F5 Networks Announces Results for Second Quarter of Fiscal 2008
21st consecutive quarter of sequential revenue growth
GAAP net income was $17.7 million ($0.21 per diluted share), compared to $17.8 million ($0.21 per diluted share) in the prior quarter and $20.0 million ($0.24 per diluted share) in the second quarter a year ago.
Non-GAAP net income was $28.9 million ($0.35 per diluted share), compared to $28.8 million ($0.33 per diluted share) in the prior quarter and $29.2 million ($0.34 per diluted share) in the second quarter of fiscal 2007.
A reconciliation of GAAP net income to non-GAAP net income is included on the attached Consolidated Statements of Operations.
"Overall, F5 achieved solid results in both our core application delivery controller business and our recently acquired storage virtualization business," said John McAdam, F5 president and chief executive officer. "Application delivery controller revenue grew sequentially in Q2 and was up 19% from Q2 a year ago. Revenue from ARX, our line of storage virtualization products, also grew sequentially, up 5 percent from the prior quarter."
McAdam said the company's core business grew despite unexpected weakness in Japan. "In what has historically been Japan's strongest quarter, Japan revenue was down sequentially from Q1. US Federal and Telco revenue also came in below our expectations. However, excluding Federal and Telco, North American revenue was up sequentially from the prior quarter. In addition, we saw continuing strength in EMEA, where revenue grew 9 percent sequentially, and APAC, where revenue increased 23 percent from Q1.
"In its first full quarter, sales of VIPRION, our chassis-based application delivery controller, were in line with our expectations, and demand continues to build during the current quarter. VIPRION's scalability, high performance, and rich functionality address the massive throughput requirements of large internet service and information providers that are struggling to keep pace with growing numbers of users and the increasing volume and complexity of online content. With a growing pipeline and an increasing number of customer evaluations, VIPRION appears to be gaining traction and promises to be a significant driver of our core business," McAdam said.
Reflecting high marks on the company's most recent customer survey, services revenue continued to grow at a healthy pace in the second quarter. In addition, deferred revenue, consisting primarily of unamortized service revenue, grew 11 percent from the prior period to $122.6 million.
Cash flow from operations was $36.9 million during the quarter, and after repurchasing $100 million of F5 shares, the company ended the quarter with $450 million in cash and investments.
Although management remains confident in the company's ability to achieve sequential revenue growth, McAdam said current economic weakness could slow the company's growth in the third quarter, ending June 30, 2008. Accordingly, management has set a revenue goal of $160 million to $162 million with a GAAP earnings target of $0.21 to $0.22 per diluted share. Excluding stock-based compensation expense, the company's non-GAAP earnings target is $0.34 to $0.35 per diluted share.
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 Statement of Financial Accounting Standards No. 123(R), .Share-Based Payment..
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.
F5 Networks GmbH
F5 Networks is the global leader in Application Delivery Networking. F5 provides solutions that make applications secure, fast and available for everyone, helping organizations get the most out of their investment. By adding intelligence and manageability into the network to offload applications, F5 optimizes applications and allows them to work faster and consume fewer resources. F5's extensible architecture intelligently integrates application optimization, protects the application and the network, and delivers application reliability-all on one universal platform. Over 16,000 organizations and service providers worldwide trust F5 to keep their applications running. The company is headquartered in Seattle, Washington with offices worldwide. For more information, go to www.f5.com.