders' equity   1,329,400     1,105,436  
Total liabilities and shareholders' equity $ 1,911,201   $ 1,568,549  
 
       
F5 Networks, Inc.
Consolidated Statements of Operations

(unaudited, in thousands, except per share amounts)

 
 
Three Months Ended Twelve Months Ended
September 30, September 30,
  2012     2011     2012     2011  
 
Net revenues

Products

$ 209,718 $ 197,446 $ 818,555 $ 721,975
Services   152,841     117,169     558,692     429,859  
Total 362,559 314,615 1,377,247 1,151,834
 
Cost of net revenues (1)(2)
Products 35,752 34,485 137,102 129,325
Services   26,929     21,435     99,066     78,679  
Total   62,681     55,920     236,168     208,004  
Gross Profit 299,878 258,695 1,141,079 943,830
 
Operating expenses (1)(2)(3)
Sales and marketing 116,298 100,945 445,595 370,735
Research and development 47,731 36,552 177,406 138,910
General and administrative   24,015     21,867     91,775     83,523  
Total   188,044     159,364     714,776     593,168  
 
Income from operations 111,834 99,331 426,303 350,662
Other income, net   909     4,087     5,911     10,089  
Income before income taxes 112,743 103,418 432,214 360,751
Provision for income taxes   45,026     35,808     157,028     119,354  
Net Income $ 67,717   $ 67,610   $ 275,186   $ 241,397  
 
 
Net income per share - basic $ 0.86   $ 0.84   $ 3.48   $ 2.99  
Weighted average shares - basic   78,980     80,317     79,135     80,658  
 
Net income per share - diluted $ 0.85   $ 0.84   $ 3.45   $ 2.96  
Weighted average shares - diluted   79,425     80,766     79,780     81,482  
 
 
Non-GAAP Financial Measures
 
Net income as reported $ 67,717 $ 67,610 $ 275,186 $ 241,397
Stock-based compensation expense (4) 26,343 22,134 95,348 89,747
Amortization of purchased intangible assets (5) 1,610 - 4,843 -
Acquisition-related charges (5) - - 750 -
Tax effects related to above items (6,965 ) (4,499 ) (27,495 ) (22,835 )
Net income excluding stock-based compensation, amortization of purchased        
intangible assets and acquisition-related charges (non-GAAP) - diluted $ 88,705   $ 85,245   $ 348,632   $ 308,309  
 
Net income per share excluding stock-based compensation, amortization of
purchased intangible assets and acquisition-related charges (non-GAAP) - diluted $ 1.12   $ 1.06   $ 4.37   $ 3.78  
 
Weighted average shares - diluted   79,425     80,766     79,780     81,482  
 
(1) Includes stock-based compensation as follows:
Cost of net revenues $ 3,082 $ 2,565 $ 10,910 $ 9,358
Sales and marketing 10,043 8,756 36,988 34,682
Research and development 8,036 5,913 27,876 23,312
General and administrative   5,182     4,900     19,574     22,395  
$ 26,343   $ 22,134   $ 95,348   $ 89,747  
 
(2) Includes amortization of purchased intangible assets as follows:
Cost of net revenues $ 1,458 $ - $ 4,361 $ -
Sales and marketing   152       -       482       -  
$ 1,610     $ -     $ 4,843     $ -  
 
(3) Includes acquisition-related charges as follows:
General and administrative $ -     $ -     $ 750     $ -  
$ -     $ -     $ 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)
 
 
Years Ended
September 30,
  2012     2011  
 
Operating activities
Net income $ 275,186 $ 241,397
Adjustments to reconcile net income to net cash provided by operating activities:
Realized loss (gain) on disposition of assets and investments 546 (163 )
Stock-based compensation 95,348 89,747
Provisions for doubtful accounts and sales returns 1,572 982
Depreciation and amortization 35,139 20,887
Deferred income taxes (4,293 ) 4,487
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable (20,207 ) (54,526 )
Inventories (262 ) 1,666
Other current assets (998 ) 8,000
Other assets (134 ) 81
Accounts payable and accrued liabilities 9,953 20,476
Deferred revenue   103,587     83,904  
Net cash provided by operating activities   495,437     416,938  
 
Investing activities
Purchases of investments (1,059,853 ) (979,597 )
Maturities of investments 784,601 795,142
Sales of investments 81,444 80,877
(Increase) decrease in restricted cash (19 ) 19
Acquisition of intangible assets (250 ) (5,715 )
Acquisition of businesses, net of cash acquired (128,335 ) -
Purchases of property and equipment   (29,867 )   (30,445 )
Net cash used in investing activities   (352,279 )   (139,719 )
 
Financing activities
Excess tax benefit from stock-based compensation 10,371 23,623
Proceeds from the exercise of stock options and
purchases of stock under employee stock purchase plan 25,174 21,239
Repurchase of common stock   (184,776 )   (271,526 )
Net cash used in financing activities   (149,231 )   (226,664 )
 
Net (decrease) increase in cash and cash equivalents (6,073 ) 50,555
Effect of exchange rate changes on cash and cash equivalents 470 (2,525 )
Cash and cash equivalents, beginning of period   216,784     168,754  
Cash and cash equivalents, end of period $ 211,181   $ 216,784  
 

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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