F5 Networks, Inc. (NASDAQ: FFIV) today announced financial
results for its fiscal fourth quarter and year ended September 30,
2020.
“F5 is well on its way to becoming a software-led business, with
customer demand for our multi-cloud application security and
delivery services driving 5% GAAP and non-GAAP annual revenue
growth in fiscal year 2020,” said François Locoh-Donou, president
and CEO of F5. “Going forward, we expect continued robust software
growth from a more diversified base of subscription and SaaS
revenue, a software subscription renewals flywheel that is starting
to turn with momentum, and true-forward revenue opportunities on a
significant percentage of our long-term software subscription
contracts.”
“We have prioritized our innovation and investment to focus on
solving our customers’ most pressing application challenges,”
continued Locoh-Donou. “New ways of working and higher consumer
expectations for application performance along with exploding
application growth have created new challenges for customers that
F5 is uniquely positioned to address.”
Fiscal Year 2020 Performance Summary
Following its acquisition of Shape Security, to provide
transparency to what F5 management believes reflects its ongoing
business results, during fiscal year 2020, 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.
GAAP revenue of $2.35 billion for fiscal year 2020 reflects 5%
growth from $2.24 billion in fiscal year 2019.
Non-GAAP revenue for fiscal year 2020 was $2.36 billion,
reflecting 5% growth in total revenue and 52% growth in software
revenue from the year ago period.
GAAP net income for fiscal year 2020 was $307 million, or $5.01
per diluted share compared to fiscal year 2019 GAAP net income of
$428 million, or $7.08 per diluted share.
Non-GAAP net income for fiscal year 2020 was $575 million, or
$9.37 per diluted share, compared to $626 million, or $10.36 per
diluted share, in fiscal year 2019. Non-GAAP net income for fiscal
year 2020 excludes $202 million in stock-based compensation, $56
million in acquisition-related charges, $35 million in amortization
of purchased intangible assets, and $17 million in facility-exit
costs.
Fourth Quarter Performance Summary
GAAP revenue of $615 million for the fourth quarter of fiscal
year 2020 reflects 4% growth from $590 million in the fourth
quarter of fiscal year 2019.
Non-GAAP revenue for the fourth quarter of fiscal year 2020 was
$617 million, reflecting 4% growth in total revenue and 36% growth
in software revenue from the year ago period.
GAAP net income for the fourth quarter of fiscal year 2020 was
$78 million, or $1.26 per diluted share compared to fourth quarter
fiscal year 2019 GAAP net income of $95 million, or $1.57 per
diluted share.
Non-GAAP net income for the fourth quarter of fiscal year 2020
was $150 million, or $2.43 per diluted share, compared to $157
million, or $2.59 per diluted share, in the fourth quarter of
fiscal year 2019. Non-GAAP net income for the fourth quarter of
fiscal year 2020 excludes $52 million in stock-based compensation,
$11 million in acquisition-related charges, $11 million in
amortization of purchased intangible assets, and $11 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 Consolidated Income Statements. Additional information
about non-GAAP financial information is included in this
release.
Business Outlook
For the first quarter of fiscal year 2021 ending December 31,
2020, F5 expects to deliver revenue in the range of $595 million to
$615 million with non-GAAP earnings in the range of $2.26 to $2.38
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, October 26, 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 6055259.
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 Employee Stock Purchase Plan.
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.
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.
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.
Impairment charges. In fiscal year 2019, F5 recorded impairment
of capitalized software development costs reflecting strategy
changes in certain product development initiatives. 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
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.
