News details

View all news

 F5 Delivers 7% Revenue Growth in Second Quarter Fiscal Year 2020

Apr 27, 2020

 Generates Second Quarter GAAP EPS of $1.00 and non-GAAP EPS of $2.23 per diluted share

SEATTLE--(BUSINESS WIRE)-- F5 Networks, Inc. (NASDAQ: FFIV) today announced financial results for its fiscal second quarter ended March 31, 2020.

“During our second quarter, we saw continued rapid acceptance of our software and subscription-based offerings as enterprises and service provider customers worldwide look to F5 to ensure consistent application access, delivery and security,” said François Locoh-Donou, CEO and President of F5. “In the last month of the quarter, we also saw increased demand for capacity as customers looked to quickly and, in some cases, massively scale remote access capabilities to keep their employees safe and their businesses running.”

“As a result of transforming F5 to a more software-driven business, we have built greater resiliency into our business model,” continued Locoh-Donou. “With 65% recurring revenue, $182 million in cash flow from operations and cash and investments totaling $1 billion at the end of our second quarter, we can weather the economic uncertainty resulting from the COVID-19 pandemic and we are confident our multi-cloud vision, our investments, and our innovation are well aligned with both near- and longer-term customer demand.”

Second Quarter Performance Summary

Following its acquisition of Shape Security, to provide transparency to what F5 management believes reflects its ongoing business results, F5 is reporting both GAAP and non-GAAP revenue. Non-GAAP revenue excludes the impact of the purchase accounting write-down on Shape’s assumed deferred revenue. F5 expects purchase accounting will impact Shape-related recognized revenue on a GAAP-basis principally over the four quarters following the transaction close in January 2020.

GAAP revenue of $583.4 million for the second quarter of fiscal year 2020 reflects 7% growth from $544.9 million in the second quarter of fiscal year 2019.

Non-GAAP revenue for the second quarter of fiscal year 2020 was $585.6 million, reflecting 7% growth in total revenue and 96% growth in software revenue in the year ago period.

GAAP net income for the second quarter of fiscal year 2020 was $61.4 million, or $1.00 per diluted share compared to second quarter fiscal year 2019 GAAP net income of $116.1 million, or $1.93 per diluted share.

Non-GAAP net income for the second quarter of fiscal year 2020 was $135.9 million, or $2.23 per diluted share, compared to $154.4 million, or $2.57 per diluted share, in the second quarter of fiscal year 2019. Non-GAAP net income for the second quarter of fiscal year 2020 excludes $51.2 million in stock-based compensation, $23.5 million in acquisition-related charges, $8.6 million in amortization of purchased intangible assets, and $1.3 million in facility-exit costs.

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

Business Outlook

For the third quarter of fiscal year 2020 ending June 30, 2020, F5 expects to deliver both GAAP and non-GAAP revenue in the range of $555 million to $585 million with non-GAAP earnings in the range of $1.91 to $2.13 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, acquisition-related charges and write-downs, 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 earnings 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, April 27, 2020, at 4:30 pm ET. The live webcast can be accessed from the investor relations portion of F5.com. To participate in the live call via telephone in the U.S., dial 866-209-3822 and request the F5 call. Outside the U.S., dial +1-647-689-5683. Please call 5 minutes prior to the call start time. The webcast replay will be archived on the investor relations portion of F5’s website.

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, projected and target revenue and earnings ranges, income, earnings per share, share amounts 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: the impact of the COVID-19 global pandemic, customer acceptance of our new security, application delivery, optimization, and software and SaaS offerings; the timely development, introduction and acceptance of additional new products and features by F5 or its competitors; F5 may not realize the financial and strategic goals that are contemplated through its acquisitions and F5 may not successfully operate and integrate newly-acquired businesses appropriately; 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; 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:

Acquisition-related write-downs of assumed deferred revenue. Included in its GAAP financial statements, F5 records acquisition-related write-downs of assumed deferred revenue to fair value, which results in lower recognized revenue over the term of the contract. F5 includes revenue associated with acquisition-related write-downs of assumed deferred revenue in its non-GAAP financial measures as management believes it provides a more accurate depiction of revenue arising from our strategic acquisitions.

