Annual Report
2022
François Locoh-Donou
President, CEO and Director, F5 Inc.
TO OUR SHAREHOLDERS, CUSTOMERS, AND PARTNERS:
In fiscal year 2022, we made strong strides toward our mission of bringing a better digital world to life.
As a partner to many of the largest organizations across the globe, F5 protects and enables the applications
and digital experiences that have become an integral part of how we work, communicate, shop, and play.
The increasing demand for and reliance on digital experiences and the applications that enable them are what
drives F5’s opportunity. As a result, fiscal year 2022 ranks as F5’s best year yet with $2.7 billion in revenue.
In addition to record revenue, we also achieved several meaningful milestones this year:
First, we marked a turning point in our multi-year transformation efforts, with software revenue accounting for
the majority of our product revenue for the first time ever. In fiscal year 2022, software revenue represented
51% of our product revenue, up from just 13% in fiscal year 2017. This is no small feat, and I am proud of
our achievement, especially considering that other technology infrastructure players have unsuccessfully
attempted to evolve from hardware- to software-led businesses.
Second, with the expansion of our application security portfolio and increasing demand for securing
applications and Application Programming Interfaces, or APIs, we ascended to the ranks of a billion dollar
cybersecurity company, solidifying our role as a leading application security player. F5 solutions safeguard
billions of transactions every day. Every day, we protect the passwords, bank accounts, medical records, family
photos, and other personal data—the most precious digital assets of human life—for millions of people around
the globe.
Finally, we launched three significant new platforms during the year, further expanding our portfolio and
leveraging customer-focused innovation across a continuum of deployment models from hardware to
Software as a Service, or SaaS.
These achievements demonstrate how significantly we have evolved F5 over the last five years. Today, F5 is
a multi-cloud application services and security company that partners with the world’s largest, most advanced
organizations to secure and optimize applications and APIs anywhere. We enable organizations to provide
exceptional, secure digital experiences for their customers and continuously stay ahead of threats. We have
more to do yet, however, and I will focus most of this letter on the key elements of our strategy before I recap
our fiscal year 2022 financial results, concluding with thoughts about the year ahead.
OUR FINANCIAL PERFORMANCE
Executing on our strategy and delivering for our customers drove $2.7 billion in fiscal year 2022 revenue,
representing 4% year-over-year growth driven by 6% product growth and 2% global services growth. In addition
to delivering strong software revenue growth of 33%, and software revenue contributing the majority of our
product revenue, our operating discipline led to fiscal year 2022 GAAP net income of $322 million, or $5.27 per
share. Fiscal year 2022 non-GAAP net income was $623 million, or $10.19 per share.1 For the year, cash flow from
operations also remained very strong, at approximately $443 million.
We achieved these results despite a global supply chain crisis that significantly constrained our ability to meet
customer demand for hardware, while also pressuring our earnings as a result of sharply escalating component
and supply chain costs. In true F5 fashion, we tackled this challenge from multiple fronts. While our supply chain
team worked with our vendors and partners to improve the flow of thousands of components, our engineering
teams worked tirelessly to adapt our hardware designs to reduce our reliance on components that are in short
supply. We expect that these efforts, combined with increased capacity from our component vendors, will
meaningfully improve our ability to meet customer demand for our systems in fiscal year 2023.
While I am extremely proud of the F5 team and its ability to cope with adversity, because of the extreme supply
chain challenges, we did not deliver the earnings growth we expected in fiscal year 2022. However, we have
built an extremely resilient business and an operating model capable of significant leverage, which is why we are
committed to achieving double-digit non-GAAP earnings growth annually.
OUR ESG EFFORTS ARE CORE TO OUR BUSINESS AND OUR STRATEGY
At F5, we care deeply not just about what we do, but how we do it. Our guiding principle to ‘‘do the right thing’’ is
reflected in our commitment to Environmental, Social, and Governance (ESG)—extending from the environmental
sustainability of our products and operations to the wellbeing of our employees and our communities. We made
considerable strides in our ESG efforts this year, perhaps most notably, by announcing F5’s first-ever climate
target to cut the Scope 1 and 2 emissions from our operations in half by 2030.
Throughout the year, we continued to raise awareness amongst our stakeholders of F5’s investments in
environmental, social, and governance programs.
Environmental. Since F5 formed the ESG team in fiscal year 2021, the focus has been on bringing the
environmental program at the company up to the standards we are proud to have set over the last 27 years in
social and governance. In fiscal year 2022, F5 took its first step towards a climate target, committing to reduce
our absolute Scope 1 and 2 emissions 50% by 2030 from a 2021 baseline year. We will complete our Scope 3
emissions inventory across our value chain to issue our complete science-based target with the Science Based
Target Initiative by the close of fiscal year 2023. To start taking immediate action on our target, F5 made its first-
ever purchase of renewable energy certificates in fiscal year 2022. We focused on buying renewable energy in
the Western region of the United States first, given that our highest volume of emissions worldwide is currently
concentrated around our headquarters in Seattle, WA and offices in Spokane, WA and San Jose, CA.
1 Fiscal year 2022 non-GAAP net income and net income per share excludes $249 million in stock-based compensation, $58 million in
amortization and impairment of purchased intangible assets, $49 million in acquisition-related charges, $10 million in facility-exit costs, and
$8 million in restructuring charges.
Social. We continue to prioritize F5 Global Good, the community development initiative that amplifies our
employee engagement and diversity and inclusion programs. In fiscal year 2022, more than half of all worldwide
employees participated in Global Good programs, volunteering more than 7,200 hours and directing the entirety
of F5’s donations, through both the company matching program and grant selection committees. In fact, F5
employees directed 97% of all Global Good grant funding in fiscal year 2022 to non-profit organizations serving
majority Black, Indigenous, People of Color (BIPOC) and underserved communities. F5 and its employees
donated over $4.6 million to more than 3,000 non-profits worldwide in fiscal year 2022.
Governance. Our guiding principle to do the right thing for each other, our customers, our shareholders, and
our communities is set forth in F5’s Code of Business Conduct and Ethics, compliance training programs,
and most importantly, in the behaviors and principles by which we measure all employees: BeF5 and LeadF5.
The Nominating and ESG Committee of the Board of Directors oversees our ESG programs and reviews our
ESG strategy, disclosures, and metrics each quarter. This year, we bolstered governance of the working and
environmental conditions in our supply chain by joining the Responsible Business Alliance. In addition, the Talent
and Compensation Committee of the Board demonstrated our commitment to our strong pay-for-performance
culture by increasing the performance-based portion of my target equity award to 60% from 50% previously.
The Talent and Compensation Committee also introduced ESG metrics to the short-term cash incentive program
for the company’s executives in the form of measurements related to year-over-year increases in diversity
representation and measurement of employee inclusion.
DELIVERING ON OUR STRATEGY
We are creating a global and diverse team that is both
human-first and high-performance
None of what we have accomplished would be possible without our employees and their relentless pursuit of
our vision. Our strong culture underpins our ability to continue to grow and evolve. Since 2017, we have worked
to create a truly unique and inclusive culture that values our employees as humans first. This approach has
resonated with both current and prospective employees and differentiates F5 from other potential employers.
Our culture and the employee engagement it engenders is a significant competitive strength for F5 and is
therefore a key component of our strategy.
Like many other companies, we have had to adapt to working and collaborating in a hybrid office-and-remote
work model. We have done so successfully by continually embedding our BeF5 behaviors and our Lead F5
principles into our systems, processes, decisions, and conversations—constantly reinforcing, recognizing, and
rewarding desired behaviors to send the message that they are key to successfully realizing our strategy.
We also believe that diversity of thought and ideas is critical to our culture and our success. We have embraced
a dynamic model that we call our “IDEA” framework to drive our diversity and inclusion efforts. Each concept—
Inclusion, Diversity, Equity, and Allyship—is composed of multiple factors that require focus and engagement at
all levels of the organization, and we are investing to ensure these efforts are a fundamental part of the way we do
business. For the first time in fiscal year 2022, we set four ambitious diversity and inclusion targets as part of our
Executive Leadership Team’s cash incentives. We also invested in our seven Employee Inclusion Groups (EIGs)
by providing leadership training and quarterly bonuses to our EIG leaders. As a result of this holistic approach,
we grew diverse representation in F5 in 2022. The representation of women at F5 grew by 5% globally; the
representation of Black employees grew by 26% in the U.S.. (For more detailed information about our Diversity &
Inclusion programs, please view our or 2022 D&I Report.)
Additional investment in our employees in fiscal year 2022 included daily support of our contractors in Ukraine
and relocation assistance for employees in Russia. It also entailed the expansion of employee wellbeing programs
worldwide, including our most popular employee benefit to date: once a quarter “Wellness Weekends” when we
take Friday through Monday off so everyone can reset and refresh.
We have consistently used global employee engagement surveys to assess where we are doing well and to
identify areas of improvement. In our June 2022 engagement survey, our employees report they continue to value
the strong emphasis we place on creating a human-first culture:
• 95% of employees favorably rate “F5 has demonstrated that employee well-being and health is a priority
during the coronavirus outbreak.”
• 91% of employees favorably rate “I am proud to work for F5.”
• 91% of employees favorably rate “At F5, employees are treated equally and fairly regardless of their
background.”
• 90% of employees favorably rate “F5 has a great culture.”
• 84% of employees favorably rate “I feel a sense of belonging at F5.”
While it is not our goal, we are thrilled that our efforts have gained external recognition. F5 was recognized as a
Great Place to Work in both India and the United States in 2022 and was named the winner of Benevity’s 2022
Bestie Award, which recognizes a single company for its best-in-class approach to social impact.
We are expanding our application security and Software-as-a-Service offerings
In 2022, we expanded our application security offerings by integrating F5’s software security solutions and
Volterra’s Software-as-a-Service (SaaS) platform, which we acquired in January 2021. Just 13 months after the
acquisition, we launched F5 Distributed Cloud Services, which deliver security, multi-cloud networking, and edge-
based computing solutions on a unified SaaS platform—making it easier than ever for customers to deploy F5
application security and delivery capabilities.
Our first solution for the platform, F5 Distributed Cloud Web Application and Application Programming Interface
(API) protection, or WAAP, augments multiple security capabilities across F5, including F5 BIG-IP Advanced Web
Application Firewall (WAF), our anti-bot capabilities, Volterra’s API security, and F5 Silverline Distributed Denial
of Services (DDoS) Protection, into a single offering. We followed with a second offering, launched in December
2022. Our F5 Distributed Cloud Application Infrastructure Protection (AIP) offering is enabled by technology
from Threat Stack (acquired in October 2021) and provides a cloud workload protection solution that expands
application observability and protection to cloud-native infrastructures.
Early customer reception to F5 Distributed Cloud Services has been very positive. The platform appeals to both
current customers who are utilizing it for new use cases and to new customers. In fact, we are seeing strong early
traction with service provider customers who are leveraging the platform’s flexibility and its ability to deliver a
scalable, agile, and dynamic infrastructure. These service providers are using F5 Distributed Cloud Services to
create managed service offerings that simplify the deployment and operation of applications across a multi-cloud
and edge environment for their enterprise customers. With the introduction of F5 Distributed Cloud Services, we
expect SaaS-based solutions to be a much larger portion of our revenue in the future.
We are delivering our vision of Adaptive Applications
Our innovation and the evolution of our solutions portfolio are all driving toward the goal of alleviating our
customers’ most significant application pain points and empowering them to securely deliver extraordinary digital
experiences to their end users. We envision a world where applications, like living organisms, are able to adapt
based on the environment.
With F5’s Adaptive Applications, our customers will be able to:
• Automate threat detection and reduce manually handled threats;
• Improve application performance and resiliency;
• Accelerate application deployment; and,
• Reduce the cost to implement app security and delivery policies across complex application portfolios
spanning on-premises, public cloud, and edge infrastructures.
A major step to delivering our Adaptive Applications promise relies on enabling our customers to set security
policies that are enforced consistently across their applications. This is more complex than it sounds, as it means
capabilities that span traditional and modern architectures across on-premises, public cloud, and edge locations.
This year, we did just that, delivering a web application firewall (WAF) policy supervisor that enables customers
to declare policies from a single console that are translated and enforced across all F5 solutions.
We are changing how customers experience F5
In addition to significantly expanding our solutions portfolio so we can secure and optimize the applications and
APIs that fuel our customers’ businesses, we are driving faster innovation that make our solutions easier to deploy
and upgrade.
In February, we announced F5’s fully re-architected hardware platforms, the F5 VELOS chassis and F5 rSeries
appliances. VELOS and rSeries dramatically reduce our customers’ total cost of ownership by offering cloud-like
benefits for on-premises systems. This includes enhanced automation, deployment flexibility, and muti-tenancy
that allow future versions of software to run side-by-side current versions and help our customers reduce
operational risk.
In the last five years, we have evolved from an ADC hardware provider to a partner that offers a range of solutions
across a breadth of form factors and consumption models ideal for customers working in hybrid, multi-cloud
environments and looking to optimize costs. Whether customers choose hardware, software, SaaS, or managed
services; perpetual licenses or subscriptions; or take an OpEx or CapEx budget approach, F5 can meet their
needs, reducing complexity and total cost of ownership across an increasingly complex set of challenges.
As part of our efforts to evolve how the world perceives F5, we launched an awareness campaign we call “A Force
For.” The campaign focuses on how we help customers protect their applications, their users, and their business.
While we understand and appreciate the threats that exist, our focus with the campaign is on the positive impact
of application security.
CONCLUSION
I am so very proud of the F5 team and what we have accomplished. Fiscal year 2022 brought new challenges and
through them all, the F5 team persevered, always keeping sight of our guiding principle to do the right thing—for
our customers, our communities, and each other.
We enter 2023 against a backdrop of growing global economic uncertainty, including the ongoing war in Ukraine,
an energy crisis in Europe, soaring inflation, and a looming recession. It is no doubt an environment that will
test us yet again. Even still, I am confident that we have built a stronger and more capable F5, that our vision
is well aligned with our customers’ most critical requirements, and that the F5 team is capable of taking on the
challenges ahead.
François Locoh-Donou
President, CEO and Director, F5, Inc.
January 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended September 30, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to .
Commission File Number 000-26041
F5, Inc.
(Exact name of Registrant as specified in its charter)
Washington
(State or other jurisdiction of
incorporation or organization)
91-1714307
(I.R.S. Employer
Identification No.)
801 5th Avenue
Seattle, Washington 98104
(Address of principal executive offices, including zip code)
(206) 272-5555
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common stock, no par value
Trading Symbol(s)
FFIV
Name of Each Exchange on Which Registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
Non-accelerated Filer
☑
☐ (Do not check if a smaller reporting company)
☐
Accelerated Filer
Smaller Reporting Company ☐
☐
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ☐ No ☒
As of March 31, 2022, the aggregate market value of the Registrant’s common stock held by non-affiliates of the
Registrant was $12,578,190,940 based on the closing sales price of the Registrant’s common stock on the NASDAQ Global
Select Market on that date.
As of November 7, 2022, the number of shares of the Registrant’s common stock outstanding was 60,368,610.
DOCUMENTS INCORPORATED BY REFERENCE
Information required in response to Part III of this Form 10-K (Items 10, 11, 12, 13 and 14) is hereby incorporated by
reference to the specified portions of the Registrant’s Definitive Proxy Statement for the Annual Shareholders Meeting for
fiscal year 2022, which Definitive Proxy Statement shall be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days of the end of the fiscal year to which this Report relates.
F5, INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended September 30, 2022
Table of Contents
PART I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
PART II
Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
SIGNATURES
PART IV
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14
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32
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Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. These statements include, but are not limited
to, statements about our plans, objectives, expectations, strategies, intentions or other characterizations of future events or
circumstances and 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 “Item 1A. Risk Factors” below 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.
Unless the context otherwise requires, in this Annual Report on Form 10-K, the terms “F5,” “the Company,” “we,” “us,”
and “our” refer to F5, Inc. and its subsidiaries. Our fiscal year ends on September 30, and fiscal years are referred to by the
calendar year in which they end. For example, “fiscal year 2022” and “fiscal 2022” refer to the fiscal year ended September 30,
2022.
Item 1.
Business
General
F5 is a multi-cloud application services and security provider committed to bringing a better digital world to life. F5
partners with the world’s largest, most advanced organizations to optimize and secure every application and Application
Programming Interface (“API”) anywhere, including on-premises, in the cloud, in multi-cloud environments, or at the edge. F5
enables organizations to provide exceptional, secure digital experiences for their customers and continuously stay ahead of
threats.
Our application services and security solutions are available in a range of consumption models, including software
solutions available in perpetual, subscription-based, and software-as-a-service (“SaaS”) consumption models. We also sell high-
performance systems and a broad range of professional services, including consulting, training, installation, maintenance, and
other technical support services.
Our customers include large enterprise businesses, public sector institutions, governments, and service providers. We
conduct our business globally and manage our business by geography. Our business is organized into three geographic regions:
Americas; Europe, the Middle East, and Africa (“EMEA”); and the Asia Pacific region (“APAC”).
Our revenue is comprised of product revenue and services revenue. In fiscal year 2022, product revenue of $1.3 billion
represented 49% of our total revenue, and services revenue of $1.4 billion represented 51% of our total revenue. We are
actively managing a transformation to a more balanced revenue composition, with a greater percentage of our product revenue
coming from our software and SaaS solutions. In fiscal year 2022, product revenue from software sales was $665 million,
representing 51% of product revenue and delivering 33% growth from the prior year. Product revenue from systems sales was
$652 million, representing 49% of product revenue and a decline of 13% from fiscal year 2021 as a result of global
semiconductor shortages.
F5 was incorporated on February 26, 1996 in the state of Washington. Our headquarters is in Seattle, Washington, and our
mailing address is 801 5th Avenue, Seattle, Washington 98104-1663. The telephone number at that location is (206) 272-5555.
Our website is www.f5.com. We have 82 subsidiaries, branch offices, or representative offices worldwide. Through a link on
the Investor Relations section of our website, we make available the following filings as soon as reasonably possible after they
are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”): our Annual Report on Form 10-
K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act. All such filings are available free of charge. The information posted on
our website is not incorporated into this report.
Strategy and Priorities
Nearly all organizations today find themselves at the convergence of two significant trends: the evolution of applications
as the center of their businesses and their customers’ digital lives and the escalation of threats against those applications. This
presents a tremendous challenge as many companies now manage complex application portfolios comprising older legacy and
newer modern technologies and infrastructures. In our 2022 State of Application Strategy Report, 88 percent of organizations
said they operate both legacy and modern application architectures, and 70 percent operate in multiple clouds. These hybrid
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environments create operational complexity and expand the threat surface area as companies are forced to deploy separate, and
often inconsistent, security controls across different environments.
Over the past several years, F5 has transformed its business and significantly expanded its software and cloud offerings to
deliver a broad portfolio of solutions to help customers address the complexity and risk in today’s hybrid IT environments.
Through BIG-IP, F5 NGINX, and F5 Distributed Cloud Services, F5 offers a range of integrated, machine learning-driven
solutions that protect legacy and modern applications and APIs across data center, cloud, and edge locations.
Our multi-cloud application security and delivery solutions reduce our customers’ operational complexity and costs,
enabling our customers to scale, secure, and optimize both legacy and modern applications, across any infrastructure and create
extraordinary digital experiences for their end users. We are leveraging near real-time collection of live application telemetry,
machine learning and artificial intelligence, and toolchain automation to create adaptive applications capable of rapidly
responding to changes in performance, availability, and security threats with little to no human interaction.
Key components of our strategy include:
Bringing our adaptive application vision to life
F5 is uniquely positioned to deliver adaptive applications. Through our organic innovation and inorganic investments, we
have created the broadest portfolio of multi-cloud application security and delivery technologies in the market. We are able to
support our customers’ modern and legacy application security and delivery needs across any environment, with the flexibility
of multiple deployment models including hardware, software, and SaaS offerings. F5 is continuing to converge our application
security and delivery capabilities on our recently launched F5 Distributed Cloud Services platform, unifying policy declaration,
enabling broader telemetry, and driving significant automation. Doing so will dramatically simplify application creation,
deployment and management for our customers, reducing the time it takes to turn up and repair applications while lowering
total cost of ownership, through a SaaS-based consumption model.
Transforming how customers experience F5
As we expand the role we play for our customers, we are also transforming how our customers experience F5. Our goal is
to create a unified and frictionless F5 experience for our customers. Over the last several years, we have made it easier for our
customers to procure, deploy, manage, and upgrade our technologies. We also have taken steps to integrate the customer
experience across our growing portfolio by simplifying product naming and rebranding several acquired and integrated
solutions as part of our F5 Distributed Cloud Services platform.
Going forward we will leverage and grow our foundational capabilities in data and insights, digital sales, and SaaS-
delivered capabilities to deliver consistent world-class customer experiences, including simple, integrated and friction-free
consumption of our technologies. We will continue to improve customer awareness and understanding of F5’s expanded
portfolio with a focus on buying personas and business needs and intend to enhance our digital customer experiences to deliver
both growth and efficiency.
Capturing growth in security and software
In the previous decade, our customers were focused on protecting their networks from attack. Today, attackers are
targeting applications with threats like malware, bots, and API penetration. Through both organic and inorganic investment, we
have expanded our application security portfolio and the deployment models through which customers can consume our
solutions. F5’s leading security capabilities combined with our multi-cloud approach enables our customers to deploy a
consistent security posture across their entire application estate.
In fiscal year 2022 we announced a major expansion of our security and delivery portfolio with the launch of F5
Distributed Cloud Services. This platform integrates F5 capabilities and recently acquired technologies to deliver security,
multi-cloud networking and edge-based computing solutions on a unified SaaS platform.
Our first solution for the platform, F5 Distributed Cloud WAAP (“Web Application Firewall and API Protection”),
augments multiple security capabilities across F5 technologies enabling our customers to deploy advanced security, and unify
and consistently manage policies while providing visibility into the enterprise security stature across all environments where the
solution is deployed.
Beyond delivering security capabilities via multiple deployment models including hardware, software and SaaS, we
continue to innovate across our software offerings including improving automation and orchestration in our BIG-IP software,
and advancing the capabilities of our F5 NGINX solution.
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F5 Products and Solutions
F5’s portfolio of multi-cloud application services and security technologies are enabling customers to address the
challenges of delivering differentiated digital experiences to their customers. Our multi-cloud, infrastructure-agnostic approach
means we can create a more unified experience across customers’ disparate hybrid IT environments. We are enhancing
automation and driving operational efficiencies and corresponding cost efficiencies for customers.
Simplifying legacy app delivery for multi-cloud environments
BIG-IP Software and Systems. Our BIG-IP family of product offerings provide feature-rich, highly programmable and
configurable application delivery solutions for legacy applications in enterprises and service providers. Traditional applications
are based on monolithic, three-tier, or client-server architectures. Such legacy applications are the most ubiquitous application
architecture today, and many organizations continue to rely exclusively on legacy applications to power the most mission-
critical business applications, customer facing digital interfaces and internally used applications.
For most organizations, the priority around legacy applications is maximizing operational efficiency and minimizing the
total cost of ownership. BIG-IP has established itself as the leading application security and delivery technology for legacy
applications, providing load balancing, and domain name system services. Customers also use the advanced security
capabilities of BIG-IP, including web application firewall, carrier-grade firewall and network address translation, identity-aware
proxy, SSL-VPN, and SSL (securer sockets layer) offloading, which are available as tightly integrated modules or extensions.
Via the F5 Automation Toolchain, BIG-IP capabilities easily integrate into orchestration frameworks such as Ansible,
HashiCorp Terraform, OpenShift, and Cloud Foundry as part of a CI/CD pipeline. BIG-IPs “best-of-suite” approach helps
standardize and consolidate application security and delivery functions into a single solution, automating functions and
reducing operational cost. Our BIG-IP family includes:
• F5 BIG-IP Software. BIG-IP capabilities are available in a software-only virtual edition that deploys on any standard
hypervisor in private and public clouds. BIG-IP software can be purchased via short- and long-term subscriptions, perpetual
license models, and through utility pricing via public cloud marketplaces.
• F5 BIG-IP Systems. BIG-IP systems are designed to enhance the performance of our software by leveraging a combination
of custom FPGA logic and off-the-shelf silicon, providing a balance of cost and flexibility. Currently, we offer: BIG-IP
iSeries and our next-generation rSeries systems and our chassis-based VIPRION and next-generation VELOS systems. All
of our systems run the same BIG-IP software modules.
• F5 BIG-IQ Centralized Management. BIG-IQ simplifies, enhances management of, and reduces customer operational costs
associated with BIG-IP deployments through central management, analytics, and automation for BIG-IP instances.
Enabling modern app delivery at scale
F5 NGINX Software Solutions. Open source F5 NGINX software is deployed in millions of websites and applications
across the world. The F5 NGINX technology suite builds on the open-source capabilities to offer enterprises a lightweight, agile
ADC and API management software solution for container-built applications, CI/CD workflows, and microservices.
F5 NGINX Plus is our all-in-one, high performance load balancer, web server, content cache, and API gateway for
modern applications sold in a subscription consumption model. F5 NGINX Plus software delivers cloud-native, Kubernetes-
friendly solutions that drive mission-critical applications and APIs with scalability, visibility, security, and governance. Our
offering includes F5 NGINX Management Suite which includes software tools that provide application and API management
along with orchestration and analytics and F5 NGINX Ingress Controller and F5 NGINX Service Mesh which provide traffic
management for Kubernetes clusters. Finally, F5 NGINX App Protect provides web application protection with self-service
access and API-driven integration into automation and orchestration frameworks.
Securing applications and APIs everywhere
F5 security solutions provide application and API security in an era of accelerating application development, hybrid
architectures and deployments, and increasing vulnerability to emerging threats and automated attacks. Complexity is fueled by
rapid adoption of API services, connecting cloud-native workloads to the heterogeneous operations landscape of the modern
enterprise. In addition to the application security capabilities of our BIG-IP and F5 NGINX families, we also offer application
security via SaaS and managed service consumption models.
F5 Distributed Cloud Services. A unified, security, networking, and application management service that enables
customers to deploy, secure, and operate their applications wherever they may reside, regardless of platform or architecture.
Products available as SaaS-based security solutions under F5 Distributed Cloud Services, include the following:
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• F5 Distributed Cloud WAAP. In fiscal 2022, F5 launched its first, platform-native product offering, F5 Distributed Cloud
WAAP. This offering is available under a SaaS-based consumption model, bringing together the best of F5 application
security technologies including:
• Advanced Web Application Firewall (“WAF”) capabilities through F5’s BIG-IP WAF engine, which expands our
customers’ ability to apply consistent management and policies across data centers, multi-clouds, and edge computing.
• Enhanced API security, leveraging machine learning-based auto-discovery and anomaly detection, which automates the
entire process of finding, securing, and monitoring APIs.
• Next-generation, artificial intelligence (“AI”) enabled bot mitigation which provides customers the ability to defend
applications and APIs from automated attacks.
• Protection from sophisticated account takeover attempts.
• F5 Distributed Cloud Bot Defense. Next-generation, AI-enabled, bot mitigation through F5 Distributed Cloud Bot Defense
provides customers the ability to defend applications and API’s from automated attacks. The solution leverages AI to
analyze massive amounts of traffic and machine learning to ensure sustainable bot prediction models with high efficacy.
• F5 Distributed Cloud Account Protection and Authentication Intelligence. A solution that provides protection over
customers and their clients from sophisticated account takeover (“ATO”) attempts while eliminating login friction for
legitimate customers through F5 Distributed Cloud Account Protection and F5 Distributed Cloud Authentication
Intelligence. Our technologies protect customers against credential stuffing and automated attacks capable of bypassing
other leading security controls and practices.
Silverline Managed Services. We provide fully managed application security for enterprise and service provider
customers with our proven security technologies coupled with world-class security professionals. Silverline’s Security
Operations Center experts set up, manage, and support each customer's application solutions as an extension to the customer’s
staff. Offerings under our Silverline Managed Services include industry-leading web application firewall protection, 24/7
protection against distributed denial of service (“DDoS”) threats through our Silverline DDoS Protection solution, and
advanced artificial intelligence bot mitigation through our Silverline Shape Defense solution.
Service Provider Solutions
Our product offerings also encompass service provider solutions that address the complex requirements for enabling fast,
secure, reliable communications on existing infrastructures such as 4G/LTE, and emerging cloud-native 5G core networks,
network functions virtualization, Kubernetes environments, and edge computing. Our solutions are focused on three key areas:
• Creating BIG-IP Service Proxy for Kubernetes (“SPK”) to provide full support and security for 5G network functions and
telco workloads to benefit fully from the cloud.
•
Introducing true cloud-native functions for the Gi-LAN/N6 to fully streamline and secure cloud operations without
compromising on capabilities, performance, or scale.
• Solving cloud operations challenges and lifecycle management in hybrid and multi-cloud environments, including more
comprehensive networking and security technology through F5 Distributed Cloud Services.
In addition to the solutions described above, we also offer solutions for fixed and mobile service provider customers to
enable fast, secure, reliable communications in their networks. These solutions include intelligent traffic management services
to classify, optimize, and enrich network traffic to enable mobile providers to offer their customers a better user experience. Our
edge firewall and CGNAT (“Carrier Grade NAT”) services are used to secure the Gi/N6 interface, secure signaling threats and
IoT applications, and detect and mitigate DDoS attacks. Our solutions are also used by our customers to secure complex
signaling for mobility protocols like Diameter, SIP, and GTP, as well as IoT protocols.
Competition
As F5 expands its reach and role into a broader set of multi-cloud solutions, the companies that we consider competitors
evolve as well. We compete against companies that offer server load balancing, traffic management, and other functions
normally associated with application delivery, application security, and policy management.
The principal competitive factors in the markets in which we compete include form factor, consumption model, ecosystem
integrations, features and performance, customer support, brand recognition, scope of distribution and sales channels, and
pricing. We believe we generally compete favorably with our competitors on the basis of these factors as a result of the features
and performance of our the products and services in our portfolio, and the broad functionality and value offered to our
customers.
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Within application delivery, we compete against Citrix Systems, VMware and a number of other competitors that have a
smaller market presence or limited feature set, such as Amazon Web Services, Envoy, Google Cloud Platform, HAProxy, and
Microsoft Azure.
