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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(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)

Washington91-1714307
(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, including zip code)
(206272-5555
(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
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   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 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.



Table of Contents
F5, INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended September 30, 2022
Table of Contents
 
  Page
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
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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.
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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:
NameAgePosition
François Locoh-Donou51President, Chief Executive Officer and Director
Tom Fountain46Executive Vice President of Global Services and Chief Strategy Officer
Geng Lin58Executive Vice President and Chief Technology Officer
Frank Pelzer52Executive Vice President and Chief Financial Officer
Scot Rogers55Executive Vice President and General Counsel
Haiyan Song57Executive Vice President and General Manager, Security and Distributed Cloud
Kara Sprague42Executive Vice President and General Manager, App Delivery and Enterprise Product Ops
Chad Whalen51Executive Vice President of Worldwide Sales
Ana White49Executive Vice President and Chief People Officer
Mika Yamamoto50Executive 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:
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
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:
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.
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
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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.
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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.
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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,
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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;
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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
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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
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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.
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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.

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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.
 
 Fiscal Year 2022Fiscal Year 2021
 HighLowHighLow
First Quarter$249.00 $193.50 $178.09 $121.77 
Second Quarter$245.59 $188.50 $215.91 $173.41 
Third Quarter$215.28 $147.47 $216.15 $174.34 
Fourth Quarter$174.38 $141.91 $215.56 $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.

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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*
 
ffiv-20220930_g3.jpg
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.

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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.
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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
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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.
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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.
 
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 Years Ended September 30,
 202220212020
 (in thousands, except percentages)
Net revenues
Products$1,317,117 $1,247,084 $1,025,856 
Services1,378,728 1,356,332 1,324,966 
Total$2,695,845 $2,603,416 $2,350,822 
Percentage of net revenues
Products48.9 %47.9 %43.6 %
Services51.1 52.1 56.4 
Total100.0 %100.0 %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):
 Years Ended September 30,
 202220212020
Net product revenues
Systems revenue$651,902 $748,192 $668,313 
Software revenue665,215 498,892 357,543 
Total net product revenue$1,317,117 $1,247,084 $1,025,856 
Percentage of net product revenues
Systems revenue49.5 %60.0 %65.1 %
Software revenue50.5 40.0 34.9 
Total net product revenue100.0 %100.0 %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:
 Years Ended September 30,
 202220212020
Ingram Micro, Inc.20.0 %19.2 %16.7 %
Synnex Corporation13.4 %11.1 %— 
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The following distributors of our products accounted for more than 10% of total receivables:
September 30,
20222021
Ingram Micro, Inc.12.9 %12.6 %
Synnex Corporation12.6 %11.9 %
Carahsoft Technology16.2 %11.5 %
No other distributors accounted for more than 10% of total net revenue or receivables. 
 Years Ended September 30,
 202220212020
 (in thousands, except percentages)
Cost of net revenues and gross profit
Products$319,713 $286,293 $215,275 
Services219,914 206,853 192,612 
Total539,627 493,146 407,887 
Gross profit$2,156,218 $2,110,270 $1,942,935 
Percentage of net revenues and gross margin (as a percentage of related net revenue)
Products24.3 %23.0 %21.0 %
Services16.0 15.3 14.5 
Total20.0 18.9 17.4 
Gross margin80.0 %81.1 %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.
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 Years Ended September 30,
 202220212020
 (in thousands, except percentages)
Operating expenses
Sales and marketing$926,591 $929,983 $843,178 
Research and development543,368 512,627 441,324 
General and administrative274,558 273,635 258,366 
Restructuring charges7,909 — 7,800 
Total$1,752,426 $1,716,245 $1,550,668 
Operating expenses (as a percentage of net revenue)
Sales and marketing34.4 %35.7 %35.9 %
Research and development20.1 19.7 18.8 
General and administrative10.2 10.5 11.0 
Restructuring charges0.3 — 0.3 
Total65.0 %65.9 %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
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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.
 Years Ended September 30,
 202220212020
 (in thousands, except percentages)
Other income and income taxes
Income from operations$403,792 $394,025 $392,267 
Other (expense) income, net(18,399)(7,088)4,130 
Income before income taxes385,393 386,937 396,397 
Provision for income taxes63,233 55,696 88,956 
Net income$322,160 $331,241 $307,441 
Other income and income taxes (as percentage of net revenue)
Income from operations15.0 %15.1 %16.7 %
Other (expense) income, net(0.7)(0.3)0.2 
Income before income taxes14.3 14.8 16.9 
Provision for income taxes2.3 2.1 3.8 
Net income12.0 %12.7 %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.
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Liquidity and Capital Resources
We have funded our operations with our cash balances and cash generated from operations.
 Years Ended September 30,
 202220212020
 (in thousands)
Liquidity and Capital Resources
Cash and cash equivalents and investments$894,110 $1,043,385 $1,312,828 
Cash provided by operating activities442,631 645,196 660,898 
Cash provided by (used in) investing activities218,116 (445,335)(747,002)
Cash (used in) provided by financing activities(476,508)(468,280)337,243 
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,
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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.

