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F5 Reports 4% Third Quarter Fiscal Year 2023 Revenue Growth; Delivers Significant Operating Leverage and Strong EPS Growth

F5, Inc. (NASDAQ: FFIV) today announced financial results for its third quarter of fiscal year 2023.

“In an environment that remains challenged by macroeconomic uncertainty, our team is executing well, delivering third-quarter revenue at the midpoint of our guidance range and earnings per share well above the high end of our guidance range,” said François Locoh-Donou, F5’s President and CEO. “We are seeing some early signs of demand stabilization as customers look to F5 to help them secure and optimize the applications and APIs that power their businesses.”

Third Quarter Performance Summary

Third quarter fiscal year 2023 revenue grew 4% from the year ago period, to $703 million, up from $674 million in fiscal year 2022. Global services revenue grew 8% from the year-ago period while product revenue grew 1%, reflecting 5% systems revenue growth and software revenue that was down 3% from the year-ago period.

GAAP gross profit for the third quarter of fiscal year 2023 was $561 million, representing GAAP gross margin of 79.8%. This compares with GAAP gross profit of $544 million in the year-ago period, which represented GAAP gross margin of 80.6%. Non-GAAP gross profit for the third quarter of fiscal year 2023 was $579 million, representing non-GAAP gross margin of 82.5%. This compares with non-GAAP gross profit of $561 million in the year-ago period, which represented non-GAAP gross margin of 83.2%.

GAAP operating profit for the period was $104 million, representing GAAP operating margin of 14.7%. This compares with GAAP operating profit of $107 million in the year-ago period, which represented GAAP operating margin of 15.9%. Non-GAAP operating profit for the period was $233 million, representing non-GAAP operating margin of 33.2%. This compares to non-GAAP operating profit of $194 million in the year-ago period, which represented non-GAAP operating margin of 28.8%.

GAAP net income for the third quarter of fiscal year 2023 was $89 million, or $1.48 per diluted share compared to $83 million, or $1.37 per diluted share, in the third quarter of fiscal year 2022. Non-GAAP net income for the third quarter of fiscal year 2023 was $194 million, or $3.21 per diluted share, compared to $155 million, or $2.57 per diluted share, in fiscal year 2022.

GAAP Measures

 

Q3 FY2023

Q3 FY2022

Revenue

$703M

$674M

Gross profit

$561M

$544M

Gross margin

79.8%

80.6%

Operating profit

$104M

$107M

Operating margin

14.7%

15.9%

Net income

$89M

$83M

EPS

$1.48

$1.37 

Non-GAAP Measures

 

Q3 FY2023

Q3 FY2022

Gross profit

$579M

$561M

Gross margin

82.5%

83.2%

Operating profit

$233M

$194M

Operating margin

33.2%

$28.8%

Net income

$194M

$155M

EPS

$3.21

$2.57

A reconciliation of GAAP to non-GAAP measures is included in the attached Consolidated Income Statements. Additional information about non-GAAP financial information is included in this release.

Business Outlook

“Over the last several years, through the combination of organic innovation, acquisitions and technology integration, we have created a converged portfolio uniquely capable of simplifying the complexities our customers face operating today’s hybrid, multi-cloud IT environments,” continued Locoh-Donou. “We are delivering the gross margin improvement and operating leverage we committed to, and we are confident in our ability to achieve our target of double-digit non-GAAP earnings growth for fiscal year 2023.”

For the fourth quarter of fiscal year 2023, F5 expects to deliver revenue in the range of $690 million to $710 million, with non-GAAP earnings in the range of $3.15 to $3.27 per diluted share.

