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F5 Networks Announces Results for Third Quarter of Fiscal 2005

Sixty-five percent year-over-year revenue growth driven by strong sales in Europe and North America

F5 Networks, Inc. (NASDAQ: FFIV) - For the third quarter of fiscal 2005, F5 Networks announced revenue of $73.1 million, up 8 percent sequentially over revenue of $67.7 million in the second quarter and 65 percent over revenue of $44.2 million in the third quarter a year ago. Net income for the quarter was $14.0 million ($0.35 per diluted share), compared to $12.1 million ($0.31 per diluted share) in the prior quarter of fiscal 2005.

For the third quarter of fiscal 2004 the company reported net income of $7.4 million ($0.20 per diluted share). However, during the fourth quarter of 2004, F5 became subject to income taxes on U.S. income, and to present the results for prior periods on a tax-affected basis that is comparable to the current period, the company's financial statements include pro forma earnings for the third quarter of fiscal 2004. On a pro forma basis, net income for the third quarter of fiscal 2004 would have been $4.9 million ($0.13 per diluted share) if the company had recorded a comparable provision for income taxes.

"During the third quarter, the company's revenue growth reflected strong demand for our products in Europe and North America," said John McAdam, F5 president and chief executive officer. "Compared to the prior quarter, revenue grew 19 percent in Europe and 25 percent in North America. Year over year, revenue in Europe and North America increased 78 percent and 69 percent respectively. The strength in these regions and solid performance in Asia-Pacific more than offset a slowdown in Japan that is typical of Japan's first fiscal quarter."

With continued revenue growth, stable gross margins, and further improvement in its expense ratio, the company's operating margin was 27 percent in the third quarter, up from 16 percent in the third quarter of last year. Record cash flow of $21.2 million from operations contributed to a quarter-end balance of $329 million in cash and investments, a net increase of $36 million during the quarter.

For the fourth quarter of fiscal 2005, ending September 30, McAdam said management has set a revenue target of $76 million to $78 million. Effective July 1, the company has voluntarily adopted the provisions of SFAS 123R, which would have required it to begin expensing the cost of stock-based compensation in the quarter beginning October 1. Accordingly, McAdam said, earnings for the fourth quarter are expected to be $0.29 to $0.30 per diluted share, including the charge for stock-based compensation. Excluding the compensation charge, the anticipated earnings range would have been $0.37 to $0.38 per diluted share. A reconciliation of the company's expected GAAP and pro forma earnings is provided in the following table:

  Three months ended
September 30, 2005
Reconciliation of Expected Pro Forma Fourth Quarter Earnings   Low   High
Net income   $11,500   $11,900
Stock-based compensation expense, net of tax   3,300   3,300
Pro forma net income excluding stock compensation charges   $14,800   $15,200
 
Net income per share - diluted   $0.29   $0.30
Pro forma net income per share - diluted   $0.37   $0.38

About F5 Networks

F5 enables organizations to successfully deliver business-critical applications and gives them the greatest level of agility to stay ahead of growing business demands. As the pioneer and global leader in Application Traffic Management, F5 continues to lead the industry by driving more intelligence into the network to deliver advanced application agility. F5 products ensure the secure and optimized delivery of applications to any user - anywhere. Through its flexible and cohesive architecture, F5 delivers unmatched value by dramatically improving the way organizations serve their employees, customers and constituents, while lowering operational costs. 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 revenue and earnings targets for the fourth quarter of fiscal 2005 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 and security 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 10K for the fiscal year ended September 30, 2004, 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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