0001048695-22-000015.txt : 20220506 0001048695-22-000015.hdr.sgml : 20220506 20220506153221 ACCESSION NUMBER: 0001048695-22-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 77 CONFORMED PERIOD OF REPORT: 20220331 FILED AS OF DATE: 20220506 DATE AS OF CHANGE: 20220506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: F5, INC. CENTRAL INDEX KEY: 0001048695 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 911714307 STATE OF INCORPORATION: WA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26041 FILM NUMBER: 22900766 BUSINESS ADDRESS: STREET 1: 801 5TH AVENUE CITY: SEATTLE STATE: WA ZIP: 98104 BUSINESS PHONE: 2062725555 MAIL ADDRESS: STREET 1: 801 5TH AVENUE CITY: SEATTLE STATE: WA ZIP: 98104 FORMER COMPANY: FORMER CONFORMED NAME: F5 NETWORKS, INC. DATE OF NAME CHANGE: 20190625 FORMER COMPANY: FORMER CONFORMED NAME: F5 NETWORKS INC DATE OF NAME CHANGE: 19990308 FORMER COMPANY: FORMER CONFORMED NAME: F5 LABS INC DATE OF NAME CHANGE: 19990305 10-Q 1 ffiv-20220331.htm 10-Q ffiv-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 91-1714307
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
801 5th Avenue
Seattle, Washington 98104
(Address of principal executive offices and 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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, no par valueFFIVNASDAQ Global Select Market
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   Accelerated Filer 
Non-accelerated Filer 
  (Do not check if a smaller reporting company)
  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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
The number of shares outstanding of the registrant’s common stock as of April 28, 2022 was 60,472,024.


F5, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31, 2022
Table of Contents
 


PART I. FINANCIAL INFORMATION
 
Item 1.Financial Statements
F5, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
March 31,
2022
September 30,
2021
ASSETS
Current assets
Cash and cash equivalents$586,543 $580,977 
Short-term investments300,591 329,630 
Accounts receivable, net of allowances of $4,336 and $3,696
414,218 340,536 
Inventories27,883 22,055 
Other current assets405,596 337,902 
Total current assets1,734,831 1,611,100 
Property and equipment, net178,742 191,164 
Operating lease right-of-use assets227,576 244,934 
Long-term investments34,911 132,778 
Deferred tax assets158,357 128,193 
Goodwill2,259,951 2,216,553 
Other assets, net482,805 472,558 
Total assets$5,077,173 $4,997,280 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable$69,131 $62,096 
Accrued liabilities301,206 341,487 
Deferred revenue1,043,482 968,669 
Current portion of long-term debt359,410 19,275 
Total current liabilities1,773,229 1,391,527 
Deferred tax liabilities2,729 2,414 
Deferred revenue, long-term556,254 521,173 
Operating lease liabilities, long-term276,416 296,945 
Long-term debt 349,772 
Other long-term liabilities71,417 75,236 
Total long-term liabilities906,816 1,245,540 
Commitments and contingencies (Note 8)
Shareholders' equity
Preferred stock, no par value; 10,000 shares authorized, no shares outstanding
  
Common stock, no par value; 200,000 shares authorized, 60,465 and 60,652 shares issued and outstanding
82,133 192,458 
Accumulated other comprehensive loss(22,628)(20,073)
Retained earnings2,337,623 2,187,828 
Total shareholders' equity2,397,128 2,360,213 
Total liabilities and shareholders' equity$5,077,173 $4,997,280 
The accompanying notes are an integral part of these consolidated financial statements.

