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F5 Networks Announces Results for the First Quarter of Fiscal 2006

Solid revenue gains reflect continuing strength in core business

F5 Networks, Inc. (NASDAQ: FFIV) - For the first quarter of fiscal 2006, F5 Networks announced revenue of $88.1 million, up 9 percent from $80.6 million in the prior quarter and 47 percent from $60.0 million in the first quarter of fiscal 2005. Net income was $15.2 million ($0.37 per diluted share), compared to $15.7 million ($0.39 per diluted share) in the prior quarter and $10.0 million ($0.26 per diluted share) in the first quarter a year ago.

During the fourth quarter of fiscal 2005, the company began expensing stock-based compensation. To facilitate a comparison of this quarter's results with the results of prior quarters, the company is presenting pro forma net income for the first quarter of fiscal 2006 and the fourth quarter of fiscal 2005. Excluding the effects of stock compensation expense, net income for the first quarter of fiscal 2006 was $19.0 million ($0.47 per diluted share) compared to $19.0 million ($0.47 per diluted share) in the prior quarter.

A reconciliation of reported net income to pro forma net income is included on the attached Consolidated Statements of Operations.

F5 president and chief executive officer John McAdam said the company's revenue growth reflected the continuing strength of its core business and growing demand for its TMOS-based products. Revenue from the company's BIG-IP family of products grew 13 percent sequentially, and demand was strong across all geographic regions. As a result, overall revenue was up sequentially in North America, APAC and EMEA. In Japan, revenue was essentially flat with revenue in the seasonally strong September quarter.

Since the completion of the Swan Labs acquisition on October 4, integration of teams and products has proceeded smoothly. Given the incremental expenses related to the Swan integration, McAdam said he was pleased the company managed to maintain its pro forma operating margin at 31 percent, due in part to a higher mix of software revenue that boosted gross margins to 78 percent. In addition, McAdam said, the company continued to strengthen its balance sheet during the quarter. Deferred revenue grew 10 percent to $43.3 million, and $34.5 million in cash flow from operations contributed to a quarter-end balance of $373 million in cash and investments, after paying $43 million (net) in cash for Swan Labs.

Alluding to the continuing strength of F5's core business, McAdam said management believes the company will continue to grow sequentially and has set a target range of $93 million to $95 million in revenue for the second quarter of fiscal 2006. Earnings for the second quarter are expected to be $0.39 to $0.40 per diluted share, including the charge for stock-based compensation. Excluding the compensation charge, the anticipated earnings range is expected to be $0.49 to $0.50 per diluted share. A reconciliation of the company's expected GAAP and pro forma earnings is provided in the following table:

  Three months ended
March 31, 2006
Reconciliation of Expected GAAP and Pro Forma Second Quarter Earnings   Low   High
Net income   $16,100   $16,500
Stock-based compensation expense, net of tax   4,200   4,200
Pro forma net income excluding stock-based compensation expense   $20,300   $20,700
 
Net income per share - diluted   $0.39   $0.40
Pro forma net income per share - diluted   $0.49   $0.50

About F5 Networks

F5 Networks is the global leader in Application Delivery Networking. F5 provides solutions that make applications secure, fast and available for everyone, helping organizations get the most out of their investment. By adding intelligence and manageability into the network to offload applications, F5 optimizes applications and allows them to work faster and consume fewer resources. F5's extensible architecture intelligently integrates application optimization, protects the application and the network, and delivers application reliability-all on one universal platform. Over 10,000 organizations and service providers worldwide trust F5 to keep their applications running. The company is headquartered in Seattle, Washington with offices worldwide. For more information, go to www.f5.com.

Forward Looking Statements

Statements in this press release concerning the continuing strength of F5's core business, sequential growth, the target revenue range, earnings ranges with and without the charge for stock-based compensation and other statements that are not historical facts are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may 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, among others: customer acceptance of our new traffic management, security, application delivery and WAN optimization offerings; the timely development, introduction and acceptance of additional new products and features by F5 or its competitors; competitive pricing pressures; increased sales discounts; 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; and the unpredictability of F5's sales cycle. F5 has no duty to update any guidance provided or other matters discussed in this press release. More information about potential risk factors that could affect F5's business and financial results is included in the company's annual report on Form 10-K for the fiscal year ended September 30, 2005, and other public filings with the Securities and Exchange Commission.

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This press release may contain forward looking statements relating to future events or future financial performance that involve risks and uncertainties. Such statements can be identified by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue," or the negative of such terms or comparable terms. These statements are only predictions and actual results could differ materially from those anticipated in these statements based upon a number of factors including those identified in the company's filings with the SEC.

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