F5 Networks Announces Revenue for Fourth Quarter and Fiscal Year 2006 Update on Special Committee Review of Stock Option Practices
Wednesday October 25, 4:05 pm ET
Strong core business drives 40 percent year-over-year growth
SEATTLE--(BUSINESS WIRE)--For the fourth quarter of fiscal 2006, F5 Networks (Nasdaq:FFIV - News) announced revenue of $111.7 million, up 12 percent from $100.1 million in the prior quarter and 39 percent from $80.6 million in the fourth quarter of fiscal 2005. Revenue for fiscal 2006 was $394.0 million, up 40 percent from $281.4 million in fiscal 2005.
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F5 president and chief executive officer John McAdam said that during the fourth quarter the company achieved solid sequential growth in Japan, Asia-Pacific and the Americas. EMEA revenue grew 50 percent year-over-year but was down from the prior quarter, reflecting seasonal summer slowness in Europe.
The company's strong revenue growth during the quarter and throughout the year was driven primarily by the ongoing strength in its core application delivery networking business. BIG-IP product revenue grew 17 percent sequentially and accounted for 90 percent of total product revenue in the quarter. Combined with strong sequential growth in revenue from security products, the growth of BIG-IP product revenue offset a decline in WAN optimization revenue and drove overall product revenue up 12 percent during the quarter. BIG-IP product revenue represented 89 percent of total product revenue for the year.
Service revenue also grew in the fourth quarter, increasing 11 percent sequentially and pushing deferred revenue up 13 percent from the prior quarter to $60.3 million. During fiscal 2006, service revenue grew 44 percent.
Commenting on the strength of the company's core business, McAdam said he believes it is a result of increasing demand for application delivery networking, as projected by Gartner Group and others, coupled with growing awareness of BIG-IP's superior performance and integrated functionality. "Since we introduced our TMOS-based products more than two years ago, the unique capabilities of those products have been demonstrated again and again in performance benchmarks against our competitors and in other equally important ways. Within the past year, for example, TrafficShield and WebAccelerator, technologies we acquired from MagniFire and Swan Labs respectively, have been migrated to TMOS and made available as software modules running on BIG-IP. At the same time, growing numbers of customers, reflected by the steadily increasing number of registered users on DevCentral (devcentral.f5.com), are writing their own custom features and functions using iRules, a built-in programming language that exploits TMOS's ability to inspect, modify and direct traffic flows going to and from applications.
"Based on the strength of our current pipeline, as well as the market predictions of industry analysts, we believe that demand for application delivery networking will continue to grow throughout fiscal 2007 and that increasing awareness of the F5 brand will continue to drive this growth," McAdam said.
Year over year, product revenue grew 39 percent and service revenue grew 44 percent.
For the first quarter of fiscal 2007, ending December 31, McAdam said the company expects revenue of between $116 million and $118 million.
Update on Special Committee Review and on Financial Reporting
F5 today announced that the special committee of the board of directors has substantially completed its review of the company's stock option practices since 1997. To date, the special committee has found that the recorded grant dates for certain stock options granted during fiscal years 1999 through 2004 should not be relied upon as the measurement date for accounting purposes.
The company is conducting an analysis, in conjunction with the board's audit committee and professional advisors, to determine what adjustments need to be made to the company's historical financial statements. Based on its analysis to date, the company anticipates that it may be required to record additional non-cash, stock-based compensation expense of up to $30 million, in the aggregate, for fiscal years 1999 through 2006, to restate its financial statements for fiscal years 1999 through 2005, and to amend its financial statements for the first half of fiscal 2006. The company has not completed its analysis of the total net effect of these adjustments, but any such adjustments are not expected to affect the company's current cash position or previously reported revenues. Between May 2006 and September 30, 2006, the company spent approximately $7.0 million in legal and accounting fees related to this inquiry.
In light of the expected adjustments described above, the company's financial statements and earnings releases and similar financial communications relating to fiscal periods commencing on or after October 1, 1998, which is the first day of the company's fiscal year 1999, and through the date of this release should no longer be relied upon.
As soon as practicable after completion of any required adjustments, including the adjustments described above, the company intends to file its restated financial statements as well as its Form 10-Q for the third quarter of fiscal 2006, which has been delayed due to the pending special committee inquiry. The company anticipates that the above-described restatements will be completed in time to file its Form 10-K for fiscal 2006 by the required deadline.
The company is continuing to cooperate fully with both the Department of Justice and the Securities and Exchange Commission in their respective inquiries regarding the company's historical stock option practices.
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