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 June 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	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 class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, no par value	FFIV	NASDAQ 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 July 29, 2022 was 59,562,193.

F5, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended June 30, 2022

Table of Contents

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)	4
Consolidated Balance Sheets	4
Consolidated Income Statements	5
Consolidated Statements of Comprehensive Income	6
Consolidated Statements of Shareholders' Equity	7
Consolidated Statements of Cash Flows	9
Notes to Consolidated Financial Statements	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3. Quantitative and Qualitative Disclosures About Market Risk	31
Item 4. Controls and Procedures	32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	33
Item 1A. Risk Factors	33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 4. Mine Safety Disclosures	34
Item 5. Other Information	34
Item 6. Exhibits	34
SIGNATURES	35

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

F5, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)

	June 30, 2022		September 30, 2021
ASSETS
Current assets
Cash and cash equivalents	$	541,883	$	580,977
Short-term investments	196,458		329,630
Accounts receivable, net of allowances of $5,879 and $3,696	455,762		340,536
Inventories	43,787		22,055
Other current assets	451,035		337,902
Total current assets	1,688,925		1,611,100
Property and equipment, net	172,060		191,164
Operating lease right-of-use assets	217,313		244,934
Long-term investments	19,112		132,778
Deferred tax assets	171,533		128,193
Goodwill	2,259,951		2,216,553
Other assets, net	492,395		472,558
Total assets	$	5,021,289	$	4,997,280
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	73,420	$	62,096
Accrued liabilities	291,605		341,487
Deferred revenue	1,049,084		968,669
Current portion of long-term debt	354,591		19,275
Total current liabilities	1,768,700		1,391,527
Deferred tax liabilities	2,794		2,414
Deferred revenue, long-term	588,221		521,173
Operating lease liabilities, long-term	265,043		296,945
Long-term debt	—		349,772
Other long-term liabilities	73,546		75,236
Total long-term liabilities	929,604		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, 59,556 and 60,652 shares issued and outstanding	32,851		192,458
Accumulated other comprehensive loss	(24,626)		(20,073)
Retained earnings	2,314,760		2,187,828
Total shareholders' equity	2,322,985		2,360,213
Total liabilities and shareholders' equity	$	5,021,289	$	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 June 30,				Nine months ended June 30,
	2022		2021		2022		2021
Net revenues
Products	$	326,482	$	309,929	$	967,149	$	907,163
Services	348,006		341,586		1,028,663		1,014,256
Total	674,488		651,515		1,995,812		1,921,419
Cost of net revenues
Products	73,558		68,974		226,454		209,301
Services	57,175		51,930		165,711		155,167
Total	130,733		120,904		392,165		364,468
Gross profit	543,755		530,611		1,603,647		1,556,951
Operating expenses
Sales and marketing	226,731		237,375		689,592		696,829
Research and development	138,737		133,283		404,846		387,927
General and administrative	70,823		63,541		205,038		204,534
Restructuring charges	—		—		7,909		—
Total	436,291		434,199		1,307,385		1,289,290
Income from operations	107,464		96,412		296,262		267,661
Other expense, net	(6,221)		(2,163)		(10,586)		(4,223)
Income before income taxes	101,243		94,249		285,676		263,438
Provision for income taxes	18,224		4,645		52,862		42,915
Net income	$	83,019	$	89,604	$	232,814	$	220,523
Net income per share — basic	$	1.38	$	1.49	$	3.85	$	3.63
Weighted average shares — basic	59,965		60,186		60,450		60,768
Net income per share — diluted	$	1.37	$	1.46	$	3.80	$	3.55
Weighted average shares — diluted	60,460		61,351		61,345		62,064

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 June 30,				Nine months ended June 30,
	2022		2021		2022		2021
Net income	$	83,019	$	89,604	$	232,814	$	220,523
Other comprehensive (loss) income:
Foreign currency translation adjustment	(1,910)		491		(2,506)		928
Available-for-sale securities:
Unrealized gains (losses) on securities, net of taxes of $42 and $(33) for the three months ended June 30, 2022 and 2021, respectively, and $(180) and $(225) for the nine months ended June 30, 2022 and 2021, respectively	20		(246)		(1,895)		(1,397)
Reclassification adjustment for realized (losses) gains included in net income, net of taxes of $34 and $(4) for the three months ended June 30, 2022 and 2021, respectively, and $48 and $(65) for the nine months ended June 30, 2022 and 2021, respectively	(108)		14		(152)		250
Net change in unrealized losses on available-for-sale securities, net of tax	(88)		(232)		(2,047)		(1,147)
Total other comprehensive (loss) income	(1,998)		259		(4,553)		(219)
Comprehensive income	$	81,021	$	89,863	$	228,261	$	220,304

The accompanying notes are an integral part of these consolidated financial statements.

