We had our fiscal Q1 2007 earnings call yesterday.

Unfortunately, there was confusion about our results.  The confusion stemmed from people comparing our GAAP results to non-GAAP expectations that reign on Wall Street.

First off, let me declare that I am not an accountant.  I almost went down that path in university but, fortunately for me and the accounting world in general, I decided against it.  So here is my layman's take...

GAAP or Generally Accepted Accounting Principles are the guidelines that the Financial Accounting Standards Board recommends be followed here in the United States. For the geeks out there, you can think of FASB as something like the IETF.  The Securities and Exchange Commission looks to FASB as the authoritative source on how companies should account for and report on their business.  FASB and the SEC want companies to report GAAP results. The tech world does not have a body that enforces “adoption of or interoperability with” IETF standards whereas in the financial world, the SEC carries lots of weight.

GAAP and non-GAAP are obviously different otherwise there'd be no need for the "non" qualifier.  In short, non-GAAP results do not include all the expenses that GAAP calls for so non-GAAP results will always be higher than GAAP results.  Until recently, companies reported what is now referred to as non-GAAP results. Wall Street still predominately uses non-GAAP as its yardstick to measure company performance and set expectations. FASB and the SEC are encouraging companies to report GAAP results.

Clearly companies, analysts, investors and regulatory bodies are not yet all on the same page.  Some companies, like Coca Cola, report GAAP results but then post reconciliations to let their investors and analysts compare the two types of results.

The following is one example of the confusion created yesterday by people comparing our GAAP results to Wall Street’s non-GAAP expectations.

Yesterday the Associated Press published a story with the headline “F5 Networks Misses Q1 Profit Estimates” here is a link to it on Forbes’ site.  The headline is incorrect and AP later changed it once we pointed it out to them.  The reason the headline is incorrect is that AP compared our GAAP results of $0.53 per share to a “consensus estimate” of $0.60 per share published by Thomson Financial.  Unfortunately, the consensus estimate is not a GAAP estimate.  Our non-GAAP number that they should have used for comparison was $0.69 per share which is clearly higher than the consensus.  The new headline for the AP story is “F5 Posts Q1 Profit” it can be found here.  The headline is no longer controversial and the body of the article was updated to say that “analysts typically exclude extraordinary items for their estimates” (in other words it’s a non-GAAP estimate).  However, the author of the article repeats the same mistake in both versions when he compares our GAAP guidance for Q2 2007 to analysts’ non-GAAP estimates and makes it look like F5 is guiding below estimates.

There is some work to be done before everybody “supports the GAAP protocol”.