F5 Networks, Inc. (NASDAQ: FFIV) today announced revenue of $175.1 million for the fourth quarter of fiscal year 2009, up 11 percent from $158.2 million in the prior quarter and 2 percent from $171.3 million in the fourth quarter of fiscal year 2008. For fiscal year 2009, revenue was $653.1 million, up slightly from $650.2 million in fiscal year 2008.
GAAP net income for the fourth quarter was $28.4 million ($0.36 per diluted share) compared to $22.8 million ($0.29 per diluted share) in the third quarter of 2009 and $19.7 million ($0.24 per diluted share) in the fourth quarter a year ago. GAAP net income for the year was $91.5 million ($1.14 per diluted share) versus $74.3 million ($0.89 per diluted share) in fiscal year 2008.
Excluding the impact of stock-based compensation, non-GAAP net income for the fourth quarter was $40.0 million ($0.50 per diluted share), compared to $31.9 million ($0.40 per diluted share) in the prior quarter and $33.4 million ($0.41 per diluted share) in the fourth quarter of fiscal 2008 (which also excluded a non-recurring loss on facility exit and sublease). For fiscal year 2009, non-GAAP net income was $134.6 million ($1.68 per diluted share) versus $121.3 million ($1.45 per diluted share) in fiscal year 2008.
A reconciliation of GAAP net income to non-GAAP net income is included on the attached Consolidated Statements of Operations.
F5 president and chief executive officer John McAdam said the rebound in revenue growth during the quarter reflected a continuation of the trend toward more normal customer spending patterns that the company experienced in the prior quarter. "Bookings were up across all geographic regions, especially in North America, as customers began purchasing equipment for new projects and moving forward with projects they had put on hold during the first half of the year. In addition, growing awareness of the performance and functionality of TMOS version 10 helped drive strong demand for our new family of BIG-IP application delivery controllers and the growth of product revenue, which increased nearly 14 percent from Q3.
"During Q4, a slight increase in gross margins combined with strong revenue growth to drive our non-GAAP operating margin to just under 32 percent. As a result, earnings on both a GAAP and non-GAAP basis came in well above our guidance for the quarter.
"We also saw continued improvement on our balance sheet. Deferred revenue grew 7.8 percent to $183.1 million from the prior quarter and cash flow from operations was $58.6 million. Cash flow for the full year was $202 million, and after repurchasing 3.3 million shares of F5 common stock for $87.4 million in fiscal year 2009 we ended the year with $574 million in cash and investments.
"In general, Q4 was a strong finish to a challenging year. While it is still too early to rule out the possibility of another broad economic setback, the strength of our current business and our growing pipeline are encouraging signs that the positive trends we saw in the last two quarters will continue through fiscal 2010."
For the first quarter of fiscal 2010, ending December 31, the company has set a revenue target of $182 million to $187 million and a GAAP earnings target of $0.31 to $0.33 per diluted share. Excluding stock-based compensation expense, the company's non-GAAP earnings target is $0.47 to $0.49 per diluted share.
A reconciliation of the company's expected GAAP and non-GAAP earnings is provided in the following table:
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 accounted for in accordance with the fair value recognition provisions of the Equity Topic of the Accounting Standards Codification.
The reconciliation of the company's GAAP and non-GAAP annual earnings also excludes a restructuring charge related to a loss on facility exit and workforce reduction and a legal settlement charge, both of which were incurred during the second quarter. This restructuring charge was incurred in connection with a reduction in the company's workforce and the consolidation of certain of the company's office space.
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.
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.
GAAP net income for the fourth quarter was $28.4 million ($0.36 per diluted share) compared to $22.8 million ($0.29 per diluted share) in the third quarter of 2009 and $19.7 million ($0.24 per diluted share) in the fourth quarter a year ago. GAAP net income for the year was $91.5 million ($1.14 per diluted share) versus $74.3 million ($0.89 per diluted share) in fiscal year 2008.
Excluding the impact of stock-based compensation, non-GAAP net income for the fourth quarter was $40.0 million ($0.50 per diluted share), compared to $31.9 million ($0.40 per diluted share) in the prior quarter and $33.4 million ($0.41 per diluted share) in the fourth quarter of fiscal 2008 (which also excluded a non-recurring loss on facility exit and sublease). For fiscal year 2009, non-GAAP net income was $134.6 million ($1.68 per diluted share) versus $121.3 million ($1.45 per diluted share) in fiscal year 2008.
A reconciliation of GAAP net income to non-GAAP net income is included on the attached Consolidated Statements of Operations.
F5 president and chief executive officer John McAdam said the rebound in revenue growth during the quarter reflected a continuation of the trend toward more normal customer spending patterns that the company experienced in the prior quarter. "Bookings were up across all geographic regions, especially in North America, as customers began purchasing equipment for new projects and moving forward with projects they had put on hold during the first half of the year. In addition, growing awareness of the performance and functionality of TMOS version 10 helped drive strong demand for our new family of BIG-IP application delivery controllers and the growth of product revenue, which increased nearly 14 percent from Q3.
"During Q4, a slight increase in gross margins combined with strong revenue growth to drive our non-GAAP operating margin to just under 32 percent. As a result, earnings on both a GAAP and non-GAAP basis came in well above our guidance for the quarter.
"We also saw continued improvement on our balance sheet. Deferred revenue grew 7.8 percent to $183.1 million from the prior quarter and cash flow from operations was $58.6 million. Cash flow for the full year was $202 million, and after repurchasing 3.3 million shares of F5 common stock for $87.4 million in fiscal year 2009 we ended the year with $574 million in cash and investments.
"In general, Q4 was a strong finish to a challenging year. While it is still too early to rule out the possibility of another broad economic setback, the strength of our current business and our growing pipeline are encouraging signs that the positive trends we saw in the last two quarters will continue through fiscal 2010."
For the first quarter of fiscal 2010, ending December 31, the company has set a revenue target of $182 million to $187 million and a GAAP earnings target of $0.31 to $0.33 per diluted share. Excluding stock-based compensation expense, the company's non-GAAP earnings target is $0.47 to $0.49 per diluted share.
A reconciliation of the company's expected GAAP and non-GAAP earnings is provided in the following table:
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 accounted for in accordance with the fair value recognition provisions of the Equity Topic of the Accounting Standards Codification.
The reconciliation of the company's GAAP and non-GAAP annual earnings also excludes a restructuring charge related to a loss on facility exit and workforce reduction and a legal settlement charge, both of which were incurred during the second quarter. This restructuring charge was incurred in connection with a reduction in the company's workforce and the consolidation of certain of the company's office space.
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.
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.
