F5 Networks Inc. Reports Operating Results (10-Q)

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Feb 07, 2009
F5 Networks Inc. (FFIV, Financial) filed Quarterly Report for the period ended 2008-12-31.

F5 Networks Inc. is a leading provider of integrated Internet traffic and content management solutions designed to improve the availability and performance of mission-critical Internet-based servers and applications. The company's products monitor and manage local and geographically dispersed servers and intelligently direct traffic to the server best able to handle a user's request. The products are designed to help prevent system failure and provide timely responses to user requests and data flow. F5 Networks Inc. has a market cap of $1.85 billion; its shares were traded at around $23.66 with a P/E ratio of 25.4 and P/S ratio of 2.85. F5 Networks Inc. had an annual average earning growth of 32.7% over the past 5 years.

Highlight of Business Operations:

Net product revenues decreased 2.1%, to $107.9 million for the three months ended December 31, 2008 from $110.2 million for the same period in the prior year. The decrease in the three months ended December 31, 2008 was primarily due to a reduction in the volume of products sales of our ARX file virtualization product of $4.0 million. Sales of our ADN products represented 94.6% and 90.5% of product revenues for the three months ended December 31, 2008 and 2007, respectively.

Sales and marketing. Sales and marketing expenses consist of salaries, commissions and related benefits of our sales and marketing staff, the costs of our marketing programs, including public relations, advertising and trade shows, travel, facilities and depreciation expenses. Sales and marketing expenses increased 2.2% for the three months ended December 31, 2008 from the comparable period in the prior year. The increase in sales and marketing expense was primarily due to an increase of $1.5 million in personnel costs for the three months ended December 31, 2008, compared to the same period in the prior year. The increased personnel costs were driven by growth in sales and marketing employee headcount for the respective period. Sales and marketing headcount at the end of December 2008 increased to 721 from 687 at the end of December 2007. Sales and marketing expense included stock-based compensation expense of $6.0 million for the three months ended December 31, 2008, compared to $6.4 million for the same period in the prior year.

Research and development. Research and development expenses consist of the salaries and related benefits for our product development personnel, prototype materials and other expenses related to the development of new and improved products, facilities and depreciation expenses. Research and development expenses increased 11.4% for the three months ended December 31, 2008 from the comparable period in the prior year. The increase in research and development expense was primarily due to an increase of $1.3 million in personnel costs for the three months ended December 31, 2008, compared to the same period in the prior year. Research and development headcount at the end of December 2008 increased to 465 from 453 at the end of December 2007. The growth in headcount was primarily related to enhancement of our current products and our ability to develop new, technologically advanced products that meet the changing needs of our customers. In addition, research and development expense included stock-based compensation expense of $4.3 million for the three months ended December 31, 2008, compared to $4.0 million for the same period in the prior year. We expect research and development expenses to remain consistent as a percentage of net revenue in the foreseeable future.

Cash and cash equivalents, short-term investments and long-term investments totaled $487.4 million as of December 31, 2008 compared to $451.3 million as of September 30, 2008, representing an increase of $36.1 million. The increase was primarily due to cash provided by operating activities of $57.9 million for the three months ended December 31, 2008 compared to $42.0 million for the same period in the prior year, which was offset by $20.0 million of additional cash required for the repurchase of outstanding common stock under our stock repurchase program. The increase in cash flow from operations for the first three months of fiscal year 2009 resulted from increased net income combined with changes in operating assets and liabilities, as adjusted for various non-cash items including stock-based compensation, depreciation and amortization charges. Based on our current operating and capital expenditure forecasts, we believe that our existing cash and investment balances, excluding auction rate securities (ARS), together with cash generated from operations should be sufficient to meet our operating requirements for the foreseeable future.

We liquidated two of our ARS at par value for $2.5 million and $1.1 million in the fourth quarter of fiscal 2008. We liquidated one additional ARS at par value for $4.9 million in the first quarter of fiscal 2009.

Cash used in financing activities for the three months ended December 31, 2008 was $16.9 million compared to cash provided by financing activities of $6.8 million for the same period in the prior year. Our financing activities for the three months ended December 31, 2008 consisted primarily of cash required for the repurchase of outstanding common stock under our stock repurchase program of $20.0 million, partially offset by cash received from the exercise of employee stock options and warrants of $5.4 million.

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