SEATTLE -- F5 Networks, Inc. (NASDAQ: FFIV) today announced financial results for its fiscal third quarter ended June 30, 2021.
“Our very strong third quarter results demonstrate the powerful alignment of F5’s expanded solution portfolio and our customers’ most important application needs,” said François Locoh-Donou, F5’s President and CEO. “Robust software growth and resilient demand for systems drove 12% GAAP revenue growth in our third quarter, and 11% revenue growth versus the prior year’s third quarter non-GAAP revenue.”
Locoh-Donou continued, “Customers’ traditional applications are generating more revenue and more engagement than ever before. At the same time, customers also are accelerating adoption of modern application architectures, like Kubernetes, for new applications. With our expanded application security and delivery portfolio, we are uniquely positioned to solve our customers’ most significant modern and traditional application challenges on premises, in the cloud, and across multiple clouds.”
Third quarter fiscal year 2021 GAAP revenue was $652 million, up 12% from GAAP revenue of $583 million and up 11% from non-GAAP revenue of $586 million in the third quarter of fiscal year 2020. Third quarter fiscal year 2021 non-GAAP revenue growth was driven by 21% product revenue growth and 4% global services revenue growth over the prior year. Non-GAAP product revenue was driven by 34% software revenue growth and 13% systems revenue growth compared to the year ago period.
GAAP net income for the third quarter of fiscal year 2021 was $90 million, or $1.46 per diluted share compared to third quarter fiscal year 2020 GAAP net income of $70 million, or $1.14 per diluted share.
Non-GAAP net income for the third quarter of fiscal year 2021 was $169 million, or $2.76 per diluted share, compared to $134 million, or $2.18 per diluted share, in the third quarter of fiscal year 2020. Non-GAAP net income for the third quarter of fiscal year 2021 excludes $61 million in stock-based compensation, $24 million in acquisition-related charges, $13 million in amortization of purchased intangible assets, and $4 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.
For the fourth quarter of fiscal year 2021 ending September 30, 2021, F5 expects to deliver revenue in the range of $660 million to $680 million, with non-GAAP earnings in the range of $2.68 to $2.80 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 26, 2021, 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 529-4198. 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.
This press release contains forward-looking statements including, among other things, statements regarding the continuing strength and momentum of F5’s business, past and future financial performance including revenue, operating targets, earnings and earnings per share ranges, demand for application security and delivery services, SaaS, 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: customer acceptance of offerings; potential disruptions to F5’s business and distraction of management as F5 integrates acquired businesses, teams, and technologies; F5’s ability to successfully integrate acquired businesses’ products with F5 technologies; the ability of F5’s sales professionals and distribution partners to sell acquired businesses’ product and service offerings; the timely development, introduction and acceptance of additional new products and features by F5 or its competitors; 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; the business impact of the acquisition of Volterra and potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement of completion of the acquisition; uncertain global economic conditions which may result in reduced customer demand for our products and services and changes in customer payment patterns; potential disruptions to the global supply chain resulting in inability to source required parts for F5’s products or the ability to only do so at greatly increased prices thereby impacting our revenues and/or margins; 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; potential security flaws in the Company’s networks, products or services; cybersecurity attacks on its networks, products or services; natural catastrophic events; a pandemic or epidemic; 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 ability of F5 to execute on its share repurchase program including the timing of any repurchases; 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 to vary from expectations. The financial information contained in this release 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 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.
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 2021, F5 recorded impairment charges related to the permanent exit of certain floors at its Seattle headquarters. 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.”
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, service mark, or tradename 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.
F5, Inc.Consolidated Balance Sheets(unaudited, in thousands) March 31, September 30,
2022
2021
Assets Current assets Cash and cash equivalents
$
586,543
$
580,977
Short-term investments
300,591
329,630
Accounts receivable, net of allowances of $4,336 and $3,696 .
