Attachment: 8-K


Document
Q3 FY21 Earnings Release
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For more information contact:
Investors
Suzanne DuLong
(206) 272-7049
s.dulong@f5.com
Media
Rob Gruening
(206) 272-6208
r.gruening@f5.com


F5 Reports Third Quarter Fiscal Year 2021 Results Delivering Double-Digit Annual Revenue Growth for the Third Sequential Quarter

SEATTLE, WA - July 26, 2021 - F5 Networks, Inc. (NASDAQ: FFIV) today announced financial results for its fiscal third quarter ended June 30, 2021.
“Our very strong third quarter results demonstrate the powerful alignment of F5's expanded solution portfolio and our customers' most important application needs,” said François Locoh-Donou, F5’s President and CEO. “Robust software growth and resilient demand for systems drove 12% GAAP revenue growth in our third quarter, and 11% revenue growth versus the prior year's third quarter non-GAAP revenue.”
Locoh-Donou continued, “Customers’ traditional applications are generating more revenue and more engagement than ever before. At the same time, customers also are accelerating adoption of modern application architectures, like Kubernetes, for new applications. With our expanded application security and delivery portfolio, we are uniquely positioned to solve our customers' most significant modern and traditional application challenges on premises, in the cloud, and across multiple clouds.”
Third Quarter Performance Summary
Third quarter fiscal year 2021 GAAP revenue was $652 million, up 12% from GAAP revenue of $583 million and up 11% from non-GAAP revenue of $586 million in the third quarter of fiscal year 2020. Third quarter fiscal year 2021 non-GAAP revenue growth was driven by 21% product revenue growth and 4% global services revenue growth over the prior year. Non-GAAP product revenue was driven by 34% software revenue growth and 13% systems revenue growth compared to the year ago period.
GAAP net income for the third quarter of fiscal year 2021 was $90 million, or $1.46 per diluted share compared to third quarter fiscal year 2020 GAAP net income of $70 million, or $1.14 per diluted share.
Non-GAAP net income for the third quarter of fiscal year 2021 was $169 million, or $2.76 per diluted share, compared to $134 million, or $2.18 per diluted share, in the third quarter of fiscal year 2020. Non-GAAP net income for the third quarter of fiscal year 2021 excludes $61 million in stock-based compensation, $24 million in acquisition-related charges, $13 million in amortization of purchased intangible assets, and $4 million in facility-exit costs.
A reconciliation of revenue, net income, earnings per share, and other measures on a GAAP to non-GAAP basis is included in the attached Consolidated Income Statements. Additional information about non-GAAP financial information is included in this release.
Business Outlook
For the fourth quarter of fiscal year 2021 ending September 30, 2021, F5 expects to deliver revenue in the range of $660 million to $680 million, with non-GAAP earnings in the range of $2.68 to $2.80 per diluted share.


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All forward-looking non-GAAP measures included in the outlook exclude estimates for amortization of intangible assets, share-based compensation expenses, significant effects of tax legislation and judicial or administrative interpretation of tax regulations (including the impact of income tax reform), non-recurring income tax adjustments, valuation allowance on deferred tax assets, and the income tax effect of non-GAAP exclusions, and do not include the impact of any future acquisitions or divestitures, acquisition-related charges and write-downs, restructuring charges, facility exit costs, or other non-recurring charges that may occur in the period. F5 is unable to provide a reconciliation of non-GAAP earnings guidance measures to corresponding U.S. generally accepted accounting principles or GAAP measures on a forward-looking basis without unreasonable effort due to the overall high variability and low visibility of most of the foregoing items that have been excluded. Material changes to any one of these items could have a significant effect on our guidance and future GAAP results. Certain exclusions, such as amortization of intangible assets and share-based compensation expenses, are generally incurred each quarter, but the amounts have historically varied and may continue to vary significantly from quarter to quarter.
Live Webcast and Conference Call
F5 will host a live webcast and conference call to review its financial results and outlook today, July 26, 2021, at 4:30 pm ET. The live webcast can be accessed from the investor relations portion of F5.com. To participate in the live call via telephone in the U.S. and Canada, dial (833) 714-0927. Outside the U.S. and Canada, dial +1 (778) 560-2886. Reference Meeting ID 529-4198. Please call at least 5 minutes prior to the call start time. The webcast replay will be archived on the investor relations portion of F5’s website.
Forward Looking Statements
This press release contains forward-looking statements including, among other things, statements regarding the continuing strength and momentum of F5’s business, past and future financial performance including revenue, operating targets, earnings and earnings per share ranges, demand for application security and delivery services, SaaS, and software products, expectations regarding future services and products, expectations regarding future customers, markets and the benefits of products, and other statements that are not historical facts and which are forward-looking statements. These forward-looking statements are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors. 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 offerings; potential disruptions to F5’s business and distraction of management as F5 integrates acquired businesses, teams, and technologies; F5’s ability to successfully integrate acquired businesses' products with F5 technologies; the ability of F5’s sales professionals and distribution partners to sell acquired businesses' product and service offerings; the timely development, introduction and acceptance of additional new products and features by F5 or its competitors; competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into F5’s markets, and new product and marketing initiatives by our competitors; increased sales discounts; the business impact of the acquisition of Volterra and potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement of completion of the acquisition; uncertain global economic conditions which may result in reduced customer demand for our products and services and changes in customer payment patterns; potential disruptions to the global supply chain resulting in inability to source required parts for F5’s products or the ability to only do so at greatly increased prices thereby impacting our revenues and/or margins; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; litigation involving patents, intellectual property, shareholder and other matters, and governmental investigations; potential security flaws in the Company’s networks, products or services; cybersecurity attacks on its networks, products or services; natural catastrophic events; a pandemic or epidemic; 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 ability of F5 to execute on its share repurchase program including the timing of any repurchases; 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, including our most recent reports on Form 10-K and Form 10-Q and current reports on Form 8-K and other documents that we may file or furnish