4

F5, INC.
CONSOLIDATED INCOME STATEMENTS
(unaudited, in thousands, except per share data)
 
Three months ended
March 31,
Six months ended
March 31,
 2022202120222021
Net revenues
Products$297,518 $309,189 $640,667 $597,234 
Services336,706 336,098 680,657 672,670 
Total634,224 645,287 1,321,324 1,269,904 
Cost of net revenues
Products71,234 73,289 152,896 140,327 
Services55,125 55,296 108,536 103,237 
Total126,359 128,585 261,432 243,564 
Gross profit507,865 516,702 1,059,892 1,026,340 
Operating expenses
Sales and marketing228,826 244,908 462,861 459,454 
Research and development135,838 140,453 266,109 254,644 
General and administrative68,554 77,840 134,215 140,993 
Restructuring charges  7,909  
Total433,218 463,201 871,094 855,091 
Income from operations74,647 53,501 188,798 171,249 
Other expense, net(1,934)(1,377)(4,365)(2,060)
Income before income taxes72,713 52,124 184,433 169,189 
Provision for income taxes16,477 8,883 34,638 38,270 
Net income$56,236 $43,241 $149,795 $130,919 
Net income per share — basic$0.93 $0.71 $2.47 $2.14 
Weighted average shares — basic60,573 60,667 60,693 61,058 
Net income per share — diluted$0.92 $0.70 $2.43 $2.10 
Weighted average shares — diluted61,405 62,158 61,661 62,292 
The accompanying notes are an integral part of these consolidated financial statements.

5

F5, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
 
Three months ended
March 31,
Six months ended
March 31,
 2022202120222021
Net income$56,236 $43,241 $149,795 $130,919 
Other comprehensive (loss) income:
Foreign currency translation adjustment(79)(841)(596)437 
Available-for-sale securities:
Unrealized losses on securities, net of taxes of $(148) and $(142) for the three months ended March 31, 2022 and 2021, respectively, and $(222) and $(192) for the six months ended March 31, 2022 and 2021, respectively
(1,294)(731)(1,915)(1,151)
Reclassification adjustment for realized (losses) gains included in net income, net of taxes of $12 and $(61) for the three months ended March 31, 2022 and 2021, respectively, and $14 and $(61) for the six months ended March 31, 2022 and 2021, respectively
(40)233 (44)236 
Net change in unrealized losses on available-for-sale securities, net of tax(1,334)(498)(1,959)(915)
Total other comprehensive loss(1,413)(1,339)(2,555)(478)
Comprehensive income$54,823 $41,902 $147,240 $130,441 
The accompanying notes are an integral part of these consolidated financial statements.

6

F5, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited, in thousands)
 Common StockAccumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
Shareholders’
Equity
 SharesAmount
 (In thousands)
Three months ended March 31, 2021
Balances, December 31, 202061,632 $386,236 $(17,855)$2,033,209 $2,401,590 
Exercise of employee stock options44 1,492 — — 1,492 
Issuance of restricted stock445 — — —  
Repurchase of common stock(2,052)(311,056)— (88,944)(400,000)
Purchase of forward contract under accelerated share repurchase program ("ASR")— (100,000)— — (100,000)
Taxes paid related to net share settlement of equity awards(17)(3,447)— — (3,447)
Stock-based compensation— 66,282 — — 66,282 
Net income— — — 43,241 43,241 
Other comprehensive loss— — (1,339)— (1,339)
Balances, March 31, 202160,052 $39,507 $(19,194)$1,987,506 $2,007,819 
Three months ended March 31, 2022
Balances, December 31, 202160,711 $145,189 $(21,215)$2,281,387 $2,405,361 
Exercise of employee stock options46 1,048 — — 1,048 
Issuance of restricted stock334 — — —  
Repurchase of common stock(610)(125,012)— — (125,012)
Taxes paid related to net share settlement of equity awards(16)(3,222)— — (3,222)
Stock-based compensation— 64,130 — — 64,130 
Net income— — — 56,236 56,236 
Other comprehensive loss— — (1,413)— (1,413)
Balances, March 31, 202260,465 $82,133 $(22,628)$2,337,623 $2,397,128 
7