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.

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.

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.

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.

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 Condensed Consolidated Income Statements entitled “Non-GAAP Financial Measures.”

About F5

F5 (NASDAQ: FFIV) powers applications from development through their entire lifecycle, across any multi-cloud environment, so our customers-enterprise businesses, service providers, governments, and consumer brands-can deliver differentiated, high-performing, and secure digital experiences. 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 is a trademark or service mark of F5 Networks, Inc., in the U.S. and other countries. All other product and company names herein may be trademarks of their respective owners.

Source: F5 Networks

F5 Networks, Inc.

Condensed Consolidated Balance Sheets

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

March 31,

 

September 30,

 

 

2020

 

 

 

2019

 

 
Assets
Current assets
Cash and cash equivalents

$

572,888

 

$

599,219

 

Short-term investments

 

248,257

 

 

373,063

 

Accounts receivable, net of allowances of $3,305 and $3,259

 

338,655

 

 

322,029

 

Inventories

 

30,942

 

 

34,401

 

Other current assets

 

217,989

 

 

182,874

 

Total current assets

 

1,408,731

 

 

1,511,586

 

 
Property and equipment, net

 

232,006

 

 

223,426

 

Operating lease right-of-use assets

 

327,436

 

 

-

 

Long-term investments

 

204,969

 

 

358,402

 

Deferred tax assets

 

47,230

 

 

27,701

 

Goodwill

 

1,864,991

 

 

1,065,379

 

Other assets, net

 

355,614

 

 

203,781

 

Total assets

$

4,440,977

 

$

3,390,275

 

 
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable

$

56,200

 

$

62,627

 

Accrued liabilities

 

286,902

 

 

235,869

 

Deferred revenue

 

889,629

 

 

807,030

 

Current portion of long-term debt

 

19,275

 

 

-

 

Total current liabilities

 

1,252,006

 

 

1,105,526

 

 
Deferred tax liabilities

 

221

 

 

313

 

Deferred revenue, long-term

 

391,475

 

 

391,086

 

Operating lease liabilities, long-term

 

357,645

 

 

-

 

Long-term debt

 

378,685

 

 

-

 

Other long-term liabilities

 

62,751

 

 

131,853

 

Total long-term liabilities

 

1,190,777

 

 

523,252

 

 
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, 60,629 and 60,367
shares issued and outstanding

 

223,101

 

 

142,597

 

Accumulated other comprehensive loss

 

(22,903

)

 

(19,190

)

Retained earnings

 

1,797,996

 

 

1,638,090

 

Total shareholders' equity

 

1,998,194

 

 

1,761,497

 

Total liabilities and shareholders' equity

$

4,440,977

 

$

3,390,275

 

 
 
 

F5 Networks, Inc.

Condensed Consolidated Income Statements

(unaudited, in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

March 31,

 

March 31,

 

 

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

 
Net revenues
Products (1)

$

259,538

 

$

237,859

 

$

494,074

 

$

471,736

 

Services

 

323,911

 

 

307,036

 

 

658,680

 

 

616,929

 

Total

 

583,449

 

 

544,895

 

 

1,152,754

 

 

1,088,665

 

 
Cost of net revenues (2)(3)(4)(5)
Products

 

53,086

 

 

43,547

 

 

95,204

 

 

85,957

 

Services

 

48,152

 

 

44,631

 

 

94,676

 

 

88,935

 

Total

 

101,238

 

 

88,178

 

 

189,880

 

 

174,892

 

Gross profit

 

482,211

 

 

456,717

 

 

962,874

 

 

913,773

 

 
Operating expenses (2)(3)(4)(5)
Sales and marketing

 

