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F5 Networks Announces Results for First Quarter of Fiscal 2011
Revenue growth, up 41 percent year-over-year, driven by solid performance across all geographic regions
GAAP net income was $55.7 million ($0.68 per diluted share), compared to $48.2 million ($0.59 per diluted share) in the prior quarter and $29.3 million ($0.36 per diluted share) in the first quarter a year ago.
Excluding the impact of stock-based compensation net of tax, non-GAAP net income was $72.2 million ($0.88 per diluted share), compared to $63.9 million ($0.79 per diluted share) in the prior quarter and $41.4 million ($0.52 per diluted share) in the first quarter of fiscal 2010.
Both GAAP and non-GAAP results reflect reinstatement of the R&D tax credit passed by Congress in December. A reconciliation of GAAP net income to non-GAAP net income is included on the attached Consolidated Statements of Operations.
"Coming off a very strong fourth quarter, the company achieved solid revenue and earnings growth in the first quarter of fiscal 2011," said John McAdam, F5 president and chief executive officer. "Product revenue was up nearly 44 percent from the first quarter of fiscal 2010, and service revenue grew more than 35 percent during the same period. On a regional basis, all geographies delivered sequential and year-over-year gains, led by Asia Pacific where revenue was up 11 percent from the prior quarter and 62 percent from the first quarter a year ago. Underpinning the continued strength in our service business, deferred revenue grew 10.9 percent to $287.8 million from the previous quarter.
"Solid revenue growth, stable gross margins and disciplined execution enabled us to achieve a non-GAAP operating margin of just over 38 percent. Consistent with our policy of hiring behind revenue, we added 120 new employees, approximately half of them in sales and sales support," McAdam said.
During the first quarter F5 generated $103 million in cash from operations, and after repurchasing 197,644 shares of its outstanding common stock, the company ended the quarter with $952 million in cash and investments.
For the current quarter, ending March 31, management has set a revenue goal of $275 million to $280 million with a GAAP earnings target of $0.65 to $0.67 per diluted share. Excluding stock-based compensation expense, the company's non-GAAP earnings target is $0.84 to $0.86 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 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 Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 718 Compensation - Stock Compensation ("FASB ASC Topic 718").
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 and 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.
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