 
Six months ended March 31, 2021
Balances, September 30, 202061,099 $305,453 $(18,716)$1,945,531 $2,232,268 
Exercise of employee stock options83 2,610 — — 2,610 
Issuance of stock under employee stock purchase plan231 26,077 — — 26,077 
Issuance of restricted stock742 — — —  
Repurchase of common stock(2,052)(311,056)— (88,944)(400,000)
Purchase of forward contract under accelerated share repurchase program ("ASR")— (100,000)— — (100,000)
Taxes paid related to net share settlement of equity awards(51)(7,928)— — (7,928)
Stock-based compensation— 124,351 — — 124,351 
Net income— — — 130,919 130,919 
Other comprehensive loss— — (478)— (478)
Balances, March 31, 202160,052 $39,507 $(19,194)$1,987,506 $2,007,819 
Six months ended March 31, 2022
Balances, September 30, 202160,652 $192,458 $(20,073)$2,187,828 $2,360,213 
Exercise of employee stock options96 2,303 — — 2,303 
Issuance of stock under employee stock purchase plan169 26,325 — — 26,325 
Issuance of restricted stock775 — — —  
Repurchase of common stock(1,148)(250,023)— — (250,023)
Taxes paid related to net share settlement of equity awards(79)(16,816)— — (16,816)
Stock-based compensation— 127,886 — — 127,886 
Net income— — — 149,795 149,795 
Other comprehensive loss— — (2,555)— (2,555)
Balances, March 31, 202260,465 $82,133 $(22,628)$2,337,623 $2,397,128 
The accompanying notes are an integral part of these consolidated financial statements.

8

F5, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
 Six months ended
March 31,
 20222021
Operating activities
Net income$149,795 $130,919 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation127,886 121,289 
Depreciation and amortization59,798 56,185 
Non-cash operating lease costs19,363 19,415 
Deferred income taxes(15,832)(17,962)
Impairment of assets6,175 40,698 
Other(439)105 
Changes in operating assets and liabilities (excluding effects of the acquisition of businesses):
Accounts receivable(72,777)(79,649)
Inventories(5,828)3,327 
Other current assets(60,896)(32,939)
Other assets(27,893)(29,066)
Accounts payable and accrued liabilities(35,649)(14,529)
Deferred revenue99,303 93,493 
Lease liabilities(26,131)(25,447)
Net cash provided by operating activities216,875 265,839 
Investing activities
Purchases of investments(53,715)(65,725)
Maturities of investments96,349 126,711 
Sales of investments78,988 269,986 
Acquisition of businesses, net of cash acquired(67,911)(411,319)
Purchases of property and equipment(15,792)(14,090)
Net cash provided by (used in) investing activities37,919 (94,437)
Financing activities
Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan
28,628 28,687 
Repurchase of common stock(250,023)(500,000)
Payments on term debt agreement
(10,000)(10,000)
Taxes paid related to net share settlement of equity awards(16,816)(7,928)
Net cash used in financing activities(248,211)(489,241)
Net increase (decrease) in cash, cash equivalents and restricted cash6,583 (317,839)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(997)494 
Cash, cash equivalents and restricted cash, beginning of period584,333 852,826 
Cash, cash equivalents and restricted cash, end of period$589,919 $535,481 
Supplemental disclosures of cash flow information
Cash paid for amounts included in the measurement of operating lease liabilities$30,346 $30,809 
Cash paid for interest on long-term debt2,383 2,724 
Supplemental disclosures of non-cash activities
Right-of-use assets obtained in exchange for lease obligations$818 $9,523 
The accompanying notes are an integral part of these consolidated financial statements.
9

F5, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Summary of Significant Accounting Policies
Description of Business
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.
Basis of Presentation
The year-end consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for their fair statement in conformity with accounting principles generally accepted in the United States of America. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021.
There have been no changes to the Company's significant accounting policies as of and for the three and six months ended March 31, 2022, except for the accounting policy for investments, which has been updated to include equity investments.
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.
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.
10

