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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DecemberMarch 31, 20172023
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, NETWORKS, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON
91-1714307
Washington
91-1714307
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
401 Elliott801 5th Avenue West
Seattle, Washington 9811998104
(Address of principal executive offices and zip code)
(206) 272-5555
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, no par valueFFIVNASDAQ Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  þ    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“emerging growth company"company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated FilerþAccelerated filerFiler¨
Non-accelerated filerFiler
¨  (Do not check if a smaller reporting company)
Smaller reporting companyReporting Company¨
Emerging growth companyGrowth Company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
The number of shares outstanding of the registrant’s common stock as of January 29, 2018April 28, 2023 was 61,844,443.60,468,009.



Table of Contents
F5, NETWORKS, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended DecemberMarch 31, 20172023
Table of Contents
 
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Table of Contents
PART I. FINANCIAL INFORMATION
 
Item 1.Financial Statements
Item 1.Financial Statements
F5, NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
 December 31,
2017
 September 30,
2017
March 31,
2023
September 30,
2022
ASSETS    ASSETS
Current assets    Current assets
Cash and cash equivalents $611,996
 $673,228
Cash and cash equivalents$734,544 $758,012 
Short-term investments 392,560
 343,700
Short-term investments20,710 126,554 
Accounts receivable, net of allowances of $2,052 and $1,815 291,093
 291,924
Accounts receivable, net of allowances of $5,181 and $6,020Accounts receivable, net of allowances of $5,181 and $6,020485,622 469,979 
Inventories 29,112
 29,834
Inventories50,745 68,365 
Other current assets 56,056
 67,538
Other current assets533,554 489,314 
Total current assets 1,380,817
 1,406,224
Total current assets1,825,175 1,912,224 
Property and equipment, net 117,310
 122,420
Property and equipment, net169,771 168,182 
Operating lease right-of-use assetsOperating lease right-of-use assets216,293 227,475 
Long-term investments 348,210
 284,802
Long-term investments4,736 9,544 
Deferred tax assets 39,719
 53,303
Deferred tax assets235,109 183,365 
Goodwill 555,965
 555,965
Goodwill2,288,635 2,259,282 
Other assets, net 51,718
 53,775
Other assets, net483,532 516,122 
Total assets $2,493,739
 $2,476,489
Total assets$5,223,251 $5,276,194 
LIABILITIES AND SHAREHOLDERS’ EQUITY    LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities    Current liabilities
Accounts payable $46,748
 $50,760
Accounts payable$69,952 $113,178 
Accrued liabilities 176,534
 187,379
Accrued liabilities295,533 309,819 
Deferred revenue 721,994
 696,404
Deferred revenue1,160,118 1,067,182 
Current portion of long-term debtCurrent portion of long-term debt— 349,772 
Total current liabilities 945,276
 934,543
Total current liabilities1,525,603 1,839,951 
Deferred tax liabilitiesDeferred tax liabilities3,401 2,781 
Deferred revenue, long-termDeferred revenue, long-term636,194 624,398 
Operating lease liabilities, long-termOperating lease liabilities, long-term259,916 272,376 
Other long-term liabilities 51,970
 44,589
Other long-term liabilities72,578 67,710 
Deferred revenue, long-term 269,279
 267,902
Deferred tax liabilities 36
 63
Total long-term liabilities 321,285
 312,554
Total long-term liabilities972,089 967,265 
Commitments and contingencies (Note 5) 
 
Shareholders’ equity    
Commitments and contingencies (Note 8)Commitments and contingencies (Note 8)
Shareholders' equityShareholders' equity
Preferred stock, no par value; 10,000 shares authorized, no shares outstanding 
 
Preferred stock, no par value; 10,000 shares authorized, no shares outstanding— — 
Common stock, no par value; 200,000 shares authorized, 61,844 and 62,594 shares issued and outstanding 20,029
 17,627
Common stock, no par value; 200,000 shares authorized, 60,465 and 59,860 shares issued and outstandingCommon stock, no par value; 200,000 shares authorized, 60,465 and 59,860 shares issued and outstanding190,592 91,048 
Accumulated other comprehensive loss (19,478) (17,997)Accumulated other comprehensive loss(22,977)(26,176)
Retained earnings 1,226,627
 1,229,762
Retained earnings2,557,944 2,404,106 
Total shareholders’ equity 1,227,178
 1,229,392
Total liabilities and shareholders’ equity $2,493,739
 $2,476,489
Total shareholders' equityTotal shareholders' equity2,725,559 2,468,978 
Total liabilities and shareholders' equityTotal liabilities and shareholders' equity$5,223,251 $5,276,194 
The accompanying notes are an integral part of these consolidated financial statements.



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F5, NETWORKS, INC.
CONSOLIDATED INCOME STATEMENTS
(unaudited, in thousands, except per share data)
 
 Three months ended
December 31,
Three months ended
March 31,
Six months ended
March 31,
 2017 2016 2023202220232022
Net revenues    Net revenues
Products $227,303
 $239,483
Products$340,581 $297,518 $681,139 $640,667 
Services 295,888
 276,475
Services362,594 336,706 722,414 680,657 
Total 523,191
 515,958
Total703,175 634,224 1,403,553 1,321,324 
Cost of net revenues    Cost of net revenues
Products 43,265
 41,676
Products99,795 71,234 198,650 152,896 
Services 44,122
 43,586
Services55,859 55,125 112,011 108,536 
Total 87,387
 85,262
Total155,654 126,359 310,661 261,432 
Gross profit 435,804
 430,696
Gross profit547,521 507,865 1,092,892 1,059,892 
Operating expenses    Operating expenses
Sales and marketing 167,934
 164,514
Sales and marketing233,076 228,826 466,181 462,861 
Research and development 85,889
 87,050
Research and development141,363 135,838 283,686 266,109 
General and administrative 39,984
 41,678
General and administrative67,036 68,554 137,027 134,215 
Restructuring chargesRestructuring charges— — 8,740 7,909 
Total 293,807
 293,242
Total441,475 433,218 895,634 871,094 
Income from operations 141,997
 137,454
Income from operations106,046 74,647 197,258 188,798 
Other income, net 2,145
 2,643
Other income (expense), netOther income (expense), net2,737 (1,934)7,439 (4,365)
Income before income taxes 144,142
 140,097
Income before income taxes108,783 72,713 204,697 184,433 
Provision for income taxes 55,713
 45,879
Provision for income taxes27,347 16,477 50,859 34,638 
Net income $88,429
 $94,218
Net income$81,436 $56,236 $153,838 $149,795 
Net income per share — basic $1.42
 $1.45
Net income per share — basic$1.35 $0.93 $2.55 $2.47 
Weighted average shares — basic 62,195
 65,195
Weighted average shares — basic60,330 60,573 60,211 60,693 
Net income per share — diluted $1.41
 $1.44
Net income per share — diluted$1.34 $0.92 $2.54 $2.43 
Weighted average shares — diluted 62,550
 65,645
Weighted average shares — diluted60,691 61,405 60,537 61,661 
The accompanying notes are an integral part of these consolidated financial statements.



