8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported):

April 25, 2018

F5 Networks, Inc.

(Exact name of registrant as specified in its charter)

Washington	000-26041	91-1714307
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

401 Elliott Avenue West
Seattle, WA	98119
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (206) 272-5555

Not Applicable

Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Item 2.02 Results of Operations and Financial Condition

On April 25, 2018, F5 Networks, Inc. issued a press release regarding its financial results for the second quarter ended March 31, 2018. The press release is attached hereto as Exhibit 99.1. The information in this report shall not be treated as filed for purposes of the Securities Exchange Act of 1934, as amended.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits:

99.1 Press Release of F5 Networks, Inc. announcing quarterly earnings dated April 25, 2018.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	F5 NETWORKS, INC.  (Registrant)
Date: April 25, 2018	By:	/s/ François Locoh-Donou
		François Locoh-Donou
		President and Chief Executive Officer

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release of F5 Networks, Inc. announcing quarterly earnings dated April 25, 2018.

EX-99.1

Q2 FY18 Earnings Release Page 1 of 4

For more information contact:

Investor Relations

Jason Willey

(206) 272-7908

j.willey@f5.com

Public Relations

Nathan Misner

(206) 272-7494

n.misner@f5.com

F5 Networks Announces Second Quarter Fiscal 2018 Results

SEATTLE, WA - April 25, 2018 - F5 Networks, Inc. (NASDAQ: FFIV) today announced revenue of $533.3 million for the second quarter of fiscal 2018, up 2.9% from $518.2 million in the second quarter of fiscal 2017. Growth compared with the second quarter of fiscal 2017 was driven by our software solutions and Services business.

GAAP net income for the second quarter of fiscal 2018 was $109.6 million, or $1.77 per diluted share, compared to $93.1 million, or $1.43 per diluted share in the second quarter of fiscal 2017. Excluding the impact of stock-based compensation, amortization of purchased intangible assets, and litigation expenses, non-GAAP net income for the second quarter of fiscal 2018 was $143.3 million, or $2.31 per diluted share, compared to $127.0 million, or $1.95 per diluted share in the second quarter of fiscal 2017.

A reconciliation of net income, earnings per share, and other measures on a GAAP to non-GAAP basis is included on the attached Consolidated Income Statements.

“We had solid execution across the organization during the second quarter,” said François Locoh-Donou, F5 President and Chief Executive Officer. "Our software business had another quarter of outstanding growth, driven by deployments in the public cloud, and our Services organization continues to deliver tremendous value to our customers and strong financial performance.

“At our Analyst and Investor meeting in early March, we outlined a long-term strategic roadmap centered on supporting customers as their applications evolve in a multi-cloud world. The entire F5 organization is aligned to delivering the products and services necessary to meet our customers’ needs, regardless of where their applications reside. This focus is evident in the new BIG-IP Cloud Edition announced today and the Advanced Web Application Firewall solutions we introduced earlier this month.”

Q2 FY18 Earnings Release Page 2 of 4

For the third quarter of fiscal 2018, ending June 30, the company has set a revenue goal of $535 million to $545 million with a GAAP earnings target of $1.79 to $1.82 per diluted share and a non-GAAP earnings target of $2.36 to $2.39 per diluted share.

A reconciliation of the company’s expected GAAP and non-GAAP earnings is provided in the following table:

	Three months ended
	June 30, 2018
	(in millions, except per share amounts)
Reconciliation of Expected Non-GAAP Third Quarter Earnings	Low			High
Net income	$	110.2		$	112.0
Stock-based compensation expense	$	42.0		$	42.0
Amortization of purchased intangible assets	$	2.8		$	2.8
Tax effects related to above items	$	(9.4	)	$	(9.4	)
Non-GAAP net income excluding stock-based compensation expense and amortization of purchased intangible assets	$	145.6		$	147.4
Net income per share - diluted	$	1.79		$	1.82
Non-GAAP net income per share - diluted	$	2.36		$	2.39

Francis J. Pelzer Appointed Executive Vice President and Chief Financial Officer

The company also announced the appointment of Francis "Frank" Pelzer as Executive Vice President and Chief Financial Officer, effective May 21, 2018. Pelzer joins F5 from SAP where he was most recently President and Chief Operating Officer of the Cloud Business Group, where he has been responsible for the execution of strategy and operations of SAP’s Software-as-a-Service portfolio, including Concur, Ariba, Fieldglass, SucessFactors, and Hybris. Previously, Pelzer served as Chief Financial Officer of Concur Technologies, a cloud-based travel and expense management solution provider that was purchased by SAP in 2014.