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) is a multi-cloud application security and
delivery company that enables our customers—which include the
world’s largest enterprises, financial institutions, service
providers, and governments—to bring extraordinary digital
experiences to life. For more information, go to f5.com. You can
also follow @F5 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)
September 30,
September 30,
2020
2019
Assets Current assets Cash and cash equivalents
$
849,556
$
599,219
Short-term investments
360,333
373,063
Accounts receivable, net of allowances of $3,105 and $3,259
296,183
322,029
Inventories
27,898
34,401
Other current assets
259,506
182,874
Total current assets
1,793,476
1,511,586
Property and equipment, net
229,239
223,426
Operating lease right-of-use assets
300,680
-
Long-term investments
102,939
358,402
Deferred tax assets
45,173
27,701
Goodwill
1,858,966
1,065,379
Other assets, net
347,447
203,781
Total assets
$
4,677,920
$
3,390,275
Liabilities and Shareholders’ Equity Current
liabilities Accounts payable
$
64,472
$
62,627
Accrued liabilities
321,398
235,869
Deferred revenue
883,134
807,030
Current portion of long-term debt
19,275
-
Total current liabilities
1,288,279
1,105,526
Deferred tax liabilities
602
313
Deferred revenue, long-term
389,498
391,086
Operating lease liabilities, long-term
338,715
-
Long-term debt
369,047
-
Other long-term liabilities
59,511
131,853
Total long-term liabilities
1,157,373
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, 61,099 and
60,367 shares issued and outstanding 305,453 142,597 Accumulated
other comprehensive loss
(18,716
)
(19,190
)
Retained earnings
1,945,531
1,638,090
Total shareholders' equity
2,232,268
1,761,497
Total liabilities and shareholders' equity
$
4,677,920
$
3,390,275
F5 Networks, Inc Consolidated Income
Statements (unaudited, in thousands, except per share
amounts)
Three Months Ended
Years Ended
September 30,
September 30,
2020
2019
2020
2019
Net revenues Products (1)
$
278,451
$
264,926
$
1,025,856
$
985,591
Services
336,365
325,462
1,324,966
1,256,856
Total
614,816
590,388
2,350,822
2,242,447
Cost of net revenues (2)(3)(4)(5) Products
62,634
44,693
215,275
174,986
Services
49,333
46,225
192,612
181,591
Total
111,967
90,918
407,887
356,577
Gross profit
502,849
499,470
1,942,935
1,885,870
Operating expenses (2)(3)(4)(5)(6) Sales and marketing
220,379
217,554
843,178
748,619
Research and development
120,300
102,812
441,324
408,058
General and administrative
63,557
64,390
258,366
210,730
Restructuring charges
-
-
7,800
-
Total
404,236
384,756
1,550,668
1,367,407
Income from operations
98,613
114,714
392,267
518,463
Other income, net
(1,090
)
3,397
4,130
22,648
Income before income taxes
97,523
118,111
396,397
541,111
Provision for income taxes
19,860
23,274
88,956
113,377
Net income
$
77,663
$
94,837
$
307,441
$
427,734
Net income per share - basic
$
1.27
$
1.57
$
5.05
$
7.12
Weighted average shares - basic
61,149
60,283
60,911
60,044
Net income per share - diluted
$
1.26
$
1.57
$
5.01
$
7.08
Weighted average shares - diluted
61,636
60,448
61,378
60,456
Non-GAAP Financial Measures Net income
as reported
$
77,663
$
94,837
$
307,441
$
427,734
Acquisition-related write-downs of assumed deferred revenue
1,963
-
6,824
-
Stock-based compensation expense
52,198
43,732
201,949
162,914
Amortization of purchased intangible assets
10,720
4,586
34,604
11,846
Facility-exit costs
11,045
15,048
16,601
28,800
Acquisiton-related charges
11,321
8,079
56,483
41,742
Impairment charges
-
6,273
-
6,273
Restructuring charges
-
-
7,800
-
Tax effects related to above items
(15,276
)
(15,807
)
(56,726
)
(53,048
)
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, impairment charges, restructuring
charges and non-recurring tax expenses and benefits (non-GAAP) -
diluted
$
149,634
$
156,748
$
574,976
$
626,261
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, impairment charges,
restructuring charges and non-recurring tax expenses and benefits
(non-GAAP) - diluted
$
2.43
$
2.59
$
9.37
$
10.36
Weighted average shares - diluted
61,636
60,448
61,378
60,456
(1) GAAP net product revenues
$
278,451
$
264,926
$
1,025,856
$
985,591