We see emerging demand to support modern, container-based applications with new capabilities including managing
APIs, optimizing Kubernetes traffic management, load balancing cloud-native and hybrid cloud applications and providing
service mesh. For these use cases, we compete against emerging players like Apigee (Google Cloud) and Kong.
In application security, we compete with companies that provide web application firewalls, bot detection and mitigation,
carrier-grade firewall, carrier-grade NAT, SSL orchestration, access policy management, DDoS protection, and fraud defense.
Competitors include Akamai, Citrix Systems, Cloudflare, Imperva, Juniper Networks, Radware, and Symantec/Blue Coat. Our
Silverline managed services and F5 Distributed Cloud Services offerings provide additional fraud, abuse, and analytics
solutions. Indirect competitors in this space include Akamai, Cloudflare, Fastly, Imperva, and PerimeterX.
F5 Distributed Cloud Services use cases include multi-cloud networking, as well as security offered as SaaS, competing
with the likes of Akamai, Cloudflare, Fastly, and Imperva.
Corporate Functions
Customer Services and Technical Support
In connection with our products, we offer a broad range of professional services including consulting, training,
installation, maintenance, and other technical support services.
We believe that our ability to provide consistent, high-quality customer service and technical support is a key factor in
attracting and retaining large enterprise and service provider customers. Accordingly, we offer a broad range of support services
that includes installation, phone and online technical support, hardware repair and replacement, software updates, online tools,
consulting, and training services.
We provide these services directly to customers and also utilize a multi-tiered support model, leveraging the capabilities
of our channel partners. Our technical support staff is strategically located in regional service centers to support our global
customer base.
Product Development
We believe our future success depends on our ability to maintain technology leadership by continuing to innovate and to
improve our products and by developing new products to meet the changing needs of our customers and partners. Our
engineering organization uses standard processes for the development, documentation, and quality control of services, software,
and systems that are designed to meet these goals. These processes include working with our business development and
marketing teams, customers, and partners to identify technology innovation opportunities to better meet the evolving needs of
our addressable markets.
Over 90 percent of our engineers are engaged in software, SaaS, and managed services development in several major
locations including Seattle, Washington; Hyderabad, India; Tel Aviv, Israel; San Jose and San Francisco, California; and Cork,
Ireland.
Our hardware engineering team is located in Spokane, Washington; San Jose, California; and Tel Aviv, Israel.
Smaller development sites including Boulder, Colorado; Warsaw, Poland; and Billerica, Massachusetts also support the
core development teams in the larger centers.
Members of all our engineering teams collaborate closely with one another to ensure the interoperability and performance
of our solutions.
We believe that robust and constant innovation is a necessity for F5, so we are also innovating in new ways. We have had
dedicated teams focused on testing new disruptive innovations in technology, business models, or customer segments. We
expect innovations resulting from the work of these teams will be complementary to our goal of delivering the broadest and
most consistent portfolio of solutions across cloud and on-premises environments.
We rely on a combination of patent, copyright, trademark, and trade secret laws and restrictions on disclosure to protect
our intellectual property rights. F5 holds 469 patents in the United States and has 66 international patents (with applications
pending for various aspects of our technology). Our future success depends in part on our ability to protect our proprietary
rights to the technologies used in our principal products. Despite our efforts to protect our proprietary rights, unauthorized
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parties may attempt to copy aspects of our products or to obtain and use trade secrets or other information that we regard as
proprietary. In addition, the laws of some foreign countries do not protect our proprietary rights as fully as the laws of the
United States. Any issued patent may not preserve our proprietary position, and competitors or others may develop technologies
similar to or superior to our technology. Our failure to enforce and protect our intellectual property rights could harm our
business, operating results, and financial condition.
In addition to our own proprietary software, we incorporate software licensed from several third-party sources into our
products. These are generally term licenses which may renew annually and that generally provide for certain rights and licenses
to support our customers post termination. While we may not be able to renew all of these licenses in the future, we believe that
alternative technologies for these licenses are available both domestically and internationally.
During the fiscal years ended September 30, 2022, 2021 and 2020, we had research and product development expenses of
$543.4 million, $512.6 million, and $441.3 million, respectively.
Sales and Marketing
Our customers include a wide variety of enterprises and service providers among Fortune 1000 and Business Week
Global 1000 companies, including those in technology, telecommunications, financial services, transportation, education,
manufacturing, healthcare, and government. In fiscal year 2022, sales outside of the Americas represented 41.7% of our net
revenues. Refer to Note 15 of our consolidated financial statements included in this Annual Report on Form 10-K for additional
information regarding our revenues by geographic area.
Sales
We sell our products and services to large and medium enterprise customers, including federal government entities,
financial services customers and service providers through a variety of routes to market and channels. Our sales teams sell our
products and services directly to customers by working closely with our channel partners including distributors, value-added
resellers (“VARs”), managed service providers (“MSPs”), and systems integrators.
F5 sales teams. Our inside sales team generates and qualifies leads from marketing and helps manage accounts by serving
as a liaison between the field and internal corporate resources. Our outside sales team works directly with partners and
customers across the globe. Our field sales personnel are located in major cities in three sales regions: the Americas (primarily
the United States); EMEA; and APAC. Field sales personnel work closely with our channel partners to sell our products and
services to their customers. We reward partners that identify new business and provide sales expertise for our portfolio of
products and solutions through various incentive programs. Systems engineers, with deep technical domain expertise, support
our regional sales account managers and channel partners providing pre-sale technical solution engineering and support, as
needed.
Distributors, VARs, and MSPs. As a key component of our sales strategy, we have established relationships with a
number of large national and international distributors, local and specialized distributors, VARs, and MSPs. We derive a
majority of our product sales from VARs and MSPs, relying on our large distributors for fulfillment, training, and partner
enablement.
Our agreements with our channel partners are not exclusive and do not prevent them from selling competitive products.
These agreements typically have one-year terms with no obligation to renew, and typically do not provide for exclusive sales
territories or minimum purchase requirements.
For fiscal year 2022, sales to two of our worldwide distributors, Ingram Micro, Inc. and Synnex Corporation represented
20.0% and 13.4% of our total revenues, respectively. Our agreements with distributors are standard, non-exclusive distribution
agreements that renew automatically on an annual basis and generally can be terminated by either party with 90 days written
notice prior to the start of any renewal term. The agreements grant certain distributors the right to distribute our products to
resellers, with no minimum purchase requirements.
Systems integrators. We also market our products through strategic relationships with systems integrators, including Dell
Services, DXC, HP Enterprise Services, and IBM Global Services, who include our products as core components of application
deployments or network-based solutions they deploy for their customers. In most cases, systems integrators do not directly
purchase our products for resale to their customers. Instead, they typically recommend and/or manage our products as a part of
broader solutions supporting enterprise applications and internet facing systems that incorporate our technology for security,
high availability, and enhanced performance.
Resellers and technology partners. Historically, our ability to compete with much larger companies has been
strengthened through partnerships with large systems and software vendors. Currently, we partner with many technology
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partners and public cloud providers who resell our products. We have ongoing partnerships with the major cloud providers such
as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform and have expanded our reseller routes to
market to include their public cloud marketplaces. F5 has recently signed a Strategic Collaboration Agreement (“SCA”) with
AWS and are actively engaged with Microsoft Azure on private offers levering our software on Azure. Our business
development team manages these relationships and closely monitors adjacent and complementary markets for opportunities to
partner with those whose solutions are complementary to ours and could enable us to expand our addressable market.
Marketing
As we continue to expand our offerings and advance our range of consumption models (e.g., from on-premises to SaaS-
based), we are focused on driving the compelling and unique value proposition of F5 among our existing customers as well as
new buying centers. In addition to revitalizing our brand in the market, our expansion into new buying centers among existing
customers (DevOps for example), exploration of new routes to market (such as public cloud marketplaces), and acquisition of a
host of net new customers, compel us to increase our focus and investments in more digitally enabled, personalized and
frictionless experiences at scale.
We are maintaining our efforts to drive momentum of our brand and reputation to deliver clarity, guidance and inspiration
among our existing customers, future customers, partners, and employees around our evolving strategy behind F5’s unique
offering. Additionally, to best support our growth as we transform our role in driving value for our customers, we are
transforming marketing from a cost center to a revenue center to serve as a meaningful and predictable source of opportunities,
customer growth and revenues. The critical success factors in this shift are increased investments in digital technologies, deep
focus on the customer experience at every touchpoint, and shifting our culture to adopt an agile mindset as we use data to
constantly improve our contributions to our customers and ultimately our shareholders.
Manufacturing
We outsource the manufacturing of our pre-configured hardware platforms to a third-party contract manufacturer, Flex
Ltd. ("Flex"), for building, assembling, and testing according to our specifications at Flex's facilities in Guadalajara, Mexico
and Zhuhai, China. Flex also performs the following activities on our behalf: material procurement, PCB assembly and test,
final assembly, system test, quality control, and direct shipment.
We provide a rolling forecast that allows Flex to stock component parts and other materials, plan capacity, and build
finished goods inventory in anticipation of end-user demand. Flex procures components in volumes consistent with our
forecast, assembles the products, and tests them according to our specifications. Generally, we do not own the system
components. Hardware components for our products consist primarily of commodity parts and certain custom components.
Many of our components are purchased from sources which we believe are readily available from other suppliers. However, we
currently purchase several hardware components used in the assembly of our products from a number of single or limited
sources. Lead times for these components vary significantly and are increasing in light of global shortages of critical
components. Global supply chain constraints continue to decrease our visibility into component availability and lead times even
for commodity components. Per the terms and conditions with our agreement with Flex , if the components are unused or the
products are not sold within specified periods of time, we may incur carrying charges or obsolete material charges for
components that our contract manufacturers purchased to build products to meet our forecast or customer orders.
Systems built in Guadalajara are shipped to the Flex fulfillment center in Milpitas, California for distribution primarily to
distributors, value-added resellers, or end users in EMEA and the Americas. Systems built and fulfilled in Zhuhai are for
distribution to partners and customers in APAC. Title to the products transfers from Flex to us and then to our customers upon
shipment from a designated fulfillment location.
Backlog
Backlog is primarily systems-based and represents orders confirmed with a purchase order for products to be fulfilled and
invoiced to customers with approved credit status. Orders are subject to cancellation, rescheduling by customers, or product
specification changes by customers. Although we believe that the backlog orders are firm, purchase orders may be canceled by
the customer prior to fulfillment without significant penalty. For this reason, we believe that our product backlog at any given
date is not a reliable indicator of future revenues. At the end of fiscal year 2022, we had product backlog of approximately $231
million.
Human Capital Management
F5’s commitment to its employees is to be one global and diverse team that is both human-first and high-performance and
to attract and grow amazing talent. This commitment is delivered through our culture and engagement, our investment in
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employees’ growth and development, our focus on diversity and inclusion, and in our compensation, benefits, and wellbeing
offerings.
Employees
As of September 30, 2022, we had 7,089 employees – over 99% of whom were full time employees. Our employees are
in 46 countries with 50% of employees in the United States. None of our employees in the United States are represented by a
labor union. We have experienced no work stoppages and believe that our employee relations are in good standing, as
evidenced by our bi-annual employee engagement survey results and described in the section below entitled Culture and
Engagement.
Culture and Engagement
We have been able to sustain our strong company culture in a hybrid work model thanks to increased focus on
continuously embedding BeF5 behaviors and LeadF5 principles into our systems, processes, decisions, and conversations. We
are constantly reinforcing, rewarding, and recognizing desired behaviors to send the message that they are key to executing on
our strategy.
We measure the success of and identify areas of improvement for our company culture through global surveys of
employee experience and sentiment at least twice each year. As of June 2022, employees reported high satisfaction with F5’s
culture on several key questions:
• 95% of employees favorably rate “F5 has demonstrated that employee well-being and health is a priority during the
coronavirus outbreak."
• 91% of employees favorably rate “I am proud to work for F5."
• 91% of employees favorably rate “At F5, employees are treated equally and fairly regardless of their background.”
• 90% of employees favorably rate “F5 has a great culture."
• 84% of employees favorably rate “I feel a sense of belonging at F5.”
Additionally, F5 is a recognized Great Place to Work 2022 in both India and the United States and was awarded the
Bestie 2022 award by Benevity.
Growth and Development
We provide employees with opportunities to improve their technical and professional knowledge, better understand our
business and products, strengthen management and leadership, as well as maintain our high standards of business integrity
through ongoing compliance training. These development opportunities include live events on quarterly “Learning Days”
dedicated to learning and exploring new ideas; learning paths created to support specific areas of knowledge, including
deepening their knowledge of BeF5 and LeadF5; leadership coaching, which matches participants with an expert external
coach; a global mentoring program; and a sponsorship program which provides several hundred employees a year with
customized professional and personal development. Employees also have access to multiple third-party resources to enhance
the learning opportunities developed internally. In a competitive market for talent, investing in growth and development at F5
remains a key differentiator for our employee recruitment and retention.
Diversity and Inclusion
F5 believes our differences—when embraced with humility and respect—drive smarter decisions, increased innovation,
stronger performance, and a culture where everyone can be themselves and reach their full potential.
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At F5, we are committed to creating a more diverse and inclusive workplace. Our strategic framework is called “IDEA”:
Inclusion, Diversity, Equity and Allyship. Each concept in IDEA requires focus and engagement at all levels of the organization
and to be embedded into our ways of working. (For more information, please see the “Open House Report” at F5.com/
company/diversity-inclusion).
To increase inclusion at F5, we foster communities through our Employee Inclusion Groups (“EIGs”) – F5 Ability, F5
Appreciates Blackness, F5 Connects Women, F5 Latinx e Hispanos Unidos, F5 Military Veterans, F5 Multicultural and F5
Pride – bringing people together across F5 and around the world. All seven EIGs are led by employees, with a dedicated annual
budget and executive sponsor. F5’s EIG leaders partner with the Company’s Diversity & Inclusion team to cultivate personal
and professional growth amongst their members. Our EIG leaders’ efforts to build a thriving community of diverse individuals
at F5 are recognized through quarterly bonuses.
Our diversity as a company is advanced by the steady increase in our transparency on the actions and the accompanying
progress we have made to build a culture of belonging and representation. F5 will release the results of the Company’s first
diversity representation and employee inclusion score metrics to the short-term cash incentive program for the Company’s
executives in the Proxy Statement for fiscal year 2022.
To increase equity in opportunities across F5, we hosted our biennial development conference focused on leadership
development and targeting our Black and Latinx communities within F5. This year’s conference tripled the number of attendees
and had a satisfaction rating of 4.6 out of 5. Replays of several of the conference’s speakers are available for public viewing on
F5’s YouTube channel.
Allyship is critical to the sustainability of our diversity and inclusion program at F5. We hosted an allyship track at our
conference and launched micro-trainings across our workforce and around the world. Each month, content is made available to
the allyship community to deepen their understanding of experiences different from their own and gain new skills to help speak
up and be an active participant in creating a more diverse and inclusive F5.
Compensation, Benefits and Wellbeing
F5 offers a competitive Total Rewards package intended to attract, retain, and motivate our employees guided by our
human-first approach. Our package includes market-competitive pay, incentive plans, restricted stock unit grants (“RSUs”), an
Employee Stock Purchase Plan, retirement plans, healthcare, paid time off and family leave. We continue to evaluate and
enhance our programs to support the diverse needs of our employees’ overall health and wellbeing. We continue our Freedom
to Flex program allowing employee choice to work fully remote, hybrid, or full time in an F5 office. The flexibility in hiring
remote workers is another element that supports our ability to attract diverse talent. This and related programs resulted in our
COVID-19 global pandemic response being among the highest rated categories on our global employee survey.
One key program we have maintained and expanded to support our employees’ wellbeing are four wellness weekends
when once a quarter all employees have a set Friday through Monday off. This program allows F5 employees to collectively
take time off to relax, recharge, and focus on wellness without worry of coming back to an over-loaded inbox. In addition, in
fiscal year 2022, we expanded in the United States our healthcare travel reimbursement to assist our employees’ access to
certain covered medical procedures that may be unavailable in their state of residence, increased our fertility and adoption
assistance benefits, and added Juneteenth as a company holiday in the United States.
The mental wellbeing of our employees remains a very important area of focus. F5 has made and continues to make
significant investments in tools and programs to address employee mental health. Such investments include a paid subscription
to a meditation app for all global employees, mental health awareness training provided to managers (also attended by our
Executive Leadership Team), and the removal of out-of-network penalties for therapy visits on our United States medical plans
- which also opened up greater access to diverse therapists.
Environmental, Social & Governance
At F5, we care deeply not just about what we do, but how we do it. We consider this our “human-first” approach to the
way we conduct our business, and it is reflected in our expanded commitment to Environmental, Social and Governance
(“ESG”) – extending from the environmental sustainability of our products and operations to the well-being of our employees
and our communities.
Environmental. Since F5 formed the ESG team in fiscal year 2021, the focus has been on bringing the environmental
program at the Company up to the standards we are proud to have set over the last 28 years in social and governance. In fiscal
year 2022, F5 took its first step towards a climate target; committing to reduce our absolute scope 1 and 2 emissions 50% by
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2030 from a 2021 baseline year. We will complete our Scope 3 emissions inventory across our value chain, to issue our
complete science-based target with the Science Based Target Initiative by the close of fiscal year 2023.
To start taking immediate action on our target, F5 made its first-ever purchase of renewable energy certificates in fiscal
year 2022. We focused on buying renewable energy in the Western region of the United States first, given that our highest
volume of emissions worldwide is currently concentrated around our headquarters in Seattle, WA and offices in Spokane, WA
and San Jose, CA.
Social. In addition to the employee programs and benefits outlined in the Human Capital Management section above, we
continue to prioritize F5 Global Good, the community development initiative that amplifies our employee engagement and
diversity and inclusion programs. In fiscal year 2022, more than half of all worldwide employees participated in Global Good
programs, volunteering over 7,200 hours and directing the entirety of F5’s donations, through both the Company matching
program and grant selection committees. F5 and its employees donated over $4.6 million to over 3,000 non-profits worldwide
in fiscal year 2022.
Governance. Our guiding principle to do the right thing for each other, our customers, our shareholders, and our
communities is set forth in F5’s Code of Business Conduct and Ethics, compliance training programs and most importantly, in
the behaviors and principles we measure all employees on: BeF5 and LeadF5.
In fiscal year 2022, F5 bolstered the governance of the working and environmental conditions in our supply chain by
joining the Responsible Business Alliance.
The oversight of our ESG programs is conducted by the Nominating and ESG Committee of the Board of Directors,
where ESG strategy, disclosures and metrics are reviewed each quarter. In addition, in fiscal year 2022, the Talent and
Compensation Committee of the Board introduced additional ESG metrics to the short-term cash incentive program for the
Company’s executives in the form of measurements related to year-over-year increases in diversity representation and
measurement of employee inclusion.
Executive Officers of the Registrant
The following table sets forth certain information with respect to our executive officers as of November 15, 2022:
Name
Age
Position
François Locoh-Donou
Tom Fountain
Geng Lin
Frank Pelzer
Scot Rogers
Haiyan Song
Kara Sprague
Chad Whalen
Ana White
Mika Yamamoto
51
46
58
52
55
57
42
51
49
50
President, Chief Executive Officer and Director
Executive Vice President of Global Services and Chief Strategy Officer
Executive Vice President and Chief Technology Officer
Executive Vice President and Chief Financial Officer
Executive Vice President and General Counsel
Executive Vice President and General Manager, Security and Distributed Cloud
Executive Vice President and General Manager, App Delivery and Enterprise Product Ops
Executive Vice President of Worldwide Sales
Executive Vice President and Chief People Officer
Executive Vice President and Chief Marketing and Customer Experience Officer
François Locoh-Donou has served as our President, Chief Executive Officer and member of our Board of Directors since
April 2017. Prior to joining F5, Mr. Locoh-Donou served as Senior Vice President and Chief Operating Officer of Ciena
Corporation. During his more than 15 years at Ciena, Mr. Locoh-Donou served in several leadership positions. From August
2011 to October 2015, he served as Ciena’s Senior Vice President, Global Products Group. Previously, he served as Ciena’s
Vice President and General Manager, Europe, Middle East and Africa from June 2005 to August 2011. He holds an M.B.A.
from Stanford University, a 'Mastere' in Optical Telecommunications from the National Institute of Telecommunications of
Paris (ENST), and a 'Diplome d'Ingenieur' in Physics Engineering from the National Institute of Physics in Marseille (ENSPM),
France. Mr. Locoh-Donou serves on the board of Capital One Financial Corporation (NYSE: COF). He is also the co-founder
of Cajou Espoir, a cashew-processing facility that employs several hundred people in rural Togo, 80 percent of whom are
women. Cajou Espoir exports more than 400 tons of cashew kernels annually to the U.S. and Europe.
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Tom Fountain has served as our Executive Vice President of Global Services and Chief Strategy Officer since June 2020.
Mr. Fountain joined F5 in January 2018 as Executive Vice President and Chief Strategy Officer. Mr. Fountain is responsible for
F5’s global services organization, including global support, consulting, and services teams. He is also responsible for F5’s
corporate strategy, corporate development, technology partnerships, our service provider business, and new business
incubations. From November 2012 to January 2018, Mr. Fountain served as Senior Vice President for Strategy and Corporate
Development at McAfee LLC, Vice President of Strategy and Operations at Intel Corporation, and Senior Vice President for
Strategy and Corporate Development at McAfee Incorporated. Previously, Mr. Fountain served as Vice President and General
Manager of the Content and Media Business Unit at Juniper Networks from December 2011 to November 2012 and Vice
President of Corporate Strategy at Juniper Networks from February 2009 to December 2011. Earlier in his career, Mr. Fountain
was a venture capitalist at Mayfield Fund from June 2003 to February 2009 and co-founder and engineering leader at Ingrian
Networks from December 1999 to June 2004. He holds an M.B.A., an M.S. in Computer Science, an M.S. in Electrical
Engineering, and a B.S. in Computer Systems Engineering, each from Stanford University.
Geng Lin joined F5 as our Executive Vice President and Chief Technology Officer in July 2019. Mr. Lin is responsible
for the technical vision for the Company with a focus on next-generation technological capabilities through organic and
inorganic innovation, including advanced research initiatives and strategic partnerships. Prior to joining F5, Mr. Lin was the
Managing Director, Chief Development Officer and Head of Engineering for consumer and community banking for J.P.
Morgan Chase from September 2017 to June 2019. Previously, he served as Head of Service Engineering for Next Billion
Users, CTO of Corporate Networks at Google, CTO of Network Business at Dell and CTO of Cisco’s IBM Alliance. Mr. Lin is
an industry-leading expert in distributed systems, software-defined infrastructure, and cloud services. He is a contributing
author of two books on cloud and data-intensive computing and holds nine U.S. patents. Mr. Lin received B.Sc. and M.Sc.
degrees in Computer Science from Peking University and a Ph.D. degree in Computer Science from the University of British
Columbia.
Frank Pelzer has served as our Executive Vice President and Chief Financial Officer since May 2018. He oversees F5's
worldwide financial planning, analysis, accounting, reporting, and internal auditing procedures, as well as investor relations.
Prior to joining F5, Mr. Pelzer served as President and Chief Operating Officer of the Cloud Business Group at SAP,
responsible for the execution of strategy and operations of the company's Software as a Service (SaaS) portfolio including
Concur, Ariba, Fieldglass, SuccessFactors, and Hybris. Prior to that, he served as Chief Financial Officer of Concur
Technologies, before it was acquired by SAP in 2014. Mr. Pelzer has also held senior leadership positions at Deutsche Bank
and Credit Suisse Group. Mr. Pelzer serves on the board of directors for Benefitfocus, Limeade, and Modumetal. He holds a
B.A. from Dartmouth College and an M.B.A. from the Tuck School of Business at Dartmouth College.
Scot Rogers has served as our Executive Vice President and General Counsel since January 2014. Mr. Rogers has held a
variety of positions in F5's legal department since 2005, including most recently as Senior Vice President and Associate
General Counsel immediately prior to his promotion to Executive Vice President. From 2002 through 2005, Mr. Rogers was the
General Counsel for Xpediate Consulting, a healthcare technology and consulting company located in the San Francisco Bay
Area. Prior to becoming a corporate counsel, he spent eight years in private practice as a commercial litigator. He is a graduate
of the University of Texas and holds a J.D. from the Dedman School of Law of Southern Methodist University.
Haiyan Song joined F5 in 2021 as Executive Vice President and General Manager, Security and Distributed Cloud,
responsible for the Company’s security product and managed services portfolio. Previously, Ms. Song led Splunk’s Security
business as Senior Vice President and General Manager of Security Markets. In her more than 20-year career, she has held
several leadership positions, including Vice President and General Manager at HP ArcSight, Vice President of Engineering at
ArcSight, and Vice President of Engineering at SenSage. Ms. Song started her career at IBM/Informix, building trusted
relational database management systems for Federal customers. Ms. Song currently serves on the board of CSG, a provider of
revenue management and digital payments. She holds an M.S. from Florida Atlantic University and studied Computer Science
in Tsinghua University in China.
Kara Sprague is Executive Vice President and General Manager, App Delivery and Enterprise Product Ops. She is
responsible for F5’s BIG-IP Application Delivery and Security product portfolio management, products and solutions. Prior to
joining F5 in 2017, Ms. Sprague held various leadership positions across the technology practice of McKinsey & Company.
Most recently she led the Technology, Media, and Telecom Practice for the Western Region. Prior to McKinsey, Ms. Sprague
was on the engineering staff of Oracle, Agilent Technologies, and Hewlett-Packard. She holds a bachelor's degree and two
master's degrees from Massachusetts Institute of Technology and serves on the board of Girls Who Code.
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Chad Whalen has served as our Executive Vice President of Worldwide Sales since July 2018. He is responsible for F5’s
global sales strategy and brings over 20 years of experience leading global teams across Europe, Asia, and North and South
America in network infrastructure, security, and SaaS. Mr. Whalen joined F5 in 2017 to lead the Cloud Sales team. Prior to
joining F5, he ran strategic alliances at Fortinet, worldwide sales and services at Jasper, Americas sales and field operations at
Ciena and global sales and marketing at World Wide Packets (WWP). He holds a B.A. in Business Administration and
Management from Eastern Washington University.
Ana White has served as our Executive Vice President and Chief People Officer since January 2018. She is responsible
for the F5’s people, practices, and professional growth programs; recruiting; diversity and inclusion; organizational
development; and employee advocacy initiatives. Ms. White comes to F5 from Microsoft, where she led global Human
Resources teams for over 18 years across multiple business units. Most recently, she acted as General Manager, Human
Resources for Microsoft’s Business Development, Finance, HR and Legal organizations with responsibility for their teams’ HR
strategy, talent management, diversity and inclusion, and organizational capability as well as HR Business Insights across
Microsoft. Prior to that, Ms. White led HR for the Marketing and Consumer Business organization. Prior to Microsoft, she was
a Compensation and Benefits Consultant at Willis Towers Watson. She holds a B.S. in Mathematics from Seattle University
and serves on the taskforce for both the Seattle University Center for Science and Innovation and the board of Childhaven.
Mika Yamamoto joined F5 in May 2019 in the newly created role of Executive Vice President and Chief Marketing and
Customer Experience Officer. In this role, she is responsible for leading the Company’s marketing strategies across segments,
channels, and geographies, and ensuring customers remain at the forefront of the Company’s Digital Transformation initiative.
Prior to joining F5, Ms. Yamamoto served as Global President of Marketo, where she led the company’s go-to-market strategy
after it was acquired by Adobe. Ms. Yamamoto previously served as Chief Digital Marketing Officer and CMO for SAP. In
addition, she has held senior leadership roles at Amazon Books, Microsoft Windows and Microsoft Stores, Gartner Research
and Accenture. She holds a B.A. in Commerce, Economics and Marketing from Queen’s University in Canada and serves on
the board of the Rainier Valley Food Bank.
Item 1A.
Risk Factors
In addition to the other information in this report, the following risk factors should be carefully considered in evaluating
our company and operations.
Our business could be adversely impacted by conditions affecting the information technology market
A substantial portion of our business depends on the demand for information technology by large enterprise customers
and service providers. We are dependent upon the overall economic health of our current and prospective customers and the
continued growth and evolution of the Internet. International, national, regional and local economic conditions, such as
recessionary economic cycles, protracted economic slowdown or further deterioration of the economy could adversely impact
demand for our products. Demand for our products and services depends substantially upon the general demand for application
delivery products and associated services, which fluctuates based on numerous factors, including capital spending levels and
growth of our current and prospective customers, as well as general economic conditions. Moreover, the purchase of our
products is often discretionary and may involve a significant commitment of capital and other resources. Future economic
projections for the information technology sector are uncertain as companies continue to reassess their spending for technology
projects and embrace new models for delivery of IT services, such as cloud computing and highly orchestrated software defined
networking environments. As a result, spending priorities for our current and future customers may vary and demand for our
products and services may be impacted. In addition, customer buying patterns are changing over time and more customers seek
to rent software on a subscription basis and to reduce their total cost of ownership. These evolving business models could lead
to changes in demand and licensing strategies, which could have a material adverse effect on our business, results of operations
and financial condition.
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Cloud-based and SaaS computing trends present competitive and execution risks
Customers are transitioning to a hybrid computing environment utilizing various cloud-based software and services
accessed via various smart client devices. Pricing and delivery models are evolving and our competitors are developing and
deploying cloud-based services for customers. In addition, new cloud infrastructures are enabling the emergence of new
competitors including large cloud providers who offer their own application security and delivery functionality as well as
smaller companies targeting the growing numbers of "born in the cloud" applications. We are devoting significant resources to
develop and deploy our own competing cloud-based and SaaS software and services strategies. While we believe our expertise
and investments in software and infrastructure for cloud-based services provides us with a strong foundation to compete, it is
uncertain whether our strategies will attract the customers or generate the revenue required to be successful. In addition to
software development costs, we are incurring costs to build and maintain infrastructure to support cloud-computing and SaaS
services, and the securitization of our customers’ data. These costs may reduce the gross and operating margins we have
previously achieved. Whether we are successful in this new business model depends on our execution in a number of areas,
including:
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continuing to innovate and bring to market compelling cloud-based and SaaS services through consumption models that
generate increasing traffic and market share;
• maintaining the utility, compatibility and performance of our software on the growing array of cloud and SaaS computing
platforms and the enhanced interoperability requirements associated with orchestration of cloud computing environments;
and
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implementing the infrastructure and the securitization of our customers' data to deliver our own cloud-based and SaaS
services.