Q2 FY18 Earnings Release Page 3 of 4

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, future financial performance, sequential growth, projected revenues including target revenue and earnings ranges, income, earnings per share, share amount and share price assumptions, demand for application delivery networking, application delivery services, security, virtualization and diameter 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 our new traffic management, security, application delivery, optimization, diameter and virtualization 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; uncertain global economic conditions which may result in reduced customer demand for our products and services and changes in customer payment patterns; 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; 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; F5’s share repurchase program; 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 that we may file 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.

Q2 FY18 Earnings Release Page 4 of 4

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 net income excluding stock-based compensation, amortization of purchased intangible assets, acquisition-related charges, net of taxes, 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 consists of GAAP net income excluding, as applicable, stock-based compensation, amortization of purchased intangible assets and acquisition-related charges. 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. Stock-based compensation is a non-cash expense that F5 has accounted for since July 1, 2005 in accordance with the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 Compensation—Stock Compensation (“FASB ASC Topic 718”). Amortization of intangible assets is a non-cash expense. Investors should note that the use of intangible assets contribute to revenues earned during the periods presented and will contribute to revenues in future periods. Acquisition-related expenses consist of professional services fees incurred in connection with acquisitions. In addition, restructuring charges have been excluded from GAAP net income for the purpose of measuring non-GAAP earnings and earnings per share in fiscal 2017, and litigation expenses primarily related to a jury verdict and other associated costs of that patent litigation have been excluded in fiscal 2016 and 2017.

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 measure of earnings and earnings per share provides investors with an additional tool for evaluating the performance of the company’s core business and which management uses 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 this supplemental measure since, with reconciliation to GAAP, it may provide additional insight into the company’s operational performance and financial results.

For reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure, please see the section in our Consolidated Income Statements entitled “Non-GAAP Financial Measures.”

About F5

F5 (NASDAQ: FFIV) makes apps go faster, smarter, and safer for the world’s largest businesses, service providers, governments, and consumer brands. F5 delivers cloud and security solutions that enable organizations to embrace the application infrastructure they choose without sacrificing speed and control. For more information, go to f5.com. You can also follow @f5networks on Twitter or visit us on LinkedIn and Facebook for more information about F5, its partners, and technologies.

F5 Networks, Inc.

Consolidated Balance Sheets

(unaudited, in thousands)

	March 31,			September 30,
	2018			2017
ASSETS
Current assets
Cash and cash equivalents	$	595,917		$	673,228
Short-term investments	428,756			343,700
Accounts receivable, net of allowances of $1,874 and $1,815	290,919			291,924
Inventories	29,512			29,834
Other current assets	62,125			67,538
Total current assets	1,407,229			1,406,224
Property and equipment, net	117,392			122,420
Long-term investments	350,241			284,802
Deferred tax assets	36,982			53,303
Goodwill	555,965			555,965
Other assets, net	49,337			53,775
Total assets	$	2,517,146		$	2,476,489
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	40,271		$	50,760
Accrued liabilities	185,924			187,379
Deferred revenue	735,976			696,404
Total current liabilities	962,171			934,543
Other long-term liabilities	53,770			44,589
Deferred revenue, long-term	274,564			267,902
Deferred tax liabilities	27			63
Total long-term liabilities	328,361			312,554
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, 61,115 and 62,594 shares issued and outstanding	21,120			17,627
Accumulated other comprehensive loss	(20,980		)	(17,997		)
Retained earnings	1,226,474			1,229,762
Total shareholders’ equity	1,226,614			1,229,392
Total liabilities and shareholders’ equity	$	2,517,146		$	2,476,489

F5 Networks, Inc.