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from time to time, which could cause actual results to vary from expectations. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in F5’s most recent reports on Forms 10-Q and 10-K as each may be amended from time to time. 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 GAAP net income excluding, as applicable, stock-based compensation, amortization of purchased intangible assets, acquisition-related charges, net of taxes, restructuring charges, facility-exit costs, significant litigation and other contingencies and certain non-recurring tax expenses and benefits, which is a non-GAAP financial measure under Section 101 of Regulation G under the Securities Exchange Act of 1934, as amended. This measure of non-GAAP net income 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.
The non-GAAP adjustments, and F5's basis for excluding them from non-GAAP financial measures, are outlined below:
Acquisition-related write-downs of assumed deferred revenue. Included in its GAAP financial statements, F5 records acquisition-related write-downs of assumed deferred revenue to fair value, which results in lower recognized revenue over the term of the contract. F5 includes revenue associated with acquisition-related write-downs of assumed deferred revenue in its non-GAAP financial measures as management believes it provides a more accurate depiction of revenue arising from our strategic acquisitions.
Stock-based compensation. Stock-based compensation consists of expense for stock options, restricted stock, and employee stock purchases through the company’s Employee Stock Purchase Plan. Although stock-based compensation is an important aspect of the compensation of F5’s employees and executives, management believes it is useful to exclude stock-based compensation expenses to better understand the long-term performance of the company’s core business and to facilitate comparison of the company’s results to those of peer companies.
Amortization of purchased intangible assets. Purchased intangible assets are amortized over their estimated useful lives and generally cannot be changed or influenced by management after the acquisition. Management does not believe these charges accurately reflect the performance of the company’s ongoing operations, therefore, they are not considered by management in making operating decisions. However, investors should note that the use of intangible assets contributed to F5’s revenues earned during the periods presented and will contribute to F5’s future period revenues as well.
Facility-exit costs. In fiscal year 2019, F5 relocated its headquarters in Seattle, Washington, and recorded charges in connection with this facility exit as well as other non-recurring lease activity. These charges are not representative of ongoing costs to the business and are not expected to recur. As a result, these charges are being excluded to provide investors with a more comparable measure of costs associated with ongoing operations.
Acquisition-related charges, net. F5 does not acquire businesses on a predictable cycle and the terms and scope of each transaction can vary significantly and are unique to each transaction. F5 excludes acquisition-related charges from its non-GAAP financial measures to provide a useful comparison of the company’s operating results to prior periods and to its peer companies. Acquisition-related charges consist of planning, execution and integration costs incurred directly as a result of an acquisition.
Impairment charges. In fiscal year 2021, F5 recorded impairment charges related to the permanent exit of certain floors at its Seattle headquarters. These charges are not representative of ongoing costs to the business and are not expected to recur. As a result, these charges are being excluded to provide investors with a more comparable measure of costs associated with ongoing operations.
Restructuring charges. F5 has incurred restructuring charges that are included in its GAAP financial statements, primarily related to workforce reductions and costs associated with exiting facility lease commitments. F5 excludes


