Generates Third Quarter GAAP EPS of $1.14
and non-GAAP EPS of $2.18 per diluted share
F5 Networks, Inc. (NASDAQ: FFIV) today announced financial
results for its fiscal third quarter ended June 30, 2020.
“Large enterprise customers are accelerating their digital
transformations, increasing their digital engagement, and boosting
capacity and security on customer facing applications and on
platforms that enable employee collaboration,” said François
Locoh-Donou, CEO and President of F5. “Demand for solutions to meet
these immediate and long-term business requirements drove 4% GAAP
and non-GAAP revenue growth, and 43% non-GAAP software revenue
growth in our third quarter.”
“Customers continue to look to F5 to enable their
mission-critical application needs and increasingly, are deploying
a combination of F5 solutions spanning our F5, NGINX and Shape
multi-cloud application services portfolio,” continued Locoh-Donou.
“In a challenging COVID-19 environment, our deep incumbency and
close alignment with customers’ investment priorities are proving
distinct competitive advantages and driving resiliency in our
business.”
Third 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 million for the third quarter of fiscal
year 2020 reflects 4% growth from $563 million in the third quarter
of fiscal year 2019.
Non-GAAP revenue for the third quarter of fiscal year 2020 was
$586 million, reflecting 4% growth in total revenue and 43% growth
in software revenue in the year ago period.
GAAP net income for the third quarter of fiscal year 2020 was
$70 million, or $1.14 per diluted share compared to third quarter
fiscal year 2019 GAAP net income of $86 million, or $1.43 per
diluted share.
Non-GAAP net income for the third quarter of fiscal year 2020
was $134 million, or $2.18 per diluted share, compared to $152
million, or $2.52 per diluted share, in the third quarter of fiscal
year 2019. Non-GAAP net income for the third quarter of fiscal year
2020 excludes $51 million in stock-based compensation, $13 million
in acquisition-related charges, $11 million in amortization of
purchased intangible assets, and $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 fourth quarter of fiscal year 2020 ending September 30,
2020, F5 expects to deliver both GAAP and non-GAAP revenue in the
range of $595 million to $615 million with non-GAAP earnings in the
range of $2.30 to $2.42 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, July 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. and Canada, dial (833) 714-0927. Outside the U.S. and
Canada, dial +1 (778) 560-2886. Reference Meeting ID 8166352.
Please call at least 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 including but not limited to
the advantages of incumbency in an uncertain environment, caution
in spending patterns in the most severely impacted verticals,
delays in orders in some impacted regions due to COVID-19 impacts;
prolonged face-to-face sales engagement delaying some new strategic
projects; 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, including Shape and NGINX, and F5 may not
successfully operate and integrate newly-acquired businesses
appropriately or as expected; 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, including those related to
COVID-19, 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, performance or achievements to vary
from expectations. The financial information contained in this
presentation 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 presentation 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. Consolidated Balance Sheets
(unaudited, in thousands)
June 30,
September 30,
2020
2019
Assets Current assets Cash and cash equivalents
$
714,268
$
599,219
Short-term investments
379,303
373,063
Accounts receivable, net of allowances of $3,343 and $3,259
304,874
322,029
Inventories
28,826
34,401
Other current assets
238,163
182,874
Total current assets
1,665,434
1,511,586
Property and equipment, net
228,293
223,426
Operating lease right-of-use assets
316,761
-
Long-term investments
112,928
358,402
Deferred tax assets
47,919
27,701
Goodwill
1,858,966
1,065,379
Other assets, net
343,056
203,781
Total assets
$
4,573,357
$
3,390,275
Liabilities and Shareholders’ Equity Current
liabilities Accounts payable
$
54,389
$
62,627
Accrued liabilities
301,038
235,869
Deferred revenue
888,614
807,030
Current portion of long-term debt
19,275
-
Total current liabilities
1,263,316
1,105,526
Deferred tax liabilities
444
313
Deferred revenue, long-term
386,438
391,086
Operating lease liabilities, long-term
345,577
-
Long-term debt
373,866
-
Other long-term liabilities
49,817
131,853
Total long-term liabilities
1,156,142
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, 61,164 and
60,367 shares issued and outstanding
304,526
142,597
Accumulated other comprehensive loss
(18,495
)
(19,190
)
Retained earnings
1,867,868
1,638,090
Total shareholders' equity
2,153,899
1,761,497
Total liabilities and shareholders' equity
$
4,573,357
$
3,390,275
F5 Networks, Inc. Consolidated Income Statements
(unaudited, in thousands, except per share amounts)
Three Months Ended
Nine Months Ended
June 30,
June 30,
2020
2019
2020
2019
Net revenues Products (1)
$
253,331
$
248,929
$
747,405
$
720,665
Services
329,921
314,465
988,601
931,394
Total
583,252
563,394
1,736,006
1,652,059
Cost of net revenues (2)(3)(4)(5) Products
57,437
44,336
152,641
130,293
Services
48,603
46,431
143,279
135,366
Total