These new business models may reduce our revenues or gross and operating margins and could have a material adverse
effect on our business, results of operations and financial condition.
Industry consolidation may result in increased competition
Some of our competitors have made acquisitions or entered into partnerships or other strategic relationships to offer a
more comprehensive solution than they had previously offered. We have also entered into large, strategic partnerships to
enhance our competitive position in the marketplace. As IT companies attempt to strengthen or maintain their market positions
in the evolving application delivery, mobility, cloud networking and cloud platform markets, these companies continue to seek
to deliver comprehensive IT solutions to end users and combine enterprise-level hardware and software solutions that may
compete with our solutions and which could negatively impact our partnerships. These consolidators or potential consolidators
may have significantly greater financial, technical and other resources than we do and may be better positioned to acquire and
offer complementary products and services. The companies resulting from these possible combinations may create more
compelling product and service offerings and be able to offer greater pricing flexibility or sales and marketing support for such
offerings than we can. These heightened competitive pressures could result in a loss of customers or a reduction in our revenues
or revenue growth rates, all of which could adversely affect our business, results of operations and financial condition.
We may not be able to compete effectively in the emerging application delivery and security market
The markets we serve are new, rapidly evolving and highly competitive, and we expect competition to persist and
intensify in the future. As we expand our reach and role into a broader set of multi-cloud solutions, the companies that we
consider competitors evolves as well. In addition to server load balancing, traffic management, and other functions normally
associated with application delivery, our suite of solutions has expanded our addressable market into security, and policy
management, where we compete with a number of companies focused on niche areas of application security.
We expect to continue to face additional competition as new participants enter our markets. As we continue to expand
globally, we may see new competitors in different geographic regions. In addition, larger companies with significant resources,
brand recognition, and sales channels may form alliances with or acquire competing application services solutions from other
companies and emerge as significant competitors. Potential competitors may bundle their products or incorporate an Internet
traffic management or security component into existing products in a manner that discourages users from purchasing our
products. Any of these circumstances may limit our opportunities for growth and negatively impact our financial performance.
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Our success depends on our timely development of new software and systems products and features, market acceptance of
new software and systems product offerings and proper management of the timing of the life cycle of our software and
systems products
The markets for our products and services are characterized by:
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rapid technological change;
evolving industry standards;
consolidation of network and application functions into existing network infrastructure products;
requirements that our products interoperate with those of other IT vendors to enable ease of management;
fluctuations in customer demand;
changes in customer requirements; and
frequent new product and service introductions and enhancements.
Our continued success depends on our ability to identify and develop new software and systems products and new
features for our existing software and systems products, to meet the demands of these changes, and the acceptance of those
products and features by our existing and target customers. In addition, our software and systems products must interoperate
with our end customers’ IT infrastructure, including the expanding use of the cloud and hybrid cloud environments, which often
have different specifications, deploy products from multiple vendors, and utilize multiple protocol standards. Our customers’ IT
infrastructure is becoming more complex and we may be reliant on orchestration and interoperability with third party vendors
on whom we are reliant for testing and support of new software and systems product versions and configurations. If we are
unable to identify, develop and deploy new software and systems products and new product features on a timely basis, our
business and results of operations may be harmed.
The current development cycle for our software and systems products varies and has become increasingly complex due to
the sophistication and the addressing of our customers' needs. The development timetable to commercial release and availability
to our customers is uncertain, and the introduction of new products or product enhancements may shorten the life cycle of our
existing products, or replace sales of some of our current products, thereby offsetting the benefit of even a successful product
introduction, and may cause customers to defer purchasing our existing products in anticipation of the new products. This could
harm our operating results by decreasing sales of our software and systems products, or increasing our inventory levels of older
systems products and exposing us to greater risk of product obsolescence. We have also experienced, and may in the future
experience, delays in developing and releasing new software and systems products and related product enhancements. This has
led to, and may in the future lead to, delayed sales, increased expenses and lower quarterly revenue than anticipated. Also, in
the development of our systems products, we have experienced delays in the prototyping, which in turn has led to delays in
product introductions. In addition, complexity and difficulties in managing product transitions at the end-of-life stage of a
product can create excess inventory of components associated with the outgoing product that can lead to increased expenses.
Any or all of the above problems could materially harm our business and results of operations.
Our success depends on sales and continued innovation of our application delivery and security product lines
We expect to derive a significant portion of our net revenues from the sale of our software and hardware application
delivery and security product lines in the future. Implementation of our strategy depends upon these products being able to
solve critical network availability, performance and security problems for our customers. If our products are unable to solve
these problems for our customers or if we are unable to sustain the high levels of innovation in product feature sets needed to
maintain leadership in what will continue to be a competitive market environment, our business and results of operations will be
harmed.
Security vulnerabilities in our IT systems or products as well as unforeseen product errors could have a material adverse
impact on our business results of operations, financial condition and reputation
In the ordinary course of business, we store sensitive data, including intellectual property, personal data, our proprietary
business information and that of our customers, suppliers and business partners on our networks. In addition, we store sensitive
data through cloud-based services that may be hosted by third parties and in data center infrastructure maintained by third
parties. The secure maintenance of this information is critical to our operations and business strategy. Our information systems
and those of our partners and customers are subject to the increasing threat of intrusions by a wide range of actors including
computer programmers, hackers or sophisticated nation-state and nation-state supported actors or they may be compromised
due to employee error or wrongful conduct, malfeasance, or other disruptions. Despite our security measures, and those of our
third-party vendors, our information technology and infrastructure has experienced breaches or disruptions and may be
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vulnerable in the future to breach, attacks or disruptions. If any breach or attack compromises our networks, creates system
disruptions or slowdowns or exploits security vulnerabilities of our products, the information stored on our networks or those of
our customers could be accessed and modified, publicly disclosed, lost or stolen, and we may be subject to liability to our
customers, suppliers, business partners and others, and suffer reputational and financial harm.
In addition, our products are used to manage critical applications and data for customers and third parties may attempt to
exploit security vulnerabilities in our products as well as our internal IT systems. As we continue to focus on the development
and marketing of security solutions, we become a bigger target for malicious computer hackers, including sophisticated nation-
state and nation-state supported actors who wish to exploit security vulnerabilities in our products or IT systems.
We devote significant resources to addressing security vulnerabilities in our IT systems, product solutions and services
through our efforts to engineer more secure solutions and services, enhance security and reliability features in our solutions and
services, deploy security updates to address security vulnerabilities and seek to respond to known security incidents in sufficient
time to minimize any potential adverse impact. Despite our efforts to harden our infrastructure and build secure solutions, from
time to time, we experience attacks and other cyber-threats. These attacks can seek to exploit, among other things, known or
unknown vulnerabilities in technology included in our IT infrastructure, solutions and services. While we have undertaken
efforts to mitigate these vulnerabilities, they could render our internal systems, products, and solutions and services susceptible
to a cyber-attack.
Our products may also contain undetected errors or defects when first introduced or as new versions are released. We
have experienced these errors or defects in the past in connection with new products and product upgrades. As our products and
customer IT infrastructures become increasingly complex, customers may experience unforeseen errors in implementing our
products into their IT environments. We expect that these errors or defects will be found from time to time in new or enhanced
products after commencement of commercial shipments. These problems may cause us to incur significant warranty and repair
costs, divert the attention of our engineering personnel from our product development efforts and cause significant customer
relations problems. We may also be subject to liability claims for damages related to product errors or defects. While we carry
insurance policies covering this type of liability, these policies may not provide sufficient protection should a claim be asserted.
A material product liability claim may harm our business and results of operations.
Our products must successfully operate with products from other vendors. As a result, when problems occur in a network,
it may be difficult to identify the source of the problem. The occurrence of software or hardware problems, whether caused by
our products or another vendor’s products, may result in the delay or loss of market acceptance of our products. The occurrence
of any of these problems may harm our business and results of operations.
Any errors, defects or vulnerabilities in our products or IT systems could result in:
expenditures of significant financial and product development resources in efforts to analyze, correct, eliminate, or work-
around errors and defects or to address and eliminate vulnerabilities;
remediation costs, such as liability for stolen assets or information, repairs or system damage;
increased cybersecurity protection costs which may include systems and technology changes, training, and engagement of
third party experts and consultants;
increased insurance premiums;
loss of existing or potential customers or channel partners;
loss of proprietary information leading to lost competitive positioning and lost revenues;
negative publicity and damage to our reputation;
delayed or lost revenue;
delay or failure to attain market acceptance;
an increase in warranty claims compared with our historical experience, or an increased cost of servicing warranty claims,
either of which would adversely affect our gross margins; and
litigation, regulatory inquiries, or investigations that may be costly and harm our reputation.
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We are dependent on various information technology systems, and failures of or interruptions to those systems could
harm our business
Many of our business processes depend upon our IT systems, the systems and processes of third parties, including cloud
hosting service providers, and on interfaces with the systems of third parties. For example, our order entry system provides
17
information to the systems of our contract manufacturers, which enables them to build and ship our products. If those systems
fail or are interrupted, or if our ability to connect to or interact with one or more networks is interrupted, our processes may
function at a diminished level or not at all. This could harm our ability to ship products or our ability to deliver cloud-based
services, which could harm our financial results.
In addition, reconfiguring our IT systems or other business processes in response to changing business needs may be
time-consuming and costly. To the extent this impacted our ability to react timely to specific market or business opportunities,
our financial results may be harmed.
Our failure to adequately protect personal information could have a material adverse effect on our business
A wide variety of local, state, national, and international laws, directives and regulations apply to the collection, use,
retention, protection, disclosure, transfer, and other processing of personal data. These data protection and privacy-related laws
and regulations continue to evolve and may result in ever-increasing regulatory and public scrutiny and escalating levels of
enforcement and sanctions and increased costs of compliance. Certain safe-harbor exemptions upon which the Company relies
for data transfers have been challenged and may no longer be available to us in the future. Our failure to comply with applicable
laws and regulations, or to protect such data, could result in enforcement action against us, including fines, imprisonment of
company officials and public censure, claims for damages by end-customers and other affected individuals, damage to our
reputation and loss of goodwill (both in relation to existing end-customers and prospective end-customers), any of which could
have a material adverse effect on our operations, financial performance, and business. Changing definitions of personal data and
personal information, within the European Union, the United States, and elsewhere, especially relating to classification of IP
addresses, machine identification, location data, and other information, may limit or inhibit our ability to operate or expand our
business, including limiting strategic partnerships that may involve the sharing of data. The evolving data protection regulatory
environment may require significant management attention and financial resources to analyze and modify our IT infrastructure
to meet these changing requirements all of which could reduce our operating margins and impact our operating results and
financial condition.
Our success depends on our key personnel and our ability to hire, retain and motivate qualified executives, sales and
marketing, operations, product development and professional services personnel
Our success depends, in large part, on our ability to attract, engage, retain, and integrate qualified executives and other key
employees throughout all areas of our business. In order to attract and retain executives and other key employees in a
competitive marketplace, we must provide a competitive compensation package, including cash- and equity-based
compensation. If we do not obtain the stockholder approval needed to continue granting equity compensation in a competitive
manner, our ability to attract, retain, and motivate executives and key employees could be weakened. Failure to successfully
hire executives and key employees or the loss of any executives and key employees could have a significant impact on our
operations. We have recently experienced changes in our senior leadership team and we expect to continue to see changes as we
build the team that is needed to execute our strategy. Changes in our management team may be disruptive to our business, and
any failure to successfully integrate key new hires or promoted employees could adversely affect our business and results of
operations. The complexity of our products and their integration into existing networks and ongoing support, as well as the
sophistication of our sales and marketing effort, requires us to retain highly trained developers, professional services, customer
support and sales personnel. Competition for qualified developers, professional services, customer support and sales personnel
in our industry is intense, especially in Silicon Valley and Seattle where we have substantial operations and a need for highly
skilled personnel, because of the limited number of people available with the necessary technical skills and understanding of
our products. Also, to the extent we hire personnel from competitors, we may be subject to allegations that they have been
improperly solicited, that they have divulged proprietary or other confidential information, that they have violated non-compete
obligations to their prior employers, or that their former employers own their inventions or other work product. Our ability to
hire and retain these personnel may be adversely affected by volatility or reductions in the price of our common stock or our
ability to get approval from shareholders to offer additional common stock to our employees, since these employees are
generally granted restricted stock units. The loss of services of any of our key personnel, the inability to retain and attract
qualified personnel in the future or delays in hiring qualified personnel may harm our business and results of operations. In
addition, we recently announced a restructuring to re-align our workforce to match strategic and financial objectives and
optimize resources for long term growth, including a reduction in force program impacting a number of employees. This
restructuring could lead to increased attrition amongst those employees who were not directly affected by the reduction in force
program.
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Acquisitions present many risks and we may not realize the financial and strategic goals that are contemplated at the time
of the transaction
With respect to our past acquisitions, as well as any other future acquisitions we may undertake, we may find that the
acquired businesses, products or technologies do not further our business strategy as expected, that we paid more than what the
assets are later worth or that economic conditions change, all of which may generate future impairment charges. Our
acquisitions may be viewed negatively by customers, financial markets or investors. There may be difficulty integrating the
operations and personnel of the acquired business, and we may have difficulty retaining the key personnel of the acquired
business. We may have difficulty in integrating the acquired technologies or products with our existing product lines. Our
ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the
complexity of managing geographically and culturally diverse locations. We may have difficulty maintaining uniform
standards, controls, procedures and policies across locations. We may experience significant problems or liabilities associated
with product quality, technology and other matters.
Our inability to successfully operate and integrate newly-acquired businesses appropriately, effectively and in a timely
manner, or to retain key personnel of any acquired business, could have a material adverse effect on our ability to take
advantage of further growth in demand for integrated traffic management and security solutions and other advances in
technology, as well as on our revenues, gross margins and expenses.
We recently implemented a restructuring program, which we cannot guarantee will achieve its intended result
In the first fiscal quarter of 2022, we completed a restructuring program to match strategic and financial objectives and
optimize resources for long term growth. We incur substantial costs to implement restructuring plans, and our restructuring
activities may subject us to litigation risks and expenses. Our past restructuring plans do not provide any assurance that
additional restructuring plans will not be required or implemented in the future. In addition, our restructuring plans may have
other consequences, such as attrition beyond our planned reduction in workforce, a negative effect on employee morale and
productivity or our ability to attract highly skilled employees. Our competitors may also use our restructuring plans to seek to
gain a competitive advantage over us. As a result, our restructuring plans may affect our revenue and other operating results in
the future.
The average selling price of our products may decrease and our costs may increase, which may negatively impact
revenues and profits
It is possible that the average selling prices of our products will decrease in the future in response to competitive pricing
pressures, increased sales discounts, including responses to inflationary pressures, new product introductions by us or our
competitors, or other factors. Therefore, in order to maintain our profits, we must develop and introduce new products and
product enhancements on a timely basis and continually reduce our product costs. Our failure to do so could cause our revenue
and profits to decline, which would harm our business and results of operations. In addition, we may experience substantial
period-to-period fluctuations in future operating results due to the erosion of our average selling prices.
Our business may be harmed if our contract manufacturers are not able to provide us with adequate supplies of our
products or if a single source of hardware assembly is lost or impaired
We outsource the manufacturing of our hardware platforms to third party contract manufacturers who assemble these
hardware platforms to our specifications. We have experienced minor delays in shipments from contract manufacturers in the
past. However, if we experience major delays in the future or other problems, such as inferior quality and insufficient quantity
of product, any one or a combination of these factors may harm our business and results of operations. The inability of our
contract manufacturers to provide us with adequate supplies of our products or the loss of one or more of our contract
manufacturers may cause a delay in our ability to fulfill orders while we obtain a replacement manufacturer and may harm our
business and results of operations. In particular, we currently subcontract manufacturing of our products to a single contract
manufacturer. If our arrangement with this single source of hardware assembly was terminated or otherwise impaired, and we
were not able to engage another contract manufacturer in a timely manner, our business, financial condition and results of
operation could be adversely affected.
If the demand for our products grows, we will need to increase our raw material and component purchases, contract
manufacturing capacity and internal test and quality control functions. Any disruptions in product flow may limit our revenue,
may harm our competitive position and may result in additional costs or cancellation of orders by our customers.
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Our business could suffer if there are any interruptions or delays in the supply of hardware components from our third-
party sources
We currently purchase several hardware components used in the assembly of our products from a number of single or
limited sources. Lead times for these components vary significantly and are increasing in light of global shortages of critical
components. Global supply chain constraints in the wake of the COVID-19 pandemic continue to decrease our visibility into
component availability and lead times. Despite efforts to mitigate the effects of supply chain constraints, the unavailability of
suitable components, any interruption or delay in the supply of any of these hardware components or the inability to procure a
similar component from alternate sources at acceptable prices within a reasonable time, may delay assembly and our ability to
fulfill our sales of our products and, hence, our revenues, and may harm our business and results of operations.
It is difficult to predict our future operating results because we have an unpredictable sales cycle
Our products have a lengthy sales cycle and the timing of our revenue is difficult to predict. Historically, our sales cycle
has ranged from approximately two to three months and has tended to lengthen as our products become increasingly complex.
Also, as our distribution strategy is focused on a channel model, utilizing value-added resellers, distributors and systems
integrators, the level of variability in the length of sales cycle across transactions has increased and made it more difficult to
predict the timing of many of our sales transactions. Sales of our products require us to educate potential customers in their use
and benefits. Sales of our products are subject to delays from the lengthy internal budgeting, approval and competitive
evaluation processes that large enterprises and governmental entities may require. For example, customers frequently begin by
evaluating our products on a limited basis and devote time and resources to testing our products before they decide whether or
not to purchase. Customers may also defer orders as a result of anticipated releases of new products or enhancements by our
competitors or us. As a result, our products have an unpredictable sales cycle that contributes to the uncertainty of our future
operating results.
We may not be able to sustain or develop new distribution relationships, and a reduction or delay in sales to significant
distribution partners could hurt our business
We sell our products and services through multiple distribution channels in the United States and internationally,
including leading industry distributors, value-added resellers, systems integrators, service providers and other indirect channel
partners. We have a limited number of agreements with companies in these channels, and we may not be able to increase our
number of distribution relationships or maintain our existing relationships. Recruiting and retaining qualified channel partners
and training them in our technologies requires significant time and resources. These channel partners may also market, sell and
support products and services that are competitive with ours and may devote more resources to the marketing, sales and support
of such competitive products. Our indirect sales channel structure could subject us to lawsuits, potential liability, and
reputational harm if, for example, any of our channel partners misrepresent the functionality of our products or services to
customers or violate laws or our corporate policies. If we are unable to establish or maintain our indirect sales channels, our
business and results of operations will be harmed. In addition, two worldwide distributors of our products accounted for 33.4%
of our total net revenue for fiscal year 2022. A substantial reduction or delay in sales of our products to these distribution
partners, if not replaced by sales to other indirect channel partners and distributors, could harm our business, operating results
and financial condition.
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A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and
risks
Sales to U.S. and foreign, federal, state, and local governmental agency end-customers account for a significant portion of
our revenues and we may in the future increase sales to government entities. Sales to government entities are subject to a
number of risks. Selling to government entities can be highly competitive, expensive, and time consuming, often requiring
significant upfront time and expense without any assurance that these efforts will generate a sale. The substantial majority of
our sales to date to government entities have been made indirectly through our channel partners. Government certification
requirements for products like ours may change, thereby restricting our ability to sell into the federal government sector until
we have attained the revised certification. Government demand and payment for our products and services may be impacted by
public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector
demand for our products and services. Government entities may have statutory, contractual or other legal rights to terminate
contracts with our distributors and resellers for convenience or due to a default, and any such termination may adversely impact
our future operating results. Governments routinely investigate and audit government contractors’ administrative processes, and
any unfavorable audit could result in the government refusing to continue buying our products and services, a reduction of
revenue or fines or civil or criminal liability if the audit uncovers improper or illegal activities, which could adversely impact
our operating results in a material way. Finally, for purchases by the U.S. government, the government may require certain
products to be manufactured in the United States and other relatively high cost manufacturing locations, and we may not
manufacture all products in locations that meet the requirements of the U.S. government, affecting our ability to sell these
products to the U.S. government.
Misuse of our products could harm our reputation
Our products may be misused by end-customers or third parties that obtain access to our products. For example, our
products could be used to censor private access to certain information on the Internet. Such use of our products for censorship
could result in negative publicity and damage to our reputation. In addition, as many of our products are subject to export
control regulations, diversion of our products to restricted third parties by others could result in investigations, penalties, fines,
trade restrictions and negative publicity that could damage our reputation and materially impact our business, operating results,
and financial condition.
Our quarterly and annual operating results may fluctuate in future periods, which may cause our stock price to fluctuate
Our quarterly and annual operating results have varied significantly in the past and could vary significantly in the future,
which makes it difficult for us to predict our future operating results. Our operating results may fluctuate due to a variety of
factors, many of which are outside of our control, including the changing and recently volatile U.S. and global economic
environment, which may cause our stock price to fluctuate. In particular, we anticipate that the size of customer orders may
increase as we continue to focus on larger business accounts. A delay in the recognition of revenue, even from just one account,
may have a significant negative impact on our results of operations for a given period. In the past, a majority of our sales have
been realized near the end of a quarter. Accordingly, a delay in an anticipated sale past the end of a particular quarter may
negatively impact our results of operations for that quarter, or in some cases, that fiscal year. Additionally, we have exposure to
the credit risks of some of our customers and sub-tenants. Although we have programs in place that are designed to monitor and
mitigate the associated risk, there can be no assurance that such programs will be effective in reducing our credit risks
adequately. We monitor individual payment capability in granting credit arrangements, seek to limit the total credit to amounts
we believe our customers can pay and maintain reserves we believe are adequate to cover exposure for potential losses. If there
is a deterioration of a sub-tenant’s or a major customer’s creditworthiness or actual defaults are higher than expected, future
losses, if incurred, could harm our business and have a material adverse effect on our operating results. Further, our operating
results may be below the expectations of securities analysts and investors in future quarters or years. Our failure to meet these
expectations will likely harm the market price of our common stock. Such a decline could occur, and has occurred in the past,
even when we have met our publicly stated revenue and/or earnings guidance.
21
Reliance on fulfillment at the end of the quarter could cause our revenue for the applicable period to fall below expected
levels
As a result of customer buying patterns and the efforts of our sales force and channel partners to meet or exceed their
sales objectives, we have historically received a substantial portion of sales orders and generated a substantial portion of
revenue during the last few weeks of each fiscal quarter. In addition, any significant interruption in our information technology
systems, which manage critical functions such as order processing, revenue recognition, financial forecasts, inventory and
supply chain management, and trade compliance reviews, could result in delayed order fulfillment and decreased revenue for
that fiscal quarter. If expected revenue at the end of any fiscal quarter is delayed for any reason, including the failure of
anticipated purchase orders to materialize, our third party contract manufacturers’ inability to manufacture and ship products
prior to fiscal quarter-end to fulfill purchase orders received near the end of the fiscal quarter, our failure to manage inventory
to meet demand, our inability to release new products on schedule, any failure of our systems related to order review and
processing, or any delays in shipments based on trade compliance requirements, our revenue for that quarter could fall below
our expectations, resulting in a decline in the trading price of our common stock.
Changes in financial accounting standards may cause adverse unexpected revenue fluctuations and affect our reported
results of operations
A change in accounting policies can have a significant effect on our reported results and may even affect our reporting of
transactions completed before the change is effective. New pronouncements and varying interpretations of existing
pronouncements have occurred with frequency and may occur in the future. Changes to existing rules, or changes to the
interpretations of existing rules, could lead to changes in our accounting practices, and such changes could adversely affect our
reported financial results or the way we conduct our business.
If we are unable to maintain effective internal control over financial reporting, the accuracy and timeliness of our
financial reporting may be adversely affected
As a public company, we are required to design and maintain proper and effective internal controls over financial
reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002
requires that we evaluate and determine the effectiveness of our internal controls over financial reporting and provide a
management report on the internal controls over financial reporting, which must be attested to by our independent registered
public accounting firm. We have an ongoing program to review the design of our internal controls framework in keeping with
changes in business needs, implement necessary changes to our controls design and test the system and process controls
necessary to comply with these requirements. If in the future, our internal controls over financial reporting are determined to be
not effective resulting in a material weakness, investor perceptions regarding the reliability of our financial statements may be
adversely affected which could cause a decline in the market price of our stock and otherwise negatively affect our liquidity and
financial condition.
We may have exposure to greater than anticipated tax liabilities
Our provision for income taxes is subject to volatility and could be affected by changes in our business operations,
including acquisitions, new offerings, and changes in the jurisdictions in which we operate. The provision for income taxes may
also be impacted by changes in stock-based compensation, changes in the research and development tax credit laws, earnings
being lower than anticipated in jurisdictions where we have lower statutory rates and being higher than anticipated in
jurisdictions where we have higher statutory rates, transfer pricing adjustments, not meeting the terms and conditions of tax
holidays or incentives, changes in the valuation of our deferred tax assets and liabilities, changes in actual results versus our
estimates, or changes in tax laws, regulations, accounting principles or interpretations thereof, including changes to the tax laws
applicable to corporate multinationals. Our results of operations and cash flows could be affected by future guidance
implementing the provisions of the Tax Cuts and Jobs Act. In addition, we may be subject to examination of our income tax
returns by the U.S. Internal Revenue Service and other tax authorities. While we regularly assess the likelihood of adverse
outcomes from such examinations and the adequacy of our provision for income taxes, there can be no assurance that such
provision is sufficient and that a determination by a tax authority will not have an adverse effect on our results of operations and
cash flows.
We face litigation risks
We are a party to lawsuits in the normal course of our business. Litigation in general, and intellectual property and
securities litigation in particular, can be expensive, lengthy and disruptive to normal business operations. Moreover, the results
of complex legal proceedings are difficult to predict. Responding to lawsuits has been, and will likely continue to be, expensive
and time-consuming for us. An unfavorable resolution of these lawsuits could adversely affect our business, results of
operations or financial condition.
22
We may not be able to adequately protect our intellectual property, and our products may infringe on the intellectual
property rights of third parties
We rely on a combination of patent, copyright, trademark and trade secret laws, and restrictions on disclosure of
confidential and proprietary information to protect our intellectual property rights. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Monitoring
unauthorized use of our products is difficult, and we cannot be certain that the steps we have taken will prevent
misappropriation of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as
fully as in the United States.
Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation
regarding patent and other intellectual property rights. In the ordinary course of our business, we are involved in disputes and
licensing discussions with others regarding their claimed proprietary rights and cannot provide assurance that we will always
successfully defend ourselves against such claims and such matters are subject to many uncertainties and outcomes are not
predictable with assurance. We expect that infringement claims may increase as the number of products and competitors in our
market increases and overlaps occur. Also, as we have gained greater visibility, market exposure and competitive success, we
face a higher risk of being the subject of intellectual property infringement claims. If we are found to infringe the proprietary
rights of others, or if we otherwise settle such claims, we could be compelled to pay damages or royalties and either obtain a
license to those intellectual property rights or alter our products so that they no longer infringe upon such proprietary rights.
Any license could be very expensive to obtain or may not be available at all or may require us to make royalty payments which
could adversely affect gross margins in future periods. The actual liability in any such matters may be materially different from
our estimate, if any, which could result in the need to adjust the liability and record additional expenses. Similarly, changing our
products or processes to avoid infringing upon the rights of others may be costly or impractical. In addition, we have initiated,
and may in the future initiate, claims or litigation against third parties for infringement of our proprietary rights, or to determine
the scope and validity of our proprietary rights or those of our competitors. Any of these claims, whether claims that we are
infringing the proprietary rights of others, or vice versa, with or without merit, may be time-consuming, result in costly
litigation and diversion of technical and management personnel or require us to cease using infringing technology, develop non-
infringing technology or enter into royalty or licensing agreements. Further, our license agreements typically require us to
indemnify our customers, distributors and resellers for infringement actions related to our technology, which could cause us to
become involved in infringement claims made against our customers, distributors or resellers. Any of the above-described
circumstances relating to intellectual property rights disputes could result in our business and results of operations being
harmed.
We incorporate open source software into our products. Although we monitor our use of open source closely, the terms of
many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in
a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. We could also
be subject to similar conditions or restrictions should there be any changes in the licensing terms of the open source software
incorporated into our products. In either event, we could be required to seek licenses from third parties in order to continue
offering our products, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot
be accomplished on a timely or successful basis, any of which could adversely affect our business, operating results and
financial condition.
Many of our products include intellectual property licensed from third parties. In the future, it may be necessary to renew
licenses for third party intellectual property or obtain new licenses for other technology. These third party licenses may not be
available to us on acceptable terms, if at all. The inability to obtain certain licenses, or litigation regarding the interpretation or
enforcement of license rights and related intellectual property issues, could have a material adverse effect on our business,
operating results and financial condition. Furthermore, we license some third party intellectual property on a non-exclusive
basis and this may limit our ability to protect our intellectual property rights in our products.
Global economic and geopolitical conditions may harm our industry, business and results of operations.
We operate globally and as a result, our business, revenues and profitability are impacted by global macroeconomic
conditions. The success of our activities is affected by general economic and market conditions, including, among others,
inflation, interest rates, tax rates, economic uncertainty, political instability, warfare, changes in laws, trade barriers, and
economic and trade sanctions. The U.S. capital markets experienced and continue to experience extreme volatility and
disruption following the global outbreak of COVID-19 in 2020 and the Russian invasion of Ukraine in 2022. Furthermore,
inflation rates in the U.S. have recently increased to levels not seen in decades. Such economic volatility could adversely affect
our business, financial condition, results of operations and cash flows, and future market disruptions could negatively impact
us. These unfavorable economic conditions could increase our operating costs, which could negatively impact our profitability.
Geopolitical destabilization and warfare have impacted and could continue to impact global currency exchange rates,
23
commodity prices, trade and movement of resources, which may adversely affect the buying power of our customers, our
access to and cost of resources from our suppliers, and ability to operate or grow our business.
Additionally, we have offices and employees located in regions that historically have and may experience periods of
political instability, warfare, changes in laws, trade barriers, and economic and trade sanctions. Adverse conditions in these
countries directly affect our operations. As a result, our operations and employees could be disrupted and may not be able to
function at full capacity, which could adversely affect our business, results of operations, financial condition, and cash flows.