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F5, NETWORKS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
 
  Three months ended
December 31,
  2017 2016
Net income $88,429
 $94,218
Other comprehensive loss:    
Foreign currency translation adjustment 161
 (2,079)
Available-for-sale securities:    
Unrealized losses on securities, net of taxes of $(574) and $(464) for the three months ended December 31, 2017 and 2016, respectively (1,650) (773)
Reclassification adjustment for realized losses (gains) included in net income, net of taxes of $(3) and $1 for the three months ended December 31, 2017 and 2016, respectively 9
 (2)
Net change in unrealized losses on available-for-sale securities, net of tax (1,641) (775)
Total other comprehensive loss (1,480) (2,854)
Comprehensive income $86,949
 $91,364
Three months ended
March 31,
Six months ended
March 31,
 2023202220232022
Net income$81,436 $56,236 $153,838 $149,795 
Other comprehensive income (loss):
Foreign currency translation adjustment(266)(79)1,984 (596)
Available-for-sale securities:
Unrealized gains (losses) on securities, net of taxes of $118 and $(148) for the three months ended March 31, 2023 and 2022, respectively, and $232 and $(222) for the six months ended March 31, 2023 and 2022, respectively1,060 (1,294)1,827 (1,915)
Reclassification adjustment for realized losses included in net income, net of taxes of $58 and $12 for the three months ended March 31, 2023 and 2022, respectively, and $78 and $14 for the six months ended March 31, 2023 and 2022, respectively(552)(40)(612)(44)
Net change in unrealized gains (losses) on available-for-sale securities, net of tax508 (1,334)1,215 (1,959)
Total other comprehensive income (loss)242 (1,413)3,199 (2,555)
Comprehensive income$81,678 $54,823 $157,037 $147,240 
The accompanying notes are an integral part of these consolidated financial statements.



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F5, NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSSHAREHOLDERS' EQUITY
(unaudited, in thousands)
 Common StockAccumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
Shareholders’
Equity
 SharesAmount
Three months ended March 31, 2022
Balances, December 31, 202160,711 $145,189 $(21,215)$2,281,387 $2,405,361 
Exercise of employee stock options46 1,048 — — 1,048 
Issuance of restricted stock334 — — — — 
Repurchase of common stock(610)(125,012)— — (125,012)
Taxes paid related to net share settlement of equity awards(16)(3,222)— — (3,222)
Stock-based compensation— 64,130 — — 64,130 
Net income— — — 56,236 56,236 
Other comprehensive loss— — (1,413)— (1,413)
Balances, March 31, 202260,465 $82,133 $(22,628)$2,337,623 $2,397,128 
Three months ended March 31, 2023
Balances, December 31, 202260,117 $129,060 $(23,219)$2,476,508 $2,582,349 
Exercise of employee stock options12 281 — — 281 
Issuance of restricted stock355 — — — — 
Taxes paid related to net share settlement of equity awards(19)(2,788)— — (2,788)
Stock-based compensation— 64,039 — — 64,039 
Net income— — — 81,436 81,436 
Other comprehensive income— — 242 — 242 
Balances, March 31, 202360,465 $190,592 $(22,977)$2,557,944 $2,725,559 
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  Three months ended
December 31,
  2017 2016
Operating activities    
Net income $88,429
 $94,218
Adjustments to reconcile net income to net cash provided by operating activities:    
Realized loss on disposition of assets and investments 49
 30
Stock-based compensation 40,948
 46,611
Provisions for doubtful accounts and sales returns 593
 291
Depreciation and amortization 15,180
 14,887
Deferred income taxes 14,226
 (2,945)
Changes in operating assets and liabilities:    
Accounts receivable 238
 (45,327)
Inventories 722
 374
Other current assets 11,517
 (306)
Other assets (696) 391
Accounts payable and accrued liabilities (8,216) 37,082
Deferred revenue 26,967
 44,006
Net cash provided by operating activities 189,957
 189,312
Investing activities    
Purchases of investments (238,632) (98,983)
Maturities of investments 113,771
 105,744
Sales of investments 9,248
 11,211
(Increase) decrease in restricted cash (21) 32
Cash provided by sale of fixed asset 1,000
 
Acquisition of intangible assets 
 (4,000)
Purchases of property and equipment (6,491) (14,133)
Net cash used in investing activities (121,125) (129)
Financing activities    
Excess tax benefit from stock-based compensation 
 2,940
Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan 19,915
 18,836
Repurchase of common stock (150,025) (150,021)
Net cash used in financing activities (130,110) (128,245)
Net (decrease) increase in cash and cash equivalents (61,278) 60,938
Effect of exchange rate changes on cash and cash equivalents 46
 (2,575)
Cash and cash equivalents, beginning of period 673,228
 514,571
Cash and cash equivalents, end of period $611,996
 $572,934
 
Six months ended March 31, 2022
Balances, September 30, 202160,652 $192,458 $(20,073)$2,187,828 $2,360,213 
Exercise of employee stock options96 2,303 — — 2,303 
Issuance of stock under employee stock purchase plan169 26,325 — — 26,325 
Issuance of restricted stock775 — — — — 
Repurchase of common stock(1,148)(250,023)— — (250,023)
Taxes paid related to net share settlement of equity awards(79)(16,816)— — (16,816)
Stock-based compensation— 127,886 — — 127,886 
Net income— — — 149,795 149,795 
Other comprehensive loss— — (2,555)— (2,555)
Balances, March 31, 202260,465 $82,133 $(22,628)$2,337,623 $2,397,128 
Six months ended March 31, 2023
Balances, September 30, 202259,860 $91,048 $(26,176)$2,404,106 $2,468,978 
Exercise of employee stock options26 716 — — 716 
Issuance of stock under employee stock purchase plan179 21,745 — — 21,745 
Issuance of restricted stock731 — — — — 
Repurchase of common stock(263)(40,005)— — (40,005)
Taxes paid related to net share settlement of equity awards(68)(9,825)— — (9,825)
Stock-based compensation— 126,913 — — 126,913 
Net income— — — 153,838 153,838 
Other comprehensive income— — 3,199 — 3,199 
Balances, March 31, 202360,465 $190,592 $(22,977)$2,557,944 $2,725,559 
The accompanying notes are an integral part of these consolidated financial statements.



