10-QPeriod: Q2 FY2013

F5, INC. Quarterly Report for Q2 Ended Mar 31, 2013

Filed May 9, 2013For Securities:FFIV

Summary

F5 Networks, Inc. (FFIV) reported its financial results for the quarter and six months ended March 31, 2013. The company demonstrated revenue growth driven by its services segment, which offset a decline in product revenue. Total net revenues increased by 3.1% year-over-year for the quarter to $350.2 million and by 8.1% for the six-month period to $715.7 million. This growth was largely attributable to a significant increase in service revenues, up 22.8% for the quarter and 25.2% for the six-month period, indicating the expanding installed base of products and recurring service contracts. Despite revenue growth, net income saw a slight decrease, with net income for the quarter at $63.4 million ($0.80 diluted EPS) compared to $68.6 million ($0.86 diluted EPS) in the prior year. For the six-month period, net income was $132.9 million ($1.68 diluted EPS) versus $135.1 million ($1.69 diluted EPS) in the prior year. The company made a significant acquisition of LineRate Systems, Inc. for $125.3 million in February 2013, which contributed to an increase in goodwill and intangible assets. F5 Networks also continued its share repurchase program, authorizing an additional $200 million, and utilized $100 million for repurchases in the first half of the fiscal year.

Financial Highlights

50 data points
Beta

Revenue

$350.23M

82.8% Gross Margin

Net Income

$63.41M

18.1% Net Margin

EPS (Diluted)

$0.80

Total Assets

$2.07B

Cash & Equivalents

$229.66M

Free Cash Flow

$73.68M

Financial Statements
Beta
Revenue$350.23M
Cost of Revenue$60.30M
Gross Profit$289.93M
R&D Expenses$52.53M
Operating Expenses$197.45M
Operating Income$92.48M
Net Income$63.41M
EPS (Basic)$0.81
EPS (Diluted)$0.80
Shares Outstanding (Basic)78.60M
Shares Outstanding (Diluted)79.11M

Key Highlights

  • 1Total net revenues increased 3.1% for the quarter and 8.1% for the six months ended March 31, 2013, compared to the prior year, driven by strong service revenue growth.
  • 2Service revenues increased by 22.8% for the quarter and 25.2% for the six months, reflecting growth in the installed base and maintenance contracts.
  • 3Product revenues declined by 9.8% for the quarter and 3.0% for the six months, primarily due to a decrease in Application Delivery Networking (ADN) product sales.
  • 4Net income for the quarter was $63.4 million, a decrease from $68.6 million in the prior year, with diluted EPS at $0.80 compared to $0.86.
  • 5The company acquired LineRate Systems, Inc. in February 2013 for $125.3 million, adding $99.6 million in goodwill and $29.9 million in in-process R&D.
  • 6F5 Networks repurchased $100 million of its common stock during the first six months of fiscal year 2013 and announced an additional $200 million authorization for its repurchase program.
  • 7International sales continued to be a significant contributor, representing 50.8% of total net revenues for the quarter, up from 46.6% in the prior year.

Frequently Asked Questions

The primary driver of revenue growth was the services segment, which saw significant increases due to a growing installed base of products and renewed maintenance contracts. This growth helped offset a decline in product revenue.

The acquisition of LineRate Systems, Inc. in February 2013 for $125.3 million resulted in the addition of $99.6 million in goodwill and $29.9 million in in-process R&D assets to the balance sheet. The company's financial statements reflect LineRate Systems' operations from the date of acquisition.

F5 Networks actively engages in share repurchases to return value to shareholders. During the first six months of fiscal year 2013, the company spent $100 million on repurchases and subsequently announced an additional $200 million authorization, indicating a continued commitment to its share repurchase program.

While revenues increased, net income slightly decreased year-over-year for both the quarter and the six-month period. Diluted earnings per share also saw a slight decline, indicating pressure on margins or increased operating expenses relative to revenue growth.