Further, while our ability to do business has not been materially affected, the Russian invasion of Ukraine and the global
restrictive measures that have been taken, and could be taken in the future, have created significant global economic uncertainty
that could prolong and escalate tensions and expand the geopolitical conflict, which could have a lasting impact on regional and
global economies, any of which could harm our business and operating results.
We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and
results of operations
Our sales contracts are denominated in U.S. dollars, and therefore, substantially all of our revenue is not subject to foreign
currency risk. However, a strengthening of the U.S. dollar could increase the real cost of our solutions to our end customers
outside of the United States, which could adversely affect our financial condition and operating results. In addition, an
increasing portion of our operating expenses is incurred outside the United States, is denominated in foreign currencies, and is
subject to fluctuations due to changes in foreign currency exchange rates. If we become more exposed to currency fluctuations
and are not able to successfully hedge against the risks associated with currency fluctuations, our operating results could be
adversely affected. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other
derivative instruments.
The effects of a pandemic or widespread health epidemic such as the coronavirus outbreak could have a material adverse
effect on our business and results of operations
The COVID-19 pandemic has disrupted the U.S. and global economies and put unprecedented strain on governments,
healthcare systems, educational institutions, businesses, and individuals around the world, the impact and duration of which is
difficult to assess or predict. It is especially difficult to predict the impact on the global economic markets, which have been and
will continue to be highly dependent upon the actions of governments, businesses, and other enterprises in response to the
pandemic, as well as the effectiveness of those actions.
The impacts of the global pandemic on our business and financial outlook are currently unknown. Areas that may or may
not be adversely disrupted or impacted by the COVID-19 pandemic include, but are not limited to: customer demand for our
products and services, reductions in customer spend, delayed or the inability to collect from our customers, disruptions to our
supply chain that could result in delays, shortages or increased costs of our products, disruptions to our operations in servicing
our customers as a result of working remotely or business location closures, which all may adversely impact our business,
results of operations and overall financial performance in future periods.
Our operating results are exposed to risks associated with international commerce
As our international sales increase, our operating results become more exposed to international operating risks.
Additionally, our international sales and operations are subject to a number of risks, including the following:
•
•
•
•
•
•
•
•
greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods;
the uncertainty of protection for intellectual property rights in some countries;
greater risk of unexpected changes in regulatory practices, tariffs, and tax laws and treaties;
risks associated with trade restrictions and foreign legal requirements, including the importation, certification, and
localization of our products required in foreign countries;
greater risk of a failure of foreign employees, partners, distributors, and resellers to comply with both U.S. and foreign laws,
including antitrust regulations, the U.S. Foreign Corrupt Practices Act, and any trade regulations ensuring fair trade
practices;
heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales
arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements;
increased expenses incurred in establishing and maintaining office space and equipment for our international operations;
greater difficulty in recruiting local experienced personnel, and the costs and expenses associated with such activities;
24
• management communication and integration problems resulting from cultural and geographic dispersion;
•
•
•
fluctuations in exchange rates between the U.S. dollar and foreign currencies in markets where we do business;
economic uncertainty around the world, including continued economic uncertainty as a result of sovereign debt issues in
Europe; and
general economic and political conditions in these foreign markets.
In addition, on January 31, 2020, the United Kingdom withdrew from the European Union (commonly referred to
as Brexit). Brexit could lead to economic and legal uncertainty, including volatility in global stock markets and currency
exchange rates, and increasingly divergent laws, regulations, and licensing requirements. Any of these effects of Brexit, among
others, could adversely affect our operations and financial results.
We must hire and train experienced personnel to staff and manage our foreign operations. To the extent that we
experience difficulties in recruiting, training, managing, and retaining an international staff, and specifically staff related to
sales management and sales personnel, we may experience difficulties in sales productivity in foreign markets. We also enter
into strategic distributor and reseller relationships with companies in certain international markets where we do not have a local
presence. If we are not able to maintain successful strategic distributor relationships internationally or recruit additional
companies to enter into strategic distributor relationships, our future success in these international markets could be limited.
Business practices in the international markets that we serve may differ from those in the United States and may require us in
the future to include terms other than our standard terms in customer contracts. We intend to continue expanding into
international markets.
These factors and other factors could harm our ability to gain future international revenues and, consequently, materially
impact our business, operating results, and financial condition. The expansion of our existing international operations and entry
into additional international markets will require significant management attention and financial resources. Our failure to
successfully manage our international operations and the associated risks effectively could limit the future growth of our
business.
We are subject to governmental export and import controls that could subject us to liability or impair our ability to
compete in international markets
Our products are subject to U.S. export controls and may be exported outside the U.S. only with the required level of
export license or through an export license exception because we incorporate encryption technology into our products. In
addition, various countries regulate the import of certain encryption technology and have enacted laws that could limit our
ability to distribute our products or our customers’ ability to implement our products in those countries. Changes in our
products or changes in export and import regulations may create delays in the introduction of our products in international
markets, prevent our customers with international operations from deploying our products throughout their global systems or, in
some cases, prevent the export or import of our products to certain countries altogether. Any change in export or import
regulations or related legislation, shift in approach to the enforcement or scope of existing regulations or change in the
countries, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our
decreased ability to export or sell our products to, existing or potential customers with international operations. Any decreased
use of our products or limitation on our ability to export or sell our products would likely adversely affect our business,
operating results and financial condition.
Changes in governmental regulations could negatively affect our revenues
Many of our products are subject to various regulations promulgated by the United States and various foreign
governments including, but not limited to, environmental regulations and regulations implementing export license requirements
and restrictions on the import or export of some technologies, especially encryption technology. Changes in governmental
regulation and our inability or failure to obtain required approvals, permits or registrations could harm our international and
domestic sales and adversely affect our revenues, business and operations.
New regulations related to conflict minerals may force us to incur additional expenses and could limit the supply and
increase the costs of certain metals and minerals used in the manufacturing of our products
In August 2012, the SEC adopted new requirements under the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 (or the Dodd-Frank Act) for companies that use certain minerals and derivative metals (referred to as conflict
minerals, regardless of their country of origin) in their products, whether or not these products are manufactured by third
parties. The Dodd-Frank Act requires companies to perform due diligence and disclose whether or not such minerals originate
from the Democratic Republic of Congo or adjoining countries. We filed a report on Form SD with the SEC regarding such
25
matters on May 31, 2022. These requirements could adversely affect the sourcing, availability and pricing of minerals or metals
used in the manufacture of our products and the numerous components that go into our products all of which could adversely
affect our business, financial condition, and operating results. In addition, we will incur additional costs to comply with the
disclosure requirements, including costs related to determining the source of any relevant minerals and metals used in our
products. We have a complex supply chain and many components are sourced through our contract manufacturer and we may
not be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence
procedures that we implement. As a result, we may face reputational challenges with our customers and other stakeholders and
possible regulatory risk.
Anti-takeover provisions could make it more difficult for a third party to acquire us
Our Board of Directors has the authority to issue up to 10,000,000 shares of preferred stock and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the
shareholders. The rights of the holders of common stock may be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change of control of our company without further action by our shareholders and may adversely affect
the voting and other rights of the holders of common stock. Further, certain provisions of our bylaws, including a provision
limiting the ability of shareholders to raise matters at a meeting of shareholders without giving advance notice, may have the
effect of delaying or preventing changes in control or management of our company, which could have an adverse effect on the
market price of our common stock. Similarly, state anti-takeover laws in the State of Washington related to corporate takeovers
may prevent or delay a change of control of our company.
Our stock price could be volatile, particularly during times of economic uncertainty and volatility in domestic and
international stock markets
Our stock price has been volatile and has fluctuated significantly in the past. The trading price of our stock is likely to
continue to be volatile and subject to fluctuations in the future. Some of the factors that could significantly affect the market
price of our stock include:
• Actual or anticipated variations in operating and financial results;
• Analyst reports or recommendations;
• Rumors, announcements or press articles regarding our competitors’ operations, management, organization, financial
condition or financial statements; and
• Other events or factors, many of which are beyond our control.
The stock market in general and the market for technology companies in particular, have experienced extreme price and
volume fluctuations. These fluctuations have often been unrelated or disproportionate to operating performance. The
fluctuations may continue in the future and this could significantly impact the value of our stock and your investment.
If securities or industry analysts publish inaccurate or unfavorable research about our business, or discontinue
publishing research about our business, the price and trading volume of our securities could decline
The trading market for our common stock is influenced by the research and reports that industry or securities analysts
publish about us, our business, our market or our competitors. If one or more of the analysts who cover us downgrade our
common stock or publish inaccurate or unfavorable research about our business, the price of our securities would likely decline.
If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our securities could
decrease, which might cause the price and trading volume of our securities to decline.
Our business is subject to the risks of earthquakes, fire, power outages, floods, and other catastrophic events, and to
interruption by man-made problems such as terrorism
A significant natural disaster, such as an earthquake, a fire, a flood, or a significant power outage could have a material
adverse impact on our business, operating results, and financial condition. We have an administrative and product development
office and a third party contract manufacturer located in the San Francisco Bay Area, a region known for seismic activity. In
addition, natural disasters could affect our supply chain, manufacturing vendors, or logistics providers’ ability to provide
materials and perform services such as manufacturing products or assisting with shipments on a timely basis. In the event our or
our service providers’ information technology systems or manufacturing or logistics abilities are hindered by any of the events
discussed above, shipments could be delayed, resulting in missed financial targets, such as revenue and shipment targets, for a
particular quarter. In addition, cyber-attacks, acts of terrorism, or other geopolitical unrest could cause disruptions in our
business or the business of our supply chain, manufacturers, logistics providers, partners, or end-customers or the economy as a
26
whole. Any disruption in the business of our supply chain, manufacturers, logistics providers, partners or end-customers that
impacts sales at the end of a fiscal quarter could have a significant adverse impact on our quarterly results. All of the
aforementioned risks may be further increased if the disaster recovery plans for us and our suppliers prove to be inadequate. To
the extent that any of the above should result in delays or cancellations of customer orders, or the delay in the manufacture,
deployment or shipment of our products, our business, financial condition and operating results would be adversely affected.
Climate change may have an impact on our business
Risks related to climate change are increasing in both impact and type of risk. We believe there will not be significant
near-term impacts to our offices worldwide due to climate change, but long-term impacts remain unknown. However, there may
be business operational risk due to the significant impacts climate change could pose to our employees’ lives, our supply chain,
or electrical power availability from climate-related weather events. In addition, rapidly changing customer and regulatory
requirements to reduce carbon emissions present a risk of loss of business if we are not able to meet those requirements.
In addition to other risks listed in this “Risk Factors” section, factors that may affect our operating results include, but
are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
fluctuations in demand for our products and services due to changing market conditions, pricing conditions, technology
evolution, seasonality, or other changes in the global economic environment;
changes or fluctuations in sales and implementation cycles for our products and services;
changes in the mix of our products and services, including increases in SaaS and other subscription-based offerings;
changes in the growth rate of the application delivery market;
reduced visibility into our customers’ spending and implementation plans;
reductions in customers’ budgets for data center and other IT purchases or delays in these purchases;
changes in end-user customer attach rates and renewal rates for our services;
fluctuations in our gross margins, including the factors described herein, which may contribute to such fluctuations;
our ability to control costs, including operating expenses, the costs of hardware and software components, and other
manufacturing costs;
our ability to develop, introduce and gain market acceptance of new products, technologies and services, and our success in
new and evolving markets;
any significant changes in the competitive environment, including the entry of new competitors or the substantial
discounting of products or services;
the timing and execution of product transitions or new product introductions, and related inventory costs;
variations in sales channels, product costs, or mix of products sold;
our ability to establish and manage our distribution channels, and the effectiveness of any changes we make to our
distribution model;
the ability of our contract manufacturers and suppliers to provide component parts, hardware platforms and other products in
a timely manner;
benefits anticipated from our investments in sales, marketing, product development, manufacturing or other activities;
impacts on our overall tax rate caused by any reorganization in our corporate structure;
changes in tax laws or regulations, or other accounting rules; and
general economic conditions, both domestically and in our foreign markets.
Item 1B.
Unresolved Staff Comments
Not applicable.
27
Item 2.
Properties
We lease our principal administrative, sales, marketing, research and development facilities, which are located in Seattle,
Washington and consist of approximately 515,000 square feet. In May 2017, we entered into a lease agreement for the building
in Seattle, Washington that now serves as our corporate headquarters. This lease will expire in 2033 with an option for renewal.
We believe that our existing properties are in good condition and suitable for the conduct of our business. We also lease
additional office space for product development and sales and support personnel in the United States and internationally. We
believe that our future growth can be accommodated by our current facilities or by leasing additional space if necessary.
Item 3.
Legal Proceedings
See Note 12 - Commitments and Contingencies of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K)
for information regarding legal proceedings in which we are involved.
Item 4.
Mine Safety Disclosures
Not applicable.
28
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Prices of Common Stock
Our common stock is traded on the Nasdaq Global Select Market under the symbol “FFIV.” The following table sets
forth the high and low sales prices of our common stock as reported on the Nasdaq Global Select Market.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year 2022
Fiscal Year 2021
High
Low
High
Low
$
$
$
$
249.00 $
245.59 $
215.28 $
174.38 $
193.50 $
188.50 $
147.47 $
141.91 $
178.09 $
215.91 $
216.15 $
215.56 $
121.77
173.41
174.34
181.98
The last reported sales price of our common stock on the Nasdaq Global Select Market on November 7, 2022 was
$137.22.
As of November 7, 2022, there were 41 holders of record of our common stock. As many of our shares of common stock
are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of beneficial
holders of our common stock represented by these record holders.
Dividend Policy
Our policy has been to retain cash for use in our business, for investment in acquisitions and to repurchase shares of our
common stock. Accordingly, we have not paid dividends and do not anticipate declaring dividends on our common stock in the
foreseeable future.
Unregistered Securities Sold in 2022
We did not sell any unregistered shares of our common stock during the fiscal year 2022.
Issuer Purchases of Equity Securities
On July 25, 2022, we announced that our Board of Directors authorized an additional $1.0 billion for our common stock
share repurchase program. This authorization is incremental to the existing $5.4 billion program, initially approved in October
2010 and expanded in subsequent fiscal years. Acquisitions for the share repurchase programs will be made from time to time
in private transactions, accelerated share repurchase programs, or open market purchases as permitted by securities laws and
other legal requirements. The programs can be terminated at any time.
On February 3, 2021, the Company entered into Accelerated Share Repurchase (ASR) agreements with two financial
institutions under which the Company paid an aggregate of $500 million. The ASR agreements were accounted for as two
separate transactions (1) a repurchase of common stock and (2) an equity-linked contract on the Company's own stock. Upon
execution of the ASR agreements, the Company received an initial delivery of 2.1 million shares for an aggregate price of
$400 million, based on the market price of $194.91 per share of the Company's common stock on the date of the transaction.
The initial shares received by the Company were retired immediately upon receipt. The equity-linked contract for the remaining
$100 million, representing remaining shares to be delivered by the financial institutions under the ASR agreements, was
recorded to common stock as of March 31, 2021 and was settled in the third quarter of fiscal 2021 with the Company receiving
449,049 additional shares, which were retired immediately upon receipt. The total ASR resulted in a repurchase of 2.5 million
shares of the Company's common stock at a volume weighted average repurchase price, less an agreed upon discount, of
$199.90 per share. The shares received by the Company were retired, accounted for as a reduction to stockholder’s equity in the
consolidated balance sheets, and treated as a repurchase of common stock for purposes of calculating earnings per share. The
Company was not required to make any additional cash payments or delivery of common stock to the financial institutions upon
settlement of the agreements.
During fiscal year 2022, we repurchased and retired 2,611,462 shares of common stock at an average price of $191.47
per share and as of September 30, 2022, we had $1.3 billion remaining authorized to purchase shares.
29
Performance Measurement Comparison of Shareholder Return
The following graph compares the annual percentage change in the cumulative total return on shares of our common
stock, the Nasdaq Composite Index and the S&P 500 Index for the period commencing September 30, 2017, and ending
September 30, 2022.
Comparison of Cumulative Total Return
On Investment Since September 30, 2017*
The Company’s closing stock price on September 30, 2022, the last trading day of the Company’s 2022 fiscal year, was
$144.73 per share.
* Assumes that $100 was invested September 30, 2017 in shares of common stock and in each index, and that all dividends
were reinvested. Shareholder returns over the indicated period should not be considered indicative of future shareholder
returns.
30
100.00125.17125.83177.36231.03170.37F5, Inc.NASDAQ Composite - Total ReturnsS&P 500 Index - Total Return2017201820192020202120220.0050.00100.00150.00200.00250.00300.00
Item 6.
Selected Financial Data
Part II, Item 6 is no longer required as the Company has adopted certain provisions within the amendments to Regulation
S-K that eliminate Item 301.
31
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. These
statements include, but are not limited to, statements about our plans, objectives, expectations, strategies, intentions or other
characterizations of future events or circumstances and 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
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 “Item 1A. Risk Factors” herein 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.
Overview
F5 is a leading provider of multi-cloud application security and delivery solutions which enable our customers to develop,
deploy, operate, secure, and govern applications in any architecture, from on-premises to the public cloud. Our enterprise-grade
application services are available as cloud-based, software-as-a-service, and software-only solutions optimized for multi-cloud
environments, with modules that can run independently, or as part of an integrated solution on our high-performance
appliances. We market and sell our products primarily through multiple indirect sales channels in the Americas; Europe, the
Middle East, and Africa ("EMEA"); and the Asia Pacific region ("APAC"). Enterprise customers (Fortune 1000 or Business
Week Global 1000 companies) in the technology, telecommunications, financial services, transportation, education,
manufacturing, and health care industries, along with government customers, continue to make up the largest percentage of our
customer base.
Our management team monitors and analyzes a number of key performance indicators in order to manage our business
and evaluate our financial and operating performance on a consolidated basis. Those indicators include:
• Revenues. The majority of our product revenues are derived from sales of our application security and delivery solutions
including our BIG-IP software and systems, F5 NGINX software, and our Silverline offerings. Our BIG-IP software
solutions are sold both on a perpetual license and a subscription basis. We sell F5 NGINX on a subscription basis. Our
Silverline solution is a managed services offering, also sold on a subscription basis. During our fiscal year 2022, we
launched F5 Distributed Cloud Services. F5 Distributed Cloud Services provides security, multi-cloud networking, and
edge-based computing solutions, encompassing software solutions from what were previously branded as our Shape,
Volterra, and Silverline product offerings. F5 Distributed Cloud Services are offered on a subscription basis, under a unified
software-as-a-service ("SaaS") platform. We also derive revenues from the sales of global services including annual
maintenance contracts, training and consulting services.
We monitor the sales mix of our revenues within each reporting period. We believe customer acceptance rates of our new
products, feature enhancements and consumption models are indicators of future trends. We also consider overall revenue
concentration by geographic region as an additional indicator of current and future trends. Near term, we expect challenging
global supply chain conditions, particularly semiconductor constraints, will result in a shortfall in our ability to meet
customer demand for our hardware-based solutions, thereby impacting revenues from systems sales.
• Cost of revenues and gross margins. We strive to control our cost of revenues and thereby maintain our gross margins.
Significant items impacting cost of revenues are hardware costs paid to our contract manufacturers, third-party software
license fees, software-as-a-service infrastructure costs, amortization of developed technology and personnel and overhead
expenses. In addition, factors such as sales price, product and services mix, inventory obsolescence, returns, component
price increases, warranty costs, global supply chain constraints, and the remaining uncertainty surrounding the COVID-19
pandemic could significantly impact our gross margins from quarter to quarter.
• Operating expenses. Operating expenses are substantially driven by personnel and related overhead expenses. Existing
headcount and future hiring plans are the predominant factors in analyzing and forecasting future operating expense trends.
Other significant operating expenses that we monitor include marketing and promotions, travel, professional fees, computer
costs related to the development of new products and provision of services, facilities and depreciation expenses.
• Liquidity and cash flows. Our financial condition remains strong with significant cash and investments. The decrease in cash
and investments for fiscal year 2022 was primarily due to $500.0 million of cash used for the repurchase of shares and
$68.0 million in cash paid for the acquisition of Threat Stack in the first quarter of fiscal 2022. The decrease in cash and
investments for fiscal year 2022 was partially offset by cash provided by operating activities of $442.6 million. Going
forward, we believe the primary driver of cash flows will be net income from operations. We will continue to evaluate
possible acquisitions of, or investments in businesses, products, or technologies that we believe are strategic, which may
32
require the use of cash. Additionally, on January 31, 2020, we entered into a Revolving Credit Agreement (the "Revolving
Credit Agreement") that provides for a senior unsecured revolving credit facility in an aggregate principal amount of $350.0
million (the "Revolving Credit Facility"). We have the option to increase commitments under the Revolving Credit Facility
from time to time, subject to certain conditions, by up to $150.0 million. As of September 30, 2022, there were no
outstanding borrowings under the Revolving Credit Facility, and we had available borrowing capacity of $350.0 million.
• Balance sheet. We view cash, short-term and long-term investments, deferred revenue, accounts receivable balances and
days sales outstanding as important indicators of our financial health. Deferred revenues continued to increase in fiscal 2022
due to the growth of our subscriptions business. Our days sales outstanding for the fourth quarter of fiscal year 2022 was 60.
Days sales outstanding is calculated by dividing ending accounts receivable by revenue per day for a given quarter.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America. The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
We believe that, of our significant accounting policies, which are described in Note 1 of the notes to the consolidated
financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these
are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition
and results of operations.
Revenue Recognition. We sell products through distributors, resellers, and directly to end users. Revenue related to our
contracts with customers is recognized by following a five-step process:
•
•
Identify the contract(s) with a customer. Evidence of a contract generally consists of a purchase order issued pursuant to the
terms and conditions of a distributor, reseller or end user agreement.
Identify the performance obligations in the contract. Performance obligations are identified in our contracts and include
hardware, hardware-based software, software-only solutions, cloud-based subscription services as well as a broad range of
service performance obligations including consulting, training, installation and maintenance.
• Determine the transaction price. The purchase price stated in an agreed upon purchase order is generally representative of
the transaction price. We offer several programs in which customers are eligible for certain levels of rebates if certain
conditions are met. When determining the transaction price, we consider the effects of any variable consideration.
• Allocate the transaction price to the performance obligations in the contract. The transaction price in a contract is allocated
based upon the relative standalone selling price of each distinct performance obligation identified in the contract.
• Recognize revenue when (or as) the entity satisfies a performance obligation. We satisfy performance obligations either
over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related
performance obligation is satisfied by transferring control of promised products and services to a customer.
Revenue is recognized net of any taxes collected, which are subsequently remitted to governmental authorities. Shipping
and handling fees charged to our customers are recognized as product revenue in the period shipped and the related costs for
providing these services are recorded as a cost of sale.
The following is a description of the principal activities from which we generate revenue:
Product
Revenue from the sale of our hardware and perpetual software products is generally recognized at a point in time when
the product has been fulfilled and the customer is obligated to pay for the product. We also offer several products by
subscription, either through term-based license agreements or as SaaS offerings. Revenue for term-based license agreements is
recognized at a point in time when we deliver the software license to the customer and the subscription term has commenced.
For our SaaS offerings, revenue is recognized ratably as the services are provided. Hardware, including the software run on
those devices is considered systems revenue. Perpetual or subscription software offerings that are deployed on a standalone
basis, along with our SaaS offerings, are considered software revenue. When rights of return are present and we cannot estimate
returns, revenue is recognized when such rights of return lapse. Payment terms to customers are generally net 30 days to net 60
days.
33
Global Services
Revenues for post-contract customer support (PCS) are recognized on a straight-line basis over the service contract term.
PCS includes a limited period of telephone support, updates, repair or replacement of any failed product or component that fails
during the term of the agreement, bug fixes and rights to upgrades, when and if available. Consulting services are customarily
billed at fixed hourly rates, plus out-of-pocket expenses, and revenues are recognized as the consulting is completed. Similarly,
training revenue is recognized as the training is completed.
Contract Acquisition Costs
Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with
a customer. Sales commissions for initial service contracts and subscription offerings are deferred and then amortized as an
expense on a straight-line basis over the period of benefit which management has determined to be 4.5 years and 3 years,
respectively.
Significant Judgments
We enter into certain contracts with customers, including flexible consumption programs and multi-year subscriptions,
with non-standard terms and conditions. Management exercises significant judgment in assessing contractual terms in these
arrangements to identify and evaluate performance obligations. Management allocates consideration to each performance
obligation based on relative fair value using standalone selling price and recognizes associated revenue as control is transferred
to the customer.
Business Combinations. Our business combinations are accounted for under the acquisition method. We allocate the fair
value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated
fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities
is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with
respect to intangible assets.
COVID-19 Update
Management has prioritized a human-first approach to the COVID-19 pandemic. For F5, this means ensuring the health
and safety of employees, their families and our communities. Further, this approach extends to our customers as we look for
ways that we can support their operations.
We continue to monitor the ongoing uncertainty related to the global pandemic on our business and financial outlook.
Global supply chain constraints in the wake of the COVID-19 pandemic have reduced our visibility into component availability
and lead times and costs have increased for components necessary for our hardware-based solutions. We are continuing to
undertake efforts to mitigate supply chain constraints, but pandemic-related impacts to component availability have lengthened
systems shipment lead times and delayed our ability to fulfill some hardware orders. In addition, we are conducting business
with modifications to employee travel, employee work locations, and virtualization of certain sales and marketing events,
among other modifications. We will continue to actively monitor the situation and may take further actions that alter our
business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our
employees, customers, partners, suppliers and stockholders. It is not clear what the potential effects any such alterations or
modifications may have on our business, including the effects on our customers and prospects, or on our financial results.
Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and
related notes included elsewhere in this Annual Report on Form 10-K.
34
Net revenues
Products
Services
Total
Percentage of net revenues
Products
Services
Total
Years Ended September 30,
2022
2021
2020
(in thousands, except percentages)
$ 1,317,117
1,378,728
$ 2,695,845
$ 1,247,084
1,356,332
$ 2,603,416
$ 1,025,856
1,324,966
$ 2,350,822
48.9 %
51.1
100.0 %
47.9 %
52.1
100.0 %
43.6 %
56.4
100.0 %
Net Revenues. Total net revenues increased 3.6% in fiscal year 2022 from fiscal year 2021, compared to an increase of
10.7% in fiscal year 2021 from the prior year. Overall revenue growth for the year ended September 30, 2022 was due to
increases in both product and service revenue. The product revenue increase was driven by software revenue increases,
specifically from our subscription-based offerings, which include software sold via our flexible consumption program or multi-
year subscriptions, and our SaaS product offerings. This was partially offset by a decrease in systems revenue associated with a
shortage of components required to meet systems demand. Service revenues increased as a result of our increased installed base
of products. International revenues represented 44.8%, 47.5% and 48.1% of net revenues in fiscal years 2022, 2021 and 2020,
respectively.
Net Product Revenues. Net product revenues increased 5.6% in fiscal year 2022 from fiscal year 2021, compared to an
increase of 21.6% in fiscal year 2021 from the prior year. The increase of $70.0 million in net product sales for fiscal year 2022
was due to continued growth in software revenue, partially offset by a decrease in systems revenue associated with a shortage
of components to meet systems demand. The increase of $221.2 million in net product sales for fiscal year 2021 was primarily
due to an increase in both software and systems revenue compared to the prior year.
The following presents net product revenues by systems and software (in thousands):
Net product revenues
Systems revenue
Software revenue
Total net product revenue
Percentage of net product revenues
Systems revenue
Software revenue
Total net product revenue
Years Ended September 30,
2022
2021
2020
$ 651,902
665,215
$ 1,317,117
$ 748,192
498,892
$ 1,247,084
$ 668,313
357,543
$ 1,025,856
49.5 %
50.5
100.0 %
60.0 %
40.0
100.0 %
65.1 %
34.9
100.0 %
Net Service Revenues. Net service revenues increased 1.7% in fiscal year 2022 from fiscal year 2021, compared to an
increase of 2.4% in fiscal year 2021 from the prior year. The increases in service revenue were the result of increased purchases
or renewals of maintenance contracts driven by additions to our installed base of products.
The following distributors of our products accounted for more than 10% of total net revenue:
Ingram Micro, Inc.
Synnex Corporation
Years Ended September 30,
2022
2021
2020
20.0 %
13.4 %
19.2 %
11.1 %
16.7 %
—
35
The following distributors of our products accounted for more than 10% of total receivables:
Ingram Micro, Inc.
Synnex Corporation
Carahsoft Technology
September 30,
2022
2021
12.9 %
12.6 %
16.2 %
12.6 %
11.9 %
11.5 %
No other distributors accounted for more than 10% of total net revenue or receivables.
Cost of net revenues and gross profit
Products
Services
Total
Gross profit
Percentage of net revenues and gross margin (as a percentage of related
net revenue)
Products
Services
Total
Gross margin
Years Ended September 30,
2022
2021
2020
(in thousands, except percentages)
$ 319,713
219,914
539,627
$ 2,156,218
$ 286,293
206,853
493,146
$ 2,110,270
$ 215,275
192,612
407,887
$ 1,942,935
24.3 %
16.0
20.0
80.0 %
23.0 %
15.3
18.9
81.1 %
21.0 %
14.5
17.4
82.6 %
Cost of Net Product Revenues. Cost of net product revenues consist of finished products purchased from our contract
manufacturers, manufacturing overhead, freight, warranty, provisions for excess and obsolete inventory, software-as-a-service
infrastructure costs and amortization expenses in connection with developed technology from acquisitions. Cost of net product
revenues increased to $319.7 million in fiscal year 2022, up 11.7% from the prior year, primarily due to software product
revenue growth. In addition, we experienced an increase in component prices, expedite fees and other sourcing-related costs in
fiscal 2022. Cost of net product revenues increased to $286.3 million in fiscal year 2021, up 33.0% from the prior year,
primarily due to software product revenue growth.