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F5, NETWORKS,INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 Six months ended
March 31,
 20232022
Operating activities
Net income$153,838 $149,795 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation126,913 127,886 
Depreciation and amortization54,817 59,798 
Non-cash operating lease costs20,231 19,363 
Deferred income taxes(49,492)(15,832)
Impairment of assets— 6,175 
Other1,878 (439)
Changes in operating assets and liabilities (excluding effects of the acquisition of businesses):
Accounts receivable(14,317)(72,777)
Inventories17,620 (5,828)
Other current assets(43,547)(60,896)
Other assets9,354 (27,893)
Accounts payable and accrued liabilities(59,534)(35,649)
Deferred revenue102,933 99,303 
Lease liabilities(22,140)(26,131)
Net cash provided by operating activities298,554 216,875 
Investing activities
Purchases of investments(689)(53,715)
Maturities of investments95,773 96,349 
Sales of investments16,085 78,988 
Acquisition of businesses, net of cash acquired(35,006)(67,911)
Purchases of property and equipment(23,793)(15,792)
Net cash provided by investing activities52,370 37,919 
Financing activities
Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan22,461 28,628 
Repurchase of common stock(40,005)(250,023)
Payments on term debt agreement(350,000)(10,000)
Taxes paid related to net share settlement of equity awards(9,825)(16,816)
Net cash used in financing activities(377,369)(248,211)
Net (decrease) increase in cash, cash equivalents and restricted cash(26,445)6,583 
Effect of exchange rate changes on cash, cash equivalents and restricted cash2,979 (997)
Cash, cash equivalents and restricted cash, beginning of period762,207 584,333 
Cash, cash equivalents and restricted cash, end of period$738,741 $589,919 
Supplemental disclosures of cash flow information
Cash paid for amounts included in the measurement of operating lease liabilities$27,200 $30,346 
Cash paid for interest on long-term debt2,970 2,383 
Supplemental disclosures of non-cash activities
Right-of-use assets obtained in exchange for lease obligations$9,577 $818 
The accompanying notes are an integral part of these consolidated financial statements.
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F5, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Summary of Significant Accounting Policies
Description of Business
F5, Networks, Inc. (the “Company”"Company") is thea leading developer and provider of software-defined application services. The Company’s core technology is a full-proxy, programmable, highly-scalable software platform called TMOS, which supports a broad array of features and functions designed to ensure that applications delivered over Internet Protocol (IP) networks are secure, fast and available. The Company’s TMOS-based offerings include software products for local and global traffic management, network andmulti-cloud application security access management, web acceleration and a number of other networkdelivery solutions which enable its customers to develop, deploy, operate, secure, and govern applications in any architecture, from on-premises to the public cloud. The Company's cloud, software, and hardware solutions enable its customers to deliver digital experiences to their customers faster, reliably, and at scale. The Company's enterprise-grade application services. These productsservices are available as cloud-based, software-as-a-service, and software-only solutions optimized for multi-cloud environments, with modules that can run individuallyindependently, or as part of an integrated solution on the Company’sits high-performance scalable, purpose-built BIG-IP appliances and VIPRION chassis-based hardware, or as software-only Virtual Editions. The Company also offers distributed denial-of-service (DDoS) protection, application security and other application services by subscription on its cloud-based Silverline platform.appliances. In connection with its products,solutions, the Company offers a broad range of supportprofessional services, including consulting, training, installation, maintenance, and maintenance.other technical support services.
Basis of Presentation
The year-end consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.America ("GAAP"). In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for their fair statement in conformity with accounting principles generally accepted in the United States of America. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission.Commission ("SEC"). The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2022.
Revenue Recognition
The Company sells products through distributors, resellers, and directly to end users. Revenue is recognized provided that all of the following criteriaThere have been met:
Persuasive evidence of an arrangement exists. Evidence of an arrangement generally consists of a purchase order issued pursuantno changes to the termsCompany's significant accounting policies as of and conditions of a distributor, resellerfor the three and six months ended March 31, 2023.
New Accounting Pronouncements
There have been no material changes in recently issued or end user agreement.adopted accounting standards from those disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022.
Delivery has occurred. The Company uses shipping or related documents, or written evidence of customer acceptance, when applicable, to verify delivery or completion of any performance terms.
The sales price is fixed or determinable. The Company assesses whether the sales price is fixed or determinable based on payment terms associated with the transaction and whether the sales price is subject to refund or adjustment.
Collectability is reasonably assured. The Company assesses collectability primarily based on the creditworthiness of the customer as determined by credit checks and related analysis, as well as the Customer’s payment history.
2. Revenue from the sale of products is generally recognized when the product has been shipped and the customer is obligated to pay for the product. When rights of return are present and the Company cannot estimate returns, revenue is recognized when such rights of return lapse. Payment terms to domestic customers are generally net 30 days to net 45 days. Payment terms to international customers range from net 30 days to net 120 days based on normal and customary trade practices in the individual markets.Contracts with Customers
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 when the consulting has been completed. Training revenue is recognized when the training has been completed.
Arrangement consideration is first allocated between software (consisting of nonessential and stand-alone software) and non-software deliverables. The majority of the Company’s products are hardware appliances which contain software essential to the overall functionality of the products. Hardware appliances are generally sold with PCS and on occasion, with consulting and/or training services. Arrangement consideration in such multiple element transactions is allocated to each element based on

