Q4 FY18 Earnings Release
 
Page 1 of 4

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
 
 
 
 

F5 Networks Announces Fourth Quarter and Fiscal Year 2018 Results
Delivers fiscal year 2018 revenue growth of 3.4% with strong operational performance
SEATTLE, WA - October 24, 2018 - F5 Networks, Inc. (NASDAQ: FFIV) today announced revenue of $562.7 million for the fourth quarter of fiscal 2018, up 4.6% from $538.0 million in the fourth quarter of fiscal 2017. Growth compared with the fourth quarter of fiscal year 2017 was driven by continued momentum in software solutions, which powered continued year over year product revenue growth.
GAAP net income for the fourth quarter of fiscal year 2018 was $132.9 million, or $2.18 per diluted share, compared to $135.7 million, or $2.14 per diluted share in the fourth quarter of fiscal year 2017. Non-GAAP net income for the fourth quarter of fiscal year 2018 was $177.0 million, or $2.90 per diluted share, compared to $154.9 million, or $2.44 per diluted share in the fourth quarter of fiscal year 2017.1 
For fiscal year 2018, the company delivered revenue of $2,161.4 million compared to revenue of $2,090.0 million in fiscal year 2017. GAAP net income in fiscal year 2018 was $453.7 million, or $7.32 per diluted share, compared to $420.8 million, or $6.50 per diluted share in fiscal year 2017. Non-GAAP net income for fiscal year 2018 was $612.1 million, or $9.87 per diluted share, compared to $542.9 million, or $8.38 per diluted share in fiscal year 2017.1 
A reconciliation of net income, earnings per share, and other measures on a GAAP to non-GAAP basis is included on the attached Consolidated Income Statements.
"Our 5% year over year revenue growth in the fourth quarter was driven by demand for F5’s software solutions which provide mission-critical application and security services in evolving multi-cloud environments," said François Locoh-Donou, F5 President and Chief Executive Officer. "In addition, during the quarter the team drove strong operating performance across the business, resulting in record non-GAAP fourth quarter earnings."
"Building on the momentum of our Cloud Edition and new stand-alone security offerings introduced in fiscal year 2018, we have new offerings planned for 2019 including Cloud-Native Applications Services and F5aaS," continued Locoh-Donou. "We expect demand for these new offerings, along with additional new security products and solutions, to be key drivers of our future growth."
For the first quarter of fiscal 2019, ending December 31, the company has set a revenue goal of $542 million to $552 million with a non-GAAP earnings target of $2.51 to $2.54 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, 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 guidance measures to corresponding U.S. generally accepted accounting principles or GAAP measures on a forward-looking basis without


1 Non-GAAP net income for the fourth quarter of 2018 and fiscal year 2018 excludes the impact of stock-based compensation, amortization of purchased intangible assets, litigation expenses, restructuring charges, facility exit costs, gain on the sale of a patent and non-recurring tax expenses and benefits.


Q4 FY18 Earnings Release
 
Page 2 of 4

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 and may continue to vary significantly from quarter to quarter.




Q4 FY18 Earnings Release
 
Page 3 of 4

Live Webcast and Conference Call
F5 will host a live webcast and conference call to review its financial results and outlook today, October 24, 2018 at 1:30 pm PT. The live webcast can be accessed at https://edge.media-server.com/m6/p/dabky4a8. To participate via telephone in the U.S., dial 800-593-9913. Outside the U.S., dial +1-212-287-1824. Please call 10 minutes prior to the call start time. The webcast replay will be archived on 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, sequential growth, projected revenues including target revenue and earnings ranges, income, earnings per share, share amount and share price assumptions, 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: customer acceptance of our new traffic management, security, application delivery, optimization, and software and F5aaS 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; uncertain global economic conditions 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; 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; 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 that we may file 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.


Q4 FY18 Earnings Release
 
Page 4 of 4

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, amortization of purchased intangible assets, acquisition-related charges, net of taxes, 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 consists of GAAP net income excluding, as applicable, stock-based compensation, amortization of purchased intangible assets, litigation expense, restructuring charges, facility exit costs, gain on sale of patents, non-recurring tax expenses and benefits, 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. In addition, restructuring charges have been excluded from GAAP net income for the purpose of measuring non-GAAP earnings and earnings per share in fiscal years 2017 and 2018, and litigation expenses primarily related to a jury verdict and other associated costs of that patent litigation have been excluded in fiscal 2017. Fiscal 2018 non-GAAP results also exclude one-time costs associated with relocation of the company's corporate headquarters and a gain realized on the sale of a patent.
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 Consolidated Income Statements entitled “Non-GAAP Financial Measures.”
About F5
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 Networks, Inc.
Consolidated Balance Sheets
(unaudited, in thousands)
 