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 six months ended March 31, 2022 and 2021 (in thousands):
Six months ended
March 31,
20222021
Balance, beginning of period$77,836 $70,396 
Additional capitalized contract acquisition costs18,530 18,614 
Amortization of capitalized contract acquisition costs(19,092)(16,590)
Balance, end of period$77,274 $72,420 
Amortization of capitalized contract acquisition costs was $9.7 million and $8.4 million for the three months ended March 31, 2022 and 2021, respectively, and $19.1 million and $16.6 million for the six months ended March 31, 2022 and 2021, 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 the Company has the unconditional right to transfer goods and services under contracts with customers. 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 six months ended March 31, 2022 and 2021 (in thousands):
Six months ended
March 31,
20222021
Balance, beginning of period$1,489,841 $1,272,632 
Amounts added but not recognized as revenues723,631 680,124 
Deferred revenue acquired through acquisition of businesses10,591 779 
Revenues recognized related to the opening balance of deferred revenue(624,327)(586,632)
Balance, end of period$1,599,736 $1,366,903 
Remaining Performance Obligations
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. As of March 31, 2022, the total non-cancelable remaining performance obligations under the Company's contracts with customers was approximately $1.6 billion and the Company expects to recognize revenues on approximately 65.2% of these remaining performance obligations over the next 12 months, 21.4% in year two, and the remaining balance thereafter.
See Note 12, Segment Information, for disaggregated revenue by significant customer and geographic region, as well as disaggregated product revenue by systems and software.
3. 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 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.
11

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.
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 March 31, 2022 and September 30, 2021, were as follows (in thousands):
  Gross Unrealized Classification on Balance Sheet
As of March 31, 2022Fair Value Level Cost or Amortized Cost Gains Losses Aggregate
Fair Value
Cash and Cash Equivalents Short-Term Investments Long-Term Investments
Changes in fair value recorded in other comprehensive income
Money Market FundsLevel 1$8,220 $— $— $8,220 $8,220 $— $— 
Certificates of depositLevel 2991   991 — 991  
Corporate bonds and notesLevel 2147,313 2 (1,063)146,252  119,576 26,676 
Municipal bonds and notesLevel 218,779  (143)18,636 — 16,458 2,178 
U.S. government securitiesLevel 2158,023  (891)157,132 — 154,313 2,819 
U.S. government agency securitiesLevel 211,068  (77)10,991 — 9,253 1,738 
Total debt investments$344,394 $2 $(2,174)$342,222 $8,220 $300,591 $33,411 
Changes in fair value recorded in other net income (expense)
Equity investments*$1,500 $— $ $1,500 
Total equity investments1,500 —  1,500 
Total investments$343,722 $8,220 $300,591 $34,911 
 * 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.
12

  Gross Unrealized Classification on Balance Sheet
As of September 30, 2021Fair Value LevelCost or Amortized Cost Gains Losses Aggregate
Fair Value
Cash and Cash Equivalents Short-Term Investments Long-Term Investments
Changes in fair value recorded in other comprehensive income
Money Market FundsLevel 1$17,150 $— $— $17,150 $17,150 $— $— 
Certificates of depositLevel 2255   255 — 255  
Corporate bonds and notesLevel 2243,568 129 (86)243,611 4,397 186,107 53,107 
Municipal bonds and notesLevel 224,684 2 (9)24,677 — 13,566 11,111 
U.S. government securitiesLevel 2162,221 14 (12)162,223 — 102,615 59,608 
U.S. government agency securitiesLevel 236,053  (14)36,039 — 27,087 8,952 
Total investments$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 three and six months ended March 31, 2022 and 2021, respectively. 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 March 31, 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 March 31, 2022, there were no credit losses on any investments within its portfolio.
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. Included in the Company’s impairment considerations for non-financial assets and liabilities in the current quarter were the potential impacts of the COVID-19 pandemic.
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 in the first quarter of fiscal 2022. The Company did not recognize any impairment charges related to its intangible assets in the second quarter of fiscal 2022 and for the three and six months ended March 31, 2021.
During the three months ended March 31, 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. Impairment charges for the second quarter of fiscal 2021 also included $10.3 million for tenant improvements and other fixed assets associated with the permanently exited floors. In the first quarter of fiscal 2021, the Company 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. Impairment charges for the first quarter of fiscal 2021 also included $0.2 million for other fixed assets associated with the Shape headquarters in Santa Clara, California. 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 three and six months ended March 31, 2021 were allocated to various expense line items on the Company’s consolidated income statements based on the employee base that previously worked out of the exited space.
13