a fair value hierarchy, where the selling price for an element is based on vendor specific objective evidence (VSOE), if available, third-party evidence (TPE), if available and VSOE is not available; or the best estimate of selling price (BESP), if neither VSOE or TPE is available.
For software deliverables, the Company allocates revenue between multiple elements based on software revenue recognition guidance. Software revenue recognition guidance requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of those elements. The fair value of an element must be based on VSOE. Where VSOE of the fair value of delivered elements is not available, revenue is recognized on the “residual method” based on the fair value of undelivered elements. If evidence of fair value of one or more undelivered elements does not exist, all revenue is deferred and recognized at the earlier of the delivery of those elements or the establishment of fair value of the remaining undelivered elements.
The Company establishes VSOE for its products, PCS, consulting and training services based on the sales price charged for each element when sold separately. The sales price is discounted from the applicable list price based on various factors including the type of customer, volume of sales, geographic region and program level. The Company’s list prices are generally not fair value as discounts may be given based on the factors enumerated above. The Company uses historical sales transactions to determine whether VSOE can be established for each of the elements. In most instances, VSOE of fair value is the sales price of actual standalone (unbundled) transactions within the past 12 month period, when a substantial majority of transactions (more than 80%) are priced within a narrow range, which the Company has determined to be plus or minus 15% of the median sales price.
The Company believes that the VSOE of fair value of training and consulting services is represented by the billable rate per hour, based on the rates charged to customers when they purchase standalone training or consulting services. The price of consulting services is not based on the type of customer, volume of sales, geographic region or program level.
The Company is typically not able to determine VSOE or TPE for non-software products. TPE is determined based on competitor prices for similar elements when sold separately. Generally, the Company’s go-to-market strategy differs from that of other competitive products or services in its markets and the Company’s offerings contain a significant level of differentiation such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, the Company is unable to reliably determine the selling prices on a stand-alone basis of similar products offered by its competitors.
When the Company is unable to establish selling price using VSOE or TPE, the Company uses BESP in its allocation of arrangement consideration. The objective of BESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. The Company has been able to establish BESP through the list price, less a discount deemed appropriate to maintain a reasonable gross margin. Management regularly reviews the gross margin information. Non-software product BESP is determined through the Company’s review of historical sales transactions within the past 12 month period. Additional factors considered in determining an appropriate BESP include, but are not limited to, cost of products, pricing practices, geographies, customer classes, and distribution channels.
The Company regularly validates the VSOE of fair value and BESP for elements in its multiple element arrangements. The Company accounts for taxes collected from customers and remitted to governmental authorities on a net basis and excluded these amounts from revenues.
Goodwill and Acquired Intangible Assets
Goodwill represents the excess purchase price over the estimated fair value of net assets acquired as of the acquisition date. The Company tests goodwill for impairment on an annual basis and between annual tests when impairment indicators are identified, and goodwill is written down when impaired. Goodwill was recorded in connection with various acquisitions in fiscal year 2014 and prior years. For its annual goodwill impairment test in all periods to date, the Company has operated under one reporting unit and the fair value of its reporting unit has been determined by the Company’s enterprise value. The Company performs its annual goodwill impairment test during the second fiscal quarter.
As part of the annual goodwill impairment test, the Company has the option to perform a qualitative assessment to determine whether further impairment testing is necessary. If, as a result of its qualitative assessment, it is more-likely-than-not (i.e. greater than 50% chance) that the fair value of the Company’s reporting unit is less than its carrying amount, the quantitative impairment test will be required. Otherwise, no further testing will be required. If the Company chooses to bypass the qualitative assessment, it completes a quantitative assessment in performing its annual impairment test.
Examples of events and circumstances that might indicate that a reporting unit’s fair value is less than its carrying amount include macro-economic conditions such as deterioration in the entity’s operating environment or industry or market considerations; entity-specific events such as increasing costs, declining financial performance, or loss of key personnel; or

other events such as an expectation that a reporting unit will be sold or a sustained decrease in the stock price on either an absolute basis or relative to peers.
If it is determined, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of the Company’s reporting unit is less than its carrying amount, the provisions of authoritative guidance require that the Company perform a two-step impairment test on goodwill. The first step of the test identifies whether potential impairment may have occurred, while the second step of the test measures the amount of the impairment, if any. Impairment is recognized when the carrying amount of goodwill exceeds its fair value. During fiscal year 2017, the Company performed its goodwill impairment assessment and concluded that it was more-likely-than-not that the fair value of its reporting unit exceeded its carrying amount. The Company considered potential impairment indicators of goodwill at December 31, 2017 and noted no indicators of impairment.
The Company's intangible assets subject to amortization are amortized using the straight-line method over their estimated useful lives, ranging from three to ten years. The Company evaluates the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. The Company considered potential impairment indicators of acquired intangible assets at December 31, 2017 and noted no indicators of impairment.
Software DevelopmentCapitalized Contract Acquisition Costs
The authoritative guidance requires certain internal software developmenttable below shows significant movements in capitalized contract acquisition costs related to software to be sold to be(current and noncurrent) for the six months ended March 31, 2023 and 2022 (in thousands):
Six months ended
March 31,
20232022
Balance, beginning of period$77,220 $77,836 
Additional capitalized contract acquisition costs13,123 18,530 
Amortization of capitalized contract acquisition costs(19,134)(19,092)
Balance, end of period$71,209 $77,274 
Amortization of capitalized upon the establishment of technological feasibility. The Company's software developmentcontract acquisition costs incurred subsequent to achieving technological feasibility have not been significant, and all software development costs have been expensed as research and development activities as incurred.
Internal Use Software
In accordance with the authoritative guidance, the Company capitalizes application development stage costs associated with the development of internal-use software and software developed related to its SaaS-based product offerings. The capitalized costs are then amortized over the estimated useful life of the software, which is generally three to five years, and are included in property and equipment in the accompanying consolidated balance sheets.
Stock-Based Compensation
The Company accounts for stock-based compensation using the straight-line attribution method for recognizing compensation expense. The Company recognized $40.9was $9.4 million and $46.6$9.7 million of stock-based compensation expense for the three months ended DecemberMarch 31, 20172023 and 2016, respectively. As2022, respectively, and $19.1 million for the six months ended March 31, 2023 and 2022, and is recorded in Sales and Marketing expense in the accompanying consolidated income statements. There was no impairment of December 31, 2017, there was $206.0 millionany capitalized contract acquisition costs during any period presented.
Contract Balances
Timing may differ between the satisfaction of total unrecognized stock-based compensation cost,performance obligations and the majorityinvoicing and collection of amounts related to the Company's contracts with customers. Liabilities are recorded for amounts that are collected in advance of the satisfaction
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of performance obligations, or for contracts with customers that contain the Company's unconditional rights to consideration, for which will be recognized over the next two years. Going forward, stock-based compensation expenses may increasecustomer has not been billed. These liabilities are classified as the Company issues additional equity-based awards to continue to attractcurrent and retain key employees.non-current deferred revenue.
The Company issues incentive awards to its employees through stock-based compensation consisting of restricted stock units (RSUs). On October 27, 2017,table below shows significant movements in the Company’s Board of Directorsdeferred revenue balances (current and Compensation Committee approved 1,086,939 RSUs to employeesnoncurrent) for the six months ended March 31, 2023 and executive officers pursuant to2022 (in thousands):
Six months ended
March 31,
20232022
Balance, beginning of period$1,691,580 $1,489,841 
Amounts added but not recognized as revenues785,122 723,631 
Deferred revenue acquired through acquisition of businesses1,800 10,591 
Revenues recognized related to the opening balance of deferred revenue(682,190)(624,327)
Balance, end of period$1,796,312 $1,599,736 
Remaining Performance Obligations
Remaining performance obligations represent the Company’s annual equity awards program. The value of RSUs is determined using the fair value method, which in this case, is based on the number of shares granted and the quoted priceamount of the Company’s common stock on the date of grant.
The Company recognizes compensation expense for only the portion of restricted stock unitstransaction price under contracts with customers that are expectedattributable to vest. Therefore, the Company applies estimated forfeiture ratesperformance obligations that are derived from historical employee termination behavior. Based on historical differences with forfeituresunsatisfied or partially satisfied at the reporting date. The composition of stock-based awards grantedunsatisfied performance obligations consists mainly of deferred service revenue, and to the Company’s executive officers and Board of Directors versus grants awarded to all other employees,a lesser extent, deferred product revenue, for which the Company has developed separate forfeiture expectations for these two groups. In determining the fair value of shares issued under the Employee Stock Purchase Plan (ESPP), the Company uses the Black-Scholes option pricing model. Compensation expense relatedan obligation to the shares issued pursuant to the ESPP isperform, and has not yet recognized on a straight-line basis over the offering period.
The Company issues incentive awards to certain current executive officers as part of its annual equity awards program. Fifty percent of the aggregate number of RSUs issued to executive officers vest in equal quarterly increments, and 50% are subject to the Company achieving specified performance goals.
For the prior year performance stock grants, attainment is based on the Company achieving specific quarterly revenue and EBITDA targets. In each case, 70% of the quarterly performance stock grant is based on achieving at least 80% of the

