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F5 Networks, Inc. (FFIV)
F1Q09 Earnings Call
January 21, 2008 4:30 pm ET
John McAdam - President and CEO
Andrew Reinland - Senior Vice President and Chief Financial Officer
Mark Anderson – Senior Vice President, Worldwide Sales
Dan Matte - Senior Vice President, Marketing
Julian Eames – Senior Vice President Business Operations
Ittai Kidron - Oppenheimer & Co.
Sanjiv Wadhwani – Stifel Nicolaus
Troy Jensen - Piper Jaffray
Ryan Hutchinson - Lazard Capital Markets, LLC
Erik Suppiger - Signal Hill Group, LLC
Jeff Kvaal - Barclays Capital
Mark Sue - RBC Capital Markets
Rohit Chopra - Wedbush Morgan Securities
Jeff Evans - Sanford Bernstein
Richard Sherman – MKM Partners
Kenneth Muth – Robert W. Baird & Co.
Ehud Gelblum - JP Morgan
Previous Statements by FFIV
» F5 Networks Inc. F2Q09 (Qtr End 03/31/09) Earnings Call Transcript
» F5 Networks, Inc. F4Q08 (Qtr End 9/30/08) Earnings Call Transcript
» F5 Networks, Inc. F3Q08 (Qtr End 06/30/08) Earnings Call Transcript
Welcome to our conference call for the first quarter of fiscal year 2009. Joining me on today’s call is John McAdam, President and CEO. Members of the senior management team are also with us today to respond to any questions following our prepared comments. John Eldridge, our Director of Investor Relations has been in Washington, D.C. for the inauguration and will be back in the office tomorrow. If you have any questions after the call please direct them to John at (206) 272-6571.
If you don’t have a copy of today’s press release it is available on our website www.F5.com. You can access an archived version of today’s live web cast from the Events Calendar page of our website through April 22. From 4:30 p.m. today until midnight Pacific time on January 22, you can listen to a telephone replay at (866) 439-3725 or (203) 369-1044.
During today's call, our discussion will contain forward-looking statements that include words such as believe, anticipate, expect and target. These forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from those expressed or implied by these statements. Factors that may affect our results are summarized in our quarterly release and described in detail in our SEC filings. Please note that note that F5 has no duty to update any information presented in this call.
Now, for the Q1 results.
As stated in our conference call on January 6, revenue for the first quarter of fiscal 2009 was $165.6 million, below our guided range of $172-174 million. Despite the revenue shortfall, GAAP EPS of $0.27 per diluted share was at the high end of our guided range. Excluding stock based compensation expense, non-GAAP EPS was $0.40 per diluted share, just under our target of $0.41 to $0.42 per share. Product revenue of $107.9 million represented 65% of total revenue. Service revenue of $57.7 million accounted for 35%. Book to bill for the quarter was below one as the result of timing issues related to a large shipment at quarter end.
North America accounted for 54% of total revenue; EMEA contributed 24%, APAC 13% and Japan 9%. Revenue from our core application delivery networking business was $155.6 million and accounted for 94% of total revenue. ARX revenue was $3.7 million representing just over 2% of total revenue and revenue from FirePass was $6.3 million, slightly under 4% of total.
During Q1, Telco revenue represented 23% of total revenue, the financial sector represented 20% and technology accounted for 17%. U.S. federal government was 4% of revenue and total government accounted for 9%. Avnet Technologies was our only greater than 10% distributor at 17.1% of total revenue.
Moving down the income statement, GAAP gross margin of 78.2% was above our guidance of 77-78%. Excluding approximately $1.2 million of stock based compensation expense, non-GAAP gross margin was 79%. GAAP operating expenses of $102.3 million were below our guided range of $104-107 million. Our non-GAAP operating expenses which exclude $13.7 million in stock based compensation expense were $88.7 million.
Our GAAP operating margin was 16.4%. Non-GAAP operating margin was 25.4%. Reflecting the retroactive effect of the reinstated R&D tax credit our GAAP effective tax rate was 28.8%. Excluding stock based compensation expense, our non-GAAP effective tax rate was 28.1%.
On the balance sheet, cash flow from operations was $57.9 million. We ended the quarter with $487 million in cash and investments after repurchasing 873,000 shares of our common stock for a total of approximately $20 million. DSO was 55 days. Inventories at quarter end were $15.6 million. Deferred revenue ended the quarter at $155.9 million, an increase of 7.5% from the prior quarter.
Capital expenditures for the quarter were $3.9 million and depreciation and amortization expense was $6.5 million. We increased headcount by 15 in Q1, ending the quarter with approximately 1,710 employees.
Moving on to the outlook, clearly the continuing economic uncertainty has reduced visibility into our end markets. Taking this into account and based on review of the pipeline and in-depth discussions with our sales management team, we are targeting Q2 revenue in the range of $157-164 million. We expect product revenue to be down from the quarter just ended. We expect service revenue to continue growing though we are seeing that growth slow somewhat due to the decline in product sales.
We expect GAAP gross margin in the 77-78% range including approximately $1 million of stock based compensation expense. To maintain our operating margin targets we have reduced discretionary spending throughout the organization. In addition we are restructuring and consolidating areas of our business which will result in a 5-7% reduction in total headcount by the end of the quarter and a reduction in certain office space. These actions will result in a restructuring charge during the quarter in a range of $4.5-5.5 million. We will exclude this charge from our non-GAAP results for Q2.