 
September 30,
 
September 30,
 
 
2018
 
2017
ASSETS
Current assets
 
 
 
 
Cash and cash equivalents
 
$
424,707

 
$
673,228

Short-term investments
 
614,705

 
343,700

Accounts receivable, net of allowances of $2,040 and $1,815
 
295,352

 
291,924

Inventories
 
30,568

 
29,834

Other current assets
 
52,326

 
67,538

Total current assets
 
1,417,658

 
1,406,224

Property and equipment, net
 
145,042

 
122,420

Long-term investments
 
411,184

 
284,802

Deferred tax assets
 
33,441

 
53,303

Goodwill
 
555,965

 
555,965

Other assets, net
 
42,186

 
53,775

Total assets
 
$
2,605,476

 
$
2,476,489

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
 
 
 
 
Accounts payable
 
$
57,757

 
$
50,760

Accrued liabilities
 
180,979

 
187,379

Deferred revenue
 
715,697

 
696,404

Total current liabilities
 
954,433

 
934,543

Other long-term liabilities
 
65,892

 
44,589

Deferred revenue, long-term
 
299,624

 
267,902

Deferred tax liabilities
 
35

 
63

Total long-term liabilities
 
365,551

 
312,554

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, 60,215 and 62,594 shares issued and outstanding
 
20,427

 
17,627

Accumulated other comprehensive loss
 
(22,178
)
 
(17,997
)
Retained earnings
 
1,287,243

 
1,229,762

Total shareholders’ equity
 
1,285,492

 
1,229,392

Total liabilities and shareholders’ equity
 
$
2,605,476

 
$
2,476,489





F5 Networks, Inc.
Consolidated Income Statements
(unaudited, in thousands, except per share amounts)
 
 
 
 
Three Months Ended
 
Years Ended
 
 
 
September 30,
 
September 30,
 
 
 
2018
 
2017
 
2018
 
2017
 
Net revenues
 
 
 
 
 
 
 
 
 
Products
 
$
256,412

 
$
248,990

 
$
960,108

 
$
964,662

 
Services
 
306,297

 
289,008

 
1,201,299

 
1,125,379

 
Total
 
562,709

 
537,998

 
2,161,407

 
2,090,041

 
Cost of net revenues (1)(2)
 
 
 
 
 
 
 
 
 
Products
 
48,505

 
46,641

 
181,061

 
176,032

 
Services
 
44,935

 
43,900

 
180,420

 
177,453

 
Total
 
93,440

 
90,541

 
361,481

 
353,485

 
Gross profit
 
469,269

 
447,457

 
1,799,926

 
1,736,556

 
Operating expenses (1)(2)
 
 
 
 
 
 
 
 
 
Sales and marketing
 
160,425

 
162,068

 
664,135

 
652,239

 
Research and development
 
95,078

 
85,479

 
366,084

 
350,365

 
General and administrative
 
41,748

 
37,832

 
160,382

 
156,887

 
Litigation expense
 

 
525

 

 
391

 
Restructuring charges
 
18,426

 
12,718

 
18,426

 
12,718

 
Total
 
315,677

 
298,622

 
1,209,027

 
1,172,600

 
Income from operations
 
153,592

 
148,835

 
590,899

 
563,956

 
Other income, net
 
5,667

 
5,027

 
12,861

 
11,561

 
Income before income taxes
 
159,259

 
153,862

 
603,760

 
575,517

 
Provision for income taxes
 
26,378

 
18,119

 
150,071

 
154,756

 
Net income
 
$
132,881

 
$
135,743

 
$
453,689

 
$
420,761

 
 
 
 
 
 
 
 
 
 
 
Net income per share — basic
 
$
2.20

 
$
2.15

 
$
7.41

 
$
6.56

 
Weighted average shares — basic
 
60,462

 
63,088

 
61,262

 
64,173

 
 
 
 
 
 
 
 
 
 
 
Net income per share — diluted
 
$
2.18

 
$
2.14

 
$
7.32

 
$
6.50

 
Weighted average shares — diluted
 
61,070

 
63,446

 
62,013

 
64,775

 
 
 
 
 
 
 
 
 
 
 
Non-GAAP Financial Measures
 
 
 
 
 
 
 
 
 
Net income as reported
 
$
132,881

 
$
135,743

 
$
453,689

 
$
420,761

 
Stock-based compensation expense (3)
 
36,848

 
41,586

 
157,855

 
175,326

 
Amortization of purchased intangible assets
 
2,667

 
2,788

 
11,080

 
12,271

 
Litigation expense
 

 
525

 

 
391

 
Restructuring charges
 
18,426

 
12,718

 
18,426

 
12,718

 
Facility exit costs
 
2,514

 

