FFIV
$126.90
F5 Networks
($.34)
(.27%)
Earnings Details
2nd Quarter March 2017
Wednesday, April 26, 2017 4:05:24 PM
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Summary

F5 Networks Misses

F5 Networks (FFIV) reported 2nd Quarter March 2017 earnings of $1.91 per share on revenue of $518.2 million. The consensus earnings estimate was $1.97 per share on revenue of $522.7 million. The Earnings Whisper number was $1.99 per share. Revenue grew 7.1% on a year-over-year basis.

The company said it expects third quarter earnings of $2.01 to $2.04 per share on revenue of $520.0 million to $530.0 million. The current consensus earnings estimate is $2.09 per share on revenue of $537.4 million for the quarter ending June 30, 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
$1.91
Earnings Whisper
$1.99
Consensus Estimate
$1.97
Reported Revenue
$518.2 Mil
Revenue Estimate
$522.7 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

F5 Networks Announces Second Quarter Fiscal 2017 Results

F5 Networks, Inc. (FFIV) today announced revenue of $518.2 million for the second quarter of fiscal 2017, up 7.1% from $483.7 million in the second quarter of fiscal 2016. Growth compared with the second quarter of fiscal 2016 was driven by solid execution in the Americas and strong sales of security solutions. Partially offsetting these positive trends was continued soft demand in Europe.

GAAP net income for the second quarter of fiscal 2017 was $93.1 million, or $1.43 per diluted share, compared to $75.4 million, or $1.11 per diluted share in the second quarter of 2016. Non-GAAP net income for the second quarter of fiscal 2017 was $127.0 million, or $1.95 per diluted share, compared to $114.0 million, or $1.68 per diluted share in the second quarter of fiscal 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.

In the just completed quarter, several new products were introduced including 40-Gigabit BIG-IP virtual editions, Herculon SSL Orchestrator and Herculon DDoS Hybrid Defender purpose-built security products, as well as the latest version of our BIG-IP operating system, TMOS 13.0. BIG-IP iSeries products continue to be well received by customers with adoption trends tracking in line with past major product refresh cycles. The BIG-IP iSeries appliance family was architected to offer massive performance and scalability across the entire line, and these programmable, software-defined hardware platforms include features designed to simplify private cloud deployments and hybrid cloud build-outs.

Several new products scheduled to begin shipping in the current quarter are designed to help enable customers to deploy their applications across a variety of cloud environments. These solutions include Application Connector 1.0 for connecting public and private cloud application infrastructures, support for BIG-IP in the Google Public Cloud, and Container Connector and Application Services Proxy for microservices environments.

"My early internal and external interactions have reinforced my enthusiasm for joining the F5 team and my view that the company offers a compelling platform for growth," said Francois Locoh-Donou, F5 President and Chief Executive Officer. "I am excited by the new products and services we continue to bring to market and I look forward to actively engaging with our customers and key strategic partners around these offerings.

"With a strong culture of technology innovation and a solid financial foundation, F5 is uniquely positioned to address our customers’ evolving demands around securing and optimizing performance of their mission-critical business applications."

For the third quarter of fiscal 2017, ending June 30, the company has set a revenue goal of $520 million to $530 million with a GAAP earnings target of $1.47 to $1.50 per diluted share and a non-GAAP earnings target of $2.01 to $2.04 per diluted share.

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

Three months ended
June 30, 2017
Reconciliation of Expected Non-GAAP Third Quarter Earnings
Low
High
Net income
$
94.8
$
96.8
Stock-based compensation expense
$
44.0
$
44.0
Amortization of purchased intangible assets
$
2.8
$
2.8
Tax effects related to above items
$ (12.1 )
$ (12.1 )
Non-GAAP net income excluding stock-based compensation expense and
$ 129.5
$ 131.5
amortization of purchased intangible assets
Net income per share - diluted
$
1.47
$
1.50
Non-GAAP net income per share - diluted
$
2.01
$
2.04