Cost of Net Service Revenues. Cost of net service revenues consist of the salaries and related benefits of our professional
services staff, travel, facilities and depreciation expenses. Cost of net service revenues as a percentage of net service revenues
increased to 16.0% in fiscal year 2022 compared to 15.3% in fiscal year 2021 and 14.5% in fiscal year 2020. Professional
services headcount at the end of fiscal 2022 increased to 1,091 from 1,014 at the end of fiscal 2021. Professional services
headcount at the end of fiscal year 2021 increased to 1,014 from 965 at the end of fiscal 2020. In addition, cost of net service
revenues included stock-based compensation expense of $21.9 million, $22.1 million and $20.8 million for fiscal years 2022,
2021 and 2020, respectively.
36
Operating expenses
Sales and marketing
Research and development
General and administrative
Restructuring charges
Total
Operating expenses (as a percentage of net revenue)
Sales and marketing
Research and development
General and administrative
Restructuring charges
Total
Years Ended September 30,
2022
2021
2020
(in thousands, except percentages)
$ 926,591
543,368
274,558
7,909
$ 1,752,426
$ 929,983
512,627
273,635
—
$ 1,716,245
$ 843,178
441,324
258,366
7,800
$ 1,550,668
34.4 %
20.1
10.2
0.3
65.0 %
35.7 %
19.7
10.5
—
65.9 %
35.9 %
18.8
11.0
0.3
66.0 %
Sales and Marketing. Sales and marketing expenses consist of the salaries, commissions and related benefits of our sales
and marketing staff, the costs of our marketing programs, including public relations, advertising and trade shows, travel,
facilities, and depreciation expenses. Sales and marketing expense remained relatively flat in fiscal year 2022 from the prior
year, as compared to a year-over-year increase of 10.3% in fiscal year 2021. Sales and marketing expense for fiscal year 2022
included a decrease of $14.0 million in commissions, partially offset by an increase in employee travel and customer outreach
of $12.9 million, compared to the prior year. Sales and marketing headcount at the end of fiscal year 2022 increased to 2,500
from 2,479 at the end of fiscal year 2021. In fiscal year 2021, the increase in sales and marketing expense was primarily due to
increases in commissions and personnel costs of $57.3 million, compared to the prior year. The increases in commissions and
personnel costs were driven by growth in sales and marketing employee headcount during fiscal year 2021, including
employees from the acquisition of Volterra, as well as higher commissions related to software sales. Sales and marketing
headcount at the end of fiscal year 2021 increased to 2,479 from 2,395 at the end of fiscal year 2020. Sales and marketing
expenses for fiscal year 2021 also included impairment charges of $11.5 million related to the exit of certain facilities. Sales
and marketing expense included stock-based compensation expense of $104.3 million, $104.6 million and $88.4 million for
fiscal years 2022, 2021 and 2020, respectively.
Research and Development. Research and development expenses consist of the salaries and related benefits of our
product development personnel, prototype materials and other expenses related to the development of new and improved
products, facilities and depreciation expenses. Research and development expense increased 6.0% in fiscal year 2022 from the
prior year, as compared to a year-over-year increase of 16.2% in fiscal year 2021. The increase in research and development
expense for fiscal year 2022 was primarily due to increased personnel costs of $29.6 million, compared to the prior year. The
increase in personnel costs were driven by growth in research and development employee headcount during fiscal year 2022,
including employees from the acquisition of Threat Stack. Research and development headcount at the end of fiscal year 2022
increased to 2,170 from 1,884 at the end of fiscal year 2021. In fiscal year 2021, the increase in research and development
expense was primarily due to increased personnel costs of $48.8 million, compared to the prior year. The increase in personnel
costs were driven by growth in research and development employee headcount during fiscal year 2021, including employees
from the acquisition of Volterra. Research and development headcount at the end of fiscal year 2021 increased to 1,884 from
1,797 at the end of fiscal year 2020. Research and development expenses for fiscal year 2021 also included impairment charges
of $13.0 million related to the exit of certain facilities. Research and development expense included stock-based compensation
expense of $71.8 million, $67.2 million and $50.3 million for fiscal years 2022, 2021 and 2020, respectively.
General and Administrative. General and administrative expenses consist of the salaries, benefits and related costs of our
executive, finance, information technology, human resource and legal personnel, third-party professional service fees, bad debt
charges, facilities and depreciation expenses. General and administrative expense remained relatively flat in fiscal year 2022
from the prior year, as compared to a year-over-year increase of 5.9% in fiscal year 2021. General and administrative expense
for fiscal year 2022 included an increase of $15.4 million in personnel costs, partially offset by a decrease in fees paid to
outside consultants for legal, accounting and tax services of $7.0 million and a decrease in facilities costs of $7.7 million,
compared to the prior year. The increase in personnel costs were driven by growth in general and administrative employee
headcount during fiscal year 2022. General and administrative headcount at the end of fiscal year 2022 increased to 984 from
829 at the end of fiscal year 2021. In fiscal year 2021, the increase in general and administrative expense was primarily due to
increased personnel costs of $11.7 million, compared to the prior year. The increase in personnel costs were driven by growth
in general and administrative employee headcount during fiscal year 2021, including employees from the acquisition of
37
Volterra. General and administrative headcount at the end of fiscal year 2021 increased to 829 from 704 at the end of fiscal year
2020. General and administrative expenses for fiscal year 2021 also included impairment charges of $9.9 million related to the
exit of certain facilities. General and administrative expense included stock-based compensation expense of $43.9 million,
$42.4 million and $37.8 million for fiscal years 2022, 2021 and 2020, respectively.
Restructuring charges. In the first fiscal quarters of 2022 and 2020, we completed restructuring programs to align
strategic and financial objectives and optimize resources for long-term growth. As a result of these initiatives, we recorded
restructuring charges of $7.9 million and $7.8 million related to a reduction in workforce that is reflected in our results for the
years ended September 30, 2022 and 2020, respectively. There were no restructuring expenses recorded for the year ended
September 30, 2021.
Other income and income taxes
Income from operations
Other (expense) income, net
Income before income taxes
Provision for income taxes
Net income
Other income and income taxes (as percentage of net revenue)
Income from operations
Other (expense) income, net
Income before income taxes
Provision for income taxes
Net income
Years Ended September 30,
2022
2021
2020
(in thousands, except percentages)
$ 403,792
(18,399)
385,393
63,233
$ 322,160
$ 394,025
(7,088)
386,937
55,696
$ 331,241
$ 392,267
4,130
396,397
88,956
$ 307,441
15.0 %
(0.7)
14.3
2.3
12.0 %
15.1 %
(0.3)
14.8
2.1
12.7 %
16.7 %
0.2
16.9
3.8
13.1 %
Other (Expense) Income, Net. Other (expense) income, net, consists primarily of interest income and expense and foreign
currency transaction gains and losses. Other (expense) income, net decreased $11.3 million in fiscal year 2022, as compared to
fiscal year 2021 and decreased $11.2 million in fiscal year 2021, as compared to fiscal year 2020. The decrease in other
(expense) income, net for fiscal year 2022 was primarily due to an increase in foreign currency loss of $7.8 million, and an
increase in interest expense of $2.7 million, compared to the prior year. The decrease in other (expense) income, net for fiscal
year 2021 as compared to fiscal year 2020 was primarily due to a decrease of $9.8 million in interest income from our
investments compared to the prior year, and an increase in foreign currency losses of $2.3 million, compared to the prior year.
Provision for Income Taxes. We recorded a 16.4% provision for income taxes for fiscal year 2022, compared to 14.4% in
fiscal year 2021 and 22.4% in fiscal year 2020. The increase in the effective tax rate from fiscal year 2021 to 2022 is primarily
due to a discrete impact recorded in fiscal year 2021 from filing the Company’s fiscal year 2020 U.S. federal income tax return.
The decrease in the effective tax rate from fiscal year 2020 to 2021 is primarily due to a discrete impact from filing the
Company's fiscal year 2020 U.S. federal income tax return and the tax impact from stock based compensation.
We record a valuation allowance to reduce our deferred tax assets to the amount we believe is more likely than not to be
realized. In making these determinations we consider historical and projected taxable income, and ongoing prudent and feasible
tax planning strategies in assessing the appropriateness of a valuation allowance. The net increase in the valuation allowance of
$5.7 million for fiscal year 2022 and $7.8 million for fiscal year 2021 was primarily related to tax net operating losses and
credits incurred in certain foreign jurisdictions and state tax carryforwards. Our net deferred tax assets as of September 30,
2022, 2021 and 2020 were $180.6 million, $125.8 million, and $44.6 million respectively.
Our worldwide effective tax rate may fluctuate based on a number of factors, including variations in projected taxable
income in the various geographic locations in which we operate, changes in the valuation of our net deferred tax assets,
resolution of potential exposures, tax positions taken on tax returns filed in the various geographic locations in which we
operate, and the introduction of new accounting standards or changes in tax laws or interpretations thereof in the various
geographic locations in which we operate. We have recorded liabilities to address potential tax exposures related to business
and income tax positions we have taken that could be challenged by taxing authorities. The ultimate resolution of these
potential exposures may be greater or less than the liabilities recorded which could result in an adjustment to our future tax
expense.
38
Liquidity and Capital Resources
We have funded our operations with our cash balances and cash generated from operations.
Liquidity and Capital Resources
Cash and cash equivalents and investments
Cash provided by operating activities
Cash provided by (used in) investing activities
Cash (used in) provided by financing activities
Years Ended September 30,
2022
2021
2020
(in thousands)
$
894,110 $ 1,043,385 $ 1,312,828
660,898
645,196
442,631
(747,002)
(445,335)
218,116
337,243
(468,280)
(476,508)
Cash and cash equivalents, short-term investments and long-term investments totaled $894.1 million as of September 30,
2022, compared to $1,043.4 million as of September 30, 2021, representing a decrease of $149.3 million. The decrease was
primarily due to $500.0 million of cash required for the repurchase of outstanding common stock and $68.0 million in cash paid
for the acquisition of Threat Stack in the first quarter of fiscal 2022. The decrease was also driven by $33.6 million of capital
expenditures related to the expansion of our facilities to support our operations worldwide as well as investments in information
technology infrastructure and equipment purchases to support our core business activities. The decrease was partially offset by
cash provided by operating activities of $442.6 million. As of September 30, 2022, 62.8% of our cash and cash equivalents and
investment balances were outside of the U.S. The cash and cash equivalents and investment balances outside of the U.S. are
subject to fluctuation based on the settlement of intercompany balances. In fiscal year 2021, the decrease to cash and cash
equivalents, short-term investments and long-term investments from the prior year was primarily due to $500.0 million of cash
required for the repurchase of outstanding common stock under our Accelerated Share Repurchase agreements and $411.3
million in cash paid for the acquisition of businesses, primarily Volterra in the second quarter of fiscal 2021. The decrease was
also driven by $30.7 million of capital expenditures related to the expansion of our facilities to support our operations
worldwide as well as investments in information technology infrastructure and equipment purchases to support our core
business activities. The decrease was partially offset by cash provided by operating activities of $645.2 million. As of
September 30, 2021, 54.9% of our cash and cash equivalents and investment balances were outside of the U.S.
Cash provided by operating activities during fiscal year 2022 was $442.6 million compared to $645.2 million in fiscal
year 2021 and $660.9 million in fiscal year 2020. Cash provided by operating activities resulted primarily from cash generated
from net income, after adjusting for non-cash charges such as stock-based compensation, depreciation and amortization charges
and changes in operating assets and liabilities. Cash provided by operating activities for fiscal year 2022 decreased from the
prior year primarily due to strong multi-year subscription sales in fiscal year 2022, which are generally sold on three-year
terms. Multi-year subscriptions are billed on an annual basis with the remainder recognized on the balance sheet as unbilled
assets. In addition, during fiscal year 2022, we had significant prepayments with our contract manufacturer associated with
components for future hardware-based solution builds.
Cash from operations could be affected by various risks and uncertainties, including, but not limited to the risks detailed
in Part I, Item 1A titled “Risk Factors.” However, we anticipate our current cash, cash equivalents and investment balances,
anticipated cash flows generated from operations, and available borrowing capacity on the Revolver Credit Facility will be
sufficient to meet our liquidity needs.
Cash provided by investing activities during fiscal year 2022 was $218.1 million compared to cash used in investing
activities of $445.3 million in fiscal year 2021 and $747.0 million in fiscal year 2020. Investing activities include purchases,
sales and maturities of available-for-sale securities, business acquisitions and capital expenditures. Cash provided by investing
activities for fiscal year 2022 was primarily the result of $260.4 million in maturities of investments and $120.6 million in sales
of investments, partially offset by $68.0 million cash paid for the acquisition Threat Stack in the first quarter of fiscal 2022 and
purchases of investments of $61.3 million. Cash used in investing activities for fiscal year 2021 was primarily the result of
$411.3 million in cash paid for the acquisition businesses, primarily Volterra in the second quarter of fiscal 2021, along with
capital expenditures related to maintaining our operations worldwide and the purchase of investments, partially offset by the
maturity and sale of investments. Cash used in investing activities for fiscal year 2020 was primarily the result of $955.6
million in cash paid for the acquisition of Shape, along with capital expenditures related to maintaining our operations
worldwide and the purchase of investments, partially offset by the maturity and sale of investments.
Cash used in financing activities was $476.5 million for fiscal year 2022, compared to cash used in financing activities of
$468.3 million for fiscal year 2021 and cash provided by financing activities of $337.2 million for fiscal year 2020. Cash used
in financing activities for fiscal year 2022 included $500.0 million to repurchase shares under our Share Repurchase program,
39
as well as $21.0 million in cash used for taxes related to net share settlement of equity awards and $20.0 million in cash used to
make principal payments on our term loan. Cash used in financing activities was partially offset by cash received from the
exercise of employee stock options and stock purchases under our employee stock purchase plan of $64.5 million. Cash used in
financing activities for fiscal year 2021 included $500.0 million to repurchase shares under our Accelerated Share Repurchase
agreements, as well as $20.0 million in cash used to make principal payments on our term loan and $14.0 million in cash used
for taxes related to net share settlement of equity awards. Cash used in financing activities was partially offset by cash received
from the exercise of employee stock options and stock purchases under our employee stock purchase plan of $65.8 million.
Cash provided by financing activities for fiscal year 2020 included $400.0 million in cash proceeds from a term loan, as well as
cash received from the exercise of employee stock options and stock purchases under our employee stock purchase plan of
$52.8 million, partially offset by $100.0 million in cash used to repurchase common stock under our share repurchase program
and $10.0 million in cash used to make a principal payment on our term loan.
On January 31, 2020, we entered into a Revolving Credit Agreement (the "Revolving Credit Agreement") that provides
for a senior unsecured revolving credit facility in an aggregate principal amount of $350.0 million (the "Revolving Credit
Facility"). We have the option to increase commitments under the Revolving Credit Facility from time to time, subject to
certain conditions, by up to $150.0 million. As of September 30, 2022, there were no outstanding borrowings under the
Revolving Credit Facility, and we had available borrowing capacity of $350.0 million.
Based on our current operating and capital expenditure forecasts, we believe that our existing cash and investment
balances, together with cash generated from operations should be sufficient to meet our operating requirements for the next
twelve months. Our future capital requirements will depend on many factors, including our rate of revenue growth, the
expansion of our sales and marketing activities, the timing and extent of expansion into new territories, the timing of
introductions of new products and enhancements of existing products, the continuing market acceptance of our products and
cash paid for future acquisitions.
Obligations and Commitments
As of September 30, 2022, we had approximately $69.7 million of tax liabilities, including interest and penalties, related
to uncertain tax positions (See Note 8 to our Consolidated Financial Statements). Because of the high degree of uncertainty
regarding the settlement of these liabilities, we are unable to estimate the years in which future cash outflows may occur.
As of September 30, 2022, our principal commitments consisted of borrowings under the Term Loan Facility and
obligations outstanding under operating leases.
In connection with the acquisition of Shape, on January 24, 2020, we entered into a Term Credit Agreement ("Term
Credit Agreement") with certain institutional lenders that provides for a senior unsecured term loan facility in an aggregate
principal amount of $400.0 million (the "Term Loan Facility"). The proceeds from the Term Loan Facility were primarily used
to finance the acquisition of Shape and related expenses. As of September 30, 2022, $350.0 million of principal amount under
the Term Loan Facility was outstanding. There is a financial covenant that requires us to maintain a leverage ratio, calculated as
of the last day of each fiscal quarter, of consolidated total indebtedness to consolidated EBITDA. This covenant may result in a
higher interest rate on our outstanding principal borrowings on the Term Loan Facility in future periods, depending on the
Company's performance. Refer to Note 6 of our Consolidated Financial Statements for the scheduled principal maturities of the
Term Loan Facility as of September 30, 2022.
We have a contractual obligation to purchase inventory components procured by our primary contract manufacturer in
accordance with our annual build forecast. The contractual terms of the obligation contain cancellation provisions, which
reduce our liability to purchase inventory components for periods greater than one year. In order to support our build forecast,
we will, from time-to-time prepay our primary contract manufacturer for inventory purchases.
Recently Adopted Accounting Standards
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets
and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities
acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with
ASC 606, Revenue from Contracts with Customers. The Company early adopted this accounting standard update beginning in
the first quarter of fiscal 2022 and it did not have a material impact on the Company's consolidated financial statements.
40
Item 7A.
Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Risk. Our cash equivalents consist of high-quality securities, as specified in our investment policy
guidelines. The policy limits the amount of credit exposure to any one issue or issuer to a maximum of 5% of the total portfolio
with the exception of U.S. treasury and agency securities and money market funds, which are exempt from size limitation. The
policy requires investments in securities that mature in three years or less, with the average maturity being no greater than one
and a half years. These securities are subject to interest rate risk and will decrease in value if interest rates increase. A
hypothetical increase in interest rates of 100 basis points at September 30, 2022 could result in a market value reduction for our
portfolio of approximately $0.5 million.
Inflation Risk. We are actively monitoring the current inflationary environment, but we do not believe that inflation has
had a material effect on our business, financial condition or results of operations. If our costs were to become subject to
significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or
failure to do so could harm our business, financial condition and results of operations. If the current inflationary environment
constrains our customers’ ability to procure goods and services from us, we may see customers reprioritize these investment
decisions. These macroeconomic conditions could harm our business, financial condition and results of operations.
Foreign Currency Risk. The majority of our sales, cost of net revenues, and operating expenses are denominated in
U.S. dollars and as a result, we have not experienced significant foreign currency transaction gains and losses to date. While we
conduct transactions in foreign currencies and expect to continue to do so, we do not anticipate that foreign currency transaction
gains or losses will be significant at our current level of operations. However, as we continue to expand our operations
internationally, transaction gains or losses may become significant in the future.
41
Item 8.
Financial Statements and Supplementary Data
F5, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 238)
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
43
45
46
47
48
49
51
42
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of F5, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of F5, Inc. and its subsidiaries (the “Company”) as of
September 30,2022 and 2021, and the related consolidated statements of income, of comprehensive income, of shareholders’
equity and of cash flows for each of the three years in the period ended September 30, 2022, including the related notes
(collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over
financial reporting as of September 30, 2022, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the
three years in the period ended September 30, 2022 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of September 30, 2022, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Changes in Accounting Principles
As discussed in Note 7 to the consolidated financial statements, the Company changed the way the manner in which it accounts
for leases as of October 1, 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express
opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
43
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition - Identification and Evaluation of Contractual Terms in Certain Customer Arrangements
As described in Note 1 to the consolidated financial statements, the Company enters into certain contracts with customers,
including flexible consumption programs and multi-year subscriptions, with non-standard terms and conditions. Management
exercises significant judgment in assessing contractual terms in these arrangements to identify and evaluate performance
obligations. Management allocates consideration to each performance obligation based on relative fair value using standalone
selling price and recognizes associated revenue as control is transferred to the customer. The revenue recognized and deferred
based on relative fair value represents a portion of Total Net revenues of $2,695.8 million for the year ended September 30,
2022, and Deferred revenue of $1,067.2 million and Deferred revenue, long-term of $624.4 million as of September 30, 2022.
The principal considerations for our determination that performing procedures relating to the identification and evaluation of
contractual terms in certain customer arrangements is a critical audit matter are (i) the significant judgment by management in
assessing contractual terms in certain customer arrangements and in determining the appropriate revenue recognition and (ii) a
high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s judgment
relating to assessing the contractual terms in certain customer arrangements to identify and evaluate performance obligations.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
revenue recognition process, including controls related to assessing contractual terms used in the identification and evaluation
of performance obligations. These procedures also included, among others, on a sample basis (i) testing the completeness and
accuracy of management’s assessment of the contractual terms by evaluating certain customer arrangements and (ii) testing
management’s process for determining the appropriate amount and timing of revenue recognition based on management’s
assessment of the contractual terms identified in certain customer arrangements.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
November 15, 2022
We have served as the Company’s auditor since 1996.
44
F5, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30,
2022
2021
ASSETS
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowances of $6,020 and $3,696
Inventories
Other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Long-term investments
Deferred tax assets
Goodwill
Other assets, net
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable
Accrued liabilities
Deferred revenue
Current portion of long-term debt
Total current liabilities
Deferred tax liabilities
Deferred revenue, long-term
Operating lease liabilities, long-term
Long-term debt
Other long-term liabilities
Total long-term liabilities
Commitments and contingencies (Note 12)
Shareholders’ equity
Preferred stock, no par value; 10,000 shares authorized, no shares outstanding
Common stock, no par value; 200,000 shares authorized, 59,860 and 60,652 shares issued and
outstanding
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
758,012 $
126,554
469,979
68,365
489,314
1,912,224
168,182
227,475
9,544
183,365
2,259,282
516,122
580,977
329,630
340,536
22,055
337,902
1,611,100
191,164
244,934
132,778
128,193
2,216,553
472,558
$ 5,276,194 $ 4,997,280
$
113,178 $
309,819
1,067,182
349,772
1,839,951
2,781
624,398
272,376
—
67,710
967,265
62,096
341,487
968,669
19,275
1,391,527
2,414
521,173
296,945
349,772
75,236
1,245,540
—
—
91,048
(26,176)
192,458
(20,073)
2,187,828
2,360,213
$ 5,276,194 $ 4,997,280
2,404,106
2,468,978
The accompanying notes are an integral part of these consolidated financial statements.
45
F5, INC.
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
Years Ended September 30,
2022
2021
2020
$ 1,317,117 $ 1,247,084 $ 1,025,856
1,324,966
2,350,822
1,356,332
2,603,416
1,378,728
2,695,845
319,713
219,914
539,627
2,156,218
926,591
543,368
274,558
7,909
1,752,426
403,792
(18,399)
385,393
63,233
322,160 $
5.34 $
286,293
206,853
493,146
2,110,270
929,983
512,627
273,635
—
1,716,245
394,025
(7,088)
386,937
55,696
331,241 $
5.46 $
60,274
60,707
5.27 $
5.34 $
61,097
62,057
215,275
192,612
407,887
1,942,935
843,178
441,324
258,366
7,800
1,550,668
392,267
4,130
396,397
88,956
307,441
5.05
60,911
5.01
61,378
$
$
$
Net revenues
Products
Services
Total
Cost of net revenues
Products
Services
Total
Gross profit
Operating expenses
Sales and marketing
Research and development
General and administrative
Restructuring charges
Total
Income from operations
Other (expense) income, net
Income before income taxes
Provision for income taxes
Net income
Net income per share — basic
Weighted average shares — basic
Net income per share — diluted
Weighted average shares — diluted
The accompanying notes are an integral part of these consolidated financial statements.
46
F5, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive (loss) income:
Foreign currency translation adjustment
Available-for-sale securities:
Unrealized (losses) gains on securities, net of taxes of $(160), $(234),
and $76 for the years ended September 30, 2022, 2021, and 2020,
respectively
Reclassification adjustment for realized (losses) gains included in net
income, net of taxes of $48, $(69), and $(65) for the years ended
September 30, 2022, 2021, and 2020, respectively
Net change in unrealized (losses) gains on available-for-sale
securities, net of tax
Total other comprehensive (loss) income
Comprehensive income
Years Ended September 30,
2022
2021
2020
$
322,160 $
331,241 $
307,441
(4,502)
(68)
(572)
(1,449)
(1,557)
809
(152)
268
237
(1,601)
(6,103)
316,057 $
(1,289)
(1,357)
329,884 $
1,046
474
307,915
$
The accompanying notes are an integral part of these consolidated financial statements.
47
F5, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
Balances, September 30, 2019
Exercise of employee stock options
Issuance of stock under employee stock
purchase plan
Issuance of restricted stock
Repurchase of common stock
Taxes paid related to net share settlement of
equity awards
Stock-based compensation
Net income
Other comprehensive income
Balances, September 30, 2020
Exercise of employee stock options
Issuance of stock under employee stock
purchase plan
Issuance of restricted stock
Repurchase of common stock
Taxes paid related to net share settlement of
equity awards
Stock-based compensation
Net income
Other comprehensive loss
Balances, September 30, 2021
Exercise of employee stock options
Issuance of stock under employee stock
purchase plan
Issuance of restricted stock
Repurchase of common stock
Taxes paid related to net share settlement of
equity awards
Stock-based compensation
Net income
Other comprehensive loss
Balances, September 30, 2022
Common Stock
Shares
Amount
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
Shareholders’
Equity
60,367 $
142,597 $
(19,190) $ 1,638,090 $ 1,761,497
104
2,596
419
1,027
50,239
—
(799)
(100,016)
(19)
(2,536)
—
—
—
212,573
—
—
—
—
—
—
—
—
—
474
—
—
—
—
—
—
307,441
—
2,596
50,239
—
(100,016)
(2,536)
212,573
307,441
474
61,099 $
305,453 $
(18,716) $ 1,945,531 $ 2,232,268
164
4,864
542
1,430
60,888
—
(2,501)
(411,056)
(82)
(14,032)
—
—
—
246,341
—
—
—
—
—
—
—
—
—
(1,357)
—
—
—
4,864
60,888
—
(88,944)
(500,000)
—
—
331,241
—
(14,032)
246,341
331,241
(1,357)
60,652 $
192,458 $
(20,073) $ 2,187,828 $ 2,360,213
143
412
1,368
(2,611)
3,613
60,927
—
(394,141)
(104)
(21,025)
—
—
—
249,216
—
—
—
—
—
—
—
—
—
(6,103)
—
—
—
(105,882)
—
—
322,160
—
3,613
60,927
—
(500,023)
(21,025)
249,216
322,160
(6,103)
59,860 $
91,048 $
(26,176) $ 2,404,106 $ 2,468,978
The accompanying notes are an integral part of these consolidated financial statements.
48
F5, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Stock-based compensation
Depreciation and amortization
Non-cash operating lease costs
Deferred income taxes
Impairment of assets
Other
Changes in operating assets and liabilities (excluding effects of the
acquisition of businesses):
Accounts receivable
Inventories
Other current assets
Other assets
Accounts payable and accrued liabilities
Deferred revenue
Lease liabilities
Net cash provided by operating activities
Investing activities
Purchases of investments
Maturities of investments
Sales of investments
Acquisition of businesses, net of cash acquired
Purchases of property and equipment
Net cash provided by (used in) investing activities
Financing activities
Proceeds from the exercise of stock options and purchases of stock under
employee stock purchase plan
Repurchase of common stock
Proceeds from term debt agreement
Payments on term debt agreement
Payments for debt issuance costs
Taxes paid related to net share settlement of equity awards
Net cash (used in) provided by financing activities
Net increase (decrease) in cash, cash equivalents and
restricted cash
Effect of exchange rate changes on cash, cash equivalents and restricted
cash
Cash, cash equivalents and restricted cash, beginning of year
Cash, cash equivalents and restricted cash, end of year
Years Ended September 30,
2022
2021
2020
$
322,160 $
331,241 $
307,441
249,216
115,609
38,735
243,279
115,424
38,375
(40,244)
(76,930)
6,175
1,267
40,698
737
(130,605)
(46,289)
(46,310)
5,843
(144,628)
(84,328)
(87,008)
(110,653)
19,163
191,147
22,933
216,431
201,948
95,857
39,139
7,293
9,673
2,122
46,502
6,503
(49,895)
(25,690)
34,742
35,514
(52,046)
(51,565)
(50,251)
442,631
645,196
660,898
(61,284)
(472,165)
(584,240)
260,357
120,578
197,279
271,521
543,065
309,687
(67,911)
(411,319)
(955,574)
(33,624)
(30,651)
(59,940)
218,116
(445,335)
(747,002)
64,540
65,752
52,835
(500,023)
(500,000)
(100,016)
—
—
400,000
(20,000)
(20,000)
(10,000)
—
—
(21,025)
(14,032)
(3,040)
(2,536)
(476,508)
(468,280)
337,243
184,239
(268,419)
251,139
(6,365)
(74)
(567)
584,333
852,826
602,254
$
762,207 $
584,333 $
852,826
49
Supplemental disclosures of cash flow information
Cash paid for taxes, net of refunds
Cash paid for amounts included in the measurement of operating lease
liabilities
Cash paid for interest on long-term debt
Supplemental disclosures of non-cash activities
Years Ended September 30,
2022
2021
2020
$
110,036 $
99,378 $
80,236
58,592
7,981
61,504
5,280
60,564
6,568
Right-of-use assets obtained in exchange for lease obligations
$
20,778 $
13,051 $
402,007
The accompanying notes are an integral part of these consolidated financial statements.
50
F5, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The Company
F5, Inc. (the "Company") is a leading provider of multi-cloud application security and delivery solutions which enable its
customers to develop, deploy, operate, secure, and govern applications in any architecture, from on-premises to the public
cloud. The Company's cloud, software, and hardware solutions enable its customers to deliver digital experiences to their
customers faster, reliably, and at scale. The Company's enterprise-grade application services are available as cloud-based,
software-as-a-service, and software-only solutions optimized for multi-cloud environments, with modules that can run
independently, or as part of an integrated solution on its high-performance appliances. In connection with its solutions, the
Company offers a broad range of professional services, including consulting, training, installation, maintenance, and other
technical support services. On October 1, 2021, the Company completed its acquisition of Threat Stack, Inc. ("Threat Stack"), a
provider of cloud security and workload protection solutions.
