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F5 Networks Announces Results of Fiscal Fourth Quarter and Year 2001

In line with management's October 9 guidance, F5 Networks, Inc. (NASDAQ: FFIV) today announced a pro forma net loss of $2.5 million ($0.10 per share diluted) on revenue of $26.6 million for the fourth quarter of fiscal 2001, ended September 30. In the fourth quarter of fiscal 2000, the company earned $3.7 million ($0.16 per share diluted) on a comparable (pro forma) basis. For fiscal 2001, the company reported a pro forma net loss of $13.9 million ($0.62 per share diluted) on revenue of $107.4 million, compared to pro forma net income of $16.0 million ($0.69 per share diluted) on revenue of $108.6 million in fiscal 2000.

"In the context of the uncertainty caused by the deteriorating global economy and more recently by geopolitical events related to September 11, F5 fared reasonably well during fiscal 2001 and the quarter just ended," said John McAdam, F5 president and chief executive officer. "Despite the business disruption following the terrorist attacks on the Pentagon and the World Trade Center, we achieved more than 90 percent of our revenue goal for the quarter, and we continued to make progress on several operational fronts. For the third quarter in a row, we saw improvement in our gross margin, which came in nearly a full percentage point above the high end of our target range. In addition, we managed to bring inventory levels down for the third consecutive quarter, helping to generate $2.2 million in positive cash flow from operations and increase our cash balance to $69.3 million."

McAdam said the company's success in managing down inventories enabled it to reduce its inventory reserves by $1.7 million. Other non-recurring adjustments during the quarter included a $2.0 million charge to the company's bad-debt expense in response to the filing of Exodus Communications for Chapter 11 bankruptcy protection; and a non-operating charge to income tax expense of $8.7 million to fully reserve against deferred income tax assets on the balance sheet.

Including non-recurring items, the company reported a net loss of $11.5 million ($0.46 per share diluted) for the fourth quarter of 2001 and a net loss of $30.8 million ($1.36 per share diluted) for fiscal 2001. In fiscal 2000, the company reported net income of $1.4 million ($0.06 per share diluted) for the fourth quarter and $13.7 million ($0.59 per share diluted) for the year.

Reflecting the ongoing success of F5's year-long focus on enterprise customers and the appeal of its iControl architecture for enterprise solutions, McAdam said the company won more than two dozen new enterprise accounts in North America during the fourth quarter, including General Electric, Symantec and CNA Insurance. Target, a major win for the company's OEM partner Dell, was the company's biggest OEM win to date. McAdam said the company's visibility in large enterprises got a boost during the fourth quarter when the latest Dell'Oro report showed that F5 had displaced Nortel as the number two vendor in the Layer 4/7 server load balancing switch and appliance market. According to a separate IDC report, also released during the fourth quarter, F5 is the market share leader in Japan, with 22.5 percent of the Layer 4/7 server load balancing switch and appliance market.

Looking ahead, McAdam said the company's prospects for future growth and profitability are clearly tied to the health of the economy in general and the technology sector in particular. However, he added, combined with its improved operational focus, the company's new products and OEM partnerships have the potential to generate solid growth and drive further gains in market share even in the current economic climate. "During the past two quarters, we have signed up two new OEM partners-Enterasys and Nokia-who could begin to have a significant impact on our business beginning in calendar 2002. In addition, our recently introduced BIG-IP 5000 switch appliance is being well received by customers and we expect to see demand build steadily throughout the year."

"If, as some have suggested, business conditions improve in the first half of calendar 2002, I believe F5 is well-positioned and well-equipped to benefit from any upturn in corporate spending. In the meantime, I believe we are equally well-equipped to compete successfully in the current environment and win a growing share of the Layer 4/7 market," McAdam said.

Because of the uncertain outlook for the economy, McAdam said management has set conservative targets for the current quarter and the remainder of fiscal 2002. For the first quarter of fiscal 2002, the company's current target is revenue of $27 million, with a loss of $0.09 to $0.11 per share. For fiscal year 2002, McAdam said he believes the company can grow revenue 20 percent to 25 percent and return to profitability in the third quarter.

About F5 Networks

F5 Networks is the leader in Internet Traffic and Content Management (iTCM), and delivers application aware networks through its open Internet Control Architecture. F5 features the industry's leading set of integrated products and services that manage, control and optimize Internet traffic and content. Our solutions automatically and intelligently deliver the best possible Internet performance, availability and content distribution for service providers, enterprises and e-businesses. Our products remove bandwidth congestion and optimize the availability and speed of mission-critical Internet servers and applications, including web publishing, content delivery, e-commerce, caching, firewalls and more. Our solutions are widely deployed in large enterprises, the top service providers, financial institutions, government agencies, healthcare, and portals throughout the world. The company is headquartered in Seattle, Washington, and has offices throughout North America, Europe and Asia Pacific. F5 Networks is located on the web at

Forward Looking Statements

Statements in this press release concerning F5's financial targets, including prospects for future growth and profitability, benefit from any upturn in corporate spending, competing successfully in the current environment, 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: the acceptance of the new BIG-IP switch appliance and the company's iControl architecture, competitive pricing pressures, increased sales discounts, the timely development and introduction of additional new products and features by F5 or its competitors or other factors; F5's ability to sustain or develop distribution relationships; F5's ability to attract, train and retain qualified marketing and sales and professional services and customer support personnel; F5's ability to expand in the international markets and the unpredictability of F5's sales cycle. 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, 2000, 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.