quarterly revenue goal set by the Company's Board of Directors, and the other 30% is based on achieving at least 80% of the quarterly EBITDA goal set by the Company's Board of Directors. The quarterly performance stock grant is paid linearly over 80% of the targeted goals. At least 100% of both goals must be attained in order for the quarterly performance stock grant to be awarded over 100%. Each goal is evaluated individually and subject to the 80% achievement threshold and the 100% over-achievement threshold. Each goal is also capped at achievement of 200% above target.
For the fiscal 2018 performance stock grants, the Company's Compensation Committee adopted a new set of metrics that are differentiated from the quarterly revenue and EBITDA measures, including (1) 50% of the annual performance stock grant is based on achieving 80% of the annual revenue goal set by the Company’s Board of Directors; (2) 25% of the annual performance stock grant is based on achieving at least a 15% increase in annual stand-alone software revenue compared to the prior year; and (3) 25% of the annual performance stock grant is based on relative total shareholder return benchmarked to the S&P 500 index. In each case, no vesting or payment with respect to a performance goal shall occur unless a minimum threshold is met for the applicable goal. Vesting and payment with respect to the performance goal is linear above the threshold of the applicable goal and is capped at achievement of 200% above target.
As of December 31, 2017, the following annual equity grants for executive officers or a portion thereof are outstanding:
Grant DateRSUs GrantedVesting ScheduleVesting PeriodDate Fully Vested
November 1, 2017140,135Annually4 yearsNovember 1, 2021
November 1, 2016115,347Quarterly4 yearsNovember 1, 2020
November 2, 2015145,508Quarterly4 yearsNovember 1, 2019
November 1, 2014171,575Quarterly4 yearsNovember 1, 2018
The Company recognizes compensation costs for awards with performance conditions when it concludes it is probable that the performance condition will be achieved. The Company reassesses the probability of vesting at each balance sheet date and adjusts compensation costs based on the probability assessment.
Common Stock Repurchase
On October 25, 2017, the Company announced that its Board of Directors authorized an additional $1.0 billion for its common stock share repurchase program. This new authorization is incremental to the existing $3.4 billion program, initially approved in October 2010 and expanded in each fiscal year. Acquisitions for the share repurchase programs will be made from time to time in private transactions or open market purchases as permitted by securities laws and other legal requirements. The programs can be terminated at any time. During the first quarter of fiscal 2018, the Company repurchased and retired 1,242,610 shares at an average price of $120.73 per share and the Company had $1.0 billion remaining authorized to purchase shares at December 31, 2017.
Earnings Per Share
Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. The Company’s nonvested restricted stock awards and restricted stock units do not have nonforfeitable rights to dividends or dividend equivalents and are not considered participating securities that should be included in the computation of earnings per share under the two-class method.

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data):
  Three months ended
December 31,
  2017 2016
Numerator    
Net income $88,429
 $94,218
Denominator    
Weighted average shares outstanding — basic 62,195
 65,195
Dilutive effect of common shares from stock options and restricted stock units 355
 450
Weighted average shares outstanding — diluted 62,550
 65,645
Basic net income per share $1.42
 $1.45
Diluted net income per share $1.41
 $1.44
For the three months ended December 31, 2017, an immaterial amount of common shares potentially issuable from stock options were excluded from the calculation of diluted earnings per share because the exercise price was greater than the average market price of common stock. For the three months ended December 31, 2016, there were no common shares potentially issuable from stock options excluded from the calculation of diluted earnings per share because the exercise price was greater than the average market price of common stock.
Comprehensive Income
Comprehensive income includes certain changes in equity that are excluded from net income. Specifically, unrealized gains or losses on securities and foreign currency translation adjustments are included in accumulated other comprehensive income or loss.
Recently Adopted Accounting Standards
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (ASU 2015-11), which changes the subsequent measurement of inventory from lower of cost or market to lower of cost and net realizable value. The Company adopted ASU 2015-11 during the first quarter of fiscal 2018. The adoption of ASU 2015-11 did not have a material impact on the Company's consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which requires that all deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet. The Company adopted ASU 2015-17 during the first quarter of fiscal year 2018 on a retrospective basis, which resulted in reclassification of $53.0 million of deferred tax assets, net of deferred tax liabilities, from current to non-current as of September 30, 2017.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.
The Company adopted ASU 2016-09 during the first quarter of fiscal year 2018. Excess tax benefits and tax deficiencies from share-based compensation are now recorded to the consolidated income statements rather than to additional paid-in capital within equity on a prospective basis. Tax deficiencies recognized during the three months ended December 31, 2017 were not material. The Company also elected to prospectively apply the change in presentation requirement wherein excess tax benefits of awards are classified as operating activities in the consolidated statementsfinancial statements. As of cash flows. Prior periods have not been reclassified to conform to the fiscal 2018 presentation.
The Company did not elect an accounting policy change to record forfeitures as they occur and will continue to estimate forfeitures at each period.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment (ASU 2017-04), which simplifies the goodwill impairment process by eliminating Step 2 from the quantitative goodwill impairment test. Under this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed

