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F5 Networks Announces Second Quarter 2010 Results

For the second quarter of fiscal 2010, F5 Networks, Inc. (NASDAQ: FFIV) announced revenue of $206.1 million, up 7.8 percent from $191.2 million in the prior quarter and 33.7 percent from $154.1 million in the second quarter of fiscal 2009.

GAAP net income was $33.1 million ($0.41 per diluted share), compared to $29.3 million ($0.36 per diluted share) in the prior quarter and $19.0 million ($0.24 per diluted share) in the second quarter a year ago.

Excluding the impact of stock-based compensation net of tax, non-GAAP net income was $45.2 million ($0.56 per diluted share), compared to $41.4 million ($0.52 per diluted share) in the prior quarter and $30.3 million ($0.38 per diluted share) in the second quarter of fiscal 2009. 

A reconciliation of GAAP net income to non-GAAP net income is included on the attached Consolidated Statements of Operations.

 “Demand for our BIG-IP family of application delivery controllers continued to strengthen in the second quarter,” said John McAdam, F5 president and chief executive officer. “Total product revenue increased 9 percent compared to the prior quarter and 38 percent year-over-year. Revenues were up sequentially across all regions. Revenue from EMEA and the Americas grew 37 percent and 40 percent respectively on a year-over-year basis.”

Reflecting both the high number of service maintenance contracts generated by new product sales and the high renewal rate on existing maintenance contracts, deferred revenue increased to $226.5 million, up 7 percent from the prior quarter and 41 percent from the second quarter a year ago.

As a result of continued strong revenue growth and stable gross margins, the company was able to add 80 employees in the second quarter while increasing its non-GAAP operating margin to just over 32 percent.

During the second quarter, the company generated $78 million in cash from operations. After repurchasing 364,958 shares of its outstanding common stock the company ended the quarter with $712 million in cash and investments.

“Looking out to the second half of fiscal 2010, we continue to see strong demand for our products as the economy recovers and customers look to enhance their productivity and competitiveness by leveraging technologies that require more intelligence and greater control in their networks,” McAdam said.

For the current quarter, ending on June 30, management has set a revenue goal of $214 million to $219 million with a GAAP earnings target of $0.42 to $0.44 per diluted share. Excluding stock-based compensation expense, the company’s non-GAAP earnings target is $0.57 to $0.59 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, 2010
Reconciliation of Expected Non-GAAP Third Quarter Earnings Low High

 
Net income $33.8 $35.5
Stock-based compensation expense, net of tax $12.5 $12.5
Non-GAAP net income excluding stock-based compensation expense
$46.3 $48.0

Net income per share - diluted $0.42 $0.44
Non-GAAP net income per share - diluted $0.57 $0.59

About F5 Networks

F5 Networks is the global leader in Application Delivery Networking (ADN), focused on ensuring the secure, reliable, and fast delivery of applications. F5's flexible architectural framework enables community-driven innovation that helps organizations enhance IT agility and dynamically deliver services that generate true business value. F5's vision of unified application and data delivery offers customers an unprecedented level of choice in how they deploy ADN solutions. It redefines the management of application, server, storage, and network resources, streamlining application delivery and reducing costs. Global enterprise organizations, service and cloud providers, and Web 2.0 content providers trust F5 to keep their business moving forward. For more information, go to www.f5.com.

Forward Looking Statements

Statements in this press release concerning the continuing strength of F5's business, sequential growth, the target revenue and earnings range, share amount and share price assumptions, demand for application delivery networking and storage virtualization products and other statements that are not historical facts are forward-looking statements. 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, WAN optimization and storage virtualization offerings; the timely development, introduction and acceptance of additional new products and features by F5 or its competitors; competitive pricing pressures; 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; 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; the 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. 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, 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. Net income excluding stock-based compensation (non-GAAP) 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 Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment."

Management believes that net income excluding stock-based compensation (non-GAAP) provides useful supplemental information to management and investors regarding the performance of the company's 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 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 business. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures in accordance with GAAP.

The reconciliation of the company's expected GAAP and non-GAAP second quarter earnings also excludes a restructuring charge related to a loss on facility exit, workforce reduction and accelerated depreciation on tenant improvements. This restructuring charge will be incurred during the quarter ending March 31, 2009 in connection with a reduction in the company's workforce and the consolidation of certain of the company's office space.

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 business, 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. For example, stock-based compensation is an obligation of the Company that should be considered and each line item is important to financial performance generally. 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 its operational performance and financial results.

About F5

F5 (NASDAQ: 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.

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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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