414,218
340,536
Inventories
27,883
22,055
Other current assets
405,596
337,902
Total current assets
1,734,831
1,611,100
Property and equipment, net
178,742
191,164
Operating lease right-of-use assets
227,576
244,934
Long-term investments
34,911
132,778
Deferred tax assets
158,357
128,193
Goodwill
2,259,951
2,216,553
Other assets, net
482,805
472,558
Total assets
$
5,077,173
$
4,997,280
Liabilities and Shareholders’ Equity Current liabilities Accounts payable
$
69,131
$
62,096
Accrued liabilities
301,206
341,487
Deferred revenue
1,043,482
968,669
Current portion of long-term debt
359,410
19,275
Total current liabilities
1,773,229
1,391,527
Deferred tax liabilities
2,729
2,414
Deferred revenue, long-term
556,254
521,173
Operating lease liabilities, long-term
276,416
296,945
Long-term debt
-
349,772
Other long-term liabilities
71,417
75,236
Total long-term liabilities
906,816
1,245,540
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, 60,465 and 60,652 shares issued and outstanding
82,133
192,458
Accumulated other comprehensive loss
(22,628)
(20,073)
Retained earnings
2,337,623
2,187,828
Total shareholders' equity
2,397,128
2,360,213
Total liabilities and shareholders' equity
$
5,077,173
$
4,997,280
F5, Inc.
Consolidated Income Statements(unaudited, in thousands, except per share amounts) Three Months Ended Six Months Ended March 31, March 31,
2022
2021
2022
2021
Net revenues Products (1)
$
297,518
$
309,189
$
640,667
$
597,234
Services
336,706
336,098
680,657
672,670
Total
634,224
645,287
1,321,324
1,269,904
Cost of net revenues (2)(3)(4)(5)(6) Products
71,234
73,289
152,896
140,327
Services
55,125
55,296
108,536
103,237
Total
126,359
128,585
261,432
243,564
Gross profit
507,865
516,702
1,059,892
1,026,340
Operating expenses (2)(3)(4)(5)(6) Sales and marketing
228,826
244,908
462,861
459,454
Research and development
135,838
140,453
266,109
254,644
General and administrative
68,554
77,840
134,215
140,993
Restructuring charges
-
-
7,909
-
Total
433,218
463,201
871,094
855,091
Income from operations
74,647
53,501
188,798
171,249
Other expense, net
(1,934)
(1,377)
(4,365)
(2,060)
Income before income taxes
72,713
52,124
184,433
#
169,189
Provision for income taxes
16,477
8,883
34,638
38,270
Net income
$
56,236
$
43,241
$
149,795
$
130,919
Net income per share - basic
$
0.93
$
0.71
$
2.47
$
2.14
Weighted average shares - basic
60,573
60,667
60,693
61,058
Net income per share - diluted
$
0.92
$
0.70
$
2.43
$
2.10
Weighted average shares - diluted
61,405
62,158
61,661
62,292
Non-GAAP Financial Measures Net income as reported
$
56,236
$
43,241
$
149,795
$
130,919
Acquisition-related write-downs of assumed deferred revenue
-
-
-
1,283
Stock-based compensation expense
64,129
63,220
127,886
121,289
Amortization and impairment of purchased intangible assets
12,850
12,206
32,287
22,912
Facility-exit costs
3,518
5,065
6,260
6,401
Acquisiton-related charges
12,966
27,978
29,857
45,643
Impairment charges
-
33,825
-
33,825
Restructuring charges
-
-
7,909
-
Tax effects related to above items
(18,896)
(30,388)
(44,160)
(45,661)
Net income excluding acquisition-related write-downs of assumed deferred revenue, stock-based compensation expense, amortization and impairment of purchased intangible assets, facility-exit costs, acquisition-related charges, impairment charges and restructuring charges (non-GAAP) - diluted
$
130,803
$
155,147
$
309,834
$
316,611
Net income per share excluding acquisition-related write-downs of assumed deferred revenue, stock-based compensation expense, amortization and impairment of purchased intangible assets, facility-exit costs, acquisition-related charges, impairment charges and restructuring charges (non-GAAP) - diluted
$
2.13
$
2.50
$
5.02
$
5.08
Weighted average shares - diluted
61,405
62,158
61,661
62,292
(1) GAAP net product revenues
$
297,518
$
309,189
$
640,667
$
597,234
Acquisition-related write-downs of assumed deferred revenue
-
-
-
1,283
Non-GAAP net product revenues
297,518
309,189
640,667
598,517
GAAP net service revenues
336,706
336,098
680,657
672,670
Acquisition-related write-downs of assumed deferred revenue
-
-
-
-
Non-GAAP net service revenues
