F5 Networks Announces First Quarter 2010 Results
Strong product sales drive record revenue up 9 percent sequentially, 15 percent year-over-year
GAAP net income was $29.3 million ($0.36 per diluted share), compared to $28.4 million ($0.36 per diluted share) in the prior quarter and $21.4 million ($0.27 per diluted share) in the first quarter a year ago.
Excluding the impact of stockbased compensation net of tax, non-GAAP net income was $41.4 million ($0.52 per diluted share), compared to $40.0 million ($0.50 per diluted share) in the prior quarter and $32.3 million ($0.40 per diluted share) in the first quarter of fiscal 2009.
A reconciliation of GAAP net income to non-GAAP net income is included on the attached Consolidated Statements of Operations.
"For the second quarter in a row, strong product sales continued to drive our topline growth," said John McAdam, F5 president and chief executive officer."During the first quarter, F5's product revenue grew 9.5 percent compared to the prior quarter and 10.5 percent yearoveryear. With the exception of Japan, results were strong across all regions and especially in North America, where overall revenue was up 12 percent from the prior quarter and 24 percent compared to the first quarter a year ago. Our business in EMEA continues to be quite strong, with a 20 percent increase in revenue from last quarter and a 15 percent increase from the first quarter of fiscal 2009.
"Because our products are strategic points of control in data centers, the initial purchase and renewal of service maintenance contracts continues to be a strong component of our business, driving deferred revenue up 15.5 percent during the quarter to $211.4 million.
"The combination of strong revenue growth and stable gross margins enabled us to add nearly 100 employees in Q1 while maintaining our non-GAAP operating margin at just under 32 percent.
"During the quarter we generated $74 million in cash from operations, and after repurchasing 309,160 shares of our outstanding common stock we ended the quarter with $647 million in cash and investments.
"While seasonal factors typically make the second quarter our most challenging quarter, customer buying patterns continue to stabilize and our nearterm business outlook remains strong," McAdam said.
For the current quarter, ending on March 31, management has set a revenue goal of $195 million to $200 million with a GAAP earnings target of $0.36 to $0.38 per diluted share. Excluding stockbased compensation expense, the company's non-GAAP earnings target is $0.52 to $0.54 per diluted share.
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 forwardlooking statements. Such forwardlooking 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 forwardlooking 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 forwardlooking 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 forwardlooking 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 stockbased 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, stockbased compensation. Net income excluding stockbased 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. Stockbased compensation is a noncash 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 stockbased 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, stockbased 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.
F5 Networks GmbH
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 communitydriven 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.