F5 Networks Announces Fourth Quarter and Fiscal Year 2018 Results

Delivers fiscal year 2018 revenue growth of 3.4% with strong operational performance

F5 Networks, Inc. FFIV today announced revenue of $562.7 million for the fourth quarter of fiscal 2018, up 4.6% from $538.0 million in the fourth quarter of fiscal 2017. Growth compared with the fourth quarter of fiscal year 2017 was driven by continued momentum in software solutions, which powered continued year over year product revenue growth.

GAAP net income for the fourth quarter of fiscal year 2018 was $132.9 million, or $2.18 per diluted share, compared to $135.7 million, or $2.14 per diluted share in the fourth quarter of fiscal year 2017. Non-GAAP net income for the fourth quarter of fiscal year 2018 was $177.0 million, or $2.90 per diluted share, compared to $154.9 million, or $2.44 per diluted share in the fourth quarter of fiscal year 2017.¹

For fiscal year 2018, the company delivered revenue of $2,161.4 million compared to revenue of $2,090.0 million in fiscal year 2017. GAAP net income in fiscal year 2018 was $453.7 million, or $7.32 per diluted share, compared to $420.8 million, or $6.50 per diluted share in fiscal year 2017. Non-GAAP net income for fiscal year 2018 was $612.1 million, or $9.87 per diluted share, compared to $542.9 million, or $8.38 per diluted share in fiscal year 2017.¹

A reconciliation of net income, earnings per share, and other measures on a GAAP to non-GAAP basis is included on the attached Consolidated Income Statements.

"Our 5% year over year revenue growth in the fourth quarter was driven by demand for F5's software solutions which provide mission-critical application and security services in evolving multi-cloud environments," said François Locoh-Donou, F5 President and Chief Executive Officer. "In addition, during the quarter the team drove strong operating performance across the business, resulting in record non-GAAP fourth quarter earnings."

"Building on the momentum of our Cloud Edition and new stand-alone security offerings introduced in fiscal year 2018, we have new offerings planned for 2019 including Cloud-Native Applications Services and F5aaS," continued Locoh-Donou. "We expect demand for these new offerings, along with additional new security products and solutions, to be key drivers of our future growth."

For the first quarter of fiscal 2019, ending December 31, the company has set a revenue goal of $542 million to $552 million with a non-GAAP earnings target of $2.51 to $2.54 per diluted share.

All forward-looking non-GAAP measures included in the outlook exclude estimates for amortization of intangible assets, share-based compensation expenses, significant effects of tax legislation and judicial or administrative interpretation of tax regulations, including the impact of income tax reform, non-recurring income tax adjustments, valuation allowance on deferred tax assets, and the income tax effect of non-GAAP exclusions, and do not include the impact of any future acquisitions or divestitures, restructuring charges, facility exit costs, or other non recurring charges that may occur in the period. F5 is unable to provide a reconciliation of non-GAAP guidance measures to corresponding U.S. generally accepted accounting principles or GAAP measures on a forward-looking basis without unreasonable effort due to the overall high variability and low visibility of most of the foregoing items that have been excluded. Material changes to any one of these items could have a significant effect on our guidance and future GAAP results. Certain exclusions, such as amortization of intangible assets and share-based compensation expenses, are generally incurred each quarter, but the amounts have historically and may continue to vary significantly from quarter to quarter.

¹ Non-GAAP net income for the fourth quarter of 2018 and fiscal year 2018 excludes the impact of stock-based compensation, amortization of purchased intangible assets, litigation expenses, restructuring charges, facility exit costs, gain on the sale of a patent and non-recurring tax expenses and benefits.

Live Webcast and Conference Call

F5 will host a live webcast and conference call to review its financial results and outlook today, October 24, 2018 at 1:30 pm PT. The live webcast can be accessed at https://edge.media-server.com/m6/p/dabky4a8. To participate via telephone in the U.S., dial 800-593-9913. Outside the U.S., dial +1-212-287-1824. Please call 10 minutes prior to the call start time. The webcast replay will be archived on F5's website.

Forward-Looking Statements

This press release contains forward-looking statements including, among other things, statements regarding the continuing strength and momentum of F5's business, future financial performance, sequential growth, projected revenues including target revenue and earnings ranges, income, earnings per share, share amount and share price assumptions, demand for application delivery networking, application delivery services, security, and software products, expectations regarding future services and products, expectations regarding future customers, markets and the benefits of products, and other statements that are not historical facts and which are forward-looking statements. These forward-looking statements are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors. 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, optimization, and software and F5aaS offerings; the timely development, introduction and acceptance of additional new products and features by F5 or its competitors; competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into F5's markets, and new product and marketing initiatives by our competitors; 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; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; litigation involving patents, intellectual property, shareholder and other matters, and governmental investigations; natural catastrophic events; a pandemic or epidemic; 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; F5's 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, including our most recent reports on Form 10-K and Form 10-Q and current reports on Form 8-K that we may file from time to time, which could cause actual results to vary from expectations. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in F5's most recent reports on Forms 10-Q and 10-K as each may be amended from time to time. 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, acquisition-related charges, net of taxes, and certain non-recurring tax expenses and benefits, 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, litigation expense, restructuring charges, facility exit costs, gain on sale of patents, non-recurring tax expenses and benefits, 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. In addition, restructuring charges have been excluded from GAAP net income for the purpose of measuring non-GAAP earnings and earnings per share in fiscal years 2017 and 2018, and litigation expenses primarily related to a jury verdict and other associated costs of that patent litigation have been excluded in fiscal 2017. Fiscal 2018 non-GAAP results also exclude one-time costs associated with relocation of the company's corporate headquarters and a gain realized on the sale of a patent.

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 Consolidated Income Statements entitled "Non-GAAP Financial Measures."

About F5

F5 (NASDAQ: FFIV) makes apps go faster, smarter, and safer for the world's largest businesses, service providers, governments, and consumer brands. F5 delivers cloud and security solutions that enable organizations to embrace the application infrastructure they choose without sacrificing speed and control. For more information, go to f5.com. You can also follow @f5networks on Twitter or visit us on LinkedIn and Facebook for more information about F5, its partners, and technologies.

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