Impairment charges were allocated to the following income statement line items for the three and six months ended March 31, 2022 and 2021 (in thousands):
 Three months ended
March 31,
Six months ended
March 31,
 2022202120222021
Cost of net product revenue$ $897 $ $2,865 
Cost of net service revenue 3,491  3,492 
Sales and marketing 10,256 6,175 11,515 
Research and development 9,845  12,974 
General and administrative 9,336  9,852 
Total impairment charges$ $33,825 $6,175 $40,698 
During the three and six months ended March 31, 2022 and 2021, the Company did not recognize any impairment charges related to goodwill.
4. 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 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):
Estimated
Useful Life
Assets acquired
Deferred tax assets$13,366 
Other net tangible assets acquired, at fair value5,481 
Cash, cash equivalents, and restricted cash912 
Identifiable intangible assets:
Developed technology11,400 5 years
Customer relationships4,400 5 years
Goodwill43,956 
Total assets acquired$79,515 
Liabilities assumed
Deferred revenue$(10,591)
Total liabilities assumed$(10,591)
Net assets acquired$68,924 
14

The initial allocation of the purchase price was based on preliminary valuations and assumptions and is subject to change within the measurement period. 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.
Since the Threat Stack acquisition was completed on October 1, 2021, the F5 and Threat Stack teams have been executing a plan to integrate ongoing operations. 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.
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):
Estimated
Useful Life
Assets acquired
Cash, cash equivalents, and restricted cash$14,012 
Other tangible assets acquired, at fair value7,499 
Identifiable intangible assets:
Developed technology59,500 7 years
Customer relationships500 1 year
Goodwill350,863 
Total assets acquired$432,374 
Liabilities assumed$(5,233)
Net assets acquired$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.
15

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 is being 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.
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):
 March 31,
2022
September 30,
2021
Cash and cash equivalents$586,543 $580,977 
Restricted cash included in other assets, net3,376 3,356 
Total cash, cash equivalents and restricted cash$589,919 $584,333 
Inventories
Inventories consist of the following (in thousands):
March 31,
2022
September 30,
2021
Finished goods$11,282 $13,081 
Raw materials16,601 8,974 
$27,883 $22,055 
Other Current Assets
Other current assets consist of the following (in thousands):
March 31,
2022
September 30,
2021
Unbilled receivables$251,148 $215,396 
Prepaid expenses96,227 59,636 
Capitalized contract acquisition costs34,320 34,265 
Other23,901 28,605 
$405,596 $337,902 
Other Assets
Other assets, net consist of the following (in thousands):
March 31,
2022
September 30,
2021
Intangible assets$224,523 $237,178 
Unbilled receivables176,880 158,885 
Capitalized contract acquisition costs42,954 43,571 
Other38,448 32,924 
$482,805 $472,558 
16

Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
 March 31,
2022
September 30,
2021
Payroll and benefits$162,530 $179,147 
Operating lease liabilities, current45,990 49,286 
Income and other tax accruals33,581 44,075 
Other59,105 68,979 
$301,206 $341,487 
Other Long-term Liabilities
Other long-term liabilities consist of the following (in thousands):
March 31,
2022
September 30,
2021
Income taxes payable$61,862 $66,081 
Other9,555 9,155 
$71,417 $75,236 
6. Debt Facilities
Term Credit Agreement
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 March 31, 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 March 31, 2022, the Company was in compliance with all covenants.
17

As of March 31, 2022, $360.0 million of principal amount under the Term Loan Facility was outstanding, excluding unamortized debt issuance costs of $0.6 million. The outstanding principal amount was included in current liabilities on the Company's balance sheet as of March 31, 2022. The weighted average interest rate on the principal amount under the Term Loan Facility outstanding balance was 1.282% for the three and six months ended March 31, 2022. The weighted average interest rate on the principal amount under the Term Loan Facility outstanding balance was 1.390% for the three and six months ended March 31, 2021. The following table presents the scheduled principal maturities as of March 31, 2022 (in thousands):
Fiscal Years Ending September 30:Amount
2022 (remainder)$10,000 
2023350,000 
Total$360,000 
Revolving Credit Agreement
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 the three and six months ended March 31, 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 March 31, 2022, the Company was in compliance with all covenants. As of March 31, 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.