F5 Networks Announces Fourth Quarter And Fiscal 2013 Results

F5 Networks, Inc. (NASDAQ: FFIV) today announced revenue of $395.3 million for the fourth quarter of fiscal year 2013, up 7 percent from $370.3 million in the prior quarter and 9 percent from $362.6 million in the fourth quarter of fiscal year 2012. For fiscal year 2013, revenue was $1.48 billion, up 8 percent from $1.38 billion in fiscal year 2012.

GAAP net income for the fourth quarter was $76.2 million ($0.97 per diluted share) compared to $68.2 million ($0.86 per diluted share) in the third quarter of 2013 and $67.7 million ($0.85 per diluted share) in the fourth quarter a year ago. GAAP net income for fiscal year 2013 was $277.3 million ($3.50 per diluted share) versus $275.2 million ($3.45 per diluted share) in fiscal year 2012.

Excluding the impact of stock-based compensation, amortization of purchased intangible assets and a loss on a facility sublease, non-GAAP net income for the fourth quarter was $99.2 million ($1.26 per diluted share), compared to $88.4 million ($1.12 per diluted share) in the prior quarter and $88.7 million ($1.12 per diluted share) in the fourth quarter of fiscal 2012. For fiscal year 2013, non-GAAP net income was $362.9 million ($4.59 per diluted share) versus $348.6 million ($4.37 per diluted share) in fiscal year 2012.

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

“The fourth quarter of fiscal 2013 was a positive finish to the year, characterized by strong demand for our new products and increasing traction in new and emerging market opportunities,” said John McAdam, F5 president and chief executive officer.

“Following the release of the BIG-IP 5000 and 7000 series at the end of the third quarter, our entire refreshed family of BIG-IP appliances was shipping in Q4, contributing to strong sales in the quarter and continuing momentum as we enter fiscal 2014. We also won several large deals driven by new and enhanced software modules, including Advanced Firewall Manager (AFM), Application Security Manager (ASM), Access Policy Manager (APM), and Policy Enforcement Manager (PEM). In addition, our Virtual Edition (software-only) products continued to gain traction, with revenue up 21 percent sequentially across a broad base of diverse customers.

“As reflected in the number of large deals involving AFM, ASM and APM, security was a key business driver in Q4, and we continued to expand our integrated security offerings with the acquisition of Versafe, a provider of fraud detection and prevention solutions, in early September. In the service provider segment, we further strengthened our pipeline of Diameter signaling and routing opportunities with a number of Traffix design wins at major carriers.

“While the global economy shows no signs of improvement in the near term, we are confident that the company-specific drivers that contributed to our growth in Q4 will continue into fiscal 2014. As we look ahead to Q1, we expect to see continued strength in our new product offerings against the backdrop of our typical Q1 seasonality,” McAdam said.

For the first quarter of fiscal 2014, ending December 31, the company has set a revenue target of $390 million to $400 million with a GAAP earnings target of $0.81 to $0.84 per diluted share. Excluding stock-based compensation expense and amortization of purchased intangible assets, the company’s non-GAAP earnings target is $1.17 to $1.20 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, 2013
 

Reconciliation of Expected Non-GAAP First Quarter Earnings
     

 

Low
   

High
 
Net income $ 63.7

$

66.1
Stock-based compensation expense $ 36.0 $ 36.0
Amortization of purchased intangible assets $ 2.1 $ 2.1
Tax effects related to above items ($10.2 ) ($10.2 )
Non-GAAP net income excluding stock-based compensation
expense and amortization of purchased intangible assets $ 91.6

$

94.0
Net income per share - diluted $ 0.81 $ 0.84
Non-GAAP net income per share - diluted $ 1.17 $ 1.20

Analyst/Investor Meeting

F5 will hold a meeting for analysts and investors at The Sofitel New York, from 8:00 a.m. to 12:30 p.m. Eastern Time on Thursday, November 14, 2013.

To register online, please visit: http://interact.f5.com/2013Q3SAIMInvestorRelations_2-Registration2.html.

For more information email the registration team at F5AIM@f5.com.

The meeting will also be webcast live and an archived version will be available through January 22, 2014. The link for the live webcast and the archived version is www.f5.com/about/investor-relations/events-calendar.html.

About F5 Networks

F5 Networks (NASDAQ: 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 framework 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. In addition, a loss on a facility sublease has been excluded from GAAP net income for the purpose of measuring non-GAAP earnings and earnings per share in the fourth fiscal quarter of 2013.

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,
  2013     2012  
 
Assets
Current assets
Cash and cash equivalents $ 189,693 $ 211,181
Short-term investments 352,450 320,970
Accounts receivable, net of allowances of $3,259 and $3,254 204,205 185,172
Inventories 19,026 17,410
Deferred tax assets 16,342 10,362
Other current assets   34,655     30,986  
Total current assets   816,371     776,081  
 
Property and equipment, net 63,522 59,604
Long-term investments 728,981 662,803
Deferred tax assets

22,389
35,478
Goodwill 523,727 348,239
Other assets, net   75,564     28,996  
Total assets $

2,230,554
  $ 1,911,201  
 
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable $ 37,313 $ 27,026
Accrued liabilities

92,608
86,409
Deferred revenue   421,429     352,594  
Total current liabilities  

551,350
    466,029  
 
Other long-term liabilities

25,202
21,078
Deferred revenue, long-term 109,944 94,694
Deferred tax liabilities   5,346     -  
Total long-term liabilities  

