Exhibit 99.1
FOR IMMEDIATE RELEASE
CONTACT: Investor Relations
John Eldridge
(206) 272-6571
j.eldridge@f5.com
Public Relations
Alane Moran
(206) 272-6850
a.moran@f5.com
F5 Networks Announces Fiscal Third Quarter Results
16 percent operating margin on record quarterly revenue,
up 52 percent year over year
SEATTLE, WA -- JULY 21, 2004 -- F5 Networks today announced net income of $7.4
million ($0.20 per diluted share) on record revenue of $44.2 million for the
third quarter of fiscal 2004, up from $6.0 million ($0.16 per diluted share) on
revenue of $40.6 million in the second quarter. In the third quarter of fiscal
2003 the company reported net income of $1.4 million ($0.05 per diluted share)
on revenue of $29.2 million.
F5 president and chief executive officer John McAdam said sales in North America
rebounded during the quarter and combined with strong sales in Europe and Asia
Pacific to boost overall revenue 9 percent sequentially and 52 percent year over
year. Strength in North America was led by product revenue, which grew 32
percent sequentially and contributed to 24 percent sequential growth of North
American product and service revenue combined. As expected, Japan revenue was
down sequentially following exceptionally strong sales in the prior quarter and
reflecting the seasonality that typically characterizes the first quarter of
Japan's fiscal year.
McAdam said sales of the company's FirePass SSL VPN products also grew during
the third quarter. FirePass revenue of $3.8 million was up from $2.7 million in
the prior quarter, pushing revenue for the first three quarters of fiscal 2004
to $8.0 million. Steady growth of FirePass sales since the technology was
acquired from uRoam in July 2003 is reflected in a recent Infonentics report
which ranked FirePass second in global SSL VPN market share.
In line with management's guidance, the company did not report any revenue from
its newest security offering, TrafficShield, acquired with the purchase of
MagniFire on May 31 of this year. McAdam said the company will continue to focus
on training and integration during the current quarter, ending September 30, and
expects to generate its first material revenue from TrafficShield in the first
quarter of fiscal 2005, with a target of $8 to $12 million for the year.
Even with the additional operating expenses resulting from the acquisition of
MagniFire, the company's revenue growth enabled it to realize further
improvements in its operating margin, which increased to 16 percent from 14
percent in the prior quarter. In addition, the company continued to strengthen
its
balance sheet, with days sales outstanding (DSO) of 40 days, contributing to
positive cash flow of $10.6 million from operations. Following $26.9 million in
cash payments related to the purchase of MagniFire, the company had $210 million
in cash and investments at June 30.
With the launch of its new traffic management products -- code-named "Buffalo
Jump" -- scheduled for early September, McAdam said he is confident the new
products will have a positive impact on the company's core business and will
help drive solid revenue growth in fiscal 2005. For the fourth quarter of fiscal
2004, ending September 30, he said management believes the company will continue
to grow sequentially and has set a target range of $45 million to $47 million in
revenue.
Following F5's strong performance during the past three quarters, management
expects to begin recording additional U.S. income taxes and expects to reverse
the valuation allowance on the company's U.S. deferred tax assets, resulting in
an estimated net tax benefit of approximately $5.7 to $6.1 million in the fourth
quarter. The estimated net tax benefit includes U.S. federal, state and
international taxes. Earnings calculated in a manner consistent with prior
quarters are expected to be $0.20 to $0.22 per share. Earnings per share
including tax adjustments are expected to be $0.37 to $0.39 per share for the
fourth quarter. A reconciliation of the difference between expected earnings
before and after the tax adjustment is shown in the following table:
RECONCILIATION OF EXPECTED FOURTH QUARTER EARNINGS
Low High
--- ----
Income before income taxes $ 7,800 $ 8,800
Provision for international and state taxes (400) (400)
-------- --------
Net income after international and state taxes $ 7,400 $ 8,400
Net U.S. tax benefit 6,500 6,100
-------- --------
Net income after tax $ 13,900 $ 14,500
Net income after international and state taxes per share-diluted $ 0.20 $ 0.22
Net income after tax-diluted $ 0.37 $ 0.39
Weighted average shares-diluted 37,500 37,500
ABOUT F5 NETWORKS
F5 enables organizations to successfully deliver business-critical applications
and gives them the greatest level of agility to stay ahead of growing business
demands. As the pioneer and global leader in Application Traffic Management, F5
continues to lead the industry by driving more intelligence into the network to
deliver advanced application agility. F5 products ensure the secure and
optimized delivery of applications to any user - anywhere. Through its flexible
and cohesive architecture, F5 delivers unmatched value by dramatically improving
the way organizations serve their employees, customers and constituents, while
lowering operational costs. The company is headquartered in Seattle, Washington
with offices worldwide. For more information, visit the F5 Web site: www.f5.com.