215,472

 

 

170,954

 

 

410,991

 

 

335,213

 

Research and development

 

109,028

 

 

96,314

 

 

205,033

 

 

188,352

 

General and administrative

 

74,013

 

 

46,656

 

 

133,017

 

 

89,199

 

Restructuring charges

 

-

 

 

-

 

 

7,800

 

 

-

 

Total

 

398,513

 

 

313,924

 

 

756,841

 

 

612,764

 

 
Income from operations

 

83,698

 

 

142,793

 

 

206,033

 

 

301,009

 

Other (loss) income, net

 

(141

)

 

7,434

 

 

5,079

 

 

14,529

 

Income before income taxes

 

83,557

 

#

 

150,227

 

 

211,112

 

#

 

315,538

 

Provision for income taxes

 

22,178

 

 

34,140

 

 

51,206

 

 

68,546

 

Net income

$

61,379

 

$

116,087

 

$

159,906

 

$

246,992

 

 
 
Net income per share - basic

$

1.01

 

$

1.94

 

$

2.63

 

$

4.12

 

Weighted average shares - basic

 

60,869

 

 

59,686

 

 

60,758

 

 

59,954

 

 
Net income per share - diluted

$

1.00

 

$

1.93

 

$

2.62

 

$

4.09

 

Weighted average shares - diluted

 

61,084

 

 

60,029

 

 

61,017

 

 

60,374

 

 
 
Non-GAAP Financial Measures
 
Net income as reported

$

61,379

 

$

116,087

 

$

159,906

 

$

246,992

 

Acquisition-related write-downs of assumed deferred revenue

 

2,191

 

 

-

 

 

2,191

 

 

-

 

Stock-based compensation expense

 

51,222

 

 

39,494

 

 

98,883

 

 

78,183

 

Amortization of purchased intangible assets

 

8,620

 

 

1,774

 

 

13,208

 

 

3,548

 

Facility-exit costs

 

1,254

 

 

2,592

 

 

3,011

 

 

5,048

 

Acquisiton-related charges

 

23,453

 

 

3,530

 

 

31,719

 

 

3,530

 

Restructuring charges

 

-

 

 

-

 

 

7,800

 

 

-

 

Tax effects related to above items

 

(12,172

)

 

(9,036

)

 

(25,406

)

 

(19,322

)

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

$

135,947

 

$

154,441

 

$

291,312

 

$

317,979

 

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

$

2.23

 

$

2.57

 

$

4.77

 

$

5.27

 

 
Weighted average shares - diluted

 

61,084

 

 

60,029

 

 

61,017

 

 

60,374

 

 
(1) GAAP net product revenues

$

259,538

 

$

237,859

 

$

494,074

 

$

471,736

 

Acquisition-related write-downs of assumed deferred revenue

 

2,191

 

 

-

 

 

2,191

 

 

-

 

Non-GAAP net product revenues

 

261,729

 

 

237,859

 

 

496,265

 

 

471,736

 

GAAP net service revenues

 

323,911

 

 

307,036

 

 

658,680

 

 

616,929

 

Acquisition-related write-downs of assumed deferred revenue

 

-

 

 

-

 

 

-

 

 

-

 

Non-GAAP net service revenues

 

323,911

 

 

307,036

 

 

658,680

 

 

616,929

 

Total non-GAAP net revenues

$

585,640

 

$

544,895

 

$

1,154,945

 

$

1,088,665

 

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

$

6,434

 

$

4,946

 

$

11,923

 

$

10,034

 

Sales and marketing

 

22,638

 

 

16,359

 

 

44,404

 

 

31,878

 

Research and development

 

12,557

 

 

10,269

 

 

23,759

 

 

20,561

 

General and administrative

 

9,593

 

 

7,920

 

 

18,797

 

 

15,710

 

$

51,222

 

$

39,494

 

$

98,883

 

$

78,183

 

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

$

5,953

 

$

1,043

 

