FFIV
$183.91
F5 Networks
$.69
.38%
Earnings Details
3rd Quarter June 2018
Wednesday, July 25, 2018 4:05:00 PM
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Summary

F5 Networks Beats

F5 Networks (FFIV) reported 3rd Quarter June 2018 earnings of $2.55 per share on revenue of $542.2 million. The consensus earnings estimate was $2.39 per share on revenue of $540.0 million. The Earnings Whisper number was $2.45 per share. Revenue grew 4.7% on a year-over-year basis.

The company said it expects fourth quarter non-GAAP earnings of $2.61 to $2.64 per share on revenue of $555.0 million to $565.0 million. The current consensus earnings estimate is $2.59 per share on revenue of $557.0 million for the quarter ending September 30, 2018.

F5 Networks Inc provides Application Delivery Networking (ADN) technology that secures and optimizes the delivery of network-based applications and the security, performance and availability of servers, and other network resources.

Results
Reported Earnings
$2.55
Earnings Whisper
$2.45
Consensus Estimate
$2.39
Reported Revenue
$542.2 Mil
Revenue Estimate
$540.0 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

F5 Networks Announces Third Quarter Fiscal 2018 Results

Appoints global sales leader; announces new dedicated SSL Orchestrator and Access Manager solutions

SEATTLE--(BUSINESS WIRE)-- F5 Networks, Inc. (NASDAQ: FFIV) today announced revenue of $542.2 million for the third quarter of fiscal 2018, up 4.7% from $517.8 million in the third quarter of fiscal 2017. Growth compared with the third quarter of fiscal 2017 was driven by our software solutions and services business.

GAAP net income for the third quarter of fiscal 2018 was $122.7 million, or $1.99 per diluted share, compared to $97.7 million, or $1.52 per diluted share in the third quarter of fiscal 2017. Excluding the impact of stock-based compensation, amortization of purchased intangible assets, and litigation expenses, non-GAAP net income for the third quarter of fiscal 2018 was $150.1 million, or $2.44 per diluted share, compared to $130.8 million, or $2.03 per diluted share in the third quarter of fiscal 2017.

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.

“I’m pleased with results for the third quarter,” said François Locoh-Donou, F5 President and Chief Executive Officer. “We continue to see momentum in our security and software business, traction in our public cloud offerings and customer excitement around new multi-cloud application solutions like BIG-IP Cloud Edition.

“In our just released Application Protection Report we note that while apps are vital to companies’ digital transformation, they have also become the largest threat vector for security breaches. Application security is a priority for every business and F5 is well positioned to help protect customers’ applications, both on-premises and across multiple clouds. With the announcement today of two new dedicated security products–F5 SSL Orchestrator and F5 Access Manager–we give security professionals advanced resources to help thwart today’s most sophisticated cyber-attacks.”

For the fourth quarter of fiscal 2018, ending September 30, the company has set a revenue goal of $555 million to $565 million with a GAAP earnings target of $1.77 to $1.80 per diluted share and a non-GAAP earnings target of $2.61 to $2.64 per diluted share.

A reconciliation of the company’s expected GAAP and non-GAAP earnings is provided in the following table:

 
Three months ended
September 30, 2018
(in millions, except per share amounts)
 
Reconciliation of Expected Non-GAAP Fourth Quarter Earnings Low   High
Net income $ 108.0 $ 109.8
Stock-based compensation expense $ 39.0 $ 39.0
Amortization of purchased intangible assets $ 2.8 $ 2.8
Restructuring charges $ 24.0 $ 24.0
Tax effects related to above items $ (14.3 ) $ (14.3 )
Non-GAAP net income excluding stock-based compensation expense, amortization of purchased intangible assets and restructuring charges $ 159.5   $ 161.3  
Net income per share - diluted $ 1.77   $ 1.80  
Non-GAAP net income per share - diluted $ 2.61   $ 2.64  
 

Chad Whalen Promoted to Executive Vice President, Worldwide Sales

The company also announced the appointment of Chad Whalen to Executive Vice President, Worldwide Sales, effective immediately. Whalen was promoted from his role running F5’s worldwide cloud sales team where he was responsible for the company’s global public cloud sales strategy, program development and execution. In his new position, Whalen will oversee the company’s sales and channel strategy as F5 further expands into multi-cloud application services and protection. Previous to F5, he served as VP of Global Alliances and Cloud Services at Fortinet and the GM/VP of North America Field Operations.