All forward-looking non-GAAP measures included in the Company’s business 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 to review its financial results and outlook today, July 24, 2023, at 4:30 pm ET. The live webcast is accessible from the investor relations page of F5.com. To participate in the live call via telephone in the U.S. and Canada, dial +1 (877) 407-0312. Outside the U.S. and Canada, dial +1 (201) 389-0899. 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 F5’s future financial performance including revenue, revenue growth, gross margins, operating leverage, earnings growth, future customer demand and spending, markets, and the performance and benefits of the Company’s products. These, and other statements that are not historical facts, 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; continued 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; F5’s ability to successfully integrate acquired businesses’ products with F5 technologies; the ability of F5’s sales professionals and distribution partners to sell new solutions 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 acquisitions and potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement of completion of acquisitions; uncertain global economic conditions which may result in reduced customer demand for our products and services and changes in customer payment patterns; 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 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 and impairment of purchased intangible assets, facility-exit costs, acquisition-related charges, net of taxes, restructuring charges, 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:

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 and impairment 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. On a non-recurring basis, when certain events or circumstances are present, management may also be required to write down the carrying value of its purchased intangible assets and recognize impairment charges. 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. F5 has incurred charges in connection with the exit of facilities 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.

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 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 is a multi-cloud application services and security company committed to bringing a better digital world to life.​​​​​​​ F5 partners with the world’s largest, most advanced organizations to secure and optimize apps and APIs anywhere—on premises, in the cloud, or at the edge. F5 enables organizations to provide exceptional, secure digital experiences for their customers and continuously stay ahead of threats. For more information, go to f5.com. (NASDAQ: FFIV)

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, Inc., in the U.S. and other countries. All other product and company names herein may be trademarks of their respective owners.

F5 is a trademark, service mark, or tradename of F5, Inc., in the U.S. and other countries. All other product and company names herein may be trademarks of their respective owners.

SOURCE: F5, Inc.

F5, Inc.
Consolidated Balance Sheets
(unaudited, in thousands)
 
 
June 30, September 30,

2023

2022

 
Assets
Current assets
Cash and cash equivalents

$

677,498

 

$

758,012

 

Short-term investments

 

13,109

 

 

126,554

 

Accounts receivable, net of allowances of $5,172 and $6,020

 

439,518

 

 

469,979

 

Inventories

 

46,102

 

 

68,365

 

Other current assets

 

537,557

 

 

489,314

 

Total current assets

 

1,713,784

 

 

1,912,224

 

 
Property and equipment, net

 

171,147

 

 

168,182

 

Operating lease right-of-use assets

 

204,196

 

 

227,475

 

Long-term investments

 

5,887

 

 

9,544

 

Deferred tax assets

 

271,171

 

 

183,365

 

Goodwill

 

2,288,678

 

 

2,259,282

 

Other assets, net

 

464,293

 

 

516,122

 

Total assets

$

5,119,156

 

$

5,276,194

 

 
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable

$

65,499

 

$

113,178

 

Accrued liabilities

 

274,255

 

 

309,819

 

Deferred revenue

 

1,149,787

 

 

1,067,182

 

Current portion of long-term debt

 

-

 

 

349,772

 

Total current liabilities

 

1,489,541

 

 

1,839,951

 

 
Deferred tax liabilities

 

3,883

 

 

2,781

 

Deferred revenue, long-term

 

641,647

 

 

624,398

 

Operating lease liabilities, long-term

 

250,077

 

 

272,376

 

Other long-term liabilities

 

76,505

 

 

67,710

 

Total long-term liabilities

 

972,112

 

 

967,265

 

 
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, 59,296 and 59,860 shares issued and outstanding

 

32,519

 

 

91,048

 

Accumulated other comprehensive loss.

 

(21,936

)

 

(26,176

)

Retained earnings

 

2,646,920

 

 

2,404,106

 

Total shareholders' equity

 

2,657,503

 

 

2,468,978

 

Total liabilities and shareholders' equity

$

5,119,156

 

$

5,276,194

 

F5, Inc.
Consolidated Income Statements
(unaudited, in thousands, except per share amounts)
 
 
Three Months Ended Nine Months Ended
June 30, June 30,

2023

2022

2023

2022

 
Net revenues
Products

$

328,175

 

$

326,482

 

$

1,009,314

 

$

967,149

 

Services

 

374,467

 

 

348,006

 

 

1,096,881

 

 

1,028,663

 

Total

 

702,642

 

 

674,488

 

 

2,106,195

 

