10-QPeriod: Q3 FY2008

F5, INC. Quarterly Report for Q3 Ended Jun 30, 2008

Filed August 7, 2008For Securities:FFIV

Summary

F5 Networks, Inc. reported revenue of $165.6 million for the three months ended June 30, 2008, a 25% increase compared to the same period in the prior year. This growth was driven by strong demand for its core Application Delivery Networking (ADN) products and contributions from its ARX storage virtualization products. Service revenues also saw a significant increase of 46.5%, reflecting a growing installed base. The company maintained healthy gross margins around 77% but experienced an increase in operating expenses, particularly in sales and marketing and research and development, as it invested in headcount and product development to fuel future growth. Financially, F5 Networks demonstrated solid liquidity with $446.9 million in cash, cash equivalents, and investments as of June 30, 2008. However, this represented a decrease from the prior year-end due to significant share repurchases under its stock buyback program and the acquisition of Acopia Networks. The company is managing its exposure to auction rate securities, noting failed auctions for certain municipal securities but maintaining that the carrying values are not impaired and liquidity needs are expected to be met. Management remains focused on continued innovation and market share expansion.

Key Highlights

  • 1Total net revenues increased by 25.0% year-over-year to $165.6 million for the third quarter of fiscal year 2008.
  • 2Product revenues grew 17.4% to $114.8 million, while service revenues surged 46.5% to $50.8 million, indicating strong performance across both segments.
  • 3Gross profit margin remained robust at 77.0% for the quarter.
  • 4Operating expenses increased, with Sales and Marketing up 33.9% and R&D up 50.4%, reflecting investments in growth and product development.
  • 5The company maintained a strong liquidity position with $446.9 million in cash, cash equivalents, and investments as of June 30, 2008.
  • 6Despite some failed auctions, the company reported no material impairment on its auction rate securities, though they are being closely monitored.
  • 7The company is actively repurchasing its common stock, having spent $150 million on buybacks in the first nine months of fiscal 2008.

Frequently Asked Questions

F5 Networks reported total net revenues of $165.6 million for the three months ended June 30, 2008, representing a 25.0% increase compared to the same period in the prior year. Product revenues increased by 17.4% to $114.8 million, and service revenues saw a significant rise of 46.5% to $50.8 million.

As of June 30, 2008, F5 Networks held $446.9 million in cash, cash equivalents, and investments. While this reflects a decrease from the prior year-end due to share repurchases and an acquisition, the company believes its current cash and investment balances, along with cash generated from operations, are sufficient to meet its foreseeable liquidity needs. The company is closely monitoring its investments, including auction rate securities, and has not recorded material impairment charges, though it acknowledges potential risks.

Operating expenses increased primarily due to investments in growth initiatives. Sales and marketing expenses rose by 33.9% driven by increased commissions and personnel costs related to sales growth and headcount expansion. Research and development expenses increased by 50.4%, also attributed to higher personnel costs as the company invested in developing new products and enhancing existing ones, including its storage virtualization offerings. General and administrative expenses saw a more modest increase of 8.8%.

The company is involved in derivative lawsuits related to historical stock option grant practices. While management believes these proceedings will not have a material adverse effect, they are ongoing and have incurred significant legal expenses. The company is cooperating with SEC and Department of Justice inquiries related to these matters.