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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.
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Item 8.Financial Statements and Supplementary Data
F5, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Page
Consolidated Financial Statements

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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.
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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.
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F5, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
 
 September 30,
 20222021
ASSETS
Current assets
Cash and cash equivalents$758,012 $580,977 
Short-term investments126,554 329,630 
Accounts receivable, net of allowances of $6,020 and $3,696
469,979 340,536 
Inventories68,365 22,055 
Other current assets489,314 337,902 
Total current assets1,912,224 1,611,100 
Property and equipment, net168,182 191,164 
Operating lease right-of-use assets227,475 244,934 
Long-term investments9,544 132,778 
Deferred tax assets183,365 128,193 
Goodwill2,259,282 2,216,553 
Other assets, net516,122 472,558 
Total assets$5,276,194 $4,997,280 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable$113,178 $62,096 
Accrued liabilities309,819 341,487 
Deferred revenue1,067,182 968,669 
Current portion of long-term debt349,772 19,275 
Total current liabilities1,839,951 1,391,527 
Deferred tax liabilities2,781 2,414 
Deferred revenue, long-term624,398 521,173 
Operating lease liabilities, long-term272,376 296,945 
Long-term debt 349,772 
Other long-term liabilities67,710 75,236 
Total long-term liabilities967,265 1,245,540 
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
91,048 192,458 
Accumulated other comprehensive loss(26,176)(20,073)
Retained earnings2,404,106 2,187,828 
Total shareholders’ equity2,468,978 2,360,213 
Total liabilities and shareholders’ equity$5,276,194 $4,997,280 
The accompanying notes are an integral part of these consolidated financial statements.
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F5, INC.
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
 
 Years Ended September 30,
 202220212020
Net revenues
Products$1,317,117 $1,247,084 $1,025,856 
Services1,378,728 1,356,332 1,324,966 
Total2,695,845 2,603,416 2,350,822 
Cost of net revenues
Products319,713 286,293 215,275 
Services219,914 206,853 192,612 
Total539,627 493,146 407,887 
Gross profit2,156,218 2,110,270 1,942,935 
Operating expenses
Sales and marketing926,591 929,983 843,178 
Research and development543,368 512,627 441,324 
General and administrative274,558 273,635 258,366 
Restructuring charges7,909  7,800 
Total1,752,426 1,716,245 1,550,668 
Income from operations403,792 394,025 392,267 
Other (expense) income, net(18,399)(7,088)4,130 
Income before income taxes385,393 386,937 396,397 
Provision for income taxes63,233 55,696 88,956 
Net income$322,160 $331,241 $307,441 
Net income per share — basic$5.34 $5.46 $5.05 
Weighted average shares — basic60,274 60,707 60,911 
Net income per share — diluted$5.27 $5.34 $5.01 
Weighted average shares — diluted61,097 62,057 61,378 
The accompanying notes are an integral part of these consolidated financial statements.

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F5, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

 Years Ended September 30,
 202220212020
 
Net income$322,160 $331,241 $307,441 
Other comprehensive (loss) income:
Foreign currency translation adjustment(4,502)(68)(572)
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
(1,449)(1,557)809 
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
(152)268 237 
Net change in unrealized (losses) gains on available-for-sale securities, net of tax(1,601)(1,289)1,046 
Total other comprehensive (loss) income(6,103)(1,357)474 
Comprehensive income$316,057 $329,884 $307,915 
The accompanying notes are an integral part of these consolidated financial statements.
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F5, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)

 Common StockAccumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
Shareholders’
Equity
 SharesAmount
 
Balances, September 30, 201960,367 $142,597 $(19,190)$1,638,090 $1,761,497 
Exercise of employee stock options104 2,596 — — 2,596 
Issuance of stock under employee stock purchase plan
419 50,239 — — 50,239 
Issuance of restricted stock1,027 — — — — 
Repurchase of common stock(799)(100,016)— — (100,016)
Taxes paid related to net share settlement of equity awards(19)(2,536)— — (2,536)
Stock-based compensation— 212,573 — — 212,573 
Net income— — — 307,441 307,441 
Other comprehensive income— — 474 — 474 
Balances, September 30, 202061,099 $305,453 $(18,716)$1,945,531 $2,232,268 
Exercise of employee stock options164 4,864 — — 4,864 
Issuance of stock under employee stock purchase plan
542 60,888 — — 60,888 
Issuance of restricted stock1,430 — — — — 
Repurchase of common stock(2,501)(411,056)— (88,944)(500,000)
Taxes paid related to net share settlement of equity awards(82)(14,032)— — (14,032)
Stock-based compensation— 246,341 — — 246,341 
Net income— — — 331,241 331,241 
Other comprehensive loss— — (1,357)— (1,357)
Balances, September 30, 202160,652 $192,458 $(20,073)$2,187,828 $2,360,213 
Exercise of employee stock options143 3,613 — — 3,613 
Issuance of stock under employee stock purchase plan
412 60,927 — — 60,927 
Issuance of restricted stock1,368 — — — — 
Repurchase of common stock(2,611)(394,141)— (105,882)(500,023)
Taxes paid related to net share settlement of equity awards(104)(21,025)— — (21,025)
Stock-based compensation— 249,216 — — 249,216 
Net income— — — 322,160 322,160 
Other comprehensive loss— — (6,103)— (6,103)
Balances, September 30, 202259,860 $91,048 $(26,176)$2,404,106 $2,468,978 
The accompanying notes are an integral part of these consolidated financial statements.
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F5, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 Years Ended September 30,
 202220212020
Operating activities
Net income$322,160 $331,241 $307,441 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation249,216 243,279 201,948 
Depreciation and amortization115,609 115,424 95,857 
Non-cash operating lease costs38,735 38,375 39,139 
Deferred income taxes(40,244)(76,930)7,293 
Impairment of assets6,175 40,698 9,673 
Other1,267 737 2,122 
Changes in operating assets and liabilities (excluding effects of the acquisition of businesses):
Accounts receivable(130,605)(46,289)46,502 
Inventories(46,310)5,843 6,503 
Other current assets(144,628)(84,328)(49,895)
Other assets(87,008)(110,653)(25,690)
Accounts payable and accrued liabilities19,163 22,933 34,742 
Deferred revenue191,147 216,431 35,514 
Lease liabilities(52,046)(51,565)(50,251)
Net cash provided by operating activities442,631 645,196 660,898 
Investing activities