SEATTLE--(BUSINESS WIRE)-- F5 Networks, Inc. (NASDAQ: FFIV) today announced revenue of $523.2 million for the first quarter of fiscal 2018, up 1.4% from $516.0 million in the first quarter of fiscal 2017. Growth compared with the first quarter of fiscal 2017 was driven by Services and software solutions.

GAAP net income for the first quarter of fiscal 2018 was $88.4 million, or $1.41 per diluted share, compared to $94.2 million, or $1.44 per diluted share in the first quarter of fiscal 2017. Excluding the impact of stock-based compensation, amortization of purchased intangible assets, and non-recurring tax expenses, non-GAAP net income for the first quarter of fiscal 2018 was $141.6 million, or $2.26 per diluted share, compared to $130.3 million, or $1.98 per diluted share in the first quarter of fiscal 2017.

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.

“We continue to see momentum with our software offerings, driven by customers deploying our solutions on-premises and in the public cloud,” said François Locoh-Donou, F5 President and Chief Executive Officer. "The organizational changes and go-to-market initiatives we began to put into place last year are gaining momentum and we expect to see increasing benefits as the current year progresses.

“Our recent State of Application Delivery report highlights a number of emerging trends across the global application landscape. It is clear, applications and related services are taking an increasingly important role as digital transformation reshapes the modern enterprise. We are well positioned to benefit from these broader industry trends as customers require more multi-cloud support, IT automation, and application security.”

For the second quarter of fiscal 2018, ending March 31, the company has set a revenue goal of $525 million to $535 million with a GAAP earnings target of $1.66 to $1.69 per diluted share and a non-GAAP earnings target of $2.24 to $2.27 per diluted share.

A reconciliation of the company’s expected GAAP and non-GAAP earnings is provided in the following table:

		Three months ended
		March 31, 2018
		(in millions, except per share amounts)
Reconciliation of Expected Non-GAAP Second Quarter Earnings		Low				High
Net income		$	103.2			$	105.1
Stock-based compensation expense		$	43.5			$	43.5
Amortization of purchased intangible assets		$	2.8			$	2.8
Tax effects related to above items		$	(10.2	)		$	(10.2	)
Non-GAAP net income excluding stock-based compensation expense and amortization of purchased intangible assets		$	139.3			$	141.2
Net income per share - diluted		$	1.66			$	1.69
Non-GAAP net income per share - diluted		$	2.24			$	2.27

2018 Analyst and Investor Meeting

F5 will hold a meeting for analysts and investors at the Sofitel New York Hotel, on the morning of March 8, 2018.

For more information and to register online, please visit: https://interact.f5.com/2018Q2SAnalystandInvestorMeetingMAR08_2a-RegistrationPage.html

The meeting will also be webcast live, beginning March 8 at 8:30 a.m. Eastern Time. The link for the live webcast will be accessible from the Investor Relations Events page on f5.com.

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, virtualization and diameter 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, diameter and virtualization 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.

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 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 2017, and litigation expenses primarily related to a jury verdict and other associated costs of that patent litigation have been excluded in fiscal 2016 and 2017.

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)
	December 31,				September 30,
		2017				2017
Assets
Current assets
Cash and cash equivalents	$	611,996			$	673,228
Short-term investments		392,560				343,700
Accounts receivable, net of allowances of $2,052 and $1,815		291,093				291,924
Inventories		29,112				29,834
Other current assets		56,056				67,538
Total current assets		1,380,817				1,406,224
Property and equipment, net		117,310				122,420
Long-term investments		348,210				284,802
Deferred tax assets		39,719				53,303
Goodwill		555,965				555,965
Other assets, net		51,718				53,775
Total assets	$	2,493,739			$	2,476,489
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	46,748			$	50,760
Accrued liabilities		176,534				187,379
Deferred revenue		721,994				696,404
Total current liabilities		945,276				934,543
Other long-term liabilities		51,970				44,589
Deferred revenue, long-term		269,279				267,902
Deferred tax liabilities		36				63
Total long-term liabilities		321,285				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, 61,844 and 62,594
shares issued and outstanding		20,029				17,627
Accumulated other comprehensive loss		(19,478	)			(17,997	)
Retained earnings		1,226,627				1,229,762
Total shareholders' equity		1,227,178				1,229,392
Total liabilities and shareholders' equity	$	2,493,739			$	2,476,489