6

F5, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited, in thousands)

	Common Stock			Accumulated Other Comprehensive Loss		Retained Earnings		Total Shareholders’ Equity
	Shares	Amount
	Three months ended June 30, 2021
Balances, March 31, 2021	60,052	$	39,507	$	(19,194)	$	1,987,506	$	2,007,819
Exercise of employee stock options	47	1,201		—		—		1,201
Issuance of stock under employee stock purchase plan	312	34,810		—		—		34,810
Issuance of restricted stock	353	—		—		—		—
Repurchase of common stock	(449)	(100,000)		—		—		(100,000)
Purchase of forward contract under accelerated share repurchase program ("ASR")	—	100,000		—		—		100,000
Taxes paid related to net share settlement of equity awards	(16)	(2,992)		—		—		(2,992)
Stock-based compensation	—	61,468		—		—		61,468
Net income	—	—		—		89,604		89,604
Other comprehensive income	—	—		259		—		259
Balances, June 30, 2021	60,299	$	133,994	$	(18,935)	$	2,077,110	$	2,192,169
	Three months ended June 30, 2022
Balances, March 31, 2022	60,465	$	82,133	$	(22,628)	$	2,337,623	$	2,397,128
Exercise of employee stock options	19	450		—		—		450
Issuance of stock under employee stock purchase plan	243	34,602		—		—		34,602
Issuance of restricted stock	305	—		—		—		—
Repurchase of common stock	(1,463)	(144,118)		—		(105,882)		(250,000)
Taxes paid related to net share settlement of equity awards	(13)	(2,091)		—		—		(2,091)
Stock-based compensation	—	61,875		—		—		61,875
Net income	—	—		—		83,019		83,019
Other comprehensive loss	—	—		(1,998)		—		(1,998)
Balances, June 30, 2022	59,556	$	32,851	$	(24,626)	$	2,314,760	$	2,322,985

7

	Nine months ended June 30, 2021
Balances, September 30, 2020	61,099	$	305,453	$	(18,716)	$	1,945,531	$	2,232,268
Exercise of employee stock options	130	3,810		—		—		3,810
Issuance of stock under employee stock purchase plan	543	60,888		—		—		60,888
Issuance of restricted stock	1,095	—		—		—		—
Repurchase of common stock	(2,501)	(411,056)		—		(88,944)		(500,000)
Taxes paid related to net share settlement of equity awards	(67)	(10,920)		—		—		(10,920)
Stock-based compensation	—	185,819		—		—		185,819
Net income	—	—		—		220,523		220,523
Other comprehensive loss	—	—		(219)		—		(219)
Balances, June 30, 2021	60,299	$	133,994	$	(18,935)	$	2,077,110	$	2,192,169
	Nine months ended June 30, 2022
Balances, September 30, 2021	60,652	$	192,458	$	(20,073)	$	2,187,828	$	2,360,213
Exercise of employee stock options	115	2,753		—		—		2,753
Issuance of stock under employee stock purchase plan	412	60,927		—		—		60,927
Issuance of restricted stock	1,080	—		—		—		—
Repurchase of common stock	(2,611)	(394,141)		—		(105,882)		(500,023)
Taxes paid related to net share settlement of equity awards	(92)	(18,907)		—		—		(18,907)
Stock-based compensation	—	189,761		—		—		189,761
Net income	—	—		—		232,814		232,814
Other comprehensive loss	—	—		(4,553)		—		(4,553)
Balances, June 30, 2022	59,556	$	32,851	$	(24,626)	$	2,314,760	$	2,322,985

The accompanying notes are an integral part of these consolidated financial statements.