Accounting Principles
The Company’s consolidated financial statements and accompanying notes are prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles in the United States of America (GAAP).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Examples of estimates and assumptions include: revenue
recognition, identifying and evaluating the performance obligations of contracts with non-standard terms, and the allocation of
purchase consideration based on the relative fair value standalone sales price of these performance obligations; business
combinations, including the determination of fair value for acquired developed technology assets and the evaluation and
selection of significant assumptions such as revenue growth rate and technology migration curve; and the incremental
borrowing rate for measuring lease obligations. Actual results may differ materially from management's estimates and
assumptions.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with original maturities of three months or less to be cash
equivalents. The Company invests its cash and cash equivalents in deposits with four major financial institutions, which, at
times, exceed federally insured limits. The Company has not experienced any losses on its cash and cash equivalents. Amounts
included in restricted cash represent those for which the Company's use is restricted by a contractual agreement.
Investments
The Company classifies its debt investments as available-for-sale. Debt investments, consisting of certificates of deposit,
corporate and municipal bonds and notes, the United States government and agency securities and international government
securities are reported at fair value with the related unrealized gains and losses included as a component of accumulated other
comprehensive income (loss) in shareholders’ equity. Realized gains and losses, credit allowances and impairments due to
credit losses are included in other income (expense) in the Company’s consolidated income statements. Debt investments with
maturities of less than one year or where management’s intent is to use the investments to fund current operations are classified
as short-term investments. Debt investments with maturities of greater than one year are classified as long-term investments.
As an approximation to fair value, equity investments are measured using net asset value (“NAV”) and are classified as
long-term investments. Unrealized and realized gains and losses are recorded in other income (expense) in the Company's
consolidated income statements.
51
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount, net of allowances for credit losses for any potential
uncollectible amounts. The allowance for credit losses is based on the assessment of the collectability of accounts. Management
regularly reviews the adequacy of the allowance for credit losses on a collective basis by considering the age of each
outstanding invoice, each customer’s expected ability to pay and collection history, current market conditions, and reasonable
and supportable forecasts of future economic conditions to determine whether the allowance is appropriate. Accounts receivable
deemed uncollectible are charged against the allowance for credit losses when identified. For fiscal years ended September 30,
2022 and 2021, the allowance for credit losses was not material.
Unbilled Receivables
Unbilled receivables represent amounts related to the Company's unconditional right to consideration associated with
contracts with customers that have not yet been billed. Unbilled receivables are converted to accounts receivable at the point in
time when the Company has the contractual right to invoice its customers. As of September 30, 2022, unbilled receivables that
are expected to be reclassified to accounts receivable within the next 12 months are included in other current assets, with those
expected to be transferred to accounts receivables in more than 12 months included in other assets.
Concentration of Credit Risk
The Company extends credit to customers and is therefore subject to credit risk. The Company performs initial and
ongoing credit evaluations of its customers’ financial condition and does not require collateral. An allowance for credit losses is
recorded for any potential uncollectible amount. Estimates are used in determining the allowance for credit losses in accordance
with the Accounts Receivable policy. See Note 15 - Segment Information, for disaggregated accounts receivable by significant
customer.
The Company maintains its cash and investment balances with high credit quality financial institutions.
Fair Value of Financial Instruments
Short-term and long-term investments are recorded at fair value as the underlying securities are classified as available-for-
sale with any unrealized gains or losses being recorded to other comprehensive income (or loss). The fair value for securities
held is determined using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels
of price transparency.
Inventories
The Company outsources the manufacturing of its pre-configured hardware platforms to contract manufacturers, who
assemble each product to the Company’s specifications. As protection against component shortages and to provide replacement
parts for its service teams, the Company also stocks limited supplies of certain key product components. The Company reduces
inventory to net realizable value based on excess and obsolete inventories determined primarily by historical usage and
forecasted demand. Inventories consist of hardware and related component parts and are recorded at the lower of cost and net
realizable value (as determined by the first-in, first-out method).
Property and Equipment
Property and equipment are stated at net book value. Depreciation of property and equipment is provided using the
straight-line method over the estimated useful lives of the assets, ranging from two to five years. Leasehold improvements are
amortized over the lesser of the remaining lease term or the estimated useful life of the improvements. The cost of normal
maintenance and repairs is charged to expense as incurred and expenditures for major improvements are capitalized at cost.
Gains or losses on the disposition of assets are reflected in the consolidated income statements at the time of disposal.
Business Combinations
The Company’s business combinations are accounted for under the acquisition method. Management allocates the fair
value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated
fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair values of these
identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and
assumptions, especially with respect to intangible assets.
On October 1, 2021, the Company completed its acquisition of Threat Stack, Inc. for a total purchase price of
$68.9 million, of which $11.4 million of finite-lived developed technology was recorded.
52
Goodwill
Goodwill represents the excess purchase price over the estimated fair value of net assets acquired as of the acquisition
date. The Company tests goodwill for impairment on an annual basis and between annual tests when impairment indicators are
identified, and goodwill is written down when impaired. For its annual goodwill impairment test in all periods to date, the
Company has operated under one reporting unit and the fair value of its reporting unit has been determined by the Company’s
enterprise value. The Company performs its annual goodwill impairment test during the second fiscal quarter.
For its annual impairment test performed in the second quarter of fiscal 2022, the Company completed a quantitative
assessment and determined that there was no impairment of goodwill. The Company also considered potential impairment
indicators of goodwill at September 30, 2022 and noted no indicators of impairment.
Intangible Assets
Intangible assets with finite lives consist of acquired developed technology, customer relationships, patents and
trademarks, trade names, and non-compete covenants acquired through business combinations or asset acquisitions. Intangible
assets acquired through business combinations are recorded at their respective estimated fair values upon acquisition close.
Other intangible assets acquired through asset acquisitions are recorded at their respective cost. The Company determines the
estimated useful lives for acquired intangible assets based on the expected future cash flows associated with the respective
asset. The Company's intangible assets with finite lives are amortized using the straight-line method over their estimated useful
lives, ranging from two to fifteen years. Amortization expense related to acquired developed technology is charged to cost of
product revenues. Amortization expense related to customer relationships, trade names, and non-compete covenants is charged
to sales and marketing activities. Amortization expense related to patents and trademarks is charged to general and
administrative activities. The Company evaluates the recoverability of intangible assets periodically by taking into account
events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.
Software Development Costs
The authoritative guidance requires certain internal software development costs related to software to be sold to be
capitalized upon the establishment of technological feasibility. Capitalized software development costs are amortized over the
remaining estimated economic life of the product. The Company's software development costs incurred subsequent to achieving
technological feasibility have not been significant and, as a result, all software development costs have been expensed as
research and development activities as incurred.
Internal-Use Software
The Company capitalizes costs incurred during the application development stage associated with the development of
internal-use software systems. The capitalized costs are then amortized over the estimated useful life of the software, which is
generally three to five years, and are included in property and equipment in the accompanying consolidated balance sheets.
Impairment of Long-Lived Assets
The Company assesses the impairment of long-lived assets whenever events or changes in business circumstances indicate
that the carrying amount of an asset may not be recoverable. When such events occur, management determines whether there
has been impairment by comparing the anticipated undiscounted net future cash flows to the related asset’s carrying value. If
impairment exists, the asset is written down to its estimated fair value.
Revenue Recognition
The Company sells products through distributors, resellers, and directly to end users. Revenue related to the Company's
contracts with customers is recognized by following a five-step process:
•
•
Identify the contract(s) with a customer. Evidence of a contract generally consists of a purchase order issued pursuant to the
terms and conditions of a distributor, reseller or end user agreement.
Identify the performance obligations in the contract. Performance obligations are identified in the Company's contracts and
include hardware, hardware-based software, software-only solutions, cloud-based subscription services as well as a broad
range of service performance obligations including consulting, training, installation and maintenance.
• Determine the transaction price. The purchase price stated in an agreed upon purchase order is generally representative of
the transaction price. The Company offers several programs in which customers are eligible for certain levels of rebates if
53
certain conditions are met. When determining the transaction price, the Company considers the effects of any variable
consideration.
• Allocate the transaction price to the performance obligations in the contract. The transaction price in a contract is allocated
based upon the relative standalone selling price of each distinct performance obligation identified in the contract.
• Recognize revenue when (or as) the entity satisfies a performance obligation. The Company satisfies performance
obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the
related performance obligation is satisfied by transferring control of promised products and services to a customer.
Revenue is recognized net of any taxes collected, which are subsequently remitted to governmental authorities. Shipping
and handling fees charged to the Company’s customers are recognized as product revenue in the period shipped and the related
costs for providing these services are recorded as a cost of sale.
The following is a description of the principal activities from which the Company generates revenue:
Product
Revenue from the sale of the Company's hardware and perpetual software products is generally recognized at a point in
time when the product has been fulfilled and the customer is obligated to pay for the product. The Company also offers several
products by subscription, either through term-based license agreements or as SaaS offerings. Revenue for term-based license
agreements is recognized at a point in time, when the Company delivers the software license to the customer and the
subscription term has commenced. For the Company's SaaS offerings, revenue is recognized ratably as the services are
provided. Hardware, including the software run on those devices is considered systems revenue. Perpetual or subscription
software offerings that are, or have the ability to be deployed on a standalone basis, along with the Company's SaaS offerings
are considered software revenue. When rights of return are present and the Company cannot estimate returns, revenue is
recognized when such rights of return lapse. Payment terms to customers are generally net 30 days to net 60 days.
Global Services
Revenues for post-contract customer support ("PCS") are recognized on a straight-line basis over the service contract
term. PCS includes a limited period of telephone support, updates, repair or replacement of any failed product or component
that fails during the term of the agreement, bug fixes and rights to upgrades, when and if available. Consulting services are
customarily billed at fixed hourly rates, plus out-of-pocket expenses, and revenues are recognized as the consulting is
completed. Similarly, training revenue is recognized as the training is completed.
Contract Acquisition Costs
Sales commissions earned by the Company's sales force are considered incremental and recoverable costs of obtaining a
contract with a customer. Sales commissions for initial service contracts and subscription offerings are deferred and then
amortized as an expense on a straight-line basis over the period of benefit which management has determined to be 4.5 years
and 3 years, respectively.
Significant Judgments
The Company enters into certain contracts with customers, including flexible consumption programs and multi-year
subscriptions, with non-standard terms and conditions. Management exercises significant judgment in assessing contractual
terms in these arrangements to identify and evaluate performance obligations. Management allocates consideration to each
performance obligation based on relative fair value using standalone selling price and recognizes associated revenue as control
is transferred to the customer.
Guarantees and Product Warranties
In the normal course of business to facilitate sales of its products, the Company indemnifies other parties, including
customers, resellers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company
has agreed to hold the other party harmless against losses arising from a breach of representations or covenants, or out of
intellectual property infringement or other claims made against certain parties. These agreements may limit the time within
which an indemnification claim can be made and the amount of the claim. The Company has entered into indemnification
agreements with its officers and directors, and the Company’s bylaws contain similar indemnification obligations to the
Company’s agents. It is not possible to determine the maximum potential amount under these indemnification agreements due
to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular
agreement.
54
The Company offers warranties of one year for hardware for those customers without service contracts, with the option of
purchasing additional warranty coverage in yearly increments. The Company accrues for warranty costs as part of its cost of
sales based on associated material product costs and technical support labor costs. Warranty expense and accrued warranty
costs were not material for all periods presented.
Research and Development
Research and development expenses consist of salaries and related benefits of product development personnel, prototype
materials and expenses related to the development of new and improved products, and an allocation of facilities, depreciation
and amortization expense. Research and development expenses are reflected in the income statements as incurred.
Advertising
Advertising costs are expensed as incurred. The Company incurred $15.4 million, $10.0 million and $7.8 million in
advertising costs during the fiscal years 2022, 2021 and 2020, respectively.
Income Taxes
Deferred income tax assets and liabilities are determined based upon differences between the financial statement and
income tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to
reverse. The realization of deferred tax assets is based on historical tax positions and estimates of future taxable income. A
valuation allowance is recorded when it is more-likely-than-not that some of the deferred tax assets will not be realized.
The Company assesses whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the
financial statements. The Company may recognize the tax benefit from an uncertain tax position only if it is more-likely-than-
not that the tax position will be sustained on examination by the taxing authorities, including resolution of any related appeals
or litigation processes, based on the technical merits of the position. The tax benefits to be recognized in the financial
statements from such a position is measured as the largest amount of benefit that has a greater than fifty percent likelihood of
being realized upon ultimate settlement. The Company adjusts these liabilities based on a variety of factors, including the
evaluation of information not previously available. These adjustments are reflected as increases or decreases to income tax
expense in the period in which new information is available.
The Company has made an accounting policy election to treat taxes under the global intangible low-taxed income (GILTI)
provision as a current period expense.
Foreign Currency
The functional currency for the Company’s foreign subsidiaries is either the U.S. dollar or the local currency depending
on the assessment of management. An entity’s functional currency is determined by the currency of the economic environment
in which the majority of cash is generated and expended by the entity. The financial statements of all majority-owned
subsidiaries and related entities, with a functional currency other than the U.S. dollar, have been translated into U.S. dollars. All
assets and liabilities of the respective entities are translated at year-end exchange rates and all revenues and expenses are
translated at average rates during the respective period. Translation adjustments are reported as other comprehensive income
(loss) in the consolidated statements of comprehensive income.
Foreign currency transaction gains and losses are a result of the effect of exchange rate changes on transactions
denominated in currencies other than the functional currency, including U.S. dollars. Gains and losses on those foreign currency
transactions are included in determining net income or loss for the period of exchange and are recorded in other income, net.
The net effect of foreign currency gains and losses was not material during the fiscal years ended September 30, 2022, 2021 and
2020.
Segments
Management has determined that the Company is organized as, and operates in, one reportable operating segment: the
development, marketing and sale of application security and delivery solutions which enable its customers to develop, deploy,
operate, secure, and govern applications in any architecture, from on-premises to the public cloud.
Stock-based Compensation
The Company issues incentive awards to its employees through stock-based compensation consisting of restricted stock
units (RSUs). RSUs are payable in shares of the Company’s common stock as the periodic vesting requirements are satisfied,
generally over one to four years. The value of an RSU is based upon the fair market value of the Company’s common stock on
55
the date of grant. The value of RSUs is determined using the intrinsic value method and is based on the number of shares
granted and the quoted price of the Company’s common stock on the date of grant.
The Company offers an Employee Stock Purchase Plan (ESPP) that permits eligible employees to purchase shares of the
Company’s common stock at a discount. In determining the fair value of shares issued under the ESPP, the Company uses the
Black-Scholes option pricing model. The assumptions within the option pricing model are based on management’s best
estimates at that time, which impact the fair value of the ESPP option calculated under the Black-Scholes methodology and,
ultimately, the expense that will be recognized over the life of the ESPP option.
The Company has also issued stock options as replacement awards, most notably for those assumed as part of business
combinations. The Company used the Black-Scholes option pricing model to determine the fair value of the stock option
replacement awards. The assumptions within the option pricing model are based on management’s best estimates at that time,
which impact the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will
be recognized over the term of the option.
The Company accounts for stock-based compensation using the straight-line attribution method for recognizing
compensation expense. The Company recognizes compensation expense for only the portion of stock-based awards that are
expected to vest. Therefore, the Company applies estimated forfeiture rates that are derived from historical employee
termination behavior. Based on historical differences with forfeitures of stock-based awards granted to the Company’s
executive officers and Board of Directors versus grants awarded to all other employees, the Company has developed separate
forfeiture expectations for these two groups.
The Company issues incentive awards to certain current executive officers as part of its annual equity awards program. A
portion of the aggregate number of RSUs issued to executive officers vest in equal quarterly increments, and a portion is subject
to the Company achieving specified performance goals.
In fiscal 2018, the Company's Talent and Compensation Committee adopted a new set of metrics for the performance
stock awards, including (1) 50% of the annual performance stock grant is based on achieving certain annual revenue; (2) 25%
of the annual performance stock grant is based on achieving an increase in annual software revenue compared to the prior year;
and (3) 25% of the annual performance stock grant is based on relative total shareholder return (TSR) benchmarked to the S&P
500 index. In each case, no vesting or payment with respect to a performance goal shall occur unless a minimum threshold is
met for the applicable goal. Vesting and payment with respect to the performance goal is linear above the threshold of the
applicable goal and is capped at achievement of 200% above target.
The Company recognizes compensation costs for awards with performance conditions and market conditions on a
straight-line basis over the requisite service period for each separately vesting portion of the award and, for awards with
performance conditions, when it concludes it is probable that the performance condition will be achieved. The Company
reassesses the probability of vesting at each balance sheet date and adjusts compensation costs based on the probability
assessment.
Comprehensive Income
Comprehensive income includes certain changes in equity that are excluded from net income. Specifically, unrealized
gains or losses on securities and foreign currency translation adjustments. These changes are included in accumulated other
comprehensive income or loss.
Recently Adopted Accounting Standards
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets
and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities
acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with
ASC 606, Revenue from Contracts with Customers. The Company early adopted this accounting standard update beginning in
the first quarter of fiscal 2022 and it did not have a material impact on the Company's consolidated financial statements.
56
2. Revenue from Contracts with Customers
Capitalized Contract Acquisition Costs
The table below shows significant movements in capitalized contract acquisition costs (current and noncurrent) for the
years ended September 30, 2022, 2021, and 2020 (in thousands):
Balance, beginning of year
Additional capitalized contract acquisition costs
Amortization of capitalized contract acquisition costs
Balance, end of year
2022
2021
2020
$
$
77,836 $
37,897
(38,513)
77,220 $
70,396 $
41,719
(34,279)
77,836 $
59,446
43,557
(32,607)
70,396
Amortization of capitalized contract acquisition costs was $38.5 million, $34.3 million, and $32.6 million for the years
ended September 30, 2022, 2021, and 2020, respectively, and is recorded in Sales and Marketing expense in the accompanying
consolidated income statements. There was no impairment of any capitalized contract acquisition costs during any period
presented.
Contract Balances
Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related
to the Company's contracts with customers. Liabilities are recorded for amounts that are collected in advance of the satisfaction
of performance obligations, or for contracts with customers that contain the Company's unconditional rights to consideration,
for which the customer has not been billed. These liabilities are classified as current and non-current deferred revenue.
The table below shows significant movements in the deferred revenue balances (current and noncurrent) for the years
ended September 30, 2022, 2021, and 2020 (in thousands):
Balance, beginning of year
Amounts added but not recognized as revenues
Deferred revenue acquired through acquisition of businesses
Revenues recognized related to the opening balance of deferred revenue
Balance, end of year
Remaining Performance Obligations
2020
2022
2021
$ 1,489,842 $ 1,272,632 $ 1,198,116
850,022
39,000
(814,506)
$ 1,691,580 $ 1,489,842 $ 1,272,632
1,167,143
10,591
(975,996)
1,122,081
779
(905,650)
Remaining performance obligations represent the amount of the transaction price under contracts with customers that are
attributable to performance obligations that are unsatisfied or partially satisfied at the reporting date. The composition of
unsatisfied performance obligations consists mainly of deferred service revenue, and to a lesser extent, deferred product
revenue, for which the Company has an obligation to perform, and has not yet recognized as revenue in the consolidated
financial statements. As of September 30, 2022, the total non-cancelable remaining performance obligations under the
Company's contracts with customers was $1.7 billion and the Company expects to recognize revenues on approximately 63.1%
of these remaining performance obligations over the next 12 months, 23.0% in year two, and the remaining balance thereafter.
See Note 15 - Segment Information, for disaggregated revenue by significant customer and geographic region, as well as
disaggregated product revenue by systems and software.
3. Business Combinations
Fiscal Year 2022 Acquisition of Threat Stack, Inc.
In September 2021, the Company entered into a Merger Agreement (the “Threat Stack Merger Agreement”) with Threat
Stack, Inc. ("Threat Stack"), a provider of cloud security and workload protection solutions. The transaction closed on October
1, 2021 with Threat Stack becoming a wholly-owned subsidiary of F5. The addition of Threat Stack’s cloud security
capabilities to F5’s application and API protection solutions is expected to enhance visibility across application infrastructure
and workloads to deliver more actionable security insights for customers.
Pursuant to the Threat Stack Merger Agreement, at the effective time of the Merger, the capital stock of Threat Stack and
the vested outstanding and unexercised stock options in Threat Stack were cancelled and converted to the right to receive
57
approximately $68.9 million in cash, subject to certain adjustments and conditions set forth in the Threat Stack Merger
Agreement. Transaction costs associated with the acquisition were not material.
As a result of the acquisition, the Company acquired all the assets and assumed all the liabilities of Threat Stack. The
goodwill related to the Threat Stack acquisition is comprised primarily of expected synergies from combining operations and
the acquired intangible assets that do not qualify for separate recognition. Goodwill related to the Threat Stack acquisition is not
expected to be deductible for tax purposes. The results of operations of Threat Stack have been included in the Company's
consolidated financial statements from the date of acquisition.
The allocated purchase consideration to assets acquired and liabilities assumed based on preliminary estimated fair values
is presented in the following table (in thousands):
Assets acquired
Deferred tax assets
Other net tangible assets acquired, at fair value
Cash, cash equivalents, and restricted cash
Identifiable intangible assets:
Developed technology
Customer relationships
Goodwill
Total assets acquired
Liabilities assumed
Deferred revenue
Total liabilities assumed
Net assets acquired
Estimated
Useful Life
5 years
5 years
$
14,036
5,481
911
11,400
4,400
43,287
79,515
(10,591)
(10,591)
68,924
$
$
$
$
The initial allocation of the purchase price was based on preliminary valuations and assumptions and is subject to change
within the measurement period. In fiscal 2022, the Company recorded immaterial adjustments to consideration exchanged for
the purchase of Threat Stack. The Company expects to finalize the allocation of the purchase price as soon as practicable and no
later than one year from the acquisition date.
The developed technology intangible asset will be amortized on a straight-line basis over its estimated useful life of five
years and included in cost of net product revenues. The customer relationships intangible asset will be amortized on a straight-
line basis over its estimated useful life of five years and included in sales and marketing expenses. The weighted-average life of
the amortizable intangible assets recognized from the Threat Stack acquisition was five years as of October 1, 2021, the date the
transaction closed. The estimated useful lives for the acquired intangible assets were based on the expected future cash flows
associated with the respective asset.
The pro forma financial information, as well as the revenue and earnings generated by Threat Stack, were not material to
the Company's operations for the periods presented.
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Fiscal Year 2021 Acquisition of Volterra, Inc.
On January 5, 2021, the Company entered into a Merger Agreement (the “Volterra Merger Agreement”) with Volterra,
Inc. ("Volterra"), a provider of edge-as-a-service platform solutions. The transaction closed on January 22, 2021 with Volterra
becoming a wholly-owned subsidiary of F5. With the addition of Volterra’s technology platform, F5 is creating an edge
platform built for enterprises and service providers that will be security-first and app-driven with unlimited scale.
Pursuant to the Volterra Merger Agreement, at the effective time of the Merger, the capital stock of Volterra and the
vested outstanding and unexercised stock options in Volterra were cancelled and converted to the right to receive approximately
$427.2 million in cash, subject to certain adjustments and conditions set forth in the Volterra Merger Agreement. The unvested
stock options and restricted stock units in Volterra held by continuing employees of Volterra were assumed by F5, on the terms
and conditions set forth in the Volterra Merger Agreement. The Company incurred $9.5 million of transaction costs associated
with the acquisition which was included in General and Administrative expenses in fiscal 2021.
As a result of the acquisition, the Company acquired all the assets and assumed all the liabilities of Volterra. The goodwill
related to the Volterra acquisition is comprised primarily of expected synergies from combining operations and the acquired
intangible assets that do not qualify for separate recognition. Goodwill related to the Volterra acquisition is not expected to be
deductible for tax purposes. The results of operations of Volterra have been included in the Company's consolidated financial
statements from the date of acquisition.
The allocated purchase consideration to assets acquired and liabilities assumed based on preliminary estimated fair values
is presented in the following table (in thousands):
Assets acquired
Cash, cash equivalents, and restricted cash
Other tangible assets acquired, at fair value
Identifiable intangible assets:
Developed technology
Customer relationships
Goodwill
Total assets acquired
Liabilities assumed
Net assets acquired
Estimated
Useful Life
7 years
1 year
$
14,012
7,499
59,500
500
350,863
432,374
(5,233)
$
427,141
The measurement period for the Volterra acquisition lapsed during the second quarter of fiscal 2022. The Company
recorded immaterial adjustments to consideration exchanged for the purchase of Volterra within the post-close measurement
period.
The developed technology intangible asset is being amortized on a straight-line basis over its estimated useful life of
seven years and included in cost of net product revenues. The customer relationships intangible asset was amortized on a
straight-line basis over its estimated useful life of one year and included in sales and marketing expenses. The weighted-average
life of the amortizable intangible assets recognized from the Volterra acquisition was 6.95 years as of January 22, 2021, the date
the transaction closed. The estimated useful lives for the acquired intangible assets were based on the expected future cash
flows associated with the respective asset.
The pro forma financial information, as well as the revenue and earnings generated by Volterra, were not material to the
Company's operations for the periods presented.
Fiscal Year 2020 Acquisition of Shape Security, Inc.
On December 19, 2019, the Company entered into a Merger Agreement (the "Shape Merger Agreement") with Shape
Security, Inc. ("Shape"), a provider of fraud and abuse prevention solutions. The transaction closed on January 24, 2020 with
Shape becoming a wholly-owned subsidiary of F5. This acquisition brings together F5’s expertise in protecting applications
across multi-cloud environments with Shape’s fraud and abuse prevention capabilities.
Pursuant to the Shape Merger Agreement, at the effective time of the acquisition, the capital stock of Shape and the vested
outstanding and unexercised stock options in Shape were cancelled and converted to the right to receive approximately
$1.0 billion in cash, subject to certain adjustments and conditions set forth in the Shape Merger Agreement, and the unvested
59
stock options and restricted stock units in Shape held by continuing employees of Shape were assumed by F5, on the terms and
conditions set forth in the Shape Merger Agreement. Included in cash consideration was $23.2 million of transaction costs paid
by F5 on behalf of Shape. In addition, the Company incurred $15.3 million of transaction costs associated with the acquisition
which was included in General and Administrative expenses in fiscal 2020.
As a result of the acquisition, the Company acquired all the assets and assumed all the liabilities of Shape. The goodwill
related to the Shape acquisition is comprised primarily of expected synergies from combining operations and the acquired
intangible assets that do not qualify for separate recognition. Goodwill related to the Shape acquisition is not expected to be
deductible for tax purposes. The results of operations of Shape have been included in the Company's consolidated financial
statements from the date of acquisition.
The allocated purchase consideration to assets acquired and liabilities assumed is presented in the following table (in
thousands):
Assets acquired
Cash, cash equivalents, and restricted cash
$
53,934
Fair value of tangible assets:
Accounts receivable
Deferred tax assets
Operating lease right-of-use assets
Other tangible assets
Identifiable intangible assets:
Developed technology
Customer relationships
Trade name
Goodwill
Total assets acquired
Liabilities assumed
Deferred revenue
Operating lease liabilities
Other assumed liabilities
Total liabilities assumed
Net assets acquired
21,077
29,848
29,644
22,571
120,000
21,000
9,500
798,867
$ 1,106,441
$
(39,000)
(30,773)
(18,571)
$
(88,344)
$ 1,018,097
Estimated
Useful Life
7 years
4 years
5 years
The measurement period for the Shape acquisition lapsed in the second quarter of fiscal 2021. The Company recorded
immaterial adjustments to consideration exchanged for the purchase of Shape within the post-close measurement period.
The developed technology intangible asset is being amortized on a straight-line basis over its estimated useful life of
seven years and included in cost of net product revenues. The trade names and customer relationships intangible assets are
being amortized on a straight-line basis over their estimated useful lives of five years and four years, respectively, and included
in sales and marketing expenses. The weighted average life of the amortizable intangible assets recognized from the Shape
acquisition was 6.5 years as of January 24, 2020, the date the transaction closed. The estimated useful lives for the acquired
intangible assets were based on the expected future cash flows associated with the respective asset.
The pro forma financial information, as well as the revenue and earnings generated by Shape, were not material to the
Company's operations for the periods presented.
4. Fair Value Measurements
In accordance with the authoritative guidance on fair value measurements and disclosure under GAAP, the Company
determines fair value using a fair value hierarchy that distinguishes between market participant assumptions developed based on
market data obtained from sources independent of the reporting entity, and the reporting entity’s own assumptions about market
60
participant assumptions developed based on the best information available in the circumstances and expands disclosure about
fair value measurements.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date,
essentially the exit price.
The levels of fair value hierarchy are:
Level 1: Quoted prices in active markets for identical assets and liabilities at the measurement date that the Company has
the ability to access.
Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and
liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data.
Level 3: Unobservable inputs for which there is little or no market data available. These inputs reflect management’s
assumptions of what market participants would use in pricing the asset or liability.
Level 1 investments are valued based on quoted market prices in active markets and include the Company’s cash
equivalent investments. Level 2 investments, which include investments that are valued based on quoted prices in markets that
are not active, broker or dealer quotations, actual trade data, benchmark yields or alternative pricing sources with reasonable
levels of price transparency, include the Company’s certificates of deposit, corporate bonds and notes, municipal bonds and
notes, U.S. government securities, U.S. government agency securities and international government securities. Fair values for
the Company’s level 2 investments are based on similar assets without applying significant judgments. In addition, all of the
Company’s level 2 investments have a sufficient level of trading volume to demonstrate that the fair values used are appropriate
for these investments.
A financial instrument’s level within the fair value hierarchy is based upon the lowest level of any input that is significant
to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by
the Company. The Company considers observable data to be market data which is readily available, regularly distributed or
updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant
market.
61
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The Company's financial assets measured at fair value on a recurring basis subject to the disclosure requirements at
September 30, 2022 and September 30, 2021, were as follows (in thousands):
Gross Unrealized
Classification on Balance Sheet
Fair
Value
Level
Cost or
Amortized
Cost
Gains
Losses
Aggregate
Fair Value
Cash and
Cash
Equivalents
Short-
Term
Investments
Long-Term
Investments
Level 1
$ 276,294 $ — $ — $ 276,294 $ 276,294 $
— $
—
Level 2
50,828
—
(950) 49,878
Level 2
5,018
—
(102)
4,916
912
—
Level 2
84,734
—
(660) 84,074
10,120
44,356
3,812
73,954
4,610
1,104
—
Level 2
5,825
—
(75)
5,750
606
4,432
712
$ 422,699 $ — $ (1,787) $ 420,912 $ 287,932 $ 126,554 $
6,426
As of September 30, 2022
Changes in fair value recorded
in other comprehensive
income
Money Market Funds
Corporate bonds and notes
Municipal bonds and notes
U.S. government securities
U.S. government agency
securities
Total debt investments
Changes in fair value recorded
in other net income (expense)
Equity investments
*
Total equity investments
Total investments
$ 3,118 $
— $
— $
3,118
3,118
—
—
3,118
$ 424,030 $ 287,932 $ 126,554 $
9,544
* The fair value of this equity investment is measured at net asset value (NAV) which approximates fair value and is not
classified within the fair value hierarchy.