FORWARD LOOKING STATEMENTS
Statements in this press release concerning training and integration related to
the TrafficShield product, revenue from TrafficShield, launch of the Buffalo
Jump product, the impact of new products on the company's business, revenue
growth in fiscal 1995, the company's sequential growth, target revenue and
income before taxes, reversal of the deferred tax assets, after tax earnings and
other statements that are not historical facts are forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of F5, 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, among others: the timely
development, introduction and acceptance of additional new products and features
by F5 or its competitors; competitive pricing pressures; increased sales
discounts; F5's ability to sustain or develop 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 the international markets and the unpredictability of F5's sales
cycle. F5 has no duty to update any guidance provided. More information about
potential risk factors that could affect F5's business and financial results is
included in F5's annual report on Form 10-K for the fiscal year ended September
30, 2003, and other public filings with the Securities and Exchange Commission.
# # # #
F5 NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
JUNE 30, SEPTEMBER 30,
2004 2003
--------- ---------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents ...................... $ 22,165 $ 10,351
Short-term investments ......................... 90,265 34,527
Accounts receivable, net of allowances of $3,286
and $3,049 .................................... 19,789 19,325
Inventories .................................... 1,868 762
Other current assets ........................... 4,500 4,779
--------- ---------
Total current assets .......................... 138,587 69,744
--------- ---------
Restricted cash .................................. 6,258 6,000
Property and equipment, net ...................... 12,007 10,079
Long-term investments ............................ 98,058 34,132
Goodwill ......................................... 48,998 24,188
Other assets, net ................................ 9,003 4,030
--------- ---------
Total assets .................................. $ 312,911 $ 148,173
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable ............................... $ 6,348 $ 3,714
Accrued liabilities ............................ 16,107 13,148
Deferred revenue ............................... 26,321 19,147
--------- ---------
Total current liabilities ..................... 48,776 36,009
--------- ---------
Other long-term liabilities ...................... 1,812 1,584
Deferred tax liability ........................... 605 151
--------- ---------
Total long-term liabilities ................... 2,417 1,735
--------- ---------
Commitments and contingencies
Shareholders' equity
Preferred stock, no par value; 10,000 shares
authorized, no shares outstanding ............. -- --
Common stock, no par value; 100,000 shares
authorized 34,509 and 27,403 shares
issued and outstanding ....................... 277,009 141,709
Unearned compensation ............................ -- (10)
Accumulated other comprehensive income ........... (998) 195
Accumulated deficit .............................. (14,293) (31,465)
--------- ---------
Total shareholders' equity .................... 261,718 110,429
--------- ---------
Total liabilities and shareholders' equity .... $ 312,911 $ 148,173
========= =========
F5 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
2004 2003 2004 2003
------- ------- -------- -------
Net revenues:
Product ............................... $32,537 $21,310 $ 88,633 $61,149
Service ............................... 11,706 7,879 32,338 23,113
------- ------- -------- -------
Total net revenues ................. 44,243 29,189 120,971 84,262
------- ------- -------- -------
Cost of net revenues:
Product ............................... 7,267 4,491 19,915 12,751
Service ............................... 2,832 2,290 7,920 6,726
------- ------- -------- -------
Total cost of net revenues ......... 10,099 6,781 27,835 19,477
------- ------- -------- -------
Gross profit .......................... 34,144 22,408 93,136 64,785
------- ------- -------- -------
Operating expenses:
Sales and marketing ................... 16,907 13,593 47,781 39,413
Research and development .............. 6,253 4,810 17,597 14,091
General and administrative ............ 4,069 2,800 11,271 9,050
Amortization of unearned compensation . -- 6 10 77
------- ------- -------- -------
Total operating expenses ........... 27,229 21,209 76,659 62,631
------- ------- -------- -------
Income from operations ................... 6,915 1,199 16,477 2,154
Other income, net ........................ 848 352 1,840 1,126
------- ------- -------- -------
Income before income taxes ............... 7,763 1,551 18,317 3,280
Provision for income taxes ............... 347 152 1,145 546
------- ------- -------- -------
Net income ............................ $ 7,416 $ 1,399 $ 17,172 $ 2,734
======= ======= ======== =======
Net income per share - basic ............. $ 0.22 $ 0.05 $ 0.52 $ 0.10
======= ======= ======== =======
Weighted average shares - basic .......... 34,382 26,638 32,760 26,227
======= ======= ======== =======
Net income per share - diluted .......... $ 0.20 $ 0.05 $ 0.48 $ 0.10
======= ======= ======== =======
Weighted average shares - diluted ........ 36,969 28,467 35,703 27,525
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