8

F5, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

	Nine months ended June 30,
	2022		2021
Operating activities
Net income	$	232,814	$	220,523
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	189,761		182,757
Depreciation and amortization	88,398		84,985
Non-cash operating lease costs	29,071		28,937
Deferred income taxes	(28,956)		(78,092)
Impairment of assets	6,175		40,698
Other	585		604
Changes in operating assets and liabilities (excluding effects of the acquisition of businesses):
Accounts receivable	(116,137)		(88,685)
Inventories	(21,732)		5,249
Other current assets	(106,070)		(32,670)
Other assets	(50,400)		(58,565)
Accounts payable and accrued liabilities	(33,398)		13,586
Deferred revenue	136,872		167,199
Lease liabilities	(38,707)		(38,383)
Net cash provided by operating activities	288,276		448,143
Investing activities
Purchases of investments	(58,514)		(255,259)
Maturities of investments	178,372		164,900
Sales of investments	120,564		271,521
Acquisition of businesses, net of cash acquired	(67,911)		(411,319)
Purchases of property and equipment	(25,117)		(23,534)
Net cash provided by (used in) investing activities	147,394		(253,691)
Financing activities
Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan	63,681		64,698
Repurchase of common stock	(500,023)		(500,000)
Payments on term debt agreement	(15,000)		(15,000)
Taxes paid related to net share settlement of equity awards	(18,907)		(10,920)
Net cash used in financing activities	(470,249)		(461,222)
Net decrease in cash, cash equivalents and restricted cash	(34,579)		(266,770)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(3,633)		1,107
Cash, cash equivalents and restricted cash, beginning of period	584,333		852,826
Cash, cash equivalents and restricted cash, end of period	$	546,121	$	587,163
Supplemental disclosures of cash flow information
Cash paid for amounts included in the measurement of operating lease liabilities	$	44,115	$	46,178
Cash paid for interest on long-term debt	4,287		4,003
Supplemental disclosures of non-cash activities
Right-of-use assets obtained in exchange for lease obligations	$	614	$	11,622

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 nine months ended June 30, 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 nine months ended June 30, 2022 and 2021 (in thousands):

	Nine months ended June 30,
	2022		2021
Balance, beginning of period	$	77,836	$	70,396
Additional capitalized contract acquisition costs	27,620		30,431
Amortization of capitalized contract acquisition costs	(28,782)		(25,223)
Balance, end of period	$	76,674	$	75,604

Amortization of capitalized contract acquisition costs was $9.7 million and $8.6 million for the three months ended June 30, 2022 and 2021, respectively, and $28.8 million and $25.2 million for the nine months ended June 30, 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 nine months ended June 30, 2022 and 2021 (in thousands):

	Nine months ended June 30,
	2022		2021
Balance, beginning of period	$	1,489,841	$	1,272,632
Amounts added but not recognized as revenues	973,673		946,186
Deferred revenue acquired through acquisition of businesses	10,591		779
Revenues recognized related to the opening balance of deferred revenue	(836,800)		(778,987)
Balance, end of period	$	1,637,305	$	1,440,610

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 June 30, 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 64.1% of these remaining performance obligations over the next 12 months, 22.0% 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 June 30, 2022 and September 30, 2021, were as follows (in thousands):

				Gross Unrealized						Classification on Balance Sheet
As of June 30, 2022	Fair 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 Funds	Level 1	$	79,183	$	—	$	—	$	79,183	$	79,183	$	—	$	—
Certificates of deposit	Level 2	250		—		—		250		—		250		—
Corporate bonds and notes	Level 2	93,016		1		(1,086)		91,931		—		81,499		10,432
Municipal bonds and notes	Level 2	7,661		—		(110)		7,551		1,392		4,013		2,146
U.S. government securities	Level 2	110,639		—		(979)		109,660		—		106,855		2,805
U.S. government agency securities	Level 2	5,647		—		(77)		5,570		—		3,841		1,729
Total debt investments		$	296,396	$	1	$	(2,252)	$	294,145	$	80,575	$	196,458	$	17,112
Changes in fair value recorded in other net income (expense)
Equity investments	*							$	2,000	$	—	$	—	$	2,000
Total equity investments								2,000		—		—		2,000
Total investments								$	296,145	$	80,575	$	196,458	$	19,112

 * 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, 2021	Fair 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 Funds	Level 1	$	17,150	$	—	$	—	$	17,150	$	17,150	$	—	$	—
Certificates of deposit	Level 2	255		—		—		255		—		255		—
Corporate bonds and notes	Level 2	243,568		129		(86)		243,611		4,397		186,107		53,107
Municipal bonds and notes	Level 2	24,684		2		(9)		24,677		—		13,566		11,111
U.S. government securities	Level 2	162,221		14		(12)		162,223		—		102,615		59,608
U.S. government agency securities	Level 2	36,053		—		(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 nine months ended June 30, 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 June 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 June 30, 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 and third quarters of fiscal 2022 and for the three and nine months ended June 30, 2021.