 

1,995,812

 

 
Cost of net revenues (1)(2)(3)(4)
Products

 

87,940

 

 

73,558

 

 

286,590

 

 

226,454

 

Services

 

53,743

 

 

57,175

 

 

165,754

 

 

165,711

 

Total

 

141,683

 

 

130,733

 

 

452,344

 

 

392,165

 

Gross profit

 

560,959

 

 

543,755

 

 

1,653,851

 

 

1,603,647

 

 
Operating expenses (1)(2)(3)(4)
Sales and marketing

 

207,202

 

 

226,731

 

 

673,383

 

 

689,592

 

Research and development

 

128,765

 

 

138,737

 

 

412,451

 

 

404,846

 

General and administrative

 

64,775

 

 

70,823

 

 

201,802

 

 

205,038

 

Restructuring charges

 

56,648

 

 

-

 

 

65,388

 

 

7,909

 

Total

 

457,390

 

 

436,291

 

 

1,353,024

 

 

1,307,385

 

 
Income from operations

 

103,569

 

 

107,464

 

 

300,827

 

 

296,262

 

Other income (expense), net

 

2,896

 

 

(6,221

)

 

10,335

 

 

(10,586

)

Income before income taxes

 

106,465

 

 

101,243

 

 

311,162

 

#

 

285,676

 

Provision for income taxes

 

17,489

 

 

18,224

 

 

68,348

 

 

52,862

 

Net income

$

88,976

 

$

83,019

 

$

242,814

 

$

232,814

 

 
 
Net income per share - basic

$

1.48

 

$

1.38

 

$

4.04

 

$

3.85

 

Weighted average shares - basic

 

59,977

 

 

59,965

 

 

60,133

 

 

60,450

 

 
Net income per share - diluted

$

1.48

 

$

1.37

 

$

4.02

 

$

3.80

 

Weighted average shares - diluted

 

60,314

 

 

60,460

 

 

60,463

 

 

61,345

 

 
 
Non-GAAP Financial Measures
 
Net income as reported

$

88,976

 

$

83,019

 

$

242,814

 

$

232,814

 

Stock-based compensation expense

 

56,472

 

 

61,875

 

 

183,385

 

 

189,761

 

Amortization and impairment of purchased intangible assets

 

13,876

 

 

12,701

 

 

39,130

 

 

44,988

 

Facility-exit costs

 

1,527

 

 

1,750

 

 

5,066

 

 

8,010

 

Acquisiton-related charges

 

1,327

 

 

10,224

 

 

16,109

 

 

40,081

 

Restructuring charges

 

56,648

 

 

-

 

 

65,388

 

 

7,909

 

Tax effects related to above items

 

(25,173

)

 

(14,427

)

 

(55,337

)

 

(58,587

)

Net income excluding stock-based compensation expense, amortization and impairment of purchased intangible assets, facility-exit costs, acquisition-related charges, restructuring charges and non-recurring tax expenses and benefits (non-GAAP) - diluted

$

193,653

 

$

155,142

 

$

496,555

 

$

464,976

 

 
Net income per share excluding stock-based compensation expense, amortization and impairment of purchased intangible assets, facility-exit costs, acquisition-related charges, restructuring charges and non-recurring tax expenses and benefits (non-GAAP) - diluted

$

3.21

 

$

2.57

 

$

8.21

 

$

7.58

 

 
Weighted average shares - diluted

 

60,314

 

 

60,460

 

 

60,463

 

 

61,345

 

 
(1) Includes stock-based compensation expense as follows:
Cost of net revenues

$

7,297

 

$

7,203

 

$

22,516

 

$

22,089

 

Sales and marketing

 

22,561

 

 

25,572

 

 

75,171

 

 

79,938

 

Research and development

 

16,297

 

 

17,502

 

 

53,528

 

 

54,318

 

General and administrative

 

10,317

 

 

11,598

 

 

32,170

 

 

33,416

 

$

56,472

 

$

61,875

 

$

183,385

 

$

189,761

 

 
(2) Includes amortization and impairment of purchased intangible assets as follows:
Cost of net revenues