March 31, 2023, the total amount of goodwill allocated to that reporting unit. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company elected to early adopt ASU 2017-04 for its annual goodwill impairment test that will be performed duringnon-cancelable remaining performance obligations under the second quarter of fiscal 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). ASU 2014-09 and the related amendments outline a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers was $1.8 billion and supersedes most current revenue recognition guidance, including industry-specific guidance. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The standard can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The updated standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 with early adoption permitted for annual reporting periods beginning after December 15, 2016.
The Company currently plans to adopt ASU 2014-09 in the first quarter of fiscal 2019 on a modified retrospective basis. The Company has initiated an assessment of its systems, data and processes related to the implementation of this accounting standard. Under the new standard, the Company expects to defer and amortize incremental costs to obtain a contract, which are primarily commission costs,recognize revenues on approximately 64.6% of these remaining performance obligations over the expected customer life rather than expensing them as incurred under current practice. Additionally, under the new standard, the Company would be required to recognize a portion of term license revenues upfront, at the time of delivery rather than ratably over the related contract period. The Company does not anticipate that the implementation of this updated standard and related amendments will have a material impact on its consolidated income statements. The Company is continuing to evaluate the impact that this updated standardnext 12 months, 22.5% in year two, and the related amendments will have on its consolidatedremaining balance sheetsthereafter.
See Note 12, Segment Information, for disaggregated revenue by significant customer and footnote disclosures.geographic region, as well as disaggregated product revenue by systems and software.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02), which requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a corresponding lease liability for all leases with terms greater than twelve months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases. Adoption of the new lease standard requires measurement of leases at the beginning of the earliest period presented on a modified retrospective basis. The new standard will be effective for the Company beginning October 1, 2019, with early adoption permitted. The Company currently anticipates early adoption of the new standard in the first quarter of fiscal 2019 in conjunction with the adoption of the new revenue standard.
The Company's ability to early adopt is dependent on system readiness, which may include, but is not limited to, software procured from third-party providers and the completion of the Company's analysis of information necessary to restate prior period financial statements. The Company’s leases consist of operating leases for its office and lab spaces. Under the new lease guidance, the Company will be required to record a right to use asset and liability on its consolidated balance sheets for these operating leases. The Company is currently assessing the impact that this standard will have on its consolidated financial statements and footnote disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which will require a company’s cash flow statement to explain the changes during a reporting period of the totals for cash, cash equivalents, restricted cash, and restricted cash equivalents. Additionally, amounts for restricted cash and restricted cash equivalents are to be included with cash and cash equivalents if the cash flow statement includes a reconciliation of the

total cash balances for a reporting period. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which provides a more robust framework to use in determining when a set of assets and activities is considered a business. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted for certain transactions. The Company is currently assessing the impact that this updated standard will have on its consolidated financial statements and footnote disclosures.
In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08), which shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (ASU 2017-09), which provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions or award classification and would not be required if the changes are considered non-substantive. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.
2.3. Fair Value Measurements
In accordance with the authoritative guidance on fair value measurements and disclosure under GAAP, the Company determines fair value using a fair value hierarchy that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity, and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances and expands disclosure about fair value measurements.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date, essentially the exit price.
The levels of fair value hierarchy are:
Level 1: Quoted prices in active markets for identical assets and liabilities at the measurement date that the Company has the ability to access.
Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Unobservable inputs for which there is little or no market data available. These inputs reflect management’smanagement's assumptions of what market participants would use in pricing the asset or liability.
Level 1 investments are valued based on quoted market prices in active markets and include the Company’sCompany's cash equivalent investments. Level 2 investments, which include investments that are valued based on quoted prices in markets that are not active, broker or dealer quotations, actual trade data, benchmark yields or alternative pricing sources with reasonable levels of price transparency, include the Company’sCompany's certificates of deposit, corporate bonds and notes, municipal bonds and notes, U.S. government securities, U.S. government agency securities and international government securities. Fair values for the Company’sCompany's level 2 investments are based on similar assets without applying significant judgments. In addition, all of the Company’sCompany's level 2 investments have a sufficient level of trading volume to demonstrate that the fair values used are appropriate for these investments.
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A financial instrument’sinstrument's level within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable”"observable" requires significant judgment by the Company. The Company considers observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The Company’sCompany's financial assets measured at fair value on a recurring basis subject to the disclosure requirements at DecemberMarch 31, 2017,2023 and September 30, 2022, were as follows (in thousands):
  Gross Unrealized Classification on Balance Sheet
As of March 31, 2023Fair Value Level Cost or Amortized Cost Gains Losses Aggregate
Fair Value
Cash and Cash Equivalents Short-Term Investments Long-Term Investments
Changes in fair value recorded in other comprehensive income (loss)
Money Market FundsLevel 1$160,242 $— $— $160,242 $160,242 $— $— 
Corporate bonds and notesLevel 215,044 — (260)14,784 — 14,012 772 
Municipal bonds and notesLevel 22,172 — (59)2,113 — 2,113 — 
U.S. government securitiesLevel 24,361 — (60)4,301 1,463 2,838 — 
U.S. government agency securitiesLevel 21,784 — (37)1,747 — 1,747 — 
Total debt investments$183,603 $— $(416)$183,187 $161,705 $20,710 $772 
Changes in fair value recorded in other net income (expense)
Equity investments*$3,964 $— $— $3,964 
Total equity investments3,964 — — 3,964 
Total investments$187,151 $161,705 $20,710 $4,736 
  Fair Value Measurements at Reporting Date Using  
  
Quoted Prices in
Active Markets for
Identical Securities
(Level 1)
 
Significant
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair Value at
December 31,
2017
Cash equivalents $58,580
 $5,997
 $
 $64,577
Short-term investments        
Available-for-sale securities — corporate bonds and notes 
 174,193
 
 174,193
Available-for-sale securities — municipal bonds and notes 
 60,448
 
 60,448
Available-for-sale securities — U.S. government securities 
 103,048
 
 103,048
Available-for-sale securities — U.S. government agency securities 
 54,871
 
 54,871
Long-term investments        
Available-for-sale securities — corporate bonds and notes 
 268,375
 
 268,375
Available-for-sale securities — municipal bonds and notes 
 33,797
 
 33,797
Available-for-sale securities — U.S. government securities 
 30,684
 
 30,684
Available-for-sale securities — U.S. government agency securities 
 15,354
 
 15,354
Total $58,580
 $746,767
 $
 $805,347

 * The Company’s financial assetsfair value of this equity investment is measured at net asset value (NAV) which approximates fair value on a recurring basis subject toand is not classified within the disclosure requirementsfair value hierarchy.
  Gross Unrealized Classification on Balance Sheet
As of September 30, 2022Fair Value LevelCost or Amortized Cost Gains Losses Aggregate
Fair Value
Cash and Cash Equivalents Short-Term Investments Long-Term Investments
Changes in fair value recorded in other comprehensive income (loss)
Money Market FundsLevel 1$276,294 $— $— $276,294 $276,294 $— $— 
Corporate bonds and notesLevel 250,828 — (950)49,878 912 44,356 4,610 
Municipal bonds and notesLevel 25,018 — (102)4,916 — 3,812 1,104 
U.S. government securitiesLevel 284,734 — (660)84,074 10,120 73,954 — 
U.S. government agency securitiesLevel 25,825 — (75)5,750 606 4,432 712 
Total debt investments$422,699 $— $(1,787)$420,912 $287,932 $126,554 $6,426 
Changes in fair value recorded in other net income (expense)
Equity investments*$3,118 $— $— $3,118 
Total equity investments3,118 — — 3,118 
Total investments$424,030 $287,932 $126,554 $9,544 
* The fair value of this equity investment is measured at September 30, 2017, were as follows (in thousands):
NAV which approximates fair value and is not classified within the fair value hierarchy.
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  Fair Value Measurements at Reporting Date Using  
  
Quoted Prices in
Active Markets for
Identical Securities
(Level 1)
 