$

9,050

 

$

2,086

 

Sales and marketing

 

2,153

 

 

206

 

 

3,114

 

 

412

 

General and administrative

 

514

 

 

525

 

 

1,044

 

 

1,050

 

$

8,620

 

$

1,774

 

$

13,208

 

$

3,548

 

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

$

180

 

$

345

 

$

501

 

$

688

 

Sales and marketing

 

391

 

 

743

 

 

1,077

 

 

1,611

 

Research and development

 

408

 

 

1,066

 

 

1,153

 

 

1,986

 

General and administrative

 

275

 

 

438

 

 

280

 

 

763

 

$

1,254

 

$

2,592

 

$

3,011

 

$

5,048

 

 
(5) Includes acquisition-related charges as follows:
Cost of net revenues

$

13

 

$

-

 

$

13

 

$

-

 

Sales and marketing

 

3,364

 

 

-

 

 

3,773

 

 

-

 

Research and development

 

746

 

 

-

 

 

780

 

 

-

 

General and administrative

 

19,330

 

 

3,530

 

 

27,153

 

 

3,530

 

$

23,453

 

$

3,530

 

$

31,719

 

$

3,530

 

 

F5 Networks, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

Six Months Ended

 

March 31,

 

 

2020

 

 

 

2019

 

 
Operating activities
Net income

$

159,906

 

$

246,992

 

Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation

 

98,447

 

 

78,183

 

Depreciation and amortization

 

43,112

 

 

28,246

 

Non-cash operating lease costs

 

18,970

 

 

-

 

Other

 

54

 

 

(43

)

Deferred income taxes

 

5,353

 

 

3,606

 

Changes in operating assets and liabilities (excluding effects of the acquisition of businesses):  
Accounts receivable

 

4,317

 

 

(24,419

)

Inventories

 

3,459

 

 

(2,895

)

Other current assets

 

(19,603

)

 

(35,735

)

Other assets

 

(4,298

)

 

2,683

 

Accounts payable and accrued liabilities

 

(1,936

)

 

16,746

 

Deferred revenue

 

43,987

 

 

78,046

 

Lease liabilities

 

(25,948

)

 

-

 

Net cash provided by operating activities

 

325,820

 

 

391,410

 

 
Investing activities
Purchases of investments

 

(195,123

)

 

(211,087

)

Maturities of investments

 

237,892

 

 

351,600

 

Sales of investments

 

232,255

 

 

2,499

 

Acquisition of businesses, net of cash acquired

 

(955,574

)

 

-

 

Purchases of property and equipment

 

(35,463

)

 

(50,056

)

Net cash used in investing activities

 

(716,013

)

 

92,956

 

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

 

21,443

 

 

18,900

 

Repurchase of common stock

 

(50,009

)

 

(201,045

)

Proceeds from Term Debt Agreement

 

400,000

 

 

-

 

Payments for debt issuance costs

 

(3,040

)

 

-

 

Net cash provided by (used in) financing activities

 

368,394

 

 

(182,145

)

 
Net increase in cash, cash equivalents and restricted cash

 

(21,799

)

 

302,221

 

Effect of exchange rate changes on cash and cash equivalents

 

(1,090

)

 

(265

)

Cash, cash equivalents and restricted cash, beginning of period

 

602,254

 

 

425,894

 

Cash, cash equivalents and restricted cash, end of period

$

579,365

 

$

727,850

 

 
Supplemental disclosures of cash flow information
Cash paid for amounts included in the measurement of lease liabilities

$

30,067

 

$

-

 

Cash paid for interest on long-term debt

$

2,089

 

$

-

 

Supplemental disclosures of non-cash activities
Right-of-use assets obtained in exchange for lease obligations

$

399,203

 

$

-

 

Capitalized leasehold improvements paid directly by landlord

$

-

 

$

28,814

 

 

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

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

Source: F5 Networks, Inc.

Categories: Press Releases
View all news