Acquisition-related write-downs of assumed deferred revenue
1,963
-
6,824
-
Non-GAAP net product revenues
280,414
264,926
1,032,680
985,591
GAAP net service revenues
336,365
325,462
1,324,966
1,256,856
Acquisition-related write-downs of assumed deferred revenue
-
-
-
-
Non-GAAP net service revenues
336,365
325,462
1,324,966
1,256,856
Total non-GAAP net revenues
$
616,779
$
590,388
$
2,357,646
$
2,242,447
(2) Includes stock-based compensation expense as follows:
Cost of net revenues
$
6,776
$
5,233
$
25,470
$
20,385
Sales and marketing
22,258
19,832
88,446
69,477
Research and development
13,367
10,288
50,271
40,886
General and administrative
9,797
8,379
37,762
32,166
$
52,198
$
43,732
$
201,949
$
162,914
(3) Includes amortization of purchased intangible assets as
follows: Cost of net revenues
$
7,382
$
3,096
$
23,814
$
7,653
Sales and marketing
2,749
961
8,612
2,083
General and administrative
589
529
2,178
2,110
$
10,720
$
4,586
$
34,604
$
11,846
(4) Includes facility-exit costs as follows: Cost of net
revenues
$
1,457
$
1,806
$
2,300
$
3,520
Sales and marketing
3,272
3,838
5,100
7,470
Research and development
3,328
4,403
5,257
9,994
General and administrative
2,988
5,001
3,944
7,816
$
11,045
$
15,048
$
16,601
$
28,800
(5) Includes acquisition-related charges as follows: Cost of
net revenues
$
114
$
-
$
127
$
-
Sales and marketing
4,255
445
13,703
6,551
Research and development
1,511
205
2,838
16,321
General and administrative
5,441
7,429
39,815
18,870
$
11,321
$
8,079
$
56,483
$
41,742
(6) Includes impairment charges as follows: General and
administrative
$
-
$
6,273
$
-
$
6,273
$
-
$
6,273
$
-
$
6,273
F5 Networks, Inc Consolidated
Statements of Cash Flows (unaudited, in thousands)
Years Ended September 30,
2020
2019
Operating activities Net income
$
307,441
$
427,734
Adjustments to reconcile net income to net cash provided by
operating activities: Stock-based compensation
201,948
162,914
Depreciation and amortization
95,857
68,507
Non-cash operating lease costs
39,139
Other
2,122
1,662
Deferred income taxes
7,293
7,440
Impairment of assets
9,673
6,273
Non-cash provisions for exit costs
-
8,211
Changes in operating assets and liabilities: Accounts receivable
46,502
(18,305
)
Inventories
6,503
(3,832
)
Other current assets
(49,895
)
(75,449
)
Other assets
(25,690
)
(22,742
)
Accounts payable and accrued liabilities
34,742
74,710
Deferred revenue
35,514
110,718
Lease liabilities
(50,251
)
-
Net cash provided by operating activities
660,898
747,841
Investing activities Purchases of investments
(584,240
)
(602,987
)
Maturities of investments
543,065
625,201
Sales of investments
309,687
278,244
Acquisition of businesses, net of cash acquired
(955,574
)
(611,550
)
Purchases of property and equipment
(59,940
)
(103,542
)
Net cash used in investing activities
(747,002
)
(414,634
)
Financing activities Proceeds from the exercise of
stock options and purchases of stock under employee stock purchase
plan
52,835
45,598
Repurchase of common stock
(100,016
)
(201,045
)
Proceeds from term debt agreement
400,000
-
Payments on term debt agreement
(10,000
)
-
Payments for debt issuance costs
(3,040
)
-
Taxes paid related to net share settlement of equity awards
(2,536
)
-
Net cash provided by (used in) financing activities
337,243
(155,447
)
Net increase in cash, cash equivalents and restricted cash
251,139
177,760
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
(567
)
(1,400
)
Cash, cash equivalents and restricted cash, beginning of period
602,254
425,894
Cash, cash equivalents and restricted cash, end of period
$
852,826
$
602,254
Supplemental disclosures of cash flow information
Cash paid for taxes, net of refunds
$
80,236
$
100,569
Cash paid for amounts included in the measurement of lease
liabilities
60,564
-
Cash paid for interest on long-term debt
6,568
-
Supplemental disclosures of non-cash activities Right-of-use
assets obtained in exchange for lease obligations
$
402,007
$
-
Capitalized leasehold improvements paid directly by landlord
-
34,948
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201026005842/en/
For more information contact:
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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