Consolidated Income Statements

(unaudited, in thousands, except per share amounts)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2018			2017			2018			2017
Net revenues
Products	$	237,558		$	241,080		$	464,861		$	480,563
Services	295,746			277,168			591,634			553,643
Total	533,304			518,248			1,056,495			1,034,206
Cost of net revenues (1)(2)
Products	44,127			43,928			87,392			85,604
Services	45,518			43,984			89,640			87,570
Total	89,645			87,912			177,032			173,174
Gross profit	443,659			430,336			879,463			861,032
Operating expenses (1)(2)
Sales and marketing	169,970			164,705			337,904			329,219
Research and development	91,056			89,234			176,945			176,284
General and administrative	39,276			38,009			79,260			79,687
Litigation expense	—			(135		)	—			(135		)
Total	300,302			291,813			594,109			585,055
Income from operations	143,357			138,523			285,354			275,977
Other income, net	2,790			1,302			4,935			3,945
Income before income taxes	146,147			139,825			290,289			279,922
Provision for income taxes	36,511			46,687			92,224			92,566
Net income	$	109,636		$	93,138		$	198,065		$	187,356
Net income per share — basic	$	1.79		$	1.44		$	3.20		$	2.89
Weighted average shares — basic	61,420			64,479			61,812			64,841
Net income per share — diluted	$	1.77		$	1.43		$	3.18		$	2.87
Weighted average shares — diluted	62,059			65,028			62,351			65,389
Non-GAAP Financial Measures
Net income as reported	$	109,636		$	93,138		$	198,065		$	187,356
Stock-based compensation expense (3)	41,320			43,895			82,268			90,506
Amortization of purchased intangible assets	2,805			3,292			5,610			6,695
Litigation expense	—			(135		)	—			(135		)
Tax effects related to above items	(10,466		)	(13,184		)	(19,649		)	(27,150		)
Tax on deemed repatriation of undistributed foreign earnings	—			—			7,000			—
Remeasurement of net deferred tax assets due to change in U.S. tax rate	—			—			11,584			—
Net income excluding stock-based compensation expense, amortization of purchased intangible assets, litigation expense, and non-recurring tax expenses and benefits (non-GAAP) - diluted	$	143,295		$	127,006		$	284,878		$	257,272
Net income per share excluding stock-based compensation expense, amortization of purchased intangible assets, litigation expense, and non-recurring tax expenses and benefits (non-GAAP) - diluted	$	2.31		$	1.95		$	4.57		$	3.93
Weighted average shares - diluted	62,059			65,028			62,351			65,389
(1) Includes stock-based compensation expense as follows:
Cost of net revenues	$	5,543		$	5,554		$	10,993		$	10,771
Sales and marketing	15,555			18,110			31,033			35,160
Research and development	12,497			13,884			24,903			27,816
General and administrative	7,725			6,347			15,339			16,759
	$	41,320		$	43,895		$	82,268		$	90,506
(2) Includes amortization of purchased intangible assets as follows:
Cost of net revenues	$	2,028		$	2,532		$	4,056		$	5,317
Sales and marketing	252			251			504			503
General and administrative	525			509			1,050			875
	$	2,805		$	3,292		$	5,610		$	6,695
(3)    Stock-based compensation is accounted for in accordance with the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation (“FASB ASC Topic 718”)

F5 Networks, Inc.

Consolidated Statements of Cash Flows

(unaudited, in thousands)

	Six Months Ended
	March 31,
	2018			2017
Operating activities
Net income	$	198,065		$	187,356
Adjustments to reconcile net income to net cash provided by operating activities:
Realized loss (gain) on disposition of assets and investments	52			(7		)
Stock-based compensation	82,268			90,506
Provisions for doubtful accounts and sales returns	691			455
Depreciation and amortization	30,049			30,278
Deferred income taxes	17,642			(214		)
Changes in operating assets and liabilities:
Accounts receivable	314			(26,152		)
Inventories	322			1,504
Other current assets	5,493			1,449
Other assets	(1,111		)	(942		)
Accounts payable and accrued liabilities	(5,308		)	21,072
Deferred revenue	46,235			59,347
Net cash provided by operating activities	374,712			364,652
Investing activities
Purchases of investments	(353,414		)	(146,236		)
Maturities of investments	186,961			187,660
Sales of investments	9,248			40,737
Increase in restricted cash	(19		)	(36		)
Acquisition of intangible assets	—			(4,000		)
Cash provided by sale of fixed asset	1,000			—
Purchases of property and equipment	(16,246		)	(23,715		)
Net cash (used in) provided by investing activities	(172,470		)	54,410
Financing activities
Excess tax benefit from stock-based compensation	—			5,239
Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan	19,917			18,868
Repurchase of common stock	(300,046		)	(300,042		)
Net cash used in financing activities	(280,129		)	(275,935		)
Net (decrease) increase in cash and cash equivalents	(77,887		)	143,127
Effect of exchange rate changes on cash and cash equivalents	576			(1,925		)
Cash and cash equivalents, beginning of period	673,228			514,571
Cash and cash equivalents, end of period	$	595,917		$	655,773