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these items from its non-GAAP financial measures when evaluating its continuing business performance as such items vary significantly based on the magnitude of the restructuring action and do not reflect expected future operating expenses. In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or past operations of its business.
Management believes that non-GAAP net income per share provides useful supplemental information to management and investors regarding the performance of the company’s core 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 core 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 core business. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures in accordance with GAAP.
F5 believes that presenting its non-GAAP measures of earnings and earnings per share provides investors with an additional tool for evaluating the performance of the company’s core business and is used by management in its own evaluation of the company’s performance. Investors are encouraged to look at GAAP results as the best measure of financial performance. However, while the GAAP results are more complete, the company provides investors these supplemental measures since, with reconciliation to GAAP, it may provide additional insight into the company’s operational performance and financial results.
For reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section in our attached Condensed Consolidated Income Statements entitled “Non-GAAP Financial Measures.”
About F5
F5 (NASDAQ: FFIV) is a multi-cloud application security and delivery company that enables our customers—which include the world’s largest enterprises, financial institutions, service providers, and governments—to bring extraordinary digital experiences to life. For more information, go to f5.com. You can also follow @F5 on Twitter or visit us on LinkedIn and Facebook for more information about F5, its partners, and technologies.
F5 is a trademark, service mark, or tradename of F5 Networks, Inc., in the U.S. and other countries. All other product and company names herein may be trademarks of their respective owners.
Source: F5 Networks



F5 Networks, Inc.
Consolidated Balance Sheets
(unaudited, in thousands)
 June 30,September 30,
 20212020
ASSETS
Current assets
Cash and cash equivalents$583,811 $849,556 
Short-term investments184,108 360,333 
Accounts receivable, net of allowances of $3,866 and $3,105382,897 296,183 
Inventories22,649 27,898 
Other current assets293,246 259,506 
Total current assets1,466,711 1,793,476 
Property and equipment, net196,780 229,239 
Operating lease right-of-use assets253,163 300,680 
Long-term investments95,222 102,939 
Deferred tax assets128,809 45,173 
Goodwill2,209,639 1,858,966 
Other assets, net434,797 347,447 
Total assets$4,785,121 $4,677,920 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable$49,372 $64,472 
Accrued liabilities334,288 321,398 
Deferred revenue952,029 883,134 
Current portion of long-term debt19,275 19,275 
Total current liabilities1,354,964 1,288,279 
Deferred tax liabilities1,923 602 
Deferred revenue, long-term488,581 389,498 
Operating lease liabilities, long-term308,156 338,715 
Long-term debt354,591 369,047 
Other long-term liabilities84,737 59,511 
Total long-term liabilities1,237,988 1,157,373 
Commitments and contingencies
Shareholders’ equity
Preferred stock, no par value; 10,000 shares authorized, no shares outstanding— — 
Common stock, no par value; 200,000 shares authorized, 60,299 and 61,099 shares issued and outstanding133,994 305,453 
Accumulated other comprehensive loss(18,935)(18,716)
Retained earnings2,077,110 1,945,531 
Total shareholders’ equity2,192,169 2,232,268 
Total liabilities and shareholders’ equity$4,785,121 $4,677,920 