F5 Networks, Inc.
Consolidated Income Statements
(unaudited, in thousands, except per share amounts)
		Three Months Ended
		December 31,				September 30,				December 31,
			2017				2017				2016
Net revenues
Products		$	227,303			$	248,990			$	239,483
Services			295,888				289,008				276,475
Total			523,191				537,998				515,958
Cost of net revenues (1)(2)
Products			43,265				46,641				41,676
Services			44,122				43,900				43,586
Total			87,387				90,541				85,262
Gross profit			435,804				447,457				430,696
Operating expenses (1)(2)
Sales and marketing			167,934				162,068				164,514
Research and development			85,889				85,479				87,050
General and administrative			39,984				37,832				41,678
Litigation expense			-				525				-
Restructuring charges			-				12,718				-
Total			293,807				298,622				293,242
Income from operations			141,997				148,835				137,454
Other income, net			2,145				5,027				2,643
Income before income taxes			144,142				153,862				140,097
Provision for income taxes			55,713				18,119				45,879
Net Income		$	88,429			$	135,743			$	94,218
Net income per share - basic		$	1.42			$	2.15			$	1.45
Weighted average shares - basic			62,195				63,088				65,195
Net income per share - diluted		$	1.41			$	2.14			$	1.44
Weighted average shares - diluted			62,550				63,446				65,645
Non-GAAP Financial Measures
Net income as reported		$	88,429			$	135,743			$	94,218
Stock-based compensation expense (3)			40,948				41,586				46,611
Amortization of purchased intangible assets			2,805				2,788				3,403
Litigation expense			-				525				-
Restructuring charges			-				12,718				-
Tax effects related to above items			(9,183	)			(17,472	)			(13,966	)
Non-recurring foreign tax credit benefit			-				(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 and non-recurring tax expenses and benefits (non-GAAP) - diluted		$	141,583			$	154,888			$	130,266
Net income per share excluding stock-based compensation expense, amortization of purchased intangible assets, litigation expense, restructuring charges and non-recurring tax expenses and benefits (non-GAAP) - diluted		$	2.26			$	2.44			$	1.98
Weighted average shares - diluted			62,550				63,446				65,645
(1) Includes stock-based compensation as follows:
Cost of net revenues		$	5,450			$	5,280			$	5,217
Sales and marketing			15,478				16,918				17,050
Research and development			12,406				12,004				13,932
General and administrative			7,614				7,384				10,412
		$	40,948			$	41,586			$	46,611
(2) Includes amortization of purchased intangible assets as follows:
Cost of net revenues		$	2,028			$	2,027			$	2,785
Sales and marketing			252				252				252
General and administrative			525				509				366
		$	2,805			$	2,788			$	3,403
(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)
		Three Months Ended
		December 31,
			2017				2016
Operating activities
Net income		$	88,429			$	94,218
Adjustments to reconcile net income to net cash provided by operating activities:
Realized loss on disposition of assets and investments			49				30
Stock-based compensation			40,948				46,611
Provisions for doubtful accounts and sales returns			593				291
Depreciation and amortization			15,180				14,887
Deferred income taxes			14,226				(2,945	)
Changes in operating assets and liabilities:
Accounts receivable			238				(45,327	)
Inventories			722				374
Other current assets			11,517				(306	)
Other assets			(696	)			391
Accounts payable and accrued liabilities			(8,216	)			37,082
Deferred revenue			26,967				44,006
Net cash provided by operating activities			189,957				189,312
Investing activities
Purchases of investments			(238,632	)			(98,983	)
Maturities of investments			113,771				105,744
Sales of investments			9,248				11,211
(Increase) decrease in restricted cash			(21	)			32
Cash provided by sale of fixed asset			1,000				-
Acquisition of intangible assets			-				(4,000	)
Purchases of property and equipment			(6,491	)			(14,133	)
Net cash used in investing activities			(121,125	)			(129	)
Financing activities
Excess tax benefit from stock-based compensation			-				2,940
Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan			19,915				18,836
Repurchase of common stock			(150,025	)			(150,021	)
Net cash used in financing activities			(130,110	)			(128,245	)
Net (decrease) increase in cash and cash equivalents			(61,278	)			60,938
Effect of exchange rate changes on cash and cash equivalents			46				(2,575	)
Cash and cash equivalents, beginning of period			673,228				514,571
Cash and cash equivalents, end of period		$	611,996			$	572,934

View source version on businesswire.com: http://www.businesswire.com/news/home/20180124006165/en/

F5 Networks, Inc.

Investor Relations

Jason Willey, 206-272-7908

[email protected]

or

Public Relations

Nathan Misner, 206-272-7494

[email protected]

Source: F5 Networks, Inc.

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