There were no long-lived asset impairment charges for the three and nine months ended June 30, 2022. During the second quarter of 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 nine months ended June 30, 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.

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Impairment charges were allocated to the following income statement line items for the three and nine months ended June 30, 2022 and 2021 (in thousands):

	Three months ended June 30,				Nine months ended June 30,
	2022		2021		2022		2021
Cost of net product revenue	$	—	$	—	$	—	$	2,865
Cost of net service revenue	—		—		—		3,492
Sales and marketing	—		—		6,175		11,515
Research and development	—		—		—		12,974
General and administrative	—		—		—		9,852
Total impairment charges	$	—	$	—	$	6,175	$	40,698

During the three and nine months ended June 30, 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 value	5,481
Cash, cash equivalents, and restricted cash	912
Identifiable intangible assets:
Developed technology	11,400		5 years
Customer relationships	4,400		5 years
Goodwill	43,956
Total assets acquired	$	79,515
Liabilities assumed
Deferred revenue	$	(10,591)
Total liabilities assumed	$	(10,591)
Net assets acquired	$	68,924

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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 value	7,499
Identifiable intangible assets:
Developed technology	59,500		7 years
Customer relationships	500		1 year
Goodwill	350,863
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.

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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.

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):

	June 30, 2022		September 30, 2021
Cash and cash equivalents	$	541,883	$	580,977
Restricted cash included in other assets, net	4,238		3,356
Total cash, cash equivalents and restricted cash	$	546,121	$	584,333

Inventories

Inventories consist of the following (in thousands):

	June 30, 2022		September 30, 2021
Finished goods	$	10,528	$	13,081
Raw materials	33,259		8,974
	$	43,787	$	22,055

Other Current Assets

Other current assets consist of the following (in thousands):

	June 30, 2022		September 30, 2021
Unbilled receivables	$	277,766	$	215,396
Prepaid expenses	65,401		59,636
Capitalized contract acquisition costs	34,429		34,265
Other1	73,439		28,605
	$	451,035	$	337,902

(1)     As of June 30, 2022, includes $53.3 million of cash 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.

Other Assets

Other assets, net consist of the following (in thousands):

	June 30, 2022		September 30, 2021
Intangible assets	$	211,665	$	237,178
Unbilled receivables	199,287		158,885
Capitalized contract acquisition costs	42,245		43,571
Other	39,198		32,924
	$	492,395	$	472,558

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Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	June 30, 2022		September 30, 2021
Payroll and benefits	$	148,792	$	179,147
Operating lease liabilities, current	43,529		49,286
Income and other tax accruals	36,928		44,075
Other	62,356		68,979
	$	291,605	$	341,487

Other Long-term Liabilities

Other long-term liabilities consist of the following (in thousands):

	June 30, 2022		September 30, 2021
Income taxes payable	$	65,395	$	66,081
Other	8,151		9,155
	$	73,546	$	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 June 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 June 30, 2022, the Company was in compliance with all covenants.

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As of June 30, 2022, $355.0 million of principal amount under the Term Loan Facility was outstanding, excluding unamortized debt issuance costs of $0.4 million. The outstanding principal amount was included in current liabilities on the Company's balance sheet as of June 30, 2022. The weighted average interest rate on the principal amount under the Term Loan Facility outstanding balance was 2.092% and 1.553% for the three and nine months ended June 30, 2022, respectively. The weighted average interest rate on the principal amount under the Term Loan Facility outstanding balance was 1.332% and 1.371% for the three and nine months ended June 30, 2021, respectively. The following table presents the scheduled principal maturities as of June 30, 2022 (in thousands):

Fiscal Years Ending September 30:	Amount
2022 (remainder)	$	5,000
2023	350,000
Total	$	355,000

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 nine months e