 
2,514

 

 
Gain on sale of patent
 
(534
)
 

 
(534
)
 

 
Tax effects related to above items
 
(15,769
)
 
(17,472
)
 
(49,557
)
 
(57,532
)
 
Non-recurring foreign tax credit benefit
 

 
(21,000
)
 

 
(21,000
)
 
Tax on deemed repatriation of undistributed foreign earnings
 

 

 
7,000

 

 
Remeasurement of net deferred tax assets due to change in U.S. tax rate
 

 

 
11,584

 

 
Net income excluding stock-based compensation expense, amortization of purchased intangible assets, litigation expense, restructuring charges, facility exit costs, gain on sale of patent and non-recurring tax expenses and benefits (non-GAAP) - diluted
 
$
177,033

 
$
154,888

 
$
612,057

 
$
542,935

 
 
 
 
 
 
 
 
 
 
 
Net income per share excluding stock-based compensation expense, amortization of purchased intangible assets, litigation expense, restructuring charges, facility exit costs, gain on sale of patent and non-recurring tax expenses and benefits (non-GAAP) - diluted
 
$
2.90

 
$
2.44

 
$
9.87

 
$
8.38

 
 
 
 
 
 
 
 
 
 
 
Weighted average shares - diluted
 
61,070

 
63,446

 
62,013

 
64,775

 
 
 
 
 
 
 
 
 
 
 
(1) Includes stock-based compensation expense as follows:
 
 
 
 
 
 
 
 
 
Cost of net revenues
 
$
5,182

 
$
5,280

 
$
21,122

 
$
21,435

 
Sales and marketing
 
14,347

 
16,918

 
61,533

 
69,655

 
Research and development
 
10,892

 
12,004

 
47,327

 
53,399

 
General and administrative
 
6,427

 
7,384

 
27,873

 
30,837

 
 
 
$
36,848

 
$
41,586

 
$
157,855

 
$
175,326

 
 
 
 
 
 
 
 
 
 
 
(2) Includes amortization of purchased intangible assets as follows:
 
 
 
 
 
 
 
 
 
Cost of net revenues
 
$
1,890

 
$
2,027

 
$
7,973

 
$
9,372

 
Sales and marketing
 
252

 
252

 
1,007

 
1,006

 
General and administrative
 
525

 
509

 
2,100

 
1,893

 
 
 
$
2,667

 
$
2,788

 
$
11,080

 
$
12,271

 
 
 
 
 
 
 
 
 
 
 
(3)    Stock-based compensation is accounted for 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”)
 
 



F5 Networks, Inc.
Consolidated Statements of Cash Flows
(unaudited, in thousands)
 
 
Years Ended
 
 
September 30,
 
 
2018
 
2017
Operating activities
 
 
 
 
Net income
 
$
453,689

 
$
420,761

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Realized gain on disposition of assets and investments
 
(267
)
 
(439
)
Stock-based compensation
 
157,855

 
175,326

Provisions for doubtful accounts and sales returns
 
1,461

 
366

Depreciation and amortization
 
59,491

 
61,148

Deferred income taxes
 
20,810

 
(4,626
)
Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
(4,889
)
 
(24,115
)
Inventories
 
(734
)
 
4,218

Other current assets
 
15,607

 
(14,890
)
Other assets
 
446

 
(2,056
)
Accounts payable and accrued liabilities
 
6,583

 
30,524

Deferred revenue
 
51,016

 
94,064

Net cash provided by operating activities
 
761,068

 
740,281

Investing activities
 
 
 
 
Purchases of investments
 
(855,424
)
 
(446,838
)
Maturities of investments
 
439,130

 
390,449

Sales of investments
 
12,736

 
66,858

Decrease (increase) in restricted cash
 
36

 
(73
)
Acquisition of intangible assets
 

 
(4,000
)
Cash provided by sale of fixed asset
 
1,000

 

Purchases of property and equipment
 
(53,465
)
 
(38,681
)
Net cash used in investing activities
 
(455,987
)
 
(32,285
)
Financing activities
 
 
 
 
Excess tax benefit from stock-based compensation
 

 
7,019

Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan
 
48,818

 
47,039

Repurchase of common stock
 
(600,081
)
 
(600,090
)
Net cash used in financing activities
 
(551,263
)
 
(546,032
)
Net (decrease) increase in cash and cash equivalents
 
(246,182
)
 
161,964

Effect of exchange rate changes on cash and cash equivalents
 
(2,339
)
 
(3,307
)
Cash and cash equivalents, beginning of period
 
673,228

 
514,571

Cash and cash equivalents, end of period
 
$
424,707

 
$
673,228



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