336,706
336,098
680,657
672,670
Total non-GAAP net revenues
$
634,224
$
645,287
$
1,321,324
$
1,271,187
(2) Includes stock-based compensation expense as follows: Cost of net revenues
$
7,341
$
7,352
$
14,886
$
14,694
Sales and marketing
27,613
27,040
54,366
52,283
Research and development
18,233
17,717
36,816
32,704
General and administrative
10,942
11,111
21,818
21,608
$
64,129
$
63,220
$
127,886
$
121,289
(3) Includes amortization and impairment of purchased intangible assets as follows: Cost of net revenues
$
9,959
$
8,799
$
19,918
$
16,181
Sales and marketing
2,476
2,832
11,391
5,581
General and administrative
415
575
978
1,150
$
12,850
$
12,206
$
32,287
$
22,912
(4) Includes facility-exit costs as follows: Cost of net revenues
$
611
$
984
$
1,093
$
1,156
Sales and marketing
888
1,457
1,637
1,863
Research and development
1,216
1,544
2,128
1,878
General and administrative
803
1,080
1,402
1,504
$
3,518
$
5,065
$
6,260
$
6,401
(5) Includes acquisition-related charges as follows: Cost of net revenues
$
108
$
32
$
195
$
2,522
Sales and marketing
3,609
9,917
9,773
14,688
Research and development
5,697
9,046
11,691
13,439
General and administrative
3,552
8,983
8,198
14,994
$
12,966
$
27,978
$
29,857
$
45,643
(6) Includes impairment charges as follows: Cost of net revenues
$
-
$
4,388
$
-
$
4,388
Sales and marketing
-
10,256
-
10,256
Research and development
-
9,845
-
9,845
General and administrative
-
9,336
-
9,336
$
-
$
33,825
$
-
$
33,825
F5, Inc.
Consolidated Statements of Cash Flows(unaudited, in thousands) Six Months Ended March 31,
2022
2021
Operating activities Net income
$
149,795
$
130,919
Adjustments to reconcile net income to net cash provided by operating activities: Stock-based compensation
127,886
121,289
Depreciation and amortization
59,798
56,185
Non-cash operating lease costs
19,363
19,415
Deferred income taxes
(15,832)
(17,962)
Impairment of assets
6,175
40,698
Other
(439)
105
Changes in operating assets and liabilities (excluding effects of the acquisition of businesses): Accounts receivable
(72,777)
(79,649)
Inventories
(5,828)
3,327
Other current assets
(60,896)
(32,939)
Other assets
(27,893)
(29,066)
Accounts payable and accrued liabilities
(35,649)
(14,529)
Deferred revenue
99,303
93,493
Lease liabilities
(26,131)
(25,447)
Net cash provided by operating activities
216,875
265,839
Investing activities Purchases of investments
(53,715)
(65,725)
Maturities of investments
96,349
126,711
Sales of investments
78,988
269,986
Acquisition of businesses, net of cash acquired
(67,911)
(411,319)
Purchases of property and equipment
(15,792)
(14,090)
Net cash provided by (used in) investing activities
37,919
(94,437)
Financing activities Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan
28,628
28,687
Repurchase of common stock
(250,023)
(500,000)
Payments on term debt agreement
(10,000)
(10,000)
Taxes paid related to net share settlement of equity awards
(16,816)
(7,928)
Net cash used in financing activities
(248,211)
(489,241)
Net increase (decrease) in cash, cash equivalents and restricted cash
6,583
(317,839)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(997)
494
Cash, cash equivalents and restricted cash, beginning of period
584,333
852,826
Cash, cash equivalents and restricted cash, end of period
$
589,919
$
535,481
Supplemental disclosures of cash flow information Cash paid for amounts included in the measurement of lease liabilities
$
30,346
$
30,809
Cash paid for interest on long-term debt
2,383
2,724
Supplemental disclosures of non-cash activities Right-of-use assets obtained in exchange for lease obligations
$
818
$
9,523
###
This press release may contain forward looking statements relating to future events or future financial performance that involve risks and uncertainties. Such statements can be identified by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue," or the negative of such terms or comparable terms. These statements are only predictions and actual results could differ materially from those anticipated in these statements based upon a number of factors including those identified in the company's filings with the SEC.
