F5 Delivers 10% Revenue Growth in its First Quarter Fiscal Year 2021

January 26, 2021 4:05 PM EST

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SEATTLE--(BUSINESS WIRE)-- F5 Networks, Inc. (NASDAQ: FFIV) today announced financial results for its fiscal first quarter ended December 31, 2020.

“Our customers depend on F5’s application security and delivery solutions to safely and reliably deliver the digital experiences that enable consumers everywhere to order groceries, conduct online banking, or stream videos from their phones, laptops, or tablets,” said François Locoh-Donou, F5’s President and CEO. “Our investments over the last several years have fueled innovation, enhancing our strategic position with customers at a time when they are experiencing explosive application growth, and contributing to our 10% revenue growth in the first quarter.”

First Quarter Performance Summary

First quarter fiscal 2021 GAAP revenue was $625 million, up from $569 million in the first quarter of fiscal year 2020. Non-GAAP revenue for the first quarter of fiscal year 2021 was $626 million, up from $569 million in the year ago period. Both GAAP and non-GAAP revenue for the first quarter of fiscal year 2021 reflect 10% growth compared to the first quarter of fiscal year 2020. Fiscal year 2021 first quarter revenue growth was driven by 70% software revenue growth, 5% systems revenue growth, and 1% global services revenue growth compared to the year ago period.

GAAP net income for the first quarter of fiscal year 2021 was $88 million, or $1.41 per diluted share compared to first quarter fiscal year 2020 GAAP net income of $99 million, or $1.62 per diluted share.

Non-GAAP net income for the first quarter of fiscal year 2021 was $161 million, or $2.59 per diluted share, compared to $155 million, or $2.55 per diluted share, in the first quarter of fiscal year 2020. Non-GAAP net income for the first quarter of fiscal year 2021 excludes $58 million in stock-based compensation, $18 million in acquisition-related charges, $11 million in amortization of purchased intangible assets, and $1 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 second quarter of fiscal year 2021 ending March 31, 2021, F5 expects to deliver revenue in the range of $625 million to $645 million with non-GAAP earnings in the range of $2.32 to $2.44 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, January 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 5227009. 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, 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 Volterra’s or other acquired businesses’, teams and technologies; F5’s ability to successfully integrate Volterra’s or other acquired businesses’ products with F5 technologies; the ability of F5’s sales professionals and distribution partners to sell Volterra’s or other 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; 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.

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.

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, 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.

Source: F5 Networks

F5 Networks, Inc.
Consolidated Balance Sheets
(unaudited, in thousands)
 
December 31, September 30,

 

2020

 

 

2020

 

 
Assets
Current assets
Cash and cash equivalents

$

1,026,829

 

$

849,556

 

Short-term investments

 

346,515

 

 

360,333

 

Accounts receivable, net of allowances of $3,356 and $3,105

 

346,670

 

 

296,183

 

Inventories

 

26,455

 

 

27,898

 

Other current assets

 

283,341

 

 

259,506

 

Total current assets

 

2,029,810

 

 

1,793,476

 

 
Property and equipment, net

 

215,649

 

 

229,239

 

Operating lease right-of-use assets

 

286,044

 

 

300,680

 

Long-term investments

 

88,753

 

 

102,939

 

Deferred tax assets

 

47,236

 

 

45,173

 

Goodwill

 

1,863,892

 

 

1,858,966

 

Other assets, net

 

367,955

 

 

347,447

 

Total assets

$

4,899,339

 

$

4,677,920

 

 
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable

$

57,542

 

$

64,472

 

Accrued liabilities

 

305,792

 

 

321,398

 

Deferred revenue

 

936,640

 

 

883,134

 

Current portion of long-term debt

 

19,275

 

 

19,275

 

Total current liabilities

 

1,319,249

 

 

1,288,279

 

 
Deferred tax liabilities

 

1,965

 

 

602

 

Deferred revenue, long-term

 

422,185

 

 

389,498

 

Operating lease liabilities, long-term

 

328,468

 

 

338,715

 

Long-term debt

 

364,229

 

 

369,047

 

Other long-term liabilities

 

61,653

 

 

59,511

 

Total long-term liabilities

 

1,178,500

 

 

1,157,373

 

 
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, 61,632 and 61,099
shares issued and outstanding

 

386,236

 

 

305,453

 

Accumulated other comprehensive loss

 

(17,855

)

 

(18,716

)

Retained earnings

 

2,033,209

 

 

1,945,531

 

Total shareholders' equity

 

2,401,590

 

 

2,232,268

 

Total liabilities and shareholders' equity

$

4,899,339

 

$

4,677,920

 

F5 Networks, Inc.
Consolidated Income Statements
(unaudited, in thousands, except per share amounts)
 
Three Months Ended
December 31,

 

2020

 

 

2019

 

 
Net revenues
Products (1)

$

288,045

 

$

234,536

 

Services

 

336,572

 

 

334,769

 

Total

 

624,617

 

 

569,305

 

 
Cost of net revenues (2)(3)(4)(5)
Products

 

67,038

 

 

42,118

 

Services

 

47,941

 

 

46,524

 

Total

 

114,979

 

 

88,642

 

Gross profit

 

509,638

 

 

480,663

 

 
Operating expenses (2)(3)(4)(5)
Sales and marketing

 

214,546

 

 

195,519

 

Research and development

 

114,191

 

 

96,005

 

General and administrative

 

63,153

 

 

59,004

 

Restructuring charges

 

-

 

 

7,800

 

Total

 

391,890

 

 

358,328

 

 
Income from operations

 

117,748

 

 

122,335

 

Other income, net

 

(683

)

 

5,220

 

Income before income taxes

 

117,065

 

 

127,555

 

Provision for income taxes

 

29,387

 

 

29,028

 

