F5 Networks, Inc. (NASDAQ: FFIV) today announced revenue of $165.6 million for the first quarter of fiscal 2009, down 3.3 percent from $171.3 million in the prior quarter and up 7.4 percent from $154.2 million in the first quarter of fiscal 2008.
GAAP net income for the first quarter was $21.4 million ($0.27 per diluted share) compared to $19.7 million ($0.24 per diluted share) in the fourth quarter of 2008 and $17.8 million ($0.21 per diluted share) in the first quarter a year ago.
Excluding the impact of stock-based compensation, non-GAAP net income for the first quarter was $32.3 million ($0.40 per diluted share), compared to $33.4 million ($0.41 per diluted share) in the prior quarter and $28.8 million ($0.33 per diluted share) in the first quarter of fiscal 2008.
A reconciliation of GAAP net income to non-GAAP net income is included on the attached Consolidated Statements of Operations.
"As we announced on January 6th, the primary reason for the revenue shortfall was a sudden fall-off in North American sales during the last week of December," said John McAdam, F5 president and chief executive officer. "Our current analysis indicates that most of these deals were pushed into our second or third quarter of 2009 due to budget constraints. However, several were postponed indefinitely as customers evaluate their expense budgets in light of the continued recession."
McAdam said he was pleased that during the quarter the company continued to maintain solid margins, achieved its earnings targets, and generated strong cash flow.
During the first quarter, cash flow from operations was $57.9 million. After repurchasing $20 million of F5 common stock, the company ended the year with $487.4 million in cash and investments.
Given the likelihood of continued uncertainty and further slowing in the overall economy, McAdam said management has lowered its expectations for the current quarter. For the second quarter of fiscal 2009, ending March 31st, the company has set a revenue target of $157 million to $164 million and a GAAP earnings target of $0.19 to $0.21 per diluted share. Management expects to record a $4.5 to $5.5 million (pre-tax) restructuring charge in the second quarter related to a loss on facility exit, workforce reduction and accelerated depreciation on tenant improvements. Excluding this charge and stock-based compensation expense, the company's non-GAAP earnings target is $0.36 to $0.38 per diluted share. Both the GAAP and non-GAAP earnings targets for the second quarter reflect the anticipated return to a normalized effective tax rate, which was lower in the first quarter of fiscal 2009 due to the retroactive extension of the federal R&D tax credit.
Forward Looking Statements
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.
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, 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. Net income excluding stock-based compensation (non-GAAP) 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 Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment."
Management believes that net income excluding stock-based compensation (non-GAAP) provides useful supplemental information to management and investors regarding the performance of the company's 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 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 business. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures in accordance with GAAP.
The reconciliation of the company's expected GAAP and non-GAAP second quarter earnings also excludes a restructuring charge related to a loss on facility exit, workforce reduction and accelerated depreciation on tenant improvements. This restructuring charge will be incurred during the quarter ending March 31, 2009 in connection with a reduction in the company's workforce and the consolidation of certain of the company's office space.
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 business, 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. For example, stock-based compensation is an obligation of the Company that should be considered and each line item is important to financial performance generally. 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 its operational performance and financial results.
GAAP net income for the first quarter was $21.4 million ($0.27 per diluted share) compared to $19.7 million ($0.24 per diluted share) in the fourth quarter of 2008 and $17.8 million ($0.21 per diluted share) in the first quarter a year ago.
Excluding the impact of stock-based compensation, non-GAAP net income for the first quarter was $32.3 million ($0.40 per diluted share), compared to $33.4 million ($0.41 per diluted share) in the prior quarter and $28.8 million ($0.33 per diluted share) in the first quarter of fiscal 2008.
A reconciliation of GAAP net income to non-GAAP net income is included on the attached Consolidated Statements of Operations.
"As we announced on January 6th, the primary reason for the revenue shortfall was a sudden fall-off in North American sales during the last week of December," said John McAdam, F5 president and chief executive officer. "Our current analysis indicates that most of these deals were pushed into our second or third quarter of 2009 due to budget constraints. However, several were postponed indefinitely as customers evaluate their expense budgets in light of the continued recession."
McAdam said he was pleased that during the quarter the company continued to maintain solid margins, achieved its earnings targets, and generated strong cash flow.
During the first quarter, cash flow from operations was $57.9 million. After repurchasing $20 million of F5 common stock, the company ended the year with $487.4 million in cash and investments.
Given the likelihood of continued uncertainty and further slowing in the overall economy, McAdam said management has lowered its expectations for the current quarter. For the second quarter of fiscal 2009, ending March 31st, the company has set a revenue target of $157 million to $164 million and a GAAP earnings target of $0.19 to $0.21 per diluted share. Management expects to record a $4.5 to $5.5 million (pre-tax) restructuring charge in the second quarter related to a loss on facility exit, workforce reduction and accelerated depreciation on tenant improvements. Excluding this charge and stock-based compensation expense, the company's non-GAAP earnings target is $0.36 to $0.38 per diluted share. Both the GAAP and non-GAAP earnings targets for the second quarter reflect the anticipated return to a normalized effective tax rate, which was lower in the first quarter of fiscal 2009 due to the retroactive extension of the federal R&D tax credit.
Forward Looking Statements
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.
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, 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. Net income excluding stock-based compensation (non-GAAP) 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 Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment."
Management believes that net income excluding stock-based compensation (non-GAAP) provides useful supplemental information to management and investors regarding the performance of the company's 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 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 business. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures in accordance with GAAP.
The reconciliation of the company's expected GAAP and non-GAAP second quarter earnings also excludes a restructuring charge related to a loss on facility exit, workforce reduction and accelerated depreciation on tenant improvements. This restructuring charge will be incurred during the quarter ending March 31, 2009 in connection with a reduction in the company's workforce and the consolidation of certain of the company's office space.
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 business, 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. For example, stock-based compensation is an obligation of the Company that should be considered and each line item is important to financial performance generally. 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 its operational performance and financial results.
