F5 Networks Announces Third Quarter Fiscal Year 2019 Results Including 91% Software Revenue Growth

Delivers GAAP EPS of $1.43 and non-GAAP EPS of $2.52 per diluted share

SEATTLE--()--F5 Networks, Inc. (NASDAQ: FFIV) today announced financial results for its fiscal year 2019 third quarter ended June 30, 2019. Third quarter fiscal year 2019 results include the acquisition of NGINX, Inc., completed on May 8, 2019.

“The quarter’s 4% total revenue growth and 91% software growth was driven by customer demand for the software form factors of our application services, as customers globally rely on F5 to provide consistent application security and reliable performance across private, public and multi-cloud environments,” said François Locoh-Donou, F5 President and Chief Executive Officer. “With customers facing an ever-increasing array of threats, our software growth continues to be driven by security use cases, including web application firewall and bot-defense and mitigation.”

“We continue to aggressively execute our strategy of expanding our reach and broadening our role while transitioning F5 to a software-driven model,” continued Locoh-Donou. “Customers are beginning to recognize a new F5 as a result of our reprioritization of development resources, introduction of new, flexible consumption models, and most recently, the acquisition and integration of NGINX.”

Third Quarter Performance Summary

Revenue of $563.4 million for the third quarter of fiscal year 2019 reflects 4% growth from $542.2 million in the third quarter of fiscal year 2018, driven by total software solutions revenue growth of 91%, including a partial quarter contribution from NGINX.

GAAP net income for the third quarter of fiscal year 2019 was $85.9 million, or $1.43 per diluted share, and includes $41.0 million in stock-based compensation, $30.1 million in costs related to the acquisition of NGINX, $8.7 million in facility-exit costs and $3.7 million in amortization of purchased intangible assets. This compares with third quarter fiscal year 2018 GAAP net income of $122.7 million, or $1.99 per diluted share.

Non-GAAP net income for the third quarter of fiscal year 2019 was $151.5 million, or $2.52 per diluted share, compared to $150.1 million, or $2.44 per diluted share, in the third quarter of fiscal year 2018. Non-GAAP net income for the third quarter of fiscal year 2019 and the third quarter of fiscal year 2018 excludes the impact of stock-based compensation, and amortization of purchased intangible assets. Non-GAAP net income for the third quarter of fiscal year 2019 also excludes facility-exit costs related to the Company’s headquarters move and costs related to the acquisition of NGINX.

A reconciliation of net income, earnings per share, and other measures on a GAAP to non-GAAP basis is included in the attached Consolidated Income Statements. Additional information about non-GAAP financial information is included below.

Business Outlook

For the fourth quarter of fiscal year 2019 ending September 30, 2019, the Company expects to deliver revenue in the range of $577 million to $587 million with non-GAAP earnings in the range of $2.53 to $2.56 per diluted share.

All forward-looking non-GAAP measures included in the outlook exclude estimates for amortization of intangible assets, share-based compensation expenses, significant effects of tax legislation and judicial or administrative interpretation of tax regulations, including the impact of income tax reform, non-recurring income tax adjustments, valuation allowance on deferred tax assets, and the income tax effect of non-GAAP exclusions, and do not include the impact of any future acquisitions or divestitures, restructuring charges, facility exit costs, or other non-recurring charges that may occur in the period. F5 is unable to provide a reconciliation of non-GAAP guidance measures to corresponding U.S. generally accepted accounting principles or GAAP measures on a forward-looking basis without unreasonable effort due to the overall high variability and low visibility of most of the foregoing items that have been excluded. Material changes to any one of these items could have a significant effect on our guidance and future GAAP results. Certain exclusions, such as amortization of intangible assets and share-based compensation expenses, are generally incurred each quarter, but the amounts have historically varied and may continue to vary significantly from quarter to quarter.

Live Webcast and Conference Call

F5 will host a live webcast and conference call to review its financial results and outlook today, July 24, 2019, at 1:30 pm PT. The live webcast can be accessed at https://event.on24.com/wcc/r/2004027/4341065A22F8EDBD53E07FA6C21D5E13. To participate in the live call via telephone in the U.S., dial 866-209-3822. Outside the U.S., dial +1-647-689-5683. Please call 10 minutes prior to the call start time. The webcast replay will be archived on the investor relations portion of F5’s website at https://www.f5.com.

