10-QPeriod: Q3 FY2010

F5, INC. Quarterly Report for Q3 Ended Jun 30, 2010

Filed August 6, 2010For Securities:FFIV

Summary

F5, Inc. (FFIV) reported strong growth in its third quarter of fiscal year 2010, driven by a significant increase in both product and service revenues. Total net revenues grew by 45.7% year-over-year for the quarter and 31.3% for the nine-month period. This robust performance is attributed to increased demand for their core Application Delivery Networking (ADN) products and a growing installed base of products fueling service revenue from maintenance contracts. The company's financial position remains strong, with a substantial increase in cash and investments, driven by operating activities. F5 continues to invest in research and development and sales and marketing to support growth, while effectively managing operating expenses as a percentage of net revenue. The company highlights its continued focus on innovation and market leadership in the ADN space.

Financial Highlights

49 data points
Beta

Revenue

$230.47M

80.7% Gross Margin

Net Income

$40.49M

17.6% Net Margin

EPS (Diluted)

$0.50

Total Assets

$1.27B

Cash & Equivalents

$143.81M

Free Cash Flow

$72.03M

Financial Statements
Beta
Revenue$230.47M
Cost of Revenue$44.58M
Gross Profit$185.90M
R&D Expenses$30.89M
Operating Expenses$125.77M
Operating Income$60.13M
Net Income$40.49M
EPS (Basic)$0.51
EPS (Diluted)$0.50
Shares Outstanding (Basic)79.86M
Shares Outstanding (Diluted)81.03M

Key Highlights

  • 1Total net revenues surged by 45.7% year-over-year for the three months ended June 30, 2010, reaching $230.5 million.
  • 2Product revenues increased significantly by 54.1% in the quarter, primarily driven by strong sales of Application Delivery Networking (ADN) products.
  • 3Service revenues also showed healthy growth of 32.7% year-over-year, boosted by increased maintenance contract purchases tied to the expanding installed product base.
  • 4Gross profit margin improved to 80.7% for the quarter, up from 78.7% in the prior year, indicating effective cost management relative to revenue growth.
  • 5Operating expenses as a percentage of net revenue decreased to 54.6% from 58.9%, demonstrating improved operational leverage.
  • 6Cash and cash equivalents, and investments increased by $206.2 million to $780.6 million as of June 30, 2010, supported by strong cash flow from operations.
  • 7The company actively repurchased shares, with $55.0 million used for stock repurchases under its program during the first nine months of fiscal year 2010.

Frequently Asked Questions

The primary drivers of F5's revenue growth are increased demand for their core Application Delivery Networking (ADN) products, including application security and WAN optimization solutions, and a growing installed base of products which leads to higher service revenues from maintenance contracts.

F5 is effectively managing its costs, as evidenced by an improving gross profit margin to 80.7% and a reduction in operating expenses as a percentage of net revenue to 54.6%. This indicates strong operational leverage and cost control measures.

F5 maintains a strong financial position with $780.6 million in cash and investments as of June 30, 2010. The company generated significant cash from operations and believes its current cash balances, along with future operating cash flows, are sufficient to meet its requirements for the foreseeable future.

Key risks include intense competition in the rapidly evolving ADN and file virtualization markets, dependence on product innovation and timely new product introductions, potential disruptions in the supply chain from contract manufacturers and component suppliers, and the unpredictability of its sales cycle, especially with larger enterprise clients. Additionally, international commerce risks and adverse general economic conditions could impact performance.