$

10,984

 

$

9,960

 

$

30,902

 

$

29,878

 

Sales and marketing

 

2,672

 

 

2,389

 

 

7,451

 

 

13,780

 

General and administrative

 

220

 

 

352

 

 

777

 

 

1,330

 

$

13,876

 

$

12,701

 

$

39,130

 

$

44,988

 

 
(3) Includes facility-exit costs as follows:
Cost of net revenues

$

150

 

$

62

 

$

501

 

$

1,155

 

Sales and marketing

 

481

 

 

546

 

 

1,630

 

 

2,183

 

Research and development

 

542

 

 

627

 

 

1,720

 

 

2,755

 

General and administrative

 

354

 

 

515

 

 

1,215

 

 

1,917

 

$

1,527

 

$

1,750

 

$

5,066

 

$

8,010

 

 
(4) Includes acquisition-related charges as follows:
Cost of net revenues

$

45

 

$

96

 

$

212

 

$

291

 

Sales and marketing

 

349

 

 

2,493

 

 

2,513

 

 

12,266

 

Research and development

 

330

 

 

5,479

 

 

5,331

 

 

17,170

 

General and administrative

 

603

 

 

2,156

 

 

8,053

 

 

10,354

 

$

1,327

 

$

10,224

 

$

16,109

 

$

40,081

 

F5, Inc.
Consolidated Statements of Cash Flows
(unaudited, in thousands)
 
 
Nine Months Ended
June 30,

2023

2022

 
Operating activities
Net income

$

242,814

 

$

232,814

 

Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation

 

183,384

 

 

189,761

 

Depreciation and amortization

 

83,173

 

 

88,398

 

Non-cash operating lease costs

 

29,977

 

 

29,071

 

Deferred income taxes

 

(85,091

)

 

(28,956

)

Impairment of assets

 

3,455

 

 

6,175

 

Other

 

2,137

 

 

585

 

Changes in operating assets and liabilities (excluding effects of the acquisition of businesses):
Accounts receivable

 

31,507

 

 

(116,137

)

Inventories

 

22,263

 

 

(21,732

)

Other current assets

 

(47,488

)

 

(106,070

)

Other assets

 

13,231

 

 

(50,400

)

Accounts payable and accrued liabilities

 

(79,608

)

 

(33,398

)

Deferred revenue

 

98,054

 

 

136,872

 

Lease liabilities

 

(34,200

)

 

(38,707

)

Net cash provided by operating activities

 

463,608

 

 

288,276

 

 
Investing activities
Purchases of investments

 

(1,789

)

 

(58,514

)

Maturities of investments

 

103,513

 

 

178,372

 

Sales of investments

 

16,085

 

 

120,564

 

Acquisition of businesses, net of cash acquired

 

(35,049

)

 

(67,911

)

Purchases of property and equipment

 

(38,802

)

 

(25,117

)

Net cash provided by investing activities

 

43,958

 

 

147,394

 

 
Financing activities
Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan

 

59,497

 

 

63,681

 

Repurchase of common stock

 

(290,041

)

 

(500,023

)

Payments on term debt agreement

 

(350,000

)

 

(15,000

)

Taxes paid related to net share settlement of equity awards.

 

(11,369

)

 

(18,907

)

Net cash used in financing activities

 

(591,913

)

 

(470,249

)

 
Net decrease in cash, cash equivalents and restricted cash

 

(84,347

)

 

(34,579

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

3,729

 

 

(3,633

)

Cash, cash equivalents and restricted cash, beginning of period

 

762,207

 

 

584,333

 

Cash, cash equivalents and restricted cash, end of period

$

681,589

 

$

546,121

 

 
Supplemental disclosures of cash flow information
Cash paid for amounts included in the measurement of lease liabilities

$

40,619

 

$

44,115

 

Cash paid for interest on long-term debt

 

2,970

 

 

4,287

 

Supplemental disclosures of non-cash activities
Right-of-use assets obtained in exchange for lease obligations

$

10,544

 

$

614

 

 

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