FFIV
$123.36
F5 Networks
($.22)
(.18%)
Earnings Details
4th Quarter September 2017
Wednesday, October 25, 2017 4:05:05 PM
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Summary

F5 Networks Beats but Guides Lower

F5 Networks (FFIV) reported 4th Quarter September 2017 earnings of $2.46 per share on revenue of $538.0 million. The consensus earnings estimate was $2.21 per share on revenue of $536.6 million. The Earnings Whisper number was $2.23 per share. Revenue grew 2.4% on a year-over-year basis.

The company said it expects first quarter non-GAAP earnings of $2.02 to $2.05 per share on revenue of $515.0 million to $525.0 million. The current consensus earnings estimate is $2.09 per share on revenue of $529.1 million for the quarter ending December 31, 2017.

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
$2.46
Earnings Whisper
$2.23
Consensus Estimate
$2.21
Reported Revenue
$538.0 Mil
Revenue Estimate
$536.6 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

F5 Networks Announces Fourth Quarter and Fiscal 2017 Results

F5 Networks, Inc. (FFIV) today announced revenue of $538.0 million for the fourth quarter of fiscal 2017, up 2.4% from $525.3 million in the fourth quarter of fiscal 2016. Growth compared with the fourth quarter of fiscal 2016 was driven by Services and software based solutions. For fiscal year 2017, revenue was $2.1 billion, up 4.8% from $2.0 billion last year.

GAAP net income for the fourth quarter of fiscal 2017 was $135.7 million, or $2.14 per diluted share, compared to $108.9 million, or $1.64 per diluted share in the fourth quarter of fiscal 2016. Excluding the impact of stock-based compensation, amortization of purchased intangible assets, restructuring charges, litigation expense, and a non-recurring tax benefit, non-GAAP net income for the fourth quarter of fiscal 2017 was $154.9 million, or $2.44 per diluted share, compared to $139.9 million, or $2.11 per diluted share in the fourth quarter of fiscal 2016.

GAAP net income for fiscal year 2017 was $420.8 million, or $6.50 per diluted share, compared to $365.9 million, or $5.38 per diluted share in fiscal year 2016. Non-GAAP net income for fiscal year 2017 was $542.9 million, or $8.38 per diluted share, compared to $496.2 million, or $7.30 per diluted share in fiscal year 2016.

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.

"We finished fiscal 2017 on a solid note, delivering record fourth quarter and annual revenue and earnings," said Francois Locoh-Donou, F5 President and Chief Executive Officer. "We are excited by the meaningful role we are playing in helping customers solve the complexity of deploying applications across on-premise and multi-cloud environments.

"We continued to see strong customer interest in our virtual edition and application security offerings during the fourth quarter, particularly in public cloud deployments. We expect the growing traction of our software based advanced application services will be a key driver of product revenue in fiscal 2018 and beyond."

For the first quarter of fiscal 2018, ending December 31, 2017, the company has set a revenue goal of $515 million to $525 million with a GAAP earnings target of $1.47 to $1.50 per diluted share and a non-GAAP earnings target of $2.02 to $2.05 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, 2017
(in
millions, except per share amounts)
Reconciliation of Expected Non-GAAP First Quarter Earnings
Low
High
Net income
$
92.7
$
94.5
Stock-based compensation expense
$
43.5
$
43.5
Amortization of purchased intangible assets
$
2.8
$
2.8
Tax effects related to above items
$ (11.6 )
$ (11.6 )
Non-GAAP net income excluding stock-based compensation expense and
$ 127.4
$ 129.2
amortization of purchased intangible assets
Net income per share - diluted
$
1.47
$
1.50
Non-GAAP net income per share - diluted
$
2.02
$
2.05

Share Repurchase Program

The company also announced today that its board of directors had authorized an additional $1 billion for the company’s common stock share repurchase program. This new authorization is incremental to the $173.7 million currently unused in the existing program which was initially authorized in October 2010.

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 timing and amounts of any purchases will be based on market conditions and other factors including but not limited to price, regulatory requirements and capital availability. The program does not require the purchase of any minimum number of shares and the program may be modified, suspended or discontinued at any time.