Significant
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair Value at
September 30,
2017
Cash equivalents $13,967
 $3,192
 $
 $17,159
Short-term investments        
Available-for-sale securities — corporate bonds and notes 
 172,493
 
 172,493
Available-for-sale securities — municipal bonds and notes 
 67,409
 
 67,409
Available-for-sale securities — U.S. government securities 
 72,930
 
 72,930
Available-for-sale securities — U.S. government agency securities 
 30,868
 
 30,868
Long-term investments        
Available-for-sale securities — corporate bonds and notes 
 191,782
 
 191,782
Available-for-sale securities — municipal bonds and notes 
 26,643
 
 26,643
Available-for-sale securities — U.S. government securities 
 29,374
 
 29,374
Available-for-sale securities — U.S. government agency securities 
 37,003
 
 37,003
Total $13,967
 $631,694
 $
 $645,661
The Company uses the fair value hierarchy for financial assets and liabilities. The Company’scarrying amounts of other current financial assets and other current financial liabilities approximate fair value due to their short-term nature.
Interest income from investments was not material for the three and six months ended March 31, 2023 and 2022. Interest income is included in other income (expense), net on the Company's consolidated income statements. Unrealized losses on investments held for a period greater than 12 months at March 31, 2023 and September 30, 2022 were not material.
The Company invests in debt securities that are rated investment grade. The Company reviews the individual debt securities in its portfolio to determine whether a credit loss exists by comparing the extent to which the fair value is less than the amortized cost and considering any changes to ratings of a debt security by a ratings agency. The Company determined that as of March 31, 2023, there were no credit losses on any investments within its portfolio.
Assets Measured and Recorded at Fair Value on a Non-Recurring Basis
The Company's non-financial assets and liabilities, which include goodwill, intangible assets, and long-lived assets, are not required to be carried at fair value on a recurring basis. These non-financial assets and liabilities are measured at fair value on a non-recurring basis when there is an indicator of impairment, and they are recorded at fair value only when impairment is recognized. The Company reviews goodwill and intangible assets for impairment annually, during the second quarter of each fiscal year, or as circumstances indicate the possibility of impairment. The Company monitors the carrying value of tangible and intangible long-lived assets for impairment whenever events or changes in circumstances indicate its carrying amount may not be recoverable. During
The Company did not recognize any impairment charges related to its intangible assets during the three months ended DecemberMarch 31, 20172023 and 2016,2022, or in the six months ended March 31, 2023. In the first quarter of fiscal 2022, as a result of a planned change in the use of the asset, the Company recorded an impairment of $6.2 million against the Shape trade name intangible asset, which was reflected in the Sales and Marketing line item on the Company's consolidated income statement.
During the three and six months ended March 31, 2023 and 2022, the Company did not recognize any impairment charges related to goodwill intangible assets, or long-lived assets.

4. Business Combinations
Fiscal Year 2023 Acquisition of Lilac Cloud, Inc.
On January 22, 2023, the Company entered into a Merger Agreement (the “Lilac Merger Agreement”) with Lilac Cloud, Inc. ("Lilac"), a provider of innovative application delivery services. The transaction closed on February 1, 2023 with Lilac becoming a wholly-owned subsidiary of F5. The addition of Lilac’s Content Delivery Network ("CDN") technologies will enhance F5’s portfolio of solutions that secure and optimize any application and Application Programming Interface ("API") anywhere. The acquisition of Lilac did not have a material impact to the Company's operating results. 
Fiscal Year 2022 Acquisition of Threat Stack, Inc.
In September 2021, the Company entered into a Merger Agreement (the “Threat Stack Merger Agreement”) with Threat Stack, Inc. ("Threat Stack"), a provider of cloud security and workload protection solutions. The transaction closed on October 1, 2021 with Threat Stack becoming a wholly-owned subsidiary of F5. The addition of Threat Stack’s cloud security capabilities to F5’s application and API protection solutions is expected to enhance visibility across application infrastructure and workloads to deliver more actionable security insights for customers.
Pursuant to the Threat Stack Merger Agreement, at the effective time of the Merger, the capital stock of Threat Stack and the vested outstanding and unexercised stock options in Threat Stack were cancelled and converted to the right to receive approximately $68.9 million in cash, subject to certain adjustments and conditions set forth in the Threat Stack Merger Agreement. Transaction costs associated with the acquisition were not material.
As a result of the acquisition, the Company acquired all the assets and assumed all the liabilities of Threat Stack. The goodwill related to the Threat Stack acquisition is comprised primarily of expected synergies from combining operations and the acquired intangible assets that do not qualify for separate recognition. Goodwill related to the Threat Stack acquisition was not deductible for tax purposes. The results of operations of Threat Stack have been included in the Company's consolidated financial statements from the date of acquisition. 
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The carrying amounts of other current financialallocated purchase consideration to assets acquired and other current financial liabilities approximateassumed based on preliminary estimated fair value due to their short-term nature.
3. Short-Term and Long-Term Investments
Short-term investments consist ofvalues is presented in the following table (in thousands):
Estimated
Useful Life
Assets acquired
Deferred tax assets$14,041 
Other net tangible assets acquired, at fair value5,481 
Cash, cash equivalents, and restricted cash911 
Identifiable intangible assets:
Developed technology11,400 5 years
Customer relationships4,400 5 years
Goodwill43,282 
Total assets acquired$79,515 
Liabilities assumed
Deferred revenue$(10,591)
Total liabilities assumed$(10,591)
Net assets acquired$68,924 
The measurement period for the Threat Stack acquisition lapsed during the first quarter of fiscal 2023. The Company recorded immaterial adjustments to consideration exchanged for the purchase of Threat Stack within the post-close measurement period.
December 31, 2017 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value
Corporate bonds and notes $174,477
 $7
 $(291) $174,193
Municipal bonds and notes 60,542
 4
 (98) 60,448
U.S. government securities 103,227
 
 (179) 103,048
U.S. government agency securities 55,121
 
 (250) 54,871
  $393,367
 $11
 $(818) $392,560
September 30, 2017 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value
Corporate bonds and notes $172,560
 $25
 $(92) $172,493
Municipal bonds and notes 67,382
 36
 (9) 67,409
U.S. government securities 72,991
 
 (61) 72,930
U.S. government agency securities 30,954
 
 (86) 30,868
  $343,887
 $61
 $(248) $343,700
Long-term investments consistThe developed technology intangible asset is amortized on a straight-line basis over its estimated useful life of five years and included in cost of net product revenues. The customer relationships intangible asset is amortized on a straight-line basis over its estimated useful life of five years and included in sales and marketing expenses. The weighted-average life of the following (in thousands):
December 31, 2017 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value
Corporate bonds and notes $270,120
 $10
 $(1,755) $268,375
Municipal bonds and notes 34,030
 
