F5 Networks Inc. (FFIV)
F2Q09 Earnings Call
April 22, 2009; 4:30 pm ET
John McAdam - President and Chief Executive Officer
Andy Reinland - Senior Vice President and Chief Financial Officer
Dan Matte - Senior Vice President of Marketing and Business Development
Karl Triebes - Senior Vice President of Product Development and Chief Technical Officer
John Eldridge - Director of Investor Relations
Troy Jensen - Piper Jaffray
John Marchetti - Cowen and Company
Mark Sue - RBC Capital Markets
Ittai Kidron - Oppenheimer & Company
Ehud Gelblum - JP Morgan
Brian Marshall - Broadpoint AmTech
Jeffrey Kvaal - Barclays Capital
Manjal - Jefferies
Jason Ader - William Blair
Richard Sherman - MKM Partners
Nikos Theodosopoulos - UBS
Previous Statements by FFIV
» F5 Networks, Inc. F1Q09 (Qtr End 12/31/08) 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
I would now like to turn the call over to Mr. John Eldridge, Director of Investor Relations. Thank you, sir. You may begin.
Thank you, Sarah. Welcome everybody to our conference call for the second quarter of fiscal 2009. Speakers on today’s call are John McAdam, President and CEO and Andy Reinland, Senior VP and Chief Financial Officer. Other members of our executive team are also with us to answer questions following our prepared comments.
If you have questions following today’s call, please direct them to me at 206-272-6571. If you don’t have a copy of today’s press release, it’s available on our website www.f5.com. In addition, you can access an archive version of today’s live webcast in the Events Calendar page of our website through July 22. 4:30 PM today until midnight Pacific Time, April 23, you can also listen to a telephone replay at 866-463-4179 or 203-369-1387.
During today’s call, our discussion will contain forward-looking statements, including 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 on our SEC filings. Please note that F5 has no duty to update any information presented in this call.
Now, I’ll turn the call over to Andy Reinland.
Thank you, John. While the economy continued to exert pressure on revenue in Q2, the cost controls we implemented during the quarter enabled us to achieve our profitability objectives and demonstrate our continued commitment to meet or exceed our operating margin targets.
As we stated in our release in conference call on April 7, revenue for the second quarter of fiscal 2009 was 154.1 million, below our guided range of 157 million to 164 million. Despite the revenue shortfall, GAAP EPS of $0.24 per diluted share exceeded our target range of $0.19 to $0.21. Non-GAAP EPS was $0.38 per diluted share, which was at the high end of our guided range.
Product revenue of 94.1 million represented 61% of total revenue. Service revenue of 60 million accounted for 39%. Book-to-bill for the quarter was below one. North America accounted for 55% of total revenue; EMEA contributed 23%, APAC 13%, and Japan 9%.
Revenue from our core application delivery controller business was 143.5 million and accounted for 93% of total revenue. ARX revenue was 4.5 million, representing just under 3% of total revenue and revenue from FirePass was 6.1 million, slightly under 4%.
During Q2, Telco represented 26% of total revenue. The financial sector represented 22%, and technology accounted for 20%. U.S. Federal government was 3% of revenue, and total government accounted for 7%.
Avnet Technologies was our only greater than 10% distributor at 15.5% of total revenue. Our GAAP gross margin for the quarter was 76.3%. Excluding stock-based compensation of 1.3 million and a 1.3 million patent-related legal settlement, our non-GAAP gross margin was 77.9%.
One additional comment on gross margin; it’s worth noting that in Q2 we recorded a charge to product COGS of approximately $2.1 million to increase our inventory reserve related to components for our legacy platforms. This charge had an impact of approximately 225 basis points to both GAAP and non-GAAP product margin.
GAAP operating expenses of 94.3 million were below our guided range of 100 million to 105 million. Non-GAAP operating expenses, which exclude 12 million in stock-based compensation expense and 4.3 million of restructuring charges, were 78 million.
Our GAAP operating margin was 15.1%. Non-GAAP operating margin which excludes stock-based compensation expense, the restructuring charge, and the patent related legal settlement improved to 27.4%, reflecting a benefit related to the deductibility of stock-based compensation in one of our international theaters. Our GAAP effective tax rate was 25.3%; our non-GAAP effective tax rate was 31.7%.
On the balance sheet, we generated $39.2 million in cash flow from operations above our $35 million target for the quarter. We ended the quarter with $499 million in cash and investments after repurchasing approximately 1.3 million shares of our common stock for $27.4 million.
DSO improved to 53 days compared to 55 days in the prior quarter. Inventories at quarter end were 15 million, deferred revenue ended of the quarter at $160.5 million, an increase of $4.5 million from the prior quarter.
Capital expenditures for the quarter were $2.6 million, and depreciation and amortization expense was $7.7 million. Headcount at quarter end was approximately 1605 employees, a 6% reduction from the prior quarter.