F5 Networks, Inc. (NASDAQ: FFIV) today announced revenue of $350.2 million for the second quarter of fiscal 2013, down four percent from $365.5 million in the prior quarter and up three percent from $339.6 million in the second quarter of fiscal 2012.
GAAP net income for the second quarter was $63.4 million ($0.80 per diluted share) compared to $69.5 million ($0.88 per diluted share) in the first quarter of 2013 and $68.6 million ($0.86 per diluted share) in the second quarter a year ago.
Excluding the impact of stock-based compensation and amortization of purchased intangible assets, non-GAAP net income for the second quarter was $84.7 million ($1.07 per diluted share), compared to $90.6 million ($1.14 per diluted share) in the prior quarter and $87.1 million ($1.09 per diluted share) in the second quarter of fiscal 2012.
A reconciliation of GAAP net income to non-GAAP net income is included on the attached Consolidated Statements of Operations.
"As we indicated in our announcement of preliminary results on April 4, service provider revenues for the second quarter came in significantly below our expectations," said John McAdam, F5 president and chief executive officer. "We believe this was primarily due to project delays, which caused customers to postpone orders that we had expected to close during the quarter. The weakness in sales to service providers was especially pronounced in North America. In addition, sales to the Federal government were also below our internal forecast as a consequence of continuing uncertainty over the impact of sequestration and other efforts to reduce Federal spending.
"Among enterprise customers, business remained relatively strong, fueled by growing demand for our security offerings, including our new Advanced Firewall Manager, and our refreshed line of BIG-IP platforms. During the quarter, sales of BIG-IP 4200v, introduced in October, continued to ramp in line with our expectations, and BIG-IP 4000 series platforms accounted for nearly a quarter of the platforms we sold to replace Cisco ACE products. Sales of BIG-IP 2000, our new entry-level platform introduced in January, were also in line with our expectations. We believe this bodes well for the successful launch of additional new products, including the BIG-IP 5000 and BIG-IP 7000 series, during the second half of the fiscal year," McAdam said.
In spite of continuing weakness in the global economy, McAdam said he believes the growing pipeline for the company's new products and strong demand for its security solutions will have a positive impact on product sales throughout the remainder of fiscal year 2013. For the third quarter of fiscal 2013, ending June 30, the company has set a revenue target of $355 million to $365 million and a GAAP earnings target of $0.80 to $0.83 per diluted share. Excluding stock-based compensation and amortization of purchased intangible assets, the company's non-GAAP earnings target is $1.06 to $1.09 per diluted share. A reconciliation of the company's expected GAAP and non-GAAP earnings is provided in the following table:
|Three months ended June 30, 2013|
|Reconciliation of Expected Non-GAAP Third Quarter Earnings||Low||High|
|Stock-based compensation expense||$27.5||$27.5|
|Amortization of purchased intangible assets||$1.0||$1.0|
|Tax effects related to above items||($7.7)||($7.7)|
|Non-GAAP net income excluding stock-based compensation expense and amortization of purchased intangible assets||$83.8||$86.2|
|Net income per share - diluted||$0.80||$0.83|
|Non-GAAP net income per share - diluted||$1.06||$1.09|
The company also announced today that its board of directors had authorized an additional $200 million for the company's common stock share repurchase program. This new authorization is incremental to the $81.3 million currently in the existing program which was initially authorized in October 2010.
Acquisitions for the share repurchase program will be made from time to time in private transactions or open market purchases as permitted by securities laws and other legal requirements. The program may be modified or discontinued at any time.
F5 (NASDAQ: FFIV) makes apps go faster, smarter, and safer for the world’s largest businesses, service providers, governments, and consumer brands. F5 delivers cloud and security solutions that enable organizations to embrace the application infrastructure they choose without sacrificing speed and control. 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.
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.
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, amortization of purchased intangible assets and acquisition-related charges, net of taxes, 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, amortization of purchased intangible assets and acquisition-related charges. 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. 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"). Amortization of intangible assets is a non-cash expense. Investors should note that the use of intangible assets contribute to revenues earned during the periods presented and will contribute to revenues in future periods. Acquisition-related expenses consist of professional services fees incurred in connection with acquisitions.
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 measure of earnings and earnings per share provides investors with an additional tool for evaluating the performance of the company's core 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. 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 the company's operational performance and financial results.
For reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure, please see the section in our Condensed Consolidated Statement of Operations entitled "GAAP to Non-GAAP Reconciliation."
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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.