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, share repurchases, demand for application delivery networking, application delivery services, security, and software 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, and software and F5aaS 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 and other documents that we may file or furnish 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 GAAP net income excluding, as applicable, stock-based compensation, amortization of purchased intangible assets, acquisition-related charges, net of taxes, restructuring charges, facility-exit costs, significant litigation and other contingencies and certain non-recurring tax expenses and benefits, which is a non-GAAP financial measure under Section 101 of Regulation G under the Securities Exchange Act of 1934, as amended. 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.

The non-GAAP adjustments, and F5's basis for excluding them from non-GAAP financial measures, are outlined below:

Stock-based compensation. Stock-based compensation consists of expense for stock options, restricted stock and employee stock purchases through the company’s ESPP. Although stock-based compensation is an important aspect of the compensation of F5’s employees and executives, management believes it is useful to exclude stock-based compensation expenses to better understand the long-term performance of the company’s core business and to facilitate comparison of the company’s results to those of peer companies.

Amortization of purchased intangible assets. Purchased intangible assets are amortized over their estimated useful lives and generally cannot be changed or influenced by management after the acquisition. Management does not believe these charges accurately reflect the performance of the company’s ongoing operations, therefore, they are not considered by management in making operating decisions. However, investors should note that the use of intangible assets contributed to F5’s revenues earned during the periods presented and will contribute to F5’s future period revenues as well.

Acquisition-related charges, net. F5 does not acquire businesses on a predictable cycle and the terms and scope of each transaction can vary significantly and are unique to each transaction. F5 excludes acquisition-related charges from its non-GAAP financial measures to provide a useful comparison of the company’s operating results to prior periods and to its peer companies. Acquisition-related charges consist of planning, execution and integration costs incurred directly as a result of an acquisition.

Restructuring charges. F5 has incurred restructuring charges that are included in its GAAP financial statements, primarily related to workforce reductions and costs associated with exiting facility lease commitments. F5 excludes these items from its non-GAAP financial measures when evaluating its continuing business performance as such items vary significantly based on the magnitude of the restructuring action and do not reflect expected future operating expenses. In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or past operations of its business.

Facility-exit costs. In fiscal year 2019, F5 relocated its headquarters in Seattle, Washington and recorded charges in connection with this facility exit as well as other non-recurring lease activity. These charges are not representative of ongoing costs to the business and are not expected to recur. As a result, these charges are being excluded to provide investors with a more comparable measure of costs associated with ongoing operations.

Significant litigation and other contingencies. F5, from time to time, may incur charges or benefits that are outside of the ordinary course of F5’s business related to litigation and other contingencies. F5 believes it is useful to exclude such charges or benefits, when significant, because it does not consider such amounts to be part of the ongoing operation of F5’s business and because of the singular nature of the claims underlying such matters.

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 measures of earnings and earnings per share provides investors with an additional tool for evaluating the performance of the company’s core business and is used by management 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 these supplemental measures since, with reconciliation to GAAP, it may provide additional insight into the company’s operational performance and financial results.

For reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section in our attached Consolidated Income Statements entitled “Non-GAAP Financial Measures.”

About F5

F5 (NASDAQ: FFIV) gives the world’s largest businesses, service providers, governments, and consumer brands the freedom to securely deliver every app, anywhere—with confidence. F5 delivers cloud and security application services that enable organizations to embrace the 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)

 

 

 

 

 

 

 

 

 

June 30,

 

September 30,

 

 

2019

 

 

 

2018

 

 
Assets
Current assets
Cash and cash equivalents

$

688,350

 

$

424,707

 

Short-term investments

 

298,137

 

 

614,705

 

Accounts receivable, net of allowances of $2,562 and $2,040

 

320,465

 

 

295,352

 

Inventories

 

36,009

 

 

30,568

 

Other current assets

 

161,940

 

 

52,326

 

Total current assets

 

1,504,901

 

 

1,417,658

 

 
Property and equipment, net

 

226,002

 

 

145,042

 

Long-term investments

 

161,619

 

 

411,184

 

Deferred tax assets

 

25,079

 

 

33,441

 

Goodwill

 

1,065,379

 

 

555,965

 

Other assets, net

 

194,295

 

 

42,186

 

Total assets

$

3,177,275

 

$

2,605,476

 

 
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable

$

55,630

 

$

57,757

 

Accrued liabilities

 

213,195

 

 

180,979

 

Deferred revenue

 

803,241

 

 

715,697

 

Total current liabilities

 

1,072,066

 

 

954,433

 

 
Other long-term liabilities

 

