ANNUAL REPORT 2011 John McAdam President and Chief Executive Officer, F5 Networks About F5 Networks F5 Networks, Inc., the global leader in Application Delivery Networking (ADN), helps the world’s largest enterprises and service providers realize the full value of virtualization, cloud computing, and on-demand IT. F5 solutions help integrate disparate technologies to provide greater control of the infrastructure, improve application delivery and data management, and give users seamless, secure, and accelerated access to applications from their corporate desktops and smart devices. An open architectural framework enables F5 customers to apply business policies at “strategic points of control” across the IT infrastructure and into the public cloud. F5 products give customers the agility they need to align IT with changing business conditions, deploy scalable solutions on demand, and manage mobile access to data and services. Enterprises, service and cloud providers, and leading online companies worldwide rely on F5 to optimize their IT investments and drive business forward. For more information, go to www.f5.com. TO OUR SHAREHOLDERS In fiscal 2011 F5 passed two major milestones: annual revenue, which grew 31 percent during the year, exceeded $1 billion for the first time; and after repurchasing nearly 3 million shares of our common stock, we ended the year with more than $1 billion in cash and investments. Excluding stock-based compensation expense, our non-GAAP operating margin was 38.2 percent for the year, and non-GAAP earnings were $3.78 per share. Ongoing business and industry trends including data center consolidation, virtualization, and cloud computing continued to create strong demand for our products and services in fiscal 2011. In addition, our focus on increasing the size and productivity of our sales and services organizations was a key factor in driving our revenue growth during the year. Selected Financial Data [in thousands] Net Revenues Gross Profit Operating Expenses Income from Operations Net Income Cash, Equivalents & Investments Long-Term Debt 2007 2008 2009 2010 2011 $ 525,667 $ 407,343 $ 307,841 $ 99,502 $ 77,000 $ 474,831 $ 0 $ 650,173 $ 501,155 $ 401,841 $ 99,314 $ 74,331 $ 451,272 $ 0 $ 653,079 $ 881,972 $ 1,151,834 $ 510,353 $ 710,020 $ 943,830 $ 388,429 $ 480,018 $ 593,168 $ 121,924 $ 230,002 $ 350,662 $ 91,535 $ 151,153 $ 241,397 $ 574,422 $ 862,066 $ 1,012,753 $ 0 $ 0 $ 0 Of the nearly 500 new employees we hired in fiscal While building and maintaining world-class sales 2011, more than a third were in sales and sales and service teams are high on our list of priorities, support, and many have already become significant our number one goal is continuing to develop new contributors to our top-line growth. In May, we technologies that expand our addressable market by launched new sales and technical accreditation responding to the challenges and opportunities of programs that combine studies of customer use today’s rapidly evolving IT infrastructure. Accordingly, cases with advanced training in F5 solutions to help we increased the size of our product development our sales teams and partners identify and target organization by 20 percent in fiscal 2011 while opportunities in new and existing accounts. To date, delivering an array of industry-leading products. approximately 430 F5 employees and 1,100 partners have completed the technical accreditation program, more than 800 F5 employees and 1,300 partners have completed the sales accreditation program, and we are already seeing measurable results in terms of improving sales productivity. Near the end of the first quarter we introduced a virtual edition of ARX, our file virtualization product, and ARX Cloud Extender, software that allows ARX customers to use cloud resources as a low-cost storage tier. In May, we launched two new ARX platforms which doubled the performance of their During fiscal 2011, roughly a quarter of our new predecessors at half the price. hires joined our services organization, which grew services revenue 34 percent and deferred revenue 32 percent while increasing customer satisfaction to a score of 9.4 out of 10 in the fourth quarter. Early in the year, we rolled out iHealth, a new online diagnostic tool that allows customers to analyze data from their F5 systems to detect potential During the first half of the year, we also released virtual editions of BIG-IP Access Policy Manager and Enterprise Manager. Following the release of BIG-IP WebAccelerator Virtual Edition (VE) in December 2011, all of our product software modules will be available in virtual editions. configuration problems and optimize performance. In May, we introduced VIPRION 2400, our chassis- Customer response has been very positive, and based Application Delivery Controller (ADC), priced in iHealth has contributed to improved service margins the mid-range of our product family. VIPRION 2400, by helping to lower maintenance costs. which began shipping at the end of the third quarter, 1,151.8 882.0 650.2 653.1 525.7 77 77 78 81 82 30 26 19 19 15 241.4 151.2 91.5 77.0 74.3 07 08 09 10 11 07 08 09 10 11 07 08 09 10 11 07 08 09 10 11 Revenue [in $ Millions] Gross Margin [in %] Operating Margin [in %] Net Income [in $ Millions] delivers all the features and functionality of our see examples of iApps created by customers and unique VIPRION architecture at a price point roughly partners for their own applications. half that of VIPRION 4400, the top end of our ADC family. In its minimum configuration (a chassis with one blade) VIPRION 2400 is priced just above BIG-IP 6900 and delivers more than six times the performance at Layer 4. Initial sales of VIPRION 2400 were stronger than we anticipated, and customer demand continues to exceed our expectations. Along with unrivalled performance and scalability, both VIPRION platforms are designed to support all the features and functions of TMOS version 11, vCMP allows customers to create many virtual ADCs within