Net income

$

87,678

 

$

98,527

 

 
 
Net income per share - basic

$

1.43

 

$

1.62

 

Weighted average shares - basic

 

61,440

 

 

60,649

 

 
Net income per share - diluted

$

1.41

 

$

1.62

 

Weighted average shares - diluted

 

62,282

 

 

60,815

 

 
 
Non-GAAP Financial Measures
 
Net income as reported

$

87,678

 

$

98,527

 

Acquisition-related write-downs of assumed deferred revenue

 

1,283

 

 

-

 

Stock-based compensation expense

 

58,069

 

 

47,661

 

Amortization of purchased intangible assets

 

10,706

 

 

4,588

 

Facility-exit costs

 

1,336

 

 

1,757

 

Acquisiton-related charges

 

17,665

 

 

8,266

 

Restructuring charges

 

-

 

 

7,800

 

Tax effects related to above items

 

(15,273

)

 

(13,234

)

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 and restructuring charges (non-GAAP) - diluted

$

161,464

 

$

155,365

 

 
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 and restructuring charges (non-GAAP) - diluted

$

2.59

 

$

2.55

 

 
Weighted average shares - diluted

 

62,282

 

 

60,815

 

 
(1) GAAP net product revenues

$

288,045

 

$

234,536

 

Acquisition-related write-downs of assumed deferred revenue

 

1,283

 

 

-

 

Non-GAAP net product revenues

 

289,328

 

 

234,536

 

GAAP net service revenues

 

336,572

 

 

334,769

 

Acquisition-related write-downs of assumed deferred revenue

 

-

 

 

-

 

Non-GAAP net service revenues

 

336,572

 

 

334,769

 

Total non-GAAP net revenues

$

625,900

 

$

569,305

 

 
(2) Includes stock-based compensation expense as follows:
Cost of net revenues

$

7,342

 

$

5,489

 

Sales and marketing

 

25,243

 

 

21,766

 

Research and development

 

14,987

 

 

11,202

 

General and administrative

 

10,497

 

 

9,204

 

$

58,069

 

$

47,661

 

 
(3) Includes amortization of purchased intangible assets as follows:
Cost of net revenues

$

7,382

 

$

3,097

 

Sales and marketing

 

2,749

 

 

961

 

General and administrative

 

575

 

 

530

 

$

10,706

 

$

4,588

 

 
(4) Includes facility-exit costs as follows:
Cost of net revenues

$

172

 

$

321

 

Sales and marketing

 

406

 

 

686

 

Research and development

 

334

 

 

745

 

General and administrative

 

424

 

 

5

 

$

1,336

 

$

1,757

 

 
(5) Includes acquisition-related charges as follows:
Cost of net revenues

$

2,490

 

$

-

 

Sales and marketing

 

4,771

 

 

409

 

Research and development

 

4,393

 

 

34

 

General and administrative

 

6,011

 

 

7,823

 

$

17,665

 

$

8,266

 

F5 Networks, Inc.
Consolidated Statements of Cash Flows
(unaudited, in thousands)
 
Three Months Ended
December 31,

 

2020

 

 

2019

 

 
Operating activities
Net income

$

87,678

 

$

98,527

 

Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation

 

58,069

 

 

47,661

 

Depreciation and amortization

 

27,660

 

 

18,979

 

Non-cash operating lease costs

 

9,698

 

 

8,703

 

Deferred income taxes

 

(694

)

 

(1,714

)

Impairment of assets

 

6,873

 

 

-

 

Other

 

307

 

 

(31

)

Changes in operating assets and liabilities (excluding effects of the acquisition of businesses):
Accounts receivable

 

(54,416

)

 

(32,683

)

Inventories

 

1,443

 

 

2,020

 

Other current assets

 

(23,250

)

 

(5,494

)

Other assets

 

(26,654

)

 

2,011

 

Accounts payable and accrued liabilities

 

(23,925

)

 

(23,606

)

Deferred revenue

 

86,193

 

 

39,856

 

Lease liabilities

 

(11,619

)

 

(10,217

)

Net cash provided by operating activities

 

137,363

 

 

144,012

 

 
Investing activities
Purchases of investments

 

(42,765

)

 

(180,557

)

Maturities of investments

 

69,352

 

 

150,697

 

Sales of investments

 

-

 

 

22,764

 

Acquisition of businesses, net of cash acquired

 

(1,247

)

 

-

 

Purchases of property and equipment

 

(4,697

)

 

(22,304

)

Net cash provided by (used in) investing activities

 

20,643

 

 

(29,400

)

 
Financing activities
Proceeds from the exercise of stock options and
purchases of stock under employee stock purchase plan

 

27,196

 

 

20,959

 

Payments on term debt agreement

 

(5,000

)

 

-

 

Taxes paid related to net share settlement of equity awards

 

(4,481

)

 

-

 

Net cash provided by financing activities

 

17,715

 

 

20,959

 

 
Net increase in cash, cash equivalents and restricted cash

 

175,721

 

 

135,571

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

1,655

 

 

820

 

Cash, cash equivalents and restricted cash, beginning of period

 

852,826

 

 

602,254

 

Cash, cash equivalents and restricted cash, end of period

$

1,030,202

 

$

738,645

 

 
Supplemental disclosures of cash flow information
Cash paid for amounts included in the measurement of lease liabilities

$

15,032

 

$

12,707

 

Cash paid for interest on long-term debt

 

1,370

 

 

-

 

Supplemental disclosures of non-cash activities
Right-of-use assets obtained in exchange for lease obligations

$

1,614

 

$

394,315

 

 

Investors
Suzanne DuLong
(206) 272-7049
s.dulong@f5.com

Media
Rob Gruening
(206) 272-6208
r.gruening@f5.com

Source: F5 Networks, Inc.



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