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, virtualization and diameter 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, diameter and virtualization 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 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 2017, and litigation expenses primarily related to a jury verdict and other associated costs of that patent litigation have been excluded in fiscal 2016 and 2017.

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.

     
F5 Networks, Inc.
Consolidated Balance Sheets
(unaudited, in thousands)
 
 
June 30, September 30,
  2018     2017  
 
Assets
Current assets
Cash and cash equivalents $ 599,268 $ 673,228
Short-term investments 485,232 343,700
Accounts receivable, net of allowances of $2,136 and $1,815 297,375 291,924
Inventories 31,322 29,834
Other current assets   55,853     67,538  
Total current assets   1,469,050     1,406,224  
 
Property and equipment, net 126,108 122,420
Long-term investments 329,412 284,802
Deferred tax assets 35,153 53,303
Goodwill 555,965 555,965
Other assets, net   45,378     53,775  
Total assets $ 2,561,066   $ 2,476,489  
 
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable $ 44,647 $ 50,760
Accrued liabilities 163,246 187,379
Deferred revenue   736,032     696,404  
Total current liabilities   943,925     934,543  
 
Other long-term liabilities 59,466 44,589
Deferred revenue, long-term 291,675 267,902
Deferred tax liabilities   25     63  
Total long-term liabilities   351,166     312,554  
 
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, 60,818 and 62,594 shares issued and outstanding

20,008 17,627
Accumulated other comprehensive loss (21,983 ) (17,997 )
Retained earnings   1,267,950     1,229,762  
Total shareholders' equity   1,265,975     1,229,392  
Total liabilities and shareholders' equity $ 2,561,066   $ 2,476,489  
 
             
F5 Networks, Inc.
Consolidated Income Statements
(unaudited, in thousands, except per share amounts)
 
 
Three Months Ended Nine Months Ended
June 30, June 30,
  2018     2017     2018     2017  
 
Net revenues
Products $ 238,835 $ 235,109 $ 703,696 $ 715,672
Services   303,368     282,728     895,002     836,371  
Total 542,203 517,837 1,598,698 1,552,043
 
Cost of net revenues (1)(2)
Products 45,164 43,787 132,556 129,391
Services   45,845     45,983     135,485     133,553  
Total   91,009     89,770     268,041     262,944  
Gross profit 451,194 428,067 1,330,657 1,289,099
 
Operating expenses (1)(2)
Sales and marketing 165,806 160,952 503,710 490,171
Research and development 94,061 88,602 271,006 264,886
General and administrative 39,374 39,368 118,634 119,055
Litigation expense   -     1     -     (134 )
Total   299,241     288,923     893,350     873,978  
 
Income from operations 151,953 139,144 437,307 415,121
Other income, net   2,259     2,589     7,194     6,534  
Income before income taxes 154,212 141,733 444,501 421,655
Provision for income taxes   31,469     44,071     123,693     136,637  
Net income $ 122,743   $ 97,662   $ 320,808   $ 285,018  
 
 
Net income per share - basic $ 2.01   $ 1.53   $ 5.21   $ 4.42  
Weighted average shares - basic   60,970     63,935     61,531     64,539  
 
Net income per share - diluted $ 1.99   $ 1.52   $ 5.16   $ 4.38  
Weighted average shares - diluted   61,633     64,361     62,214     65,116  
 