117,804

 

 

65,892

 

Deferred revenue, long-term

 

363,271

 

 

299,624

 

Deferred tax liabilities

 

352

 

 

35

 

Total long-term liabilities

 

481,427

 

 

365,551

 

 
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, 60,129 and 60,215 shares issued and outstanding

 

98,722

 

 

20,427

 

Accumulated other comprehensive loss

 

(18,193

)

 

(22,178

)

Retained earnings

 

1,543,253

 

 

1,287,243

 

Total shareholders' equity

 

1,623,782

 

 

1,285,492

 

Total liabilities and shareholders' equity

$

3,177,275

 

$

2,605,476

 

 
 
 

F5 Networks, Inc.

Consolidated Income Statements

(unaudited, in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

June 30,

 

June 30,

 

 

2019

 

 

 

2018

 

 

 

2019

 

 

 

2018

 

 
Net revenues
Products

$

248,929

 

$

238,835

 

$

720,665

 

$

703,696

 

Services

 

314,465

 

 

303,368

 

 

931,394

 

 

895,002

 

Total

 

563,394

 

 

542,203

 

 

1,652,059

 

 

1,598,698

 

 
Cost of net revenues (1)(2)(3)
Products

 

44,336

 

 

45,164

 

 

130,293

 

 

132,556

 

Services

 

46,431

 

 

45,845

 

 

135,366

 

 

135,485

 

Total

 

90,767

 

 

91,009

 

 

265,659

 

 

268,041

 

Gross profit

 

472,627

 

 

451,194

 

 

1,386,400

 

 

1,330,657

 

 
Operating expenses (1)(2)(3)(4)
Sales and marketing

 

195,852

 

 

165,806

 

 

531,065

 

 

503,710

 

Research and development

 

116,894

 

 

94,061

 

 

305,246

 

 

271,006

 

General and administrative

 

57,141

 

 

39,374

 

 

146,340

 

 

118,634

 

Total

 

369,887

 

 

299,241

 

 

982,651

 

 

893,350

 

 
Income from operations

 

102,740

 

 

151,953

 

 

403,749

 

 

437,307

 

Other income, net

 

4,722

 

 

2,259

 

 

19,251

 

 

7,194

 

Income before income taxes

 

107,462

 

 

154,212

 

 

423,000

 

 

444,501

 

Provision for income taxes

 

21,557

 

 

31,469

 

 

90,103

 

 

123,693

 

Net income

$

85,905

 

$

122,743

 

$

332,897

 

$

320,808

 

 
 
Net income per share - basic

$

1.43

 

$

2.01

 

$

5.55

 

$

5.21

 

Weighted average shares - basic

 

59,981

 

 

60,970

 

 

59,963

 

 

61,531

 

 
Net income per share - diluted

$

1.43

 

$

1.99

 

$

5.51

 

$

5.16

 

Weighted average shares - diluted

 

60,196

 

 

61,633

 

 

60,372

 

 

62,214

 

 
 
Non-GAAP Financial Measures
 

Net income as reported

$

85,905

 

$

122,743

 

$

332,897

 

$

320,808

 

Stock-based compensation expense (5)

 

40,999

 

 

38,739

 

 

119,182

 

 

121,007

 

Amortization of purchased intangible assets

 

3,712

 

 

2,803

 

 

7,260

 

 

8,413

 

Facility-exit costs

 

8,704

 

 

-

 

 

13,752

 

 

-

 

Acquisiton-related charges

 

30,133

 

 

-

 

 

33,663

 

 

-

 

Tax effects related to above items

 

(17,919

)

 

(14,139

)

 

(37,241

)

 

(33,788

)

Tax on deemed repatriation of undistributed foreign earnings

 

-

 

 

-

 

 

-

 

 

7,000

 

Remeasurement of net deferred tax assets due to change in U.S. tax rate

 

-

 

 

-

 

 

-

 

 

11,584

 

Net income excluding stock-based compensation expense, amortization of purchased intangible assets, facility-exit costs, acquisition-related charges and non-recurring tax expenses and benefits (non-GAAP) - diluted

$

151,534

$

150,146

$

469,513

$

435,024

 

 

Net income per share excluding stock-based compensation expense, amortization of purchased intangible assets, facility-exit costs, acquisition-related charges and non-recurring tax expenses and benefits (non-GAAP) - diluted

$

2.52

$

2.44

$

7.78

$

6.99

 
Weighted average shares - diluted

 