As of September 30, 2021
Changes in fair value recorded
in other comprehensive
income
Money Market Funds
Certificates of deposit
Corporate bonds and notes
Municipal bonds and notes
U.S. government securities
U.S. government agency
securities
Total investments
Gross Unrealized
Classification on Balance Sheet
Fair
Value
Level
Cost or
Amortized
Cost
Gains
Losses
Aggregate
Fair Value
Cash and
Cash
Equivalents
Short-
Term
Investments
Long-Term
Investments
Level 1
$ 17,150 $ — $ — $ 17,150 $ 17,150 $
— $
Level 2
Level 2
Level 2
Level 2
255
—
—
255
243,568
24,684
162,221
129
2
14
(86) 243,611
(9) 24,677
(12) 162,223
—
4,397
—
—
255
186,107
13,566
102,615
—
—
53,107
11,111
59,608
Level 2
36,053
—
(14) 36,039
—
27,087
8,952
$ 483,931 $ 145 $
(121) $ 483,955 $ 21,547 $ 329,630 $ 132,778
The Company uses the fair value hierarchy for financial assets and liabilities. The carrying amounts of other current
financial assets and other current financial liabilities approximate fair value due to their short-term nature.
Interest income from investments was not material for the years ended September 30, 2022, 2021, and 2020. Interest
income is included in other income (expense), net on the Company's consolidated income statements. Unrealized losses on
investments held for a period greater than 12 months at September 30, 2022 and September 30, 2021 were not material.
The Company invests in debt securities that are rated investment grade. The Company reviews the individual debt
securities in its portfolio to determine whether a credit loss exists by comparing the extent to which the fair value is less than the
amortized cost and considering any changes to ratings of a debt security by a ratings agency. The Company determined that as
of September 30, 2022, there were no credit losses on any investments within its portfolio.
62
Assets Measured and Recorded at Fair Value on a Non-Recurring Basis
The Company’s non-financial assets and liabilities, which include goodwill, intangible assets, and long-lived assets, are
not required to be carried at fair value on a recurring basis. These non-financial assets and liabilities are measured at fair value
on a non-recurring basis when there is an indicator of impairment, and they are recorded at fair value only when impairment is
recognized. The Company reviews goodwill for impairment annually, during the second quarter of each fiscal year, or as
circumstances indicate the possibility of impairment. The Company monitors the carrying value of tangible and intangible long-
lived assets for impairment whenever events or changes in circumstances indicate its carrying amount may not be recoverable.
As a result of a planned change in the use of the asset, the Company recorded an impairment of $6.2 million against the
Shape trade name intangible asset, which was reflected in the Sales and Marketing line item on the Company's consolidated
income statement for the year ended September 30, 2022. The Company did not recognize any impairment charges related to its
intangible assets for the years ended September 30, 2021 and 2020.
There were no long-lived asset impairment charges for the year ended September 30, 2022. During the year ended
September 30, 2021, the Company recorded an impairment of $23.5 million against the operating lease right-of-use asset
related to the permanent exit of six floors in its corporate headquarters and $10.3 million for tenant improvements and other
fixed assets associated with the exited floors. The Company also recorded an impairment of $6.7 million against the operating
lease right-of-use asset related to the integration of the former Shape headquarters in Santa Clara, California and $0.2 million
for other fixed assets associated with the impaired Shape headquarters. During the year ended September 30, 2020, the
Company recorded impairment of a right-of-use asset of $9.7 million related to the former Seattle headquarters location, due to
the low likelihood of future sublease receipts, as the Company will no longer seek to sublease the space. The Company
calculated the fair value of the right-of-use assets, tenant improvements and other fixed assets based on estimated future
discounted cash flows and classified the fair value as a Level 3 measurement due to the significance of unobservable inputs,
which included the amount and timing of estimated sublease rental receipts that the Company could reasonably obtain over the
remaining lease term and the discount rate. The impairment charges for the years ended September 30, 2021 and 2020 were
allocated to various expense line items on the Company’s consolidated income statements based on the teams that previously
worked out of the exited space.
Impairment charges were allocated to the following income statement line items for the years ended September 30, 2022,
2021, and 2020 (in thousands):
Cost of net product revenue
Cost of net service revenue
Sales and marketing
Research and development
General and administrative
Total impairment charges
Years Ended September 30,
2022
2021
2020
$
$
— $
—
6,175
—
—
6,175 $
2,865 $
3,492
11,515
12,974
9,852
40,698 $
241
1,034
2,876
2,906
2,616
9,673
During the years ended September 30, 2022, 2021, and 2020, the Company did not recognize any impairment charges
related to goodwill.
5. Balance Sheet Details
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of the Company’s cash and cash equivalents and restricted cash reported
within the consolidated balance sheets that sum to the total cash, cash equivalents and restricted cash shown in the Company’s
consolidated statements of cash flows for the periods presented (in thousands):
Cash and cash equivalents
Restricted cash included in other assets, net
Total cash, cash equivalents and restricted cash
September 30,
2022
758,012 $
4,195
762,207 $
2021
580,977
3,356
584,333
$
$
63
Inventories
Inventories consist of the following (in thousands):
Finished goods
Raw materials
Other Current Assets
Other current assets consist of the following (in thousands):
Unbilled receivables
Prepaid expenses
Capitalized contract acquisition costs
Other1
September 30,
2022
2021
10,164 $
58,201
68,365 $
13,081
8,974
22,055
September 30,
2022
319,707 $
57,340
34,658
77,609
489,314 $
2021
215,396
59,636
34,265
28,605
337,902
$
$
$
$
(1)
As of September 30, 2022, includes a deposit of $57.0 million used to support the working capital needs of the
Company’s primary contract manufacturer's procurement of components used in the manufacturing of system hardware.
Property and Equipment
Property and equipment consist of the following (in thousands):
Computer equipment
Software
Office furniture and equipment
Leasehold improvements
Accumulated depreciation and amortization
September 30,
2022
168,204 $
86,036
41,619
173,689
469,548
(301,366)
168,182 $
2021
166,846
94,169
45,204
174,504
480,723
(289,559)
191,164
$
$
Depreciation and amortization expense totaled approximately $56.0 million, $61.3 million, and $59.5 million for the
fiscal years ended September 30, 2022, 2021 and 2020, respectively.
There were no long-lived asset impairment charges for the year ended September 30, 2022. During the year ended
September 30, 2021, the Company recorded an impairment of $10.3 million for leasehold improvements and other fixed assets
associated with the permanent exit of six floors in its corporate headquarters. The Company also recorded an impairment of
$0.2 million for fixed assets associated with the integration of the former Shape headquarters in Santa Clara, California. The
impairment charges for the year ended September 30, 2021 were allocated to various expense line items on the Company’s
consolidated income statements based on the teams that previously worked out of the exited space.
64
Goodwill
Changes in the carrying amount of goodwill during fiscal years 2022 and 2021 are summarized as follows (in thousands):
Balance, September 30, 2020
Acquisition of Volterra, Inc.
Other
Balance, September 30, 2021
Acquisition of Threat Stack, Inc.
Other
Balance, September 30, 2022
Other Assets
Other assets consist of the following (in thousands):
Intangible assets
Unbilled receivables
Capitalized contract acquisition costs
Other
$ 1,858,966
351,417
6,170
2,216,553
43,956
(1,227)
$ 2,259,282
September 30,
2022
200,288 $
224,780
42,561
48,493
516,122 $
2021
237,178
158,885
43,571
32,924
472,558
$
$
Intangible assets are included in other assets on the consolidated balance sheets and consist of the following (in
thousands):
Developed technology
Customer relationships
Patents and trademarks
Trade names
Non-compete covenants
September 30, 2022
September 30, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$
$
319,436 $
46,142
23,504
24,973
2,260
416,315 $
(151,332) $
(25,630)
(19,255)
(17,550)
(2,260)
(216,027) $
168,104 $
20,512
4,249
7,423
—
200,288 $
305,673 $
41,742
20,260
24,973
2,260
394,908 $
(111,279) $
(17,865)
(17,180)
(9,146)
(2,260)
(157,730) $
194,394
23,877
3,080
15,827
—
237,178
Amortization expense related to intangible assets was approximately $36.4 million, $48.7 million, and $34.6 million for
the fiscal years ended September 30, 2022, 2021 and 2020, respectively.
For intangible assets held as of September 30, 2022, amortization expense for the five succeeding fiscal years is as
follows (in thousands):
2023
2024
2025
2026
2027
$
$
51,303
46,030
41,559
36,805
15,526
191,223
65
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
Payroll and benefits
Operating lease liabilities, current
Income and other tax accruals
Other
Other Long-term Liabilities
Other long-term liabilities consist of the following (in thousands):
Income taxes payable
Other
6. Debt Facilities
Term Credit Agreement
September 30,
2022
165,437 $
42,523
41,217
60,642
309,819 $
2021
179,147
49,286
44,075
68,979
341,487
September 30,
2022
2021
59,553 $
8,157
67,710 $
66,081
9,155
75,236
$
$
$
$
In connection with the acquisition of Shape, on January 24, 2020, the Company entered into a Term Credit Agreement
("Term Credit Agreement") with certain institutional lenders that provides for a senior unsecured term loan facility in an
aggregate principal amount of $400.0 million (the "Term Loan Facility"). The proceeds from the Term Loan Facility were
primarily used to finance the acquisition of Shape and related expenses. In connection with the Term Loan Facility, the
Company incurred $2.2 million in debt issuance costs, which are recorded as a reduction to the carrying value of the principal
amount of the debt.
Borrowings under the Term Loan Facility bear interest at a rate equal to, at the Company's option, (a) LIBOR, adjusted for
customary statutory reserves, plus an applicable margin of 1.125% to 1.75% depending on the Company's leverage ratio, or (b)
an alternate base rate determined in accordance with the Term Credit Agreement, plus an applicable margin of 0.125% to
0.750% depending on the Company's leverage ratio. Interest on the outstanding principal of borrowings is currently due
quarterly in arrears. As of September 30, 2022, the margin for LIBOR-based loans was 1.125% and the margin for alternate
base rate loans was 0.125%.
The Term Loan Facility matures on January 24, 2023 with quarterly installments (commencing with the first full fiscal
quarter ended after January 24, 2020) equal to 1.25% of the original principal amount of the Term Loan Facility. The remaining
outstanding principal of borrowings under the Term Loan Facility is due upon maturity on January 24, 2023. Borrowings under
the Term Loan Facility may be voluntarily prepaid, in whole or in part, without penalty or premium. Borrowings repaid or
prepaid under the Term Loan Facility may not be reborrowed.
Among certain affirmative and negative covenants provided in the Term Credit Agreement, there is a financial covenant
that requires the Company to maintain a leverage ratio, calculated as of the last day of each fiscal quarter, of consolidated total
indebtedness to consolidated EBITDA. This covenant may result in a higher interest rate on its outstanding principal
borrowings on the Term Loan Facility in future periods, depending on the Company's performance. As of September 30, 2022,
the Company was in compliance with all covenants.
66
As of September 30, 2022, $350.0 million of principal amount under the Term Loan Facility was outstanding, excluding
unamortized debt issuance costs of $0.2 million. The outstanding principal amount was included in current liabilities on the
Company's consolidated balance sheet as of September 30, 2022. The weighted average interest rate on the principal amount
under the Term Loan Facility outstanding balance was 2.190%, 1.361%, and 2.365% for the fiscal years ended September 30,
2022, 2021, and 2020, respectively. The following table presents the scheduled principal maturities as of September 30, 2022
(in thousands):
Fiscal Years Ending September 30:
2023
Total
Revolving Credit Agreement
$
$
350,000
350,000
On January 31, 2020, the Company entered into a Revolving Credit Agreement (the "Revolving Credit Agreement") that
provides for a senior unsecured revolving credit facility in an aggregate principal amount of $350.0 million (the "Revolving
Credit Facility"). The Company has the option to increase commitments under the Revolving Credit Facility from time to time,
subject to certain conditions, by up to $150.0 million. Borrowings under the Revolving Credit Facility bear interest at a rate
equal to, at the Company's option, (a) LIBOR, adjusted for customary statutory reserves, plus an applicable margin of 1.125%
to 1.75% depending on the Company's leverage ratio, or (b) an alternate base rate determined in accordance with the Revolving
Credit Agreement, plus an applicable margin of 0.125% to 0.750% depending on the Company's leverage ratio. The Revolving
Credit Agreement also requires payment of a commitment fee calculated at a rate per annum of 0.125% to 0.300% depending
on the Company's leverage ratio on the undrawn portion of the Revolving Credit Facility. Commitment fees incurred during
fiscal year 2022 were not material.
The Revolving Credit Facility matures on January 31, 2025, at which time any remaining outstanding principal of
borrowings under the Revolving Credit Facility is due. The Company has the option to request up to two extensions of the
maturity date in each case for an additional period of one year. Among certain affirmative and negative covenants provided in
the Revolving Credit Agreement, there is a financial covenant that requires the Company to maintain a leverage ratio,
calculated as of the last day of each fiscal quarter, of consolidated total indebtedness to consolidated EBITDA. As of
September 30, 2022, the Company was in compliance with all covenants. As of September 30, 2022, there were no outstanding
borrowings under the Revolving Credit Facility, and the Company had available borrowing capacity of $350.0 million.
7. Leases
The majority of the Company's operating lease payments relate to its corporate headquarters in Seattle, Washington,
which includes approximately 515,000 square feet of office space. The lease commenced in April 2019 and expires in 2033
with an option for renewal. The Company also leases additional office and lab space for product development and sales and
support personnel in the United States and internationally. The Company's lease agreements do not contain any material
residual value guarantees or material restrictive covenants.
The components of the Company's operating lease expenses for the years ended September 30, 2022, 2021, and 2020
were as follows (in thousands):
Operating lease expense
Short-term lease expense
Variable lease expense
Total lease expense
Fiscal year ended September 30,
2022
2021
2020
$
$
47,302 $
2,465
23,209
72,976 $
47,993 $
2,953
25,200
76,146 $
49,925
3,563
21,980
75,468
Variable lease expense primarily consists of common area maintenance and parking expenses.
67
Supplemental balance sheet information related to the Company's operating leases was as follows (in thousands, except
lease term and discount rate):
Operating lease right-of-use assets, net
Operating lease liabilities, current1
Operating lease liabilities, long-term
Total operating lease liabilities
Weighted average remaining lease term (in years)
Weighted average discount rate
September 30,
2022
2021
$
227,475
$
244,934
42,523
272,376
$
314,899
$
49,286
296,945
346,231
9.2
2.66 %
9.7
2.60 %
(1) Current portion of operating lease liabilities is included in accrued liabilities on the Company's consolidated balance
sheets.
As of September 30, 2022, the future operating leases payments for each of the next five years and thereafter is as follows
(in thousands):
Fiscal Years Ending September 30:
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less: imputed interest
Total lease liabilities
Operating Lease
Payments
$
$
50,427
46,288
38,793
29,241
28,592
166,585
359,926
(45,027)
314,899
Operating lease liabilities above do not include sublease income. As of September 30, 2022, the Company expects to
receive sublease income of approximately $21.6 million, which consists of $7.5 million to be received in fiscal year 2023 and
$14.1 million to be received over the three fiscal years thereafter.
There were no impairments against right-of-use assets for the year ended September 30, 2022. During the year ended
September 30, 2021, the Company recorded an impairment of $23.5 million against the operating lease right-of-use asset
related to the exit of six floors in its corporate headquarters. The Company also recorded an impairment of $6.7 million against
the right-of-use asset related to the integration of the former Shape headquarters in Santa Clara, California. During the year
ended September 30, 2020, the Company recorded an impairment for $9.7 million against the right-of-use asset related to the
former Seattle headquarters location, due to the low likelihood of future sublease receipts, as the Company will no longer seek
to sublease the space.
As of September 30, 2022, the Company had no significant operating leases that were executed but not yet commenced.
8. Income Taxes
The United States and international components of income before income taxes are as follows (in thousands):
United States
International
Years Ended September 30,
2022
217,323 $
168,070
385,393 $
2021
189,398 $
197,539
386,937 $
2020
216,409
179,988
396,397
$
$
68
The provision for income taxes consists of the following (in thousands):
Current
U.S. federal
State
Foreign
Total
Deferred
U.S. federal
State
Foreign
Total
Years Ended September 30,
2022
2021
2020
$
$
35,259 $
14,592
54,079
103,930
53,107 $
16,686
62,832
132,625
(28,721)
(11,332)
(644)
(40,697)
63,233 $
(61,739)
(15,294)
104
(76,929)
55,696 $
26,978
4,230
50,368
81,576
10,875
(1,121)
(2,374)
7,380
88,956
The effective tax rate differs from the U.S. federal statutory rate as follows (in thousands):
Income tax provision at statutory rate
State taxes, net of federal benefit
Tax impact of foreign operations
Research and development and other credits
Stock-based and other compensation
Other
Years Ended September 30,
2022
2021
2020
$
$
80,933 $
6,012
(21,435)
(18,917)
15,070
1,570
63,233 $
81,257 $
5,118
(26,881)
(18,055)
12,740
1,517
55,696 $
83,243
4,258
(7,693)
(11,843)
18,002
2,989
88,956
The Company does not maintain an indefinite reinvestment assertion on unremitted foreign earnings and has recorded a
deferred tax liability for any estimated foreign, federal, or state tax liabilities associated with a future repatriation of foreign
earnings.
The Company benefits from tax incentive arrangements in certain foreign jurisdictions, one of which expired in fiscal
year 2021 and the rest of which expire in fiscal years 2026 to 2034. The tax incentive agreements are conditional upon meeting
certain operational, employment, and investment requirements. These arrangements decreased foreign taxes by $8.5 million,
$6.0 million and $8.2 million, and increased diluted earnings per common share by $0.14, $0.10 and $0.13 for the years ended
September 30, 2022, 2021 and 2020, respectively.
69
The tax effects of the temporary differences that give rise to the deferred tax assets and liabilities are as follows (in
thousands):
Deferred tax assets
Net operating loss carry-forwards
Capitalized research and development costs
Accrued compensation and benefits
Stock-based compensation
Deferred revenue
Lease liabilities
Other accruals and reserves
Tax credit carryforwards
Depreciation
Valuation allowance
Deferred tax liabilities
Purchased intangibles
Depreciation
Deferred costs
Other accruals and reserves
$
Years Ended September 30,
2022
2021
42,849 $
158,206
14,068
10,389
32,244
21,572
18,797
28,858
505
327,488
(46,136)
281,352
41,252
95,259
13,207
12,829
30,115
23,747
18,450
34,187
580
269,626
(40,404)
229,222
(57,350)
(22,278)
(12,987)
(8,153)
(100,768)
(57,219)
(26,516)
(13,057)
(6,651)
(103,443)
Net deferred tax assets
$
180,584 $
125,779
At September 30, 2022, the Company had foreign net operating loss carryforwards of approximately $63.4 million that
can be carried forward indefinitely, and $0.3 million that will expire in fiscal years 2028 to 2039. The Company had
$85.3 million of federal net operating loss carryforwards, of which $52.0 million can be carried forward indefinitely and
$33.3 million that will expire in fiscal years 2033 to 2038. The annual utilization of the federal net operating loss carryforwards
is limited under Internal Revenue Code Section 382. The Company also had $448.4 million of state net operating loss
carryforwards, of which $253.1 million can be carried forward indefinitely and $195.3 million will expire in fiscal years 2029
to 2042. In addition, there are $3.1 million of foreign credit carryforwards that will expire in fiscal years 2023 to 2038,
$7.8 million of federal credit carryforwards that will expire in fiscal years 2033 to 2041, $29.5 million of state tax credit
carryforwards that can be carried forward indefinitely, and $3.9 million of state tax credit carryforwards that will expire in fiscal
years 2031 to 2037. Management believes that it is more likely than not that the benefit from certain foreign net operating loss
and credit carryforwards and state tax net operating loss and credit carryforwards will not be realized. In recognition of this risk,
the Company has provided a valuation allowance on the deferred tax assets relating to these carryforwards. The net change in
the total valuation allowance was an increase of $5.7 million and $7.8 million for years ended September 30, 2022 and 2021,
respectively.
The Company recognizes the financial statement impact of a tax position only after determining that the relevant tax
authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not
threshold, the amount recognized in the financial statements is the largest impact that has a greater than fifty percent likelihood
of being realized upon ultimate settlement with the relevant tax authority.
70
The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits in fiscal
years 2022, 2021 and 2020 (in thousands):
Balance, beginning of period
Gross increases related to prior period tax positions
Gross decreases related to prior period tax positions
Gross increases related to current period tax positions
Decreases relating to settlements with tax authorities
Reductions due to lapses of statute of limitations
Balance, end of period
2022
2021
2020
$
$
70,814 $
4,816
(10,538)
10,203
—
(8,455)
66,840 $
51,767 $
14,867
—
12,595
(321)
(8,094)
70,814 $
42,287
8,664
(1,051)
9,272
(3,578)
(3,827)
51,767
The total amount of gross unrecognized tax benefits was $66.8 million, $70.8 million, and $51.8 million as of
September 30, 2022, 2021, and 2020, respectively, of which, $43.2 million, $39.2 million, and $34.3 million, if recognized,
would affect the effective tax rate. There is a reasonable possibility that the Company’s unrecognized tax benefits will change
within twelve months due to audit settlements or the expiration of statute of limitations, but the Company does not expect the
change to be material to the consolidated financial statements.
The Company recognizes interest and, if applicable, penalties (not included in the “unrecognized tax benefits” table
above) for any uncertain tax positions. Interest and penalties are recorded as a component of income tax expense. In the years
ended September 30, 2022, 2021 and 2020, the Company recorded approximately a $1.5 million decrease, $1.4 million increase
and $1.0 million decrease, respectively, of interest and penalty expense related to uncertain tax positions. As of September 30,
2022 and 2021, the Company had a cumulative balance of accrued interest and penalties on unrecognized tax positions of $2.9
million and $4.4 million, respectively.
The Company and its subsidiaries are subject to U.S. federal income tax as well as the income tax of multiple state and
foreign jurisdictions. The Company has concluded all U.S. federal income tax matters for fiscal years through September 30,
2018. Major jurisdictions where there are wholly owned subsidiaries of F5, Inc. which require income tax filings include the
United Kingdom, Singapore, Israel, and India. The earliest periods open for review by local taxing authorities are fiscal years
2020 for the United Kingdom, 2017 for Singapore, 2013 for Israel, and 2019 for India. The Company is currently under audit
by various states for fiscal years 2016 through 2021, and by various foreign jurisdictions including Germany for fiscal years
2016 to 2019, India for fiscal years 2019 to 2020, Israel for fiscal years 2013 to 2017, and Saudi Arabia for fiscal years 2015 to
2020. Within the next four fiscal quarters, the statute of limitations will otherwise begin to close on the fiscal year 2019 federal
income tax return, fiscal years 2018 and 2019 state income tax returns, and fiscal years 2015 to 2021 foreign income tax
returns.
9. Shareholders' Equity
Common Stock Repurchase
On July 25, 2022, the Company announced that its Board of Directors authorized an additional $1.0 billion for its
common stock share repurchase program. This authorization is incremental to the existing $5.4 billion program, initially
approved in October 2010 and expanded in subsequent fiscal years. Acquisitions for the share repurchase programs will be
made from time to time in private transactions, accelerated share repurchase programs, or open market purchases as permitted
by securities laws and other legal requirements. The programs can be terminated at any time.
On February 3, 2021, the Company entered into Accelerated Share Repurchase (ASR) agreements with two financial
institutions under which the Company paid an aggregate of $500 million. The ASR agreements were accounted for as two
separate transactions (1) a repurchase of common stock and (2) an equity-linked contract on the Company's own stock. Upon
execution of the ASR agreements, the Company received an initial delivery of 2.1 million shares for an aggregate price of
$400 million, based on the market price of $194.91 per share of the Company's common stock on the date of the transaction.
The initial shares received by the Company were retired immediately upon receipt. The equity-linked contract for the remaining
$100 million, representing remaining shares to be delivered by the financial institutions under the ASR agreements, was
recorded to common stock as of March 31, 2021 and was settled in the third quarter of fiscal 2021 with the Company receiving
449,049 additional shares, which were retired immediately upon receipt. The total ASR resulted in a repurchase of 2.5 million
shares of the Company's common stock at a volume weighted average repurchase price, less an agreed upon discount, of
$199.90 per share. The shares received by the Company were retired, accounted for as a reduction to stockholder’s equity in the
consolidated balance sheets, and treated as a repurchase of common stock for purposes of calculating earnings per share. The
71
Company was not required to make any additional cash payments or delivery of common stock to the financial institutions upon
settlement of the agreements.
The following table summarizes the Company's repurchases and retirements of its common stock under its Stock
Repurchase Program, including the ASR (in thousands, except per share data):
Shares repurchased
Average price per share
Amount repurchased
Years Ended September 30,
2022
2021
2020
2,611
2,501
799
$
$
191.47 $
500,023 $
199.90 $
500,000 $
125.10
100,016
As of September 30, 2022, the Company had $1,272 million remaining authorized to purchase shares under its share
repurchase program.
10. Stock-based Compensation
The Company recognized $249.2 million, $243.3 million and $201.9 million of stock-based compensation expense for
the fiscal years ended September 30, 2022, 2021 and 2020, respectively. The income tax benefit recognized on stock-based
compensation within income tax expense was $47.3 million, $44.1 million and $37.6 million for the fiscal years ended
September 30, 2022, 2021 and 2020, respectively. As of September 30, 2022, there was $196.5 million of total unrecognized
stock-based compensation cost, the majority of which will be recognized over approximately two years. Going forward, stock-
based compensation expenses may increase as the Company issues additional equity-based awards to continue to attract and
retain key employees. On October 31, 2022, the Company’s Board of Directors and Talent and Compensation Committee
approved 1,321,304 RSUs to employees and executive officers pursuant to the Company’s annual equity awards program.
Company has adopted a number of stock-based compensation plans as discussed below.
2011 Employee Stock Purchase Plan. In April 2012, the Board of Directors amended and restated the Company’s 1999
Employee Stock Purchase Plan, or the Employee Stock Purchase Plan. A total of 10,000,000 shares of common stock have been
reserved for issuance under the Employee Stock Purchase Plan. The Employee Stock Purchase Plan permits eligible employees
to acquire shares of the Company’s common stock through periodic payroll deductions of up to 15% of base compensation. No
employee may purchase more than 10,000 shares during an offering period. In addition, no employee may purchase more than
$25,000 worth of stock, determined by the fair market value of the shares at the time such option is granted, in one calendar
year. The Employee Stock Purchase Plan has been implemented in a series of offering periods, each 6 months in duration. The
price at which the common stock may be purchased is 85% of the lesser of the fair market value of the Company’s common
stock on the first day of the applicable offering period or on the last day of the respective purchase period. As of September 30,
2022 there were 945,136 shares available for awards under the Employee Stock Purchase Plan.
In determining the fair value of the right to purchase under the Employee Stock Purchase Plan, the Company uses the
Black-Scholes option pricing model that employs the following key assumptions:
Employee Stock Purchase Plan
Years Ended September 30,
2022
2021
2020
Risk-free interest rate
Expected dividend
Expected term
Expected volatility
0.05% - 0.62%
—
0.5 years
1.10% - 1.97%
—
0.5 years
26.34% - 31.57% 29.67% - 37.22% 26.32% - 41.94%
0.07% - 0.13%
—
0.5 years
Acquisition Related Incentive Plans. In May 2019, the Company adopted the Nginx Acquisition Equity Incentive Plan, or
the Nginx Acquisition Plan. The Nginx Acquisition Plan provided for discretionary grants of stock options and stock units for
employees, directors and consultants of Nginx, Inc. to whom the Company offered employment in connection with the
Company’s acquisition of Nginx. A total of 183,061 shares of common stock were reserved for issuance under the Nginx
Acquisition Plan. Upon certain changes in control of the Company, the surviving entity will either assume or substitute all
outstanding stock awards under the Nginx Acquisition Plan or the vesting of 50% of the stock awards shall be accelerated.
During the fiscal year 2022, the Company issued no stock options or restricted stock units under the Nginx Acquisition Plan. As
of September 30, 2022, there were no options outstanding and 20,923 stock units outstanding. The Company terminated the
Nginx Acquisition Plan effective October 31, 2019 and no additional shares may be issued from the Nginx Acquisition Plan.
72
In connection with the Company’s acquisition of Nginx, Inc. in the third quarter of fiscal year 2019, the Company
assumed the Nginx Inc. 2011 Share Plan, or the Nginx Plan. Unvested options to acquire Nginx's common stock and unvested
stock units with respect to Nginx’s common stock were converted into options to acquire the Company’s common stock and
stock units with respect to the Company’s stock in connection with the acquisition. A total of 302,634 shares of common stock
were reserved for issuance under the Nginx Plan (including converted options and stock units). The Nginx Plan provided for
grants of stock options, stock awards and stock units to persons who were employees, officers, directors and consultants to
Nginx, Inc. prior to May 8, 2019. During the fiscal year 2022, the Company issued no stock options or restricted stock units
under the Nginx Plan. As of September 30, 2022, there were options to purchase 16,295 shares outstanding and 2,997 stock
units outstanding. The Company terminated the Nginx Plan effective October 31, 2019 and no additional shares may be issued
from the Nginx Plan.
In January 2020, the Company adopted the Shape Acquisition Equity Incentive Plan, or the Shape Acquisition Plan. The
Shape Acquisition Plan provided for discretionary grants of stock options and stock units for employees, directors and
consultants of Shape Security, Inc. to whom the Company offered employment in connection with the Company’s acquisition
of Shape. A total of 450,000 shares of common stock were reserved for issuance under the Shape Acquisition Plan. Upon
certain changes in control of the Company, the surviving entity will either assume or substitute all outstanding stock awards
under the Shape Acquisition Plan or the vesting of 50% of the stock awards shall be accelerated. During the fiscal year 2022,
the Company issued no stock options or restricted stock units under the Shape Acquisition Plan. As of September 30, 2022,
there were no options outstanding and 83,164 stock units outstanding. The Company terminated the Shape Acquisition Plan
effective December 28, 2020 and no additional shares may be issued from the Shape Acquisition Plan.