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, expense related to a jury verdict and other associated costs of that patent litigation have been excluded from GAAP net income for the purpose of measuring non-GAAP earnings and earnings per share 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)
March 31,
September 30,
2017
2016
ASSETS
Current assets
Cash and cash equivalents
$
655,773
$
514,571
Short-term investments
358,851
367,824
Accounts receivable, net of allowances of $2,005 and $2,062
293,872
268,175
Inventories
32,548
34,051
Deferred tax assets
52,777
51,601
Other current assets
51,022
52,579
Total current assets
1,444,843
1,288,801
Property and equipment, net
126,705
123,248
Long-term investments
200,253
276,375
Deferred tax assets
1,992
2,044
Goodwill
555,965
555,965
Other assets, net
58,159
59,890
Total assets
$ 2,387,917
$ 2,306,323
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable
$
47,289
$
34,117
Accrued liabilities
184,234
178,353
Deferred revenue
684,495
631,768
Total current liabilities
916,018
844,238
Other long-term liabilities
37,051
34,138
Deferred revenue, long-term
245,094
238,473
Deferred tax liabilities
5,149
4,212
Total long-term liabilities
287,294
276,823
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, 64,111 and
19,401
13,191
65,315 shares issued and outstanding
Accumulated other comprehensive loss
(15,469 )
(13,194 )
Retained earnings
1,180,673
1,185,265
Total shareholders’ equity
1,184,605
1,185,262
Total liabilities and shareholders’ equity
$ 2,387,917
$ 2,306,323
F5 Networks, Inc.
Consolidated Income Statements
(unaudited, in thousands, except per share amounts)
Three Months Ended
Six Months Ended
March 31,
March 31,
2017
2016
2017
2016
Net revenues
Products
$ 241,080
$ 225,441
$ 480,563
$ 460,119
Services
277,168
258,236
553,643
513,044
Total
518,248
483,677
1,034,206
973,163
Cost of net revenues (1)(2)
Products
43,928
39,908
85,604
82,559
Services
43,984
42,322
87,570
85,354
Total
87,912
82,230
173,174
167,913
Gross profit
430,336
401,447
861,032
805,250
Operating expenses (1)(2)
Sales and marketing
164,705
156,469
329,219
313,925
Research and development
89,234
86,294
176,284
167,439
General and administrative
38,009
34,803
79,687
69,056
Litigation expense
(135 )
8,948
(135 )
8,948
Total
291,813
286,514
585,055
559,368
Income from operations
138,523
114,933
275,977
245,882
Other income, net
1,302
133
3,945
1,268
Income before income taxes
139,825
115,066
279,922
247,150
Provision for income taxes
46,687
39,651
92,566
82,019
Net income
$
93,138
$
75,415
$ 187,356
$ 165,131
Net income per share -- basic
$
1.44
$
1.12
$
2.89
$
2.41
Weighted average shares -- basic
64,479
67,549
64,841
68,557
Net income per share -- diluted
$
1.43
$
1.11
$
2.87
$
2.40
Weighted average shares -- diluted
65,028
67,804
65,389
68,881
Non-GAAP Financial Measures
Net income as reported
$
93,138
$
75,415
$ 187,356
$ 165,131
Stock-based compensation expense (3)
43,895
41,773
90,506
80,006
Amortization of purchased intangible assets
3,292
3,519
6,695
6,922
Litigation expense
(135 )
8,948
(135 )
8,948
Tax effects related to above items
(13,184 )
(15,649 )
(27,150 )
(26,437 )
Net income excluding stock-based compensation expense, amortization
$ 127,006
$ 114,006
$ 257,272
$ 234,570
of purchased intangible assets and litigation expense (non-GAAP) -
diluted
Net income per share excluding stock-based compensation expense,
$
1.95
$
1.68
$
3.93
$
3.41
amortization of purchased intangible assets and litigation expense
(non-GAAP) - diluted
Weighted average shares - diluted
65,028
67,804
65,389
68,881
(1) Includes stock-based compensation expense as follows:
Cost of net revenues
$
5,554
$
4,851
$
10,771
$
9,286
Sales and marketing
18,110
15,957
35,160
30,832
Research and development
13,884
13,784
27,816
26,614
General and administrative
6,347
7,181
16,759
13,274
$
43,895
$
41,773
$
90,506
$
80,006
(2) Includes amortization of purchased intangible assets as follows:
Cost of net revenues
$
2,532
$
2,666
$
5,317
$
5,333
Sales and marketing
251
487
503
973
General and administrative
509
366
875
616
$
3,292
$
3,519
$
6,695
$
6,922
(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)
Six Months Ended
March 31,
2017
2016
Operating activities
Net income
$ 187,356
$ 165,131
Adjustments to reconcile net income to net cash provided by
operating activities:
Realized (gain) loss on disposition of assets and investments
(7 )
31
Stock-based compensation
90,506
80,006
Provisions for doubtful accounts and sales returns
455
522
Depreciation and amortization
30,278
27,847
Deferred income taxes
(214 )
7,424
Changes in operating assets and liabilities:
Accounts receivable
(26,152 )
12,726
Inventories
1,504
(1,462 )
Other current assets
1,449
(16,302 )
Other assets
(942 )
(126 )
Accounts payable and accrued liabilities
21,072
1,844
Deferred revenue
59,347
59,348
Net cash provided by operating activities
364,652
336,989
Investing activities
Purchases of investments
(146,236 )
(138,925 )
Maturities of investments
187,660
173,165
Sales of investments
40,737
47,742
(Increase) decrease in restricted cash
(36 )
8
Acquisition of intangible assets
(4,000 )
(3,250 )
Purchases of property and equipment
(23,715 )
(29,793 )
Net cash provided by investing activities
54,410
48,947
Financing activities
Excess tax benefit from stock-based compensation
5,239
1,378
Proceeds from the exercise of stock options and purchases of stock
18,868
18,594
under employee stock purchase plan
Repurchase of common stock
(300,042 )
(400,077 )
Net cash used in financing activities
(275,935 )
(380,105 )
Net increase in cash and cash equivalents
143,127
5,831
Effect of exchange rate changes on cash and cash equivalents
(1,925 )
2,034
Cash and cash equivalents, beginning of period
514,571
390,460
Cash and cash equivalents, end of period
$ 655,773
$ 398,325

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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