 
Non-GAAP Financial Measures
 
Net income as reported $ 122,743 $ 97,662 $ 320,808 $ 285,018
Stock-based compensation expense (3) 38,739 43,234 121,007 133,740
Amortization of purchased intangible assets 2,803 2,788 8,413 9,483
Litigation expense - 1 - (134 )
Tax effects related to above items (14,139 ) (12,910 ) (33,788 ) (40,060 )
Tax on deemed repatriation of undistributed foreign earnings - - 7,000 -
Remeasurement of net deferred tax assets due to change in U.S. tax rate   -     -     11,584     -  

Net income excluding stock-based compensation expense, amortization of purchased intangible assets, litigation expense, and non-recurring tax expenses and benefits (non-GAAP) - diluted

$ 150,146   $ 130,775   $ 435,024   $ 388,047  
 

Net income per share excluding stock-based compensation expense, amortization of purchased intangible assets, litigation expense, and non-recurring tax expenses and benefits (non-GAAP) - diluted

$ 2.44   $ 2.03   $ 6.99   $ 5.96  
 
Weighted average shares - diluted   61,633     64,361     62,214     65,116  
 
(1) Includes stock-based compensation expense as follows:
Cost of net revenues $ 4,947 $ 5,384 $ 15,940 $ 16,155
Sales and marketing 16,153 17,577 47,186 52,737
Research and development 11,532 13,579 36,435 41,395
General and administrative   6,107     6,694     21,446     23,453  
$ 38,739   $ 43,234   $ 121,007   $ 133,740  
 
(2) Includes amortization of purchased intangible assets as follows:
Cost of net revenues $ 2,027 $ 2,028 $ 6,083 $ 7,345
Sales and marketing 251 251 755 754
General and administrative   525     509     1,575     1,384  
$ 2,803   $ 2,788   $ 8,413   $ 9,483  
 
(3) 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”)
 
     
F5 Networks, Inc.
Consolidated Statements of Cash Flows
(unaudited, in thousands)
 
 
Nine Months Ended
June 30,
  2018     2017  
 
Operating activities
Net income $ 320,808 $ 285,018
Adjustments to reconcile net income to net cash provided by operating activities:
Realized loss (gain) on disposition of assets and investments 64 (463 )
Stock-based compensation 121,007 133,740
Provisions for doubtful accounts and sales returns 1,494 385
Depreciation and amortization 44,081 45,603
Deferred income taxes 19,241 (1,307 )
Changes in operating assets and liabilities:
Accounts receivable (6,945 ) (27,295 )
Inventories (1,488 ) 3,007
Other current assets 11,590 1,063
Other assets (68 ) (425 )
Accounts payable and accrued liabilities (16,423 ) 14,270
Deferred revenue   63,402     73,620  
Net cash provided by operating activities   556,763     527,216  
 
Investing activities
Purchases of investments (499,084 ) (255,386 )
Maturities of investments 295,479 271,878
Sales of investments 10,748 65,857
Decrease (increase) in restricted cash 42 (87 )
Acquisition of intangible assets - (4,000 )
Cash provided by sale of fixed asset 1,000 -
Purchases of property and equipment   (36,074 )   (31,175 )
Net cash (used in) provided by investing activities   (227,889 )   47,087  
 
Financing activities
Excess tax benefit from stock-based compensation - 6,471

Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan

48,818 46,959
Repurchase of common stock   (450,064 )   (450,065 )
Net cash used in financing activities   (401,246 )   (396,635 )
 

Net (decrease) increase in cash and cash equivalents

(72,372 ) 177,668
Effect of exchange rate changes on cash and cash equivalents (1,588 ) (1,327 )
Cash and cash equivalents, beginning of period   673,228     514,571  
Cash and cash equivalents, end of period $ 599,268   $ 690,912  

F5 Networks, Inc.
Investor Relations
Dennis Melton, 206-272-6078
d.melton@f5.com
or
Public Relations
Nathan Misner, 206-272-7494
n.misner@f5.com

Source: F5 Networks, Inc.