In connection with the Company’s acquisition of Shape Security, Inc. in the second quarter of fiscal year 2020, the
Company assumed the Shape 2011 Stock Plan, or the Shape Plan. Unvested options to acquire Shape’s common stock and
unvested stock units with respect to Shape’s common stock were converted into options to acquire the Company’s common
stock and stock units with respect to the Company’s stock in connection with the acquisition. A total of 501,085 shares of
common stock were reserved for issuance under the Shape Plan (including converted options and stock units). The Shape Plan
provided for grants of stock options, stock awards and stock units to persons who were employees, officers, directors and
consultants to Shape Security, Inc. prior to January 24, 2020. During the fiscal year 2022, the Company issued no stock options
or restricted stock units under the Shape Plan. As of September 30, 2022, there were options to purchase 79,508 shares
outstanding and 1,443 stock units outstanding. The Company terminated the Shape Plan effective December 28, 2020 and no
additional shares may be issued from the Shape Plan.
In January 2021, the Company adopted the Volterra Acquisition Equity Incentive Plan, or the Volterra Acquisition Plan.
The Volterra Acquisition Plan provided for discretionary grants of stock options and stock units for employees, directors and
consultants of Volterra, Inc. to whom the Company offered employment in connection with the Company’s acquisition of
Volterra. A total of 140,000 shares of common stock were reserved for issuance under the Volterra Acquisition Plan. Upon
certain changes in control of the Company, the surviving entity will either assume or substitute all outstanding stock awards
under the Volterra Acquisition Plan or the vesting of 50% of the stock awards shall be accelerated. During the fiscal year 2022,
the Company issued no stock options or restricted stock units under the Volterra Acquisition Plan. As of September 30, 2022,
there were no options outstanding and 103,880 stock units outstanding. The Company terminated the Volterra Acquisition Plan
effective October 29, 2021 and no additional shares may be issued from the Volterra Acquisition Plan.
In connection with the Company’s acquisition of Volterra, Inc. in the second quarter of fiscal year 2021, the Company
assumed the Volterra 2017 Stock Plan, or the Volterra Plan. Unvested options to acquire Volterra’s common stock and unvested
stock units with respect to Volterra’s common stock were converted into options to acquire the Company’s common stock and
stock units with respect to the Company’s stock in connection with the acquisition. A total of 261,696 shares of common stock
were reserved for issuance under the Volterra Plan (including converted options and stock units). The Volterra Plan provided
for grants of stock options, stock awards and stock units to persons who were employees, officers, directors and consultants to
Volterra, Inc. prior to January 22, 2021. During the fiscal year 2022, the Company issued no stock options or restricted stock
units under the Volterra Plan. As of September 30, 2022, there were options to purchase 68,993 shares outstanding and 17,934
stock units outstanding. The Company terminated the Volterra Plan effective October 29, 2021 and no additional shares may be
issued from the Volterra Plan.
In November 2021, the Company adopted the Threat Stack Acquisition Equity Incentive Plan, or the Threat Stack
Acquisition Plan. The Threat Stack Acquisition Plan provided for discretionary grants of stock options and stock units for
employees, directors and consultants of Threat Stack to whom the Company offered employment in connection with the
Company’s acquisition of Threat Stack. A total of 35,000 shares of common stock were reserved for issuance under the Threat
Stack Acquisition Plan. Upon certain changes in control of the Company, the surviving entity will either assume or substitute
all outstanding stock awards under the Threat Stack Acquisition Plan or the vesting of 50% of the stock awards shall be
73
accelerated. During the fiscal year 2022, the Company issued 25,838 stock units under the Threat Stack Acquisition Plan. As of
September 30, 2022, there were 23,534 stock units outstanding.
F5, Inc. Incentive Plan. In March 2022, the Company adopted the F5, Inc. Incentive Plan, or the Plan, which amended
and restated the 2014 Incentive Plan. The Plan provides for discretionary grants of stock options, stock units and other equity
and cash-based awards for employees, including officers, directors and consultants. A total of 23,380,000 shares of common
stock have been reserved for issuance under the Plan. Upon certain changes in control of the Company, all outstanding and
unvested options or stock awards under the Plan will vest at the rate of 50%, unless assumed or substituted by the acquiring
entity. During the fiscal year 2022, the Company issued no stock options, 111,283 performance stock units and 1,118,854
restricted stock units under the Plan. As of September 30, 2022, there were no options outstanding, 208,116 performance stock
units outstanding, 1,137,619 restricted stock units outstanding and 2,072,778 shares available for new awards under the Plan.
A summary of restricted stock unit activity under the Plan is as follows:
Balance, September 30, 2021
Units granted
Units vested
Units cancelled
Balance, September 30, 2022
Performance Stock Units
Restricted Stock Units
Outstanding
Performance
Stock Units
Weighted
Average
Grant Date
Fair Value
Outstanding
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
230,926 $
111,283
(119,889)
(14,204)
208,116 $
136.47
200.74
215.12
151.07
169.99
1,340,548 $
1,118,854
(1,122,583)
(199,200)
1,137,619 $
141.90
206.45
188.04
170.35
184.59
A majority of the restricted stock units the Company grants to its employees vest quarterly over a two-year period. The
performance stock units, restricted stock units and stock options under all plans were granted during fiscal years 2022, 2021 and
2020 with a per-share weighted average fair value of $206.13, $145.89 and $137.84, respectively. The fair value of
performance stock units and restricted stock units vested during fiscal years 2022, 2021 and 2020 was $262.4 million, $261.9
million and $138.4 million, respectively. In determining the fair value of the portion of the performance awards based on Total
Shareholder Return, the Company uses a Monte Carlo simulation model that employs the following key assumptions:
Grant Date
per Share
(in years)
Interest Rate
F5
Fair Value
Expected Term
Risk-Free
Index
Members
Expected
Dividend
Expected Volatility
November 1, 2021
Tranche 1
Tranche 2
Tranche 3
$
$
$
283.35
302.53
308.76
0.91
1.91
2.91
0.13 %
0.47 %
0.76 %
26.21 %
35.13 %
32.54 %
27.27 %
42.87 %
38.24 %
—
—
—
As of September 30, 2022, the following annual equity grants for executive officers or a portion thereof are outstanding:
Grant Date
RSUs Granted
November 1, 2021
November 2, 2020
November 1, 2019
November 1, 2018
160,384
257,568
228,616
144,066
Vesting Schedule
Quarterly, Annually1,2
Quarterly, Annually1
Quarterly, Annually1
Quarterly, Annually1
Vesting Period
Date Fully Vested
3 years
3 years
3 years
3 years
November 1, 2024
November 1, 2023
November 1, 2022
November 1, 2021
(1)
50% of the annual equity grant vests in equal quarterly increments and 50% is subject to the Company achieving specified
annual performance goals.
(2) For the Company's Chief Executive Officer, 40% of the annual equity grant vests in equal quarterly increments and 60%
is subject to the Company achieving specified annual performance goals.
74
A summary of stock option activity under all of the Company’s plans is as follows:
Options Outstanding
Balance, September 30, 2021
Options granted
Options exercised
Options cancelled
Balance, September 30, 2022
Number of
Shares
324,624 $
—
(143,128)
(16,700)
164,796 $
Weighted
Average
Exercise Price
per Share
30.83
—
25.24
53.98
33.34
There were no stock options granted in fiscal year 2022. All stock options granted in fiscal years 2021 and 2020 were
replacement awards of those assumed as part of the acquisitions of Volterra and Shape, respectively.
The total intrinsic value of options exercised during fiscal 2022, 2021 and 2020 was $25.6 million, $25.6 million and
$11.4 million, respectively.
A summary of options outstanding that are exercisable and that have vested and are expected to vest as of September 30,
2022 is as follows:
Stock options outstanding
Exercisable
Vested and expected to vest
Weighted
Average
Remaining
Contractual
Life (in Years)
Weighted
Average
Exercise
Price
per Share
Aggregate
Intrinsic
Value(1)
6.45 $
6.20 $
6.42 $
(In thousands)
18,357
14,482
18,147
33.34 $
30.76 $
33.20 $
Number of
Shares
164,796
127,072
162,713
(1) Aggregate intrinsic value represents the difference between the fair value of the Company’s common stock underlying
these options at September 30, 2022 and the related exercise prices.
As of September 30, 2022, equity based awards (including stock options and restricted stock units) are available for
future issuance as follows:
Balance, September 30, 2021
Granted
Cancelled
Additional shares reserved (terminated), net
Balance, September 30, 2022
11. Net Income Per Share
Awards
Available for
Grant
1,988,410
(1,255,975)
327,201
1,013,142
2,072,778
Basic net income per share is computed by dividing net income by the weighted average number of common shares
outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average
number of common and dilutive common stock equivalent shares outstanding during the period. The Company’s nonvested
restricted stock units do not have nonforfeitable rights to dividends or dividend equivalents and are not considered participating
securities that should be included in the computation of earnings per share under the two-class method.
75
The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share
data):
Numerator
Net income
Denominator
Weighted average shares outstanding — basic
Dilutive effect of common shares from stock options and restricted stock
units
Weighted average shares outstanding — diluted
Basic net income per share
Diluted net income per share
Years Ended September 30,
2022
2021
2020
$
322,160 $
331,241 $
307,441
60,274
60,707
60,911
823
61,097
1,350
62,057
$
$
5.34 $
5.27 $
5.46 $
5.34 $
467
61,378
5.05
5.01
Anti-dilutive stock-based awards excluded from the calculations of diluted earnings per share were not material for the
years ended September 30, 2022, 2021 and 2020.
12. Commitments and Contingencies
Litigation
Lynwood Investment CY Limited v. F5 Networks et al.
On June 8, 2020, Lynwood Investment CY Limited (“Lynwood”) filed a lawsuit in the United States District Court for
the Northern District of California against the Company and certain affiliates, along with other defendants. In its complaint,
Lynwood claims to be the assignee of all rights and interests of Rambler Internet Holding LLC (“Rambler”), and alleges that
the intellectual property in the NGINX software originally released by the co-founder of NGINX in 2004 belongs to Rambler
(and therefore Lynwood, by assignment) because the software was created and developed while the co-founder was employed
by Rambler. Lynwood asserts 26 causes of action against the various defendants, including copyright infringement, violation of
trademark law, tortious interference, conspiracy, and fraud. The complaint seeks damages, disgorgement of profits, fees and
costs, declarations of copyright and trademark ownership, trademark cancellations, and injunctive relief. Lynwood also initiated
several trademark opposition and cancellation proceedings before the Trademark Trial and Appeal Board of the United States
Patent and Trademark Office, which have all since been suspended. In August and October 2020, the Company and the other
defendants filed motions to dismiss all claims asserted against them in the lawsuit. While these motions were pending, the
Court ordered Lynwood to select ten of its twenty-six claims to litigate through trial while the remaining sixteen claims would
be stayed pending resolution of the ten selected claims.
On March 25 and 30, 2021, the Court dismissed the ten selected claims and granted Lynwood leave to cure the
deficiencies in its complaint though it expressed doubt about Lynwood’s ability to do so. The Court further ruled that Lynwood
may not add new causes of action or add new parties without stipulation or leave of court, and that unless Lynwood corrects
“all the defects” identified in the Court’s orders and the Company’s and other defendants’ motions to dismiss, the Court will
dismiss the ten claims with prejudice. On April 6, 2021, the Court referred the parties to private mediation to be completed by
June 1, 2021. Pursuant to the Court’s order, the parties held a private mediation on May 27, 2021. The matter did not resolve.
On April 29, 2021, Lynwood filed its amended complaint, seeking the same relief against the Company and other
defendants. On May 27, 2021, the Company and other defendants filed a consolidated motion to dismiss the claims Lynwood
had selected to proceed to litigate through trial, reserving their right to move to dismiss the 16 stayed claims once the Court lifts
the stay. The motion to dismiss was set to be heard by the Court on October 14, 2021, but on October 11, 2021, the Court
vacated the hearing and gave notice that it will decide the motion on the papers without oral argument.
On August 16, 2022, the Court granted the consolidated motion to dismiss the claims Lynwood had selected to proceed to
litigate through trial, without leave to amend the claims, thereby dismissing those claims with prejudice. On September 9,
2022, the parties stipulated to the dismissal of the remaining 16 stayed claims, with prejudice, and the Court entered a final
judgment. On September 14, 2022, Lynwood filed a notice of appeal to the Ninth Circuit Court of appeals to appeal the Court’s
dismissal of the claims Lynwood had selected to proceed to litigate through trial. Lynwood’s opening brief is currently due
December 16, 2022 and the Company’s answer brief will be due January 17, 2023. Lynwood’s reply will be due February 7,
2023.
76
In addition to the above matters, the Company is subject to a variety of legal proceedings, claims, investigations, and
litigation arising in the ordinary course of business, including intellectual property litigation. Management believes that the
Company has meritorious defenses to the allegations made in its pending cases and intends to vigorously defend these lawsuits;
however, the Company is unable to currently determine if an unfavorable outcome is probable or estimate any potential amount
or range of possible loss of these or similar matters. There are many uncertainties associated with any litigation and these
actions or other third-party claims against the Company may cause it to incur costly litigation and/or substantial settlement
charges that could have a material adverse effect on the Company's business, financial condition, results of operations, and cash
flows.
The Company records an accrual for loss contingencies for legal proceedings when it believes that an unfavorable
outcome is both (a) probable and (b) the amount or range of any possible loss is reasonably estimable. The Company has not
recorded any accrual for loss contingencies associated with such legal proceedings or the investigations discussed above.
13. Restructuring Charges
In the first quarter of fiscal 2022, the Company initiated a restructuring plan to match strategic and financial objectives
and optimize resources for long term growth, including a reduction in force program affecting approximately 70 positions. The
Company recorded a restructuring charge of $7.9 million in the first quarter of fiscal 2022. The Company does not expect to
record any significant future charges related to the restructuring plan.
14. Employee Benefit Plans
The Company has a 401(k) savings plan whereby eligible employees may voluntarily contribute a percentage of their
compensation. The Company may, at its discretion, match a portion of the employees’ eligible contributions. Contributions by
the Company to the plan during the years ended September 30, 2022, 2021, and 2020 were approximately $14.0 million, $13.2
million and $11.3 million, respectively. Contributions made by the Company vest over four years.
15. Segment Information
Operating segments are defined as components of an enterprise for which separate financial information is available and
evaluated regularly by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and
in assessing performance. Management has determined that the Company is organized as, and operates in, one reportable
operating segment: the development, marketing and sale of application security and delivery solutions which enable its
customers to develop, deploy, operate, secure, and govern applications in any architecture, from on-premises to the public
cloud.
Revenues by Geographic Location and Other Information
The Company does business in three main geographic regions: the Americas (primarily the United States); Europe, the
Middle East, and Africa (EMEA); and the Asia Pacific region (APAC). The Company’s chief operating decision-maker reviews
financial information presented on a consolidated basis accompanied by information about revenues by geographic region. The
Company’s foreign offices conduct sales, marketing and support activities. Revenues are attributed by geographic location
based on the location of the customer.
The following presents revenues by geographic region (in thousands):
Years Ended September 30,
2022
2021
2020
Americas:
United States
Other
Total Americas
EMEA
Asia Pacific
77
$ 1,487,144 $ 1,365,625 $ 1,221,190
95,878
1,317,068
593,307
440,447
$ 2,695,845 $ 2,603,416 $ 2,350,822
92,111
1,457,736
667,219
478,461
85,711
1,572,855
634,759
488,231
The Company generates revenues from the sale of products and services. The Company continues to offer its products
through a range of consumption models, from physical systems to software solutions and managed services. The following
presents net product revenues by systems and software (in thousands):
Years Ended September 30,
2022
2021
2020
Net product revenues
Systems revenue
Software revenue
Total net product revenue
$
651,902 $
665,215
668,313
357,543
$ 1,317,117 $ 1,247,084 $ 1,025,856
748,192 $
498,892
The following distributors of the Company's products accounted for more than 10% of total net revenue:
Ingram Micro, Inc.
Synnex Corporation
Years Ended September 30,
2022
2021
2020
20.0 %
13.4 %
19.2 %
11.1 %
16.7 %
—
The following distributors of the Company's products accounted for more than 10% of total receivables:
Ingram Micro, Inc.
Synnex Corporation
Carahsoft Technology
September 30,
2022
2021
12.9 %
12.6 %
16.2 %
12.6 %
11.9 %
11.5 %
The Company tracks assets by physical location. Long-lived assets consist of property and equipment, net, and are shown
below (in thousands):
United States
EMEA
Other countries
16. Subsequent Events
September 30,
2022
134,699 $
17,376
16,107
168,182 $
2021
153,030
20,526
17,608
191,164
$
$
On October 27, 2022, the Company entered into a four-year, non-cancelable Strategic Supply Agreement with one of the
Company’s component suppliers. The agreement with the supplier provides committed delivery of components to the
Company. The Company is obligated to purchase $10 million of component inventory annually, with a total commitment of
$40 million within the four-year term.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that required information is
recorded, processed, summarized and reported within the required timeframe, as specified in the rules set forth by the Securities
Exchange Commission. Our disclosure controls and procedures are also designed to ensure that information required to be
disclosed is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosures.
78
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures as of September 30, 2022 and, based on this evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of
September 30, 2022.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the effectiveness of our internal control over financial reporting as of September 30,
2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control — Integrated Framework (2013). Based on the results of this assessment and on
those criteria, management concluded that our internal control over financial reporting was effective as of September 30, 2022.
The effectiveness of the Company’s internal control over financial reporting as of September 30, 2022, has been audited
by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears
herein.
Changes in Internal Control over Financial Reporting
During the fourth fiscal quarter, there were no changes to our internal control over financial reporting that materially
affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B.
Other Information
None.
79
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Certain information required by this item regarding the Company’s directors and executive officers is incorporated herein
by reference to the sections entitled “Board of Directors — Nominees and Continuing Directors,” “Corporate Governance —
Committees of the Board — Audit Committee” and “— Code of Ethics for Senior Financial Officers” and “— Director
Nomination,” and “Security Ownership of Certain Beneficial Owners and Management — Section 16(a) Beneficial Ownership
Reporting Compliance” in the Company’s definitive Proxy Statement that will be furnished to the SEC no later than January 28,
2023 (the “Proxy Statement”). Additional information regarding the Company’s directors and executive officers is set forth in
Item 1 of Part I of this Annual Report on Form 10-K under the caption “Directors and Executive Officers of the Registrant.”
Item 11.
Executive Compensation
The information required by this item is incorporated by reference to the sections entitled “Executive Compensation” and
“Corporate Governance — Committees of the Board — Compensation Committee” and “— Compensation Committee
Interlocks and Insider Participation” and “— Compensation Committee Report” in the Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information required by this item is incorporated by reference to the section entitled “Security Ownership of Certain
Beneficial Owners and Management” in the Proxy Statement.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to the sections entitled “Board of Directors — Director
Independence” and “Corporate Governance — Related Person Transactions Policy and Procedures” and “— Certain
Relationships and Related Person Transactions” in the Proxy Statement.
Item 14.
Principal Accountant Fees and Services
The information required by this item is incorporated by reference to the section entitled “Executive Compensation —
Fees Paid to PricewaterhouseCoopers LLP” and “— Audit Committee Pre-Approval Procedures” and “— Annual
Independence Determination” in the Proxy Statement.
80
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a) Documents filed as part of this report are as follows:
1. Consolidated Financial Statements:
Our Consolidated Financial Statements are listed in the Index to Consolidated Financial Statements.
2. Financial Statement Schedule:
Financial statement schedules have been omitted because the information required to be set forth therein is not
applicable, material, or is shown in the Consolidated Financial Statements or the notes hereto.
3. Exhibits:
The required exhibits are included at the end of this Annual Report on Form 10-K and are described in the
Exhibit Index immediately preceding the first exhibit.
Item 16.
Form 10-K Summary
Not applicable.
81
Exhibit
Number
EXHIBIT INDEX
Exhibit Description
2.1 — Merger Agreement, dated December 19, 2019, by and among F5 Networks, Inc., Silhouette Merger Sub,
Inc., Shape Security, Inc., and Shareholder Representative Services LLC(1)+
2.2 — Merger Agreement dated as of January 5, 2021, by and among the Registrant, Voyager Merger Sub
Corporation, Volterra, Inc., and Shareholder Representative Services LLC(2)+
3.1 — Fourth Amended and Restated Articles of Incorporation of the Registrant(3)
3.2 — Eighth Amended and Restated Bylaws adopted November 12, 2021(4)
4.1 * — Description of the Registrant's Securities
4.2 — Specimen Common Stock Certificate(5)
10.1 — Term Credit Agreement, dated as of January 24, 2020, among F5 Networks, Inc., the lenders party thereto
and JPMorgan Chase Bank, N.A., as Administrative Agent(6)
10.2 — Revolving Credit Agreement dated as of January 31, 2020, among F5 Networks, Inc., the lenders party
thereto and JPMorgan Chase Bank, N.A., as the Administrative Agent(7)
10.3 — Office Lease Agreement between the Registrant and Fifth & Columbia Investors, LLC dated May 3,
2017(8)
10.4 — Form of Indemnification Agreement between the Registrant and each of its directors and certain of its
officers(9) §
10.5 — F5 Networks, Inc. 2011 Employee Stock Purchase Plan (Amended and Restated effective March 14,
2019)(10) §
10.6 — Form of Change of Control Agreement between the Registrant and the executive officers(11) §
10.7 — F5 Networks, Inc. 2014 Incentive Plan, as amended and restated(12) §
10.8 — Nginx, Inc. 2011 Share Plan(13) §
10.9 — Nginx, Inc. Acquisition Equity Incentive Plan(13) §
10.10 — Nginx, Inc. Acquisition Equity Incentive Plan Award Agreement(14) §
10.11 — F5 Networks, Inc. Assumed Shape 2011 Stock Plan(15) §
10.12 — F5 Networks, Inc. Shape Acquisition Equity Incentive Plan(15) §
10.13 — Form of 2014 Incentive Plan Award Agreement (Accelerated Vesting) as revised October 2017(16) §
10.14 — Form of 2014 Incentive Plan Award Agreement (Accelerated Vesting) as revised November 2019(17) §
10.15 — F5 Networks, Inc. Assumed Volterra, Inc. Amended and Restated 2017 Stock Plan(18) §
10.16 — F5 Networks, Inc. Volterra Acquisition Equity Incentive Plan(18) §
10.17 — F5 Networks, Inc. Assumed Volterra, Inc. 2019 Restricted Stock Unit Sub-Plan France (sub-plan to the F5
Networks, Inc. Assumed Volterra, Inc. Amended and Restated 2017 Stock Plan)(18) §
10.18 — F5 Networks, Inc. Threat Stack Acquisition Equity Incentive Plan(19) §
10.19 — F5, Inc. Incentive Plan, as amended and restated(20) §
10.20 — Offer Letter from the Registrant to François Locoh-Donou(21) §
21.1 * — Subsidiaries of the Registrant
23.1 * — Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
31.1 * — Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 * — Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 * — Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS * — XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document
101.SCH * — Inline XBRL Taxonomy Extension Schema Document
101.CAL * — Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF * — Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB * — Inline XBRL Taxonomy Extension Label Linkbase Document
82
Exhibit
Number
101.PRE * — Inline XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit Description
104 * — Cover Page Interactive Data File (embedded within the Inline XBRL document)
Filed herewith.
Indicates a management contract or compensatory plan or arrangement.
*
§
+ Schedules and annexes have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule
and/or annex will be furnished supplementally to the Securities and Exchange Commission upon request.
(1)
(2)
(3)
(4)
(5)
(6)
Incorporated by reference from Current Report on Form 8-K dated December 19, 2019 and filed with the SEC on
December 24, 2019.
Incorporated by reference from Current Report on Form 8-K dated January 5, 2021 and filed with the SEC on January 7,
2021.
Incorporated by reference from Current Report on Form 8-K dated November 12, 2021 and filed with the SEC on
November 15, 2021.
Incorporated by reference from Current Report on Form 8-K dated November 12, 2021 and filed with the SEC on
November 15, 2021.
Incorporated by reference from Exhibit 4.1 of Registration Statement on Form S-1, File No. 333-75817.
Incorporated by reference from Current Report on Form 8-K dated January 24, 2020 and filed with the SEC on January
24, 2020.
Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended December 31, 2019.
Incorporated by reference from Current Report on Form 8-K dated May 3, 2017 and filed with the SEC on May 3, 2017.
Incorporated by reference from Exhibit 10.1 of Registration Statement on Form S-1, File No. 333-75817.
(7)
(8)
(9)
(10) Incorporated by reference from Current Report on Form 8-K dated March 14, 2019 and filed with the SEC on March 14,
2019.
(11) Incorporated by reference from Current Report on Form 8-K dated April 29, 2009 and filed with the SEC on May 4, 2009.
(12) Incorporated by reference from Current Report on Form 8-K dated March 11, 2021 and filed with the SEC on March 15,
2021.
(13) Incorporated by reference from Registration Statement on Form S-8 File No. 333-231802.
(14) Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.
(15) Incorporated by reference from Registration Statement on Form S-8 File No. 333-236228.
(16) Incorporated by reference from Annual Report on Form 10-K for the year ended September 30, 2017.
(17) Incorporated by reference from Annual Report on Form 10-K for the year ended September 30, 2020.
(18) Incorporated by reference from Registration Statement on Form S-8 File No. 333-252616.
(19) Incorporated by reference from Registration Statement on Form S-8 File No. 333-260656.
(20) Incorporated by reference from Current Report on Form 8-K dated March 10, 2022 and filed with the SEC on March 11,
2022.
(21) Incorporated by reference from Current Report on Form 8-K dated January 27, 2017 and filed with the SEC on January
30, 2017.
83
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
F5, INC.
By:
/s/ FRANÇOIS LOCOH-DONOU
François Locoh-Donou
Chief Executive Officer and President
Dated: November 14, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
By:
/s/ FRANÇOIS LOCOH-DONOU
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
François Locoh-Donou
/S/ FRANCIS J. PELZER
Francis J. Pelzer
/S/ ALAN HIGGINSON
Alan Higginson
/S/ SANDRA BERGERON
Sandra Bergeron
/S/ ELIZABETH L. BUSE
Elizabeth L. Buse
/S/ MICHAEL DREYER
Michael Dreyer
/S/ PETER KLEIN
Peter Klein
/S/ NIKHIL MEHTA
Nikhil Mehta
/S/ MARIE E. MYERS
Marie E. Myers
/S/ SRIPADA SHIVANANDA
Sripada Shivananda
/S/ MICHAEL MONTOYA
Michael Montoya
/S/ JAMES PHILLIPS
James Phillips
/S/ MARIANNE BUDNIK
Marianne Budnik
Chief Executive Officer, President, and
Director (principal executive officer)
November 14, 2022
Executive Vice President, Chief Financial
Officer (principal financial officer and
principal accounting officer)
November 14, 2022
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
84
November 14, 2022
November 14, 2022
November 14, 2022
November 14, 2022
November 14, 2022
November 14, 2022
November 14, 2022
November 14, 2022
November 14, 2022
November 14, 2022
November 14, 2022
Board of Directors
Corporate Officers
Shareholder Information
Annual Shareholders Meeting
March 9, 2023
11:00 a.m. Pacific Time
Virtual Meeting Location:
www.virtualshareholdermeeting.
com/FFIV2023
Corporate Headquarters
801 5th Ave
Seattle, WA 98104
206.272.5555
NASDAQ Listing
NASDAQ Symbol – FFIV
Investor Relations
206.272.7049
s.dulong@f5.com
www.f5.com
Independent Auditor
PricewaterhouseCoopers LLP
Seattle, WA
Transfer Agent
American Stock Transfer
800.937.5449
François Locoh-Donou
President and Chief Executive
Officer
Tom Fountain
Executive Vice President of Global
Services and Chief Strategy Officer
Geng Lin
Executive Vice President and Chief
Technology Officer
Frank Pelzer
Executive Vice President and Chief
Financial Officer
Scot Rogers
Executive Vice President and
General Counsel
Haiyan Song
Executive Vice President and
General Manager, Security and
Distributed Cloud
Kara Sprague
Executive Vice President
and Chief Product Officer
Chad Whalen
Executive Vice President of
Worldwide Sales
Ana White
Executive Vice President and Chief
People Officer
Mika Yamamoto
Executive Vice President and Chief
Marketing and Customer
Experience Officer
Sandra E. Bergeron
Chair of the Board,
Qualys, Inc.
Marianne N. Budnik
Chief Marketing Officer,
Talon Cyber Security
Elizabeth L. Buse
Board Member,
U.S. Bancorp
Michael L. Dreyer
Retired Chief Operations Officer,
Silicon Valley Bank
Alan J. Higginson
Chair of the Board,
F5, Inc.
Former Chair of the Board,
Hubspan, Inc.
Peter S. Klein
Retired Chief Financial Officer,
Microsoft
François Locoh-Donou
President and Chief Executive
Officer,
F5, Inc.
Nikhil Mehta
Chief Executive Officer,
Gainsight, Inc.
Michael F. Montoya
Chief Information Security Officer,
Equinix
Marie E. Myers
Chief Financial Officer,
HP, Inc.
James M. Phillips
Strategic Director,
Madrona Venture Group
Sripada Shivananda
Executive Vice President and
Chief Technology Officer,
PayPal Holdings, Inc.
About F5
F5 is a multi-cloud application services and security company committed to bringing a better digital world to life. F5 partners with the world’s
largest, most advanced organizations to secure and optimize every app and API anywhere—on premises, in the cloud, or at the edge.
F5 enables organizations to provide exceptional, secure digital experiences for their customers and continuously stay ahead of threats.
For more information, go to f5.com. (NASDAQ: FFIV).
You can also follow @F5 on Twitter or visit us on LinkedIn and Facebook to learn about F5, its partners, and technologies.
F5, Inc. | 801 5th Avenue | Seattle, WA 98104 | 206.272.5555 | www.f5.com