a single high-performance chassis or appliance, each running different software modules and managing traffic for different applications and users. At present, vCMP only runs on the VIPRION architecture. However, during calendar year 2012, we plan to introduce several new BIG-IP appliances designed to support vCMP and the full range of features and functions in TMOS v11. a major upgrade of our ADC operating system Over the past several years, security has become an released in October 2011. In addition to more than increasingly important segment of our addressable 150 new features, including several dozen specific market, and the new security features in TMOS to the telecommunications industry, TMOS v11 has v11 strengthen and enhance our ability to deliver improved centralized management capabilities and security enhancements that strengthen and expand our suite of security offerings. It also includes iApps and Virtual Clustered Multiprocessing (vCMP), major new features that simplify the deployment and enhance the flexibility of our products. iApps are portable, customizable, reusable templates that reduce deployment time for our comprehensive security solutions that include protection for networks, applications, and data. In addition to improved protection against denial of service attacks and other network threats, TMOS v11 enables tighter integration and improved performance of our security software modules— BIG-IP Application Security Manager (ASM), Protocol Security Module (PSM), Access Policy products from days to minutes. Currently, we offer Manager (APM), and Edge Gateway—that provide 32 iApps for applications from Microsoft, Oracle, multi-level protection against known and unknown VMware, and others, and we’ve already begun to types of attacks. 343.3 259.4 57 55 51 47 40 416.9 313.6 1,012.8 862.1 183.1 145.0 100.5 193.7 202.0 169.7 574.4 474.8 451.3 07 08 09 10 11 07 08 09 10 11 07 08 09 10 11 07 08 09 10 11 Deferred Revenue [in $ Millions] DSO [in Days] Cash Flow from Operations [in $ Millions] Cash, Equivalents & Investments [in $ Millions] As fiscal 2012 unfolds, I am confident that the combination of our high-performance, purpose-built hardware with the breadth of features and functions in TMOS and our suite of software modules will be a compelling driver of product sales as organizations confront the challenges of managing and securing increasingly dynamic IT infrastructures that extend beyond their own data centers. I am equally confident that our ongoing investments in our sales, service, and product development organizations will continue to expand our market opportunity, enlarge our global footprint, and make our brand synonymous with leading-edge technology and high-quality products and services. In the eleven and a half years that I have been privileged to lead the F5 team, I have never been prouder of our accomplishments or more confident in the strength of our organization and our ability to turn opportunity into continued growth and profitability for the benefit of all our stakeholders. On behalf of F5’s Board of Directors and all our employees, thanks for your continuing confidence in us and in the future of F5. John McAdam President and Chief Executive Officer, F5 Networks Board of Directors Shareholders’ Information Annual Shareholders Meeting March 15, 2012 11:00 a.m. Location: 351 Elliott Ave West Seattle, WA 98119 Parking: Corporate Headquarters Corporate Headquarters 401 Elliott Ave West Seattle, WA 98119 206.272.5555 NASDAQ Listing NASDAQ Symbol – FFIV Investor Relations 206.272.6677 info@f5.com www.f5.com Independent Accountants PricewaterhouseCoopers LLP Seattle, WA Transfer Agent American Stock Transfer 800.937.5449 Gary Ames Retired President and Chief Executive Officer, MediaOne International Deborah Bevier Principal, DL Bevier Consulting LLC Jonathan Chadwick Chief Financial Officer, Skype Karl Guelich Certified Public Accountant Alan Higginson Board Chair Chairman, Hubspan, Inc. John McAdam President and Chief Executive Officer, F5 Networks, Inc. Scott Thompson President and Chief Executive Officer, Yahoo! Inc. Corporate Officers John McAdam President and Chief Executive Officer Andy Reinland Senior Vice President and Chief Finance Officer John Rodriguez Senior Vice President and Chief Accounting Officer Karl Triebes Senior Vice President of Product Development and Chief Technical Officer Julian Eames Senior Vice President of Business Operations Mark Anderson Senior Vice President of Worldwide Sales Dan Matte Senior Vice President of Marketing and Business Development Jeff Christianson Senior Vice President and General Counsel Manuel Rivelo Senior Vice President of Security and Strategic Solutions The statements contained in this report that are not purely historical are forward-looking statements. These statements include, but are not limited to, statements about our plans, objectives, expectations, strategies, intentions or other characterizations of future events or circumstances. These statements are generally identified by the words “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions. These forward-looking statements are based on current information and expectations and are subject to a number of risks and uncertainties. Our actual results could differ materially and adversely from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under the heading “Risk Factors” in the company’s Form 10-K for fiscal year 2011 and in other documents we file from time to time with the Securities and Exchange Commission. We assume no obligation to revise or update any such forward-looking statements. ©2012 F5 Networks, Inc. All rights reserved. F5, F5 Networks, the F5 logo, and IT agility. Your way., are trademarks of F5 Networks, Inc. in the U.S. and in certain other countries. Other F5 trademarks are identified at f5.com. F5 Networks, Inc. 401 Elliott Avenue West Seattle, WA 98119 888.882.4447 www.f5.com 011001101010101010010 1101010101010101010110101010101011011010001000000000