60,196

 

 

61,633

 

 

60,372

 

 

62,214

 

 
(1) Includes stock-based compensation expense as follows:
Cost of net revenues

$

5,118

 

$

4,947

 

$

15,152

 

$

15,940

 

Sales and marketing

 

17,767

 

 

16,153

 

 

49,645

 

 

47,186

 

Research and development

 

10,037

 

 

11,532

 

 

30,598

 

 

36,435

 

General and administrative

 

8,077

 

 

6,107

 

 

23,787

 

 

21,446

 

$

40,999

 

$

38,739

 

$

119,182

 

$

121,007

 

 
(2) Includes amortization of purchased intangible assets as follows:
Cost of net revenues

$

2,471

 

$

2,027

 

$

4,557

 

$

6,083

 

Sales and marketing

 

710

 

 

251

 

 

1,122

 

 

755

 

General and administrative

 

531

 

 

525

 

 

1,581

 

 

1,575

 

$

3,712

 

$

2,803

 

$

7,260

 

$

8,413

 

 
(3) Includes facility-exit costs as follows:
Cost of net revenues

$

1,026

 

$

-

 

$

1,714

 

$

-

 

Sales and marketing

 

2,021

 

 

-

 

 

3,632

 

 

-

 

Research and development

 

3,605

 

 

-

 

 

5,591

 

 

-

 

General and administrative

 

2,052

 

 

-

 

 

2,815

 

 

-

 

$

8,704

 

$

-

 

$

13,752

 

$

-

 

 
(4) Includes acquisition-related charges as follows:
Sales and marketing

$

6,106

 

$

-

 

$

6,106

 

$

-

 

Research and development

 

16,116

 

 

-

 

 

16,116

 

 

-

 

General and administrative

 

7,911

 

 

-

 

 

11,441

 

 

-

 

$

30,133

 

$

-

 

$

33,663

 

$

-

 

(5)

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)
 
 

Nine Months Ended

June 30,

 

2019

 

 

 

2018

 

 
Operating activities
Net income

$

332,897

 

$

320,808

 

Adjustments to reconcile net income to net cash provided by operating activities:
Realized loss on disposition of assets and investments

 

606

 

 

64

 

Stock-based compensation

 

119,182

 

 

121,007

 

Provisions for doubtful accounts and sales returns

 

65

 

 

1,494

 

Depreciation and amortization

 

46,645

 

 

44,081

 

Deferred income taxes

 

10,171

 

 

19,241

 

Changes in operating assets and liabilities:
Accounts receivable

 

(16,249

)

 

(6,945

)

Inventories

 

(5,441

)

 

(1,488

)

Other current assets

 

(54,381

)

 

11,590

 

Other assets

 

(8,785

)

 

(68

)

Accounts payable and accrued liabilities

 

37,932

 

 

(16,423

)

Deferred revenue

 

79,113

 

 

63,402

 

Net cash provided by operating activities

 

541,755

 

 

556,763

 

 
Investing activities
Purchases of investments

 

(210,109

)

 

(499,084

)

Maturities of investments

 

507,804

 

 

295,479

 

Sales of investments

 

276,278

 

 

10,748

 

Acquisition of businesses, net of cash acquired

 

(611,550

)

 

-

 

Cash provided by sale of fixed asset

 

-

 

 

1,000

 

Purchases of property and equipment

 

(83,008

)

 

(36,074

)

Net cash used in investing activities

 

(120,585

)

 

(227,931

)

 
Financing activities
Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan

 

45,455

 

 

48,818

 

Repurchase of common stock

 

(201,045

)

 

(450,064

)

Net cash used in financing activities

 

(155,590

)

 

(401,246

)

 
Net increase (decrease) in cash and cash equivalents

 

265,580

 

 

(72,414

)

Effect of exchange rate changes on cash and cash equivalents

 

(111

)

 

(1,588

)

Cash, cash equivalents and restricted cash, beginning of period

 

425,894

 

 

674,452

 

Cash, cash equivalents and restricted cash, end of period

$

691,363

 

$

600,450

 

 

Contacts

Investor Relations
Suzanne DuLong
(206) 272-7049
s.dulong@f5.com

Public Relations
Nathan Misner
(206) 272-7494
n.misner@f5.com

Contacts

Investor Relations
Suzanne DuLong
(206) 272-7049
s.dulong@f5.com

Public Relations
Nathan Misner
(206) 272-7494
n.misner@f5.com