F5 Networks, Inc.
Consolidated Income Statements
(unaudited, in thousands, except per share amounts)
 Three Months EndedNine Months Ended
June 30,June 30,
 2021202020212020
Net revenues
Products (1)$309,929 $253,331 $907,163 $747,405 
Services341,586 329,921 1,014,256 988,601 
Total651,515 583,252 1,921,419 1,736,006 
Cost of net revenues (2)(3)(4)(5)(6)
Products68,974 57,437 209,301 152,641 
Services51,930 48,603 155,167 143,279 
Total120,904 106,040 364,468 295,920 
Gross profit530,611 477,212 1,556,951 1,440,086 
Operating expenses (2)(3)(4)(5)(6)
Sales and marketing237,375 211,808 696,829 622,799 
Research and development133,283 115,991 387,927 321,024 
General and administrative63,541 61,792 204,534 194,809 
Restructuring charges— — — 7,800 
Total434,199 389,591 1,289,290 1,146,432 
Income from operations96,412 87,621 267,661 293,654 
Other (loss) income, net(2,163)141 (4,223)5,220 
Income before income taxes94,249 87,762 263,438 298,874 
Provision for income taxes4,645 17,890 42,915 69,096 
Net income$89,604 $69,872 $220,523 $229,778 
Net income per share — basic$1.49 $1.15 $3.63 $3.78 
Weighted average shares — basic60,186 60,978 60,768 60,831 
Net income per share — diluted$1.46 $1.14 $3.55 $3.76 
Weighted average shares — diluted61,351 61,415 62,064 61,182 
Non-GAAP Financial Measures
Net income as reported$89,604 $69,872 $220,523 $229,778 
Acquisition-related write-downs of assumed deferred revenue— 2,670 1,283 4,861 
Stock-based compensation expense61,468 50,868 182,757 149,751 
Amortization of purchased intangible assets12,931 10,676 35,843 23,884 
Facility-exit costs4,472 2,545 10,873 5,556 
Acquisition-related charges23,584 13,443 69,227 45,162 
Impairment charges— — 33,825 — 
Restructuring charges— — — 7,800 
Tax effects related to above items(22,943)(16,044)(68,604)(41,450)
Net income excluding acquisition-related write-downs of assumed deferred revenue, stock-based compensation expense, amortization of purchased intangible assets, facility-exit costs, acquisition-related charges, impairment charges and restructuring charges (non-GAAP) - diluted$169,116 $134,030 $485,727 $425,342 
Net income per share excluding acquisition-related write-downs of assumed deferred revenue, stock-based compensation expense, amortization of purchased intangible assets, facility-exit costs, acquisition-related charges, impairment charges and restructuring charges (non-GAAP) - diluted$2.76 $2.18 $7.83 $6.95 
Weighted average shares - diluted61,351 61,415 62,064 61,182 
(1) GAAP net product revenues$309,929 $253,331 $907,163 $747,405 
Acquisition-related write-downs of assumed deferred revenue— 2,670 1,283 4,861 
Non-GAAP net product revenues309,929 256,001 908,446 752,266 
GAAP net service revenues341,586 329,921 1,014,256 988,601 
Acquisition-related write-downs of assumed deferred revenue— — — — 
Non-GAAP net service revenues341,586 329,921 1,014,256 988,601 
Total non-GAAP net revenues$651,515 $585,922 $1,922,702 $1,740,867 
(2) Includes stock-based compensation expense as follows:
Cost of net revenues$7,209 $6,771 $21,903 $18,694 
Sales and marketing26,399 21,784 78,682 66,188 
Research and development17,342 13,145 50,046 36,904 
General and administrative10,518 9,168 32,126 27,965 
$61,468 $50,868 $182,757 $149,751 
(3) Includes amortization of purchased intangible assets as follows:
Cost of net revenues$9,507 $7,382 $25,688 $16,432 
Sales and marketing2,849 2,749 8,430 5,863 
General and administrative575 545 1,725 1,589 
$12,931 $10,676 $35,843 $23,884 
(4) Includes facility-exit costs as follows:
Cost of net revenues$770 $342 $1,926 $843 
Sales and marketing1,188 751 3,051 1,828 
Research and development1,474 776 3,352 1,929 
General and administrative1,040 676 2,544 956 
$4,472 $2,545 $10,873 $5,556 
(5) Includes acquisition-related charges as follows:
Cost of net revenues$— $— $2,522 $13 
Sales and marketing8,525 5,675 23,213 9,448 
Research and development11,681 547 25,120 1,327 
General and administrative3,378 7,221 18,372 34,374 
$23,584 $13,443 $69,227 $45,162 
(6) Includes impairment charges as follows:
Cost of net revenues$— $— $4,388 $— 
Sales and marketing— — 10,256 — 
Research and development— — 9,845 — 
General and administrative— — 9,336 — 
$— $— $33,825 $— 



F5 Networks, Inc.
Consolidated Statements of Cash Flows
(unaudited, in thousands)
 Nine Months Ended
June 30,
 20212020
Operating activities
Net income$220,523 $229,778 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation182,757 149,315 
Depreciation and amortization84,985 69,337 
Non-cash operating lease costs28,937 29,731 
Deferred income taxes(78,092)4,357 
Impairment of assets40,698 — 
Other604 168 
Changes in operating assets and liabilities (excluding effects of the acquisition of businesses):
Accounts receivable(88,685)38,024 
Inventories5,249 5,575 
Other current assets(32,670)(33,572)
Other assets(58,565)(5,659)
Accounts payable and accrued liabilities13,586 (1,538)
Deferred revenue167,199 37,934 
Lease liabilities(38,383)(38,456)
Net cash provided by operating activities448,143 484,994 
Investing activities
Purchases of investments(255,259)(390,696)
Maturities of investments164,900 322,271 
Sales of investments271,521 309,040 
Acquisition of businesses, net of cash acquired(411,319)(955,574)
Purchases of property and equipment(23,534)(47,857)
Net cash used in investing activities(253,691)(762,816)
Financing activities
Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan
64,698 51,999 
Repurchase of common stock(500,000)(50,009)
Proceeds from term debt agreement— 400,000 
Payments on term debt agreement(15,000)(5,000)
Payments for debt issuance costs— (3,040)
Taxes paid related to net share settlement of equity awards(10,920)— 
Net cash (used in) provided by financing activities(461,222)393,950 
Net (decrease) increase in cash, cash equivalents and restricted cash(266,770)116,128 
Effect of exchange rate changes on cash, cash equivalents and restricted cash1,107 (856)
Cash, cash equivalents and restricted cash, beginning of period852,826 602,254 
Cash, cash equivalents and restricted cash, end of period$587,163 $717,526 
Supplemental disclosures of cash flow information
Cash paid for amounts included in the measurement of lease liabilities$46,178 $45,399 
Cash paid for interest on long-term debt$4,003 $4,330 
Supplemental disclosures of non-cash activities
Right-of-use assets obtained in exchange for lease obligations$11,622 $399,203 


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