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 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, restructuring charges and a non-recurring foreign tax credit benefit 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 (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)
September 30,
September 30,
2017
2016
Assets
Current assets
Cash and cash equivalents
$
673,228
$
514,571
Short-term investments
343,700
367,824
Accounts receivable, net of allowances of $1,815 and $2,062
291,924
268,175
Inventories
29,834
34,051
Deferred tax assets
53,084
51,601
Other current assets
67,538
52,579
Total current assets
1,459,308
1,288,801
Property and equipment, net
122,420
123,248
Long-term investments
284,802
276,375
Deferred tax assets
4,530
2,044
Goodwill
555,965
555,965
Other assets, net
53,775
59,890
Total assets
$ 2,480,800
$ 2,306,323
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable
$
50,760
$
34,117
Accrued liabilities
187,379
178,353
Deferred revenue
696,404
631,768
Deferred tax liabilities
58
-
Total current liabilities
934,601
844,238
Other long-term liabilities
44,589
34,138
Deferred revenue, long-term
267,902
238,473
Deferred tax liabilities
4,316
4,212
Total long-term liabilities
316,807
276,823
Commitments and contingencies
Shareholders’ equity
Preferred stock, no par value; 10,000 shares authorized, no shares
-
-
outstanding
17,627
13,191
Common stock, no par value; 200,000 shares authorized, 62,594 and
65,315 shares issued and outstanding
Accumulated other comprehensive loss
(17,997 )
(13,194 )
Retained earnings
1,229,762
1,185,265
Total shareholders’ equity
1,229,392
1,185,262
Total liabilities and shareholders’ equity
$ 2,480,800
$ 2,306,323
F5 Networks, Inc.
Consolidated Income Statements
(unaudited,
in thousands, except per share amounts)
Three Months Ended
Years Ended
September 30,
September 30,
2017
2016
2017
2016
Net revenues
Products
$
248,990
$
252,984
$
964,662
$
944,469
Services
289,008
272,365
1,125,379
1,050,565
Total
537,998
525,349
2,090,041
1,995,034
Cost of net revenues (1)(2)
Products
46,641
43,591
176,032
166,624
Services
43,900
41,358
177,453
170,581
Total
90,541
84,949
353,485
337,205
Gross Profit
447,457
440,400
1,736,556
1,657,829
Operating expenses (1)(2)
Sales and marketing
162,068
158,198
652,239
628,743
Research and development
85,479
83,746
350,365
334,227
General and administrative
37,832
35,193
156,887
138,431
Litigation expense
525
630
391
9,051
Restructuring charges
12,718
-
12,718
-
Total
298,622
277,767
1,172,600
1,110,452
Income from operations
148,835
162,633
563,956
547,377
Other income, net
5,027
268
11,561
2,514
Income before income taxes
153,862
162,901
575,517
549,891
Provision for income taxes
18,119
53,966
154,756
184,036
Net Income
$
135,743
$
108,935
$
420,761
$
365,855
Net income per share - basic
$
2.15
$
1.66
$
6.56
$
5.43
Weighted average shares - basic
63,088
65,772
64,173
67,433
Net income per share - diluted
$
2.14
$
1.64
$
6.50
$
5.38
Weighted average shares - diluted
63,446
66,262
64,775
67,984
Non-GAAP Financial Measures
Net income as reported
$
135,743
$
108,935
$
420,761
$
365,855
Stock-based compensation expense (3)
41,586
38,317
175,326
156,760
Amortization of purchased intangible assets
2,788
3,462
12,271
13,902
Litigation expense
525
630
391
9,051
Restructuring charges
12,718
-
12,718
-
Tax effects related to above items
(17,472 )
(11,433 )
(57,532 )
(49,385 )
Non-recurring foreign tax credit benefit
(21,000 )
-
(21,000 )
-
Net income excluding stock-based compensation expense,
$
154,888
$
139,911
$
542,935
$
496,183
amortization of purchased intangible assets, litigation expense,
restructuring charges and a non-recurring foreign tax credit
benefit (non-GAAP) - diluted
Net income per share excluding stock-based compensation expense,
$
2.44
$
2.11
$
8.38
$
7.30
amortization of purchased intangible assets, litigation expense,
restructuring charges and a non-recurring foreign tax credit
benefit (non-GAAP) - diluted
Weighted average shares - diluted
63,446
66,262
64,775
67,984
(1) Includes stock-based compensation as follows:
Cost of net revenues
$
5,280
$
4,601
$
21,435
$
18,530
Sales and marketing
16,918
15,203
69,655
61,165
Research and development
12,004
12,949
53,399
52,550
General and administrative
7,384
5,564
30,837
24,515
$
41,586
$
38,317
$
175,326
$
156,760
(2) Includes amortization of purchased intangible assets as follows:
Cost of net revenues
$
2,027
$
2,706
$
9,372
$
10,705
Sales and marketing
252
391
1,006
1,850
General and administrative
509
365
1,893
1,347
$
2,788
$
3,462
$
12,271
$
13,902
(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)
Years Ended
September 30,
2017
2016
Operating activities
Net income
$
420,761
$
365,855
Adjustments to reconcile net income to net cash provided by
operating activities:
Realized (gain) loss on disposition of assets and investments
(439 )
693
Stock-based compensation
175,326
156,760
Provisions for doubtful accounts and sales returns
366
1,526
Depreciation and amortization
61,148
56,776
Deferred income taxes
(4,626 )
2,967
Changes in operating assets and liabilities:
Accounts receivable
(24,115 )
9,732
Inventories
4,218
(334 )
Other current assets
(14,890 )
(1,876 )
Other assets
(2,056 )
(712 )
Accounts payable and accrued liabilities
30,524
33,217
Deferred revenue
94,064
86,931
Net cash provided by operating activities
740,281
711,535
Investing activities
Purchases of investments
(446,838 )
(354,708 )
Maturities of investments
390,449
418,821
Sales of investments
66,858
66,848
Increase in restricted cash
(73 )
(3 )
Acquisition of intangible assets
(4,000 )
(4,750 )
Purchases of property and equipment
(38,681 )
(63,488 )
Net cash (used in) provided by investing activities
(32,285 )
62,720
Financing activities
Excess tax benefit from stock-based compensation
7,019
2,608
47,039
44,869
Proceeds from the exercise of stock options and purchases of stock
under employee stock purchase plan
Repurchase of common stock
(600,090 )
(700,124 )
Net cash used in financing activities
(546,032 )
(652,647 )
Net increase in cash and cash equivalents
161,964
121,608
Effect of exchange rate changes on cash and cash equivalents
(3,307 )
2,503
Cash and cash equivalents, beginning of period
514,571
390,460
Cash and cash equivalents, end of period
$
673,228
$
514,571

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SOURCE: F5 Networks, Inc.

F5 Networks, Inc.
Investor Relations
Jason Willey, 206-272-7908
j.willey@f5.com
or
Public Relations
Nathan Misner, 206-272-7494
n.misner@f5.com