106,040
90,767
295,920
265,659
Gross profit
477,212
472,627
1,440,086
1,386,400
Operating expenses (2)(3)(4)(5) Sales and marketing
211,808
195,852
622,799
531,065
Research and development
115,991
116,894
321,024
305,246
General and administrative
61,792
57,141
194,809
146,340
Restructuring charges
-
-
7,800
-
Total
389,591
369,887
1,146,432
982,651
Income from operations
87,621
102,740
293,654
403,749
Other income, net
141
4,722
5,220
19,251
Income before income taxes
87,762
107,462
298,874
423,000
Provision for income taxes
17,890
21,557
69,096
90,103
Net income
$
69,872
$
85,905
$
229,778
$
332,897
Net income per share - basic
$
1.15
$
1.43
$
3.78
$
5.55
Weighted average shares - basic
60,978
59,981
60,831
59,963
Net income per share - diluted
$
1.14
$
1.43
$
3.76
$
5.51
Weighted average shares - diluted
61,415
60,196
61,182
60,372
Non-GAAP Financial Measures Net income
as reported
$
69,872
$
85,905
$
229,778
$
332,897
Acquisition-related write-downs of assumed deferred revenue
2,670
-
4,861
-
Stock-based compensation expense
50,868
40,999
149,751
119,182
Amortization of purchased intangible assets
10,676
3,712
23,884
7,260
Facility-exit costs
2,545
8,704
5,556
13,752
Acquisiton-related charges
13,443
30,133
45,162
33,663
Restructuring charges
-
-
7,800
-
Tax effects related to above items
(16,044
)
(17,919
)
(41,450
)
(37,241
)
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 $
134,030
$
151,534
$
425,342
$
469,513
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 $
2.18
$
2.52
$
6.95
$
7.78
Weighted average shares - diluted
61,415
60,196
61,182
60,372
(1) GAAP net product revenues
$
253,331
$
248,929
$
747,405
$
720,665
Acquisition-related write-downs of assumed deferred revenue
2,670
-
4,861
-
Non-GAAP net product revenues
256,001
248,929
752,266
720,665
GAAP net service revenues
329,921
314,465
988,601
931,394
Acquisition-related write-downs of assumed deferred revenue
-
-
-
-
Non-GAAP net service revenues
329,921
314,465
988,601
931,394
Total non-GAAP net revenues
$
585,922
$
563,394
$
1,740,867
$
1,652,059
(2) Includes stock-based compensation expense as follows:
Cost of net revenues
$
6,771
$
5,118
$
18,694
$
15,152
Sales and marketing
21,784
17,767
66,188
49,645
Research and development
13,145
10,037
36,904
30,598
General and administrative
9,168
8,077
27,965
23,787
$
50,868
$
40,999
$
149,751
$
119,182
(3) Includes amortization of purchased intangible assets as
follows: Cost of net revenues
$
7,382
$
2,471
$
16,432
$
4,557
Sales and marketing
2,749
710
5,863
1,122
General and administrative
545
531
1,589
1,581
$
10,676
$
3,712
$
23,884
$
7,260
(4) Includes facility-exit costs as follows: Cost of net
revenues
$
342
$
1,026
$
843
$
1,714
Sales and marketing
751
2,021
1,828
3,632
Research and development
776
3,605
1,929
5,591
General and administrative
676
2,052
956
2,815
$
2,545
$
8,704
$
5,556
$
13,752
(5) Includes acquisition-related charges as follows: Cost of
net revenues
$
-
$
-
$
13
$
-
Sales and marketing
5,675
6,106
9,448
6,106
Research and development
547
16,116
1,327
16,116
General and administrative
7,221
7,911
34,374
11,441
$
13,443
$
30,133
$
45,162
$
33,663
F5 Networks, Inc. Consolidated Statements of Cash
Flows (unaudited, in thousands)
Nine Months Ended
June 30,
2020
2019
Operating activities Net income
$
229,778
$
332,897
Adjustments to reconcile net income to net cash provided by
operating activities: Stock-based compensation
149,315
119,182
Depreciation and amortization
69,337
46,645
Non-cash operating lease costs
29,731
-
Other
168
671
Deferred income taxes
4,357
10,171
Changes in operating assets and liabilities: Accounts receivable
38,024
(16,249
)
Inventories
5,575
(5,441
)
Other current assets
(33,572
)
(54,381
)
Other assets
(5,659
)
(8,785
)
Accounts payable and accrued liabilities
(1,538
)
37,932
Deferred revenue
37,934
79,113
Lease liabilities
(38,456
)
-
Net cash provided by operating activities
484,994
541,755
Investing activities Purchases of investments
(390,696
)
(210,109
)
Maturities of investments
322,271
507,804
Sales of investments
309,040
276,278
Acquisition of businesses, net of cash acquired
(955,574
)
(611,550
)
Purchases of property and equipment
(47,857
)
(83,008
)
Net cash used in investing activities
(762,816
)
(120,585
)
Financing activities Proceeds from the exercise of
stock options and purchases of stock under employee stock purchase
plan
51,999
45,455
Repurchase of common stock
(50,009
)
(201,045
)
Proceeds from term debt agreement
400,000
-
Payments on term debt agreement
(5,000
)
-
Payments for debt issuance costs
(3,040
)
-
Net cash provided by (used in) financing activities
393,950
(155,590
)
Net increase in cash, cash equivalents and restricted cash
116,128
265,580
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
(856
)
(111
)
Cash, cash equivalents and restricted cash, beginning of period
602,254
425,894
Cash, cash equivalents and restricted cash, end of period
$
717,526
$
691,363
Supplemental disclosures of cash flow information
Cash paid for amounts included in the measurement of lease
liabilities
$
45,399
$
-
Cash paid for interest on long-term debt
$
4,330
$
-
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
$
-
$
34,487
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200727005750/en/
Investor Relations Suzanne DuLong (206) 272-7049
s.dulong@f5.com
Public Relations Nathan Misner (206) 272-7494
n.misner@f5.com
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