140,492
    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, 78,090 and 78,715 shares issued and outstanding
262,505 326,922
Accumulated other comprehensive loss (7,414 ) (3,829 )
Retained earnings   1,283,621     1,006,307  
Total shareholders' equity   1,538,712     1,329,400  
Total liabilities and shareholders' equity $

2,230,554
  $ 1,911,201  
 
       
F5 Networks, Inc.
Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)
 
 
Three Months Ended Twelve Months Ended
September 30, September 30,
  2013     2012     2013     2012  
 
Net revenues
Products $ 212,291 $ 209,718 $ 798,856 $ 818,555
Services   183,038     152,841     682,458     558,692  
Total 395,329 362,559 1,481,314 1,377,247
 
Cost of net revenues (1)(2)
Products 35,151 35,752 129,066 137,102
Services   31,792     26,929     123,981     99,066  
Total   66,943     62,681     253,047     236,168  
Gross Profit 328,386 299,878 1,228,267 1,141,079
 
Operating expenses (1)(2)(3)
Sales and marketing 119,836 116,298 483,041 445,595
Research and development 54,464 47,731 209,614 177,406
General and administrative 26,512 24,015 102,401 91,775
Loss on facility sublease   2,393     -     2,393     -  
Total   203,205     188,044     797,449     714,776  
 
Income from operations 125,181 111,834 430,818 426,303
Other income, net   732     909     7,274     5,911  
Income before income taxes 125,913 112,743 438,092 432,214
Provision for income taxes   49,682     45,026     160,778     157,028  
Net Income $ 76,231   $ 67,717   $ 277,314   $ 275,186  
 
 
Net income per share - basic $ 0.97   $ 0.86   $ 3.53   $ 3.48  
Weighted average shares - basic   78,353     78,980     78,565     79,135  
 
Net income per share - diluted $ 0.97   $ 0.85   $ 3.50   $ 3.45  
Weighted average shares - diluted   78,674     79,425     79,136     79,780  
 
 
Non-GAAP Financial Measures
 
Net income as reported $ 76,231 $ 67,717 $ 277,314 $ 275,186
Stock-based compensation expense (4) 22,031 26,343 104,212 95,348
Amortization of purchased intangible assets (5) 1,033 1,610 4,131 4,843
Acquisition-related charges (5) - - - 750
Loss on facility sublease 2,393 - 2,393 -
Tax effects related to above items (2,538 ) (6,965 ) (25,114 ) (27,495 )

Net income excluding stock-based compensation, amortization of purchased intangible
       
assets, acquisition-related charges and loss on facility sublease (non-GAAP) - diluted $ 99,150   $ 88,705   $ 362,936   $ 348,632  
 
Net income per share excluding stock-based compensation, amortization of purchased intangible
assets, acquisition-related charges and loss on facility sublease (non-GAAP) - diluted $ 1.26   $ 1.12   $ 4.59   $ 4.37  
 
Weighted average shares - diluted   78,674     79,425     79,136     79,780  
 
(1) Includes stock-based compensation as follows:
Cost of net revenues $ 2,258 $ 3,082 $ 11,118 $ 10,910
Sales and marketing 7,945 10,043 39,478 36,988
Research and development 7,638 8,036 32,668 27,876
General and administrative   4,190     5,182     20,948     19,574  
$ 22,031   $ 26,343   $ 104,212   $ 95,348  
 
(2) Includes amortization of purchased intangible assets as follows:
Cost of net revenues $ 958 $ 1,458 $ 3,831 $ 4,361
Sales and marketing   75       152       300       482  
$ 1,033     $ 1,610     $ 4,131     $ 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,
  2013     2012  
 
Operating activities
Net income $ 277,314 $ 275,186
Adjustments to reconcile net income to net cash provided by operating activities:
Realized (gain) loss on disposition of assets and investments (187 ) 546
Stock-based compensation 104,212 95,348
Provisions for doubtful accounts and sales returns 1,025 1,572
Depreciation and amortization 40,005 35,139
Deferred income taxes

474
(4,293 )
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable (18,867 ) (20,207 )
Inventories (1,617 ) (262 )
Other current assets (3,614 ) (998 )
Other assets 683 (134 )
Accounts payable and accrued liabilities

16,790
9,953
Deferred revenue   83,475     103,587  
Net cash provided by operating activities   499,693     495,437  
 
Investing activities
Purchases of investments (938,571 ) (1,059,853 )
Maturities of investments 613,927 784,601
Sales of investments 212,011 81,444
Increase in restricted cash (612 ) (19 )
Acquisition of intangible assets - (250 )
Acquisition of businesses, net of cash acquired (212,642 ) (128,335 )
Purchases of property and equipment   (26,583 )   (29,867 )
Net cash used in investing activities   (352,470 )   (352,279 )
 
Financing activities
Excess tax benefit from stock-based compensation 4,091 10,371
Proceeds from the exercise of stock options and
purchases of stock under employee stock purchase plan 29,591 25,174
Repurchase of common stock   (200,000 )   (184,776 )
Net cash used in financing activities   (166,318 )   (149,231 )
 
Net decrease in cash and cash equivalents (19,095 ) (6,073 )
Effect of exchange rate changes on cash and cash equivalents (2,393 ) 470
Cash and cash equivalents, beginning of period   211,181     216,784  
Cash and cash equivalents, end of period $ 189,693   $ 211,181  

Copyright Business Wire 2010

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