 (233) 33,797
U.S. government securities 30,856
 
 (172) 30,684
U.S. government agency securities 15,500
 
 (146) 15,354
  $350,506
 $10
 $(2,306) $348,210
September 30, 2017 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value
Corporate bonds and notes $192,278
 $25
 $(521) $191,782
Municipal bonds and notes 26,639
 46
 (42) 26,643
U.S. government securities 29,427
 
 (53) 29,374
U.S. government agency securities 37,164
 
 (161) 37,003
  $285,508
 $71
 $(777) $284,802

The following table summarizes investments that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for more than 12 monthsamortizable intangible assets recognized from the Threat Stack acquisition was five years as of December 31, 2017 (in thousands):October 1, 2021, the date the transaction closed. The estimated useful lives for the acquired intangible assets were based on the expected future cash flows associated with the respective asset.
The pro forma financial information, as well as the revenue and earnings generated by Threat Stack, were not material to the Company's operations for the periods presented.
  Less Than 12 Months 12 Months or Greater Total
December 31, 2017 Fair Value 
Gross
Unrealized
Losses
 Fair Value 
Gross
Unrealized
Losses
 Fair Value 
Gross
Unrealized
Losses
Corporate bonds and notes $369,913
 $(1,820) $48,727
 $(226) $418,640
 $(2,046)
Municipal bonds and notes 86,336
 (330) 879
 (1) 87,215
 (331)
U.S. government securities 116,265
 (330) 12,484
 (21) 128,749
 (351)
U.S. government agency securities 17,654
 (94) 52,570
 (302) 70,224
 (396)
Total $590,168
 $(2,574) $114,660
 $(550) $704,828
 $(3,124)
5. Balance Sheet Details
Cash, Cash Equivalents and Restricted Cash
The following table summarizes investmentsprovides a reconciliation of the Company's cash and cash equivalents and restricted cash reported within the consolidated balance sheets that have beensum to the total cash, cash equivalents and restricted cash shown in a continuous unrealized loss positionthe Company's consolidated statements of cash flows for less than 12 months and those that have been in a continuous unrealized loss position for more than 12 months as of September 30, 2017the periods presented (in thousands):
 March 31,
2023
September 30,
2022
Cash and cash equivalents$734,544 $758,012 
Restricted cash included in other assets, net4,197 4,195 
Total cash, cash equivalents and restricted cash$738,741 $762,207 
  Less Than 12 Months 12 Months or Greater Total
September 30, 2017 Fair Value 
Gross
Unrealized
Losses
 Fair Value 
Gross
Unrealized
Losses
 Fair Value 
Gross
Unrealized
Losses
Corporate bonds and notes $262,852
 $(528) $35,401
 $(85) $298,253
 $(613)
Municipal bonds and notes 30,256
 (49) 881
 (2) 31,137
 (51)
U.S. government securities 94,312
 (105) 7,992
 (9) 102,304
 (114)
U.S. government agency securities 36,121
 (83) 31,750
 (164) 67,871
 (247)
Total $423,541
 $(765) $76,024
 $(260) $499,565
 $(1,025)
The Company invests in securities that are rated investment grade or better. The Company reviews the individual securities in its portfolio to determine whether a decline in a security's fair value below the amortized cost basis is other-than-temporary. The Company determined that as of December 31, 2017, there were no investments in its portfolio that were other-than-temporarily impaired.
4. Inventories
The Company outsources the manufacturing of its pre-configured hardware platforms to contract manufacturers, who assemble each product to the Company’s specifications. As protection against component shortages and to provide replacement parts for its service teams, the Company also stocks limited supplies of certain key product components. The Company reduces inventory to net realizable value based on excess and obsolete inventories determined primarily by historical usage and forecasted demand. Inventories consist of hardware and related component parts and are recorded at the lower of cost or market (as determined by the first-in, first-out method).
Inventories consist of the following (in thousands):
March 31,
2023
September 30,
2022
Finished goods$9,697 $10,164 
Raw materials41,048 58,201 
$50,745 $68,365 
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  December 31,
2017
 September 30,
2017
Finished goods $19,657
 $20,280
Raw materials 9,455
 9,554
  $29,112
 $29,834
Other Current Assets
Other current assets consist of the following (in thousands):
5.
March 31,
2023
September 30,
2022
Unbilled receivables$339,029 $319,707 
Prepaid expenses87,430 57,340 
Capitalized contract acquisition costs33,031 34,658 
Other1
74,064 77,609 
$533,554 $489,314 
(1)     As of March 31, 2023 and September 30, 2022, includes a deposit of $47.5 million and $57.0 million, respectively, used to support the working capital needs of the Company’s primary contract manufacturer's procurement of components used in the manufacturing of system hardware.
Other Assets
Other assets, net consist of the following (in thousands):
March 31,
2023
September 30,
2022
Intangible assets$178,099 $200,288 
Unbilled receivables216,244 224,780 
Capitalized contract acquisition costs38,178 42,561 
Other51,011 48,493 
$483,532 $516,122 
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
 March 31,
2023
September 30,
2022
Payroll and benefits$162,588 $165,437 
Operating lease liabilities, current43,215 42,523 
Income and other tax accruals38,375 41,217 
Other51,355 60,642 
$295,533 $309,819 
Other Long-term Liabilities
Other long-term liabilities consist of the following (in thousands):
March 31,
2023
September 30,
2022
Income taxes payable$64,151 $59,553 
Other8,427 8,157 
$72,578 $67,710 
6. Debt Facilities
Term Credit Agreement
In connection with the acquisition of Shape, on January 24, 2020, the Company entered into a Term Credit Agreement ("Term Credit Agreement") with certain institutional lenders that provides for a senior unsecured term loan facility in an aggregate principal amount of $400.0 million (the "Term Loan Facility"). The Term Loan Facility had an original maturity date of January 24, 2023 with quarterly installments equal to 1.25% of the original principal amount. Borrowings under the Term Loan Facility bore interest at a rate equal to LIBOR, plus an applicable margin of 1.125% to 1.75% depending on the Company's leverage ratio. The proceeds from the Term Loan Facility were primarily used to finance the acquisition of Shape and related expenses. In connection with the Term Loan Facility, the Company incurred $2.2 million in debt issuance costs, which were recorded as a reduction to the carrying value of the principal amount of the debt.
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On December 15, 2022, the Company voluntarily prepaid, in full, all borrowings under the Term Loan Facility, including the outstanding principal balance of $350.0 million, and all accrued, but unpaid interest outstanding of $3.0 million. All remaining debt issuance costs were amortized to interest expense associated with the prepayment. As a result of the payoff of its Term Loan Facility, the Company was released of any and all obligations, maintenance of covenants, and indebtedness under the Term Credit Agreement. The weighted average interest rate on the principal amount under the Term Loan Facility outstanding balance was 4.072% for the period of October 1, 2022 to December 15, 2022.
As of September 30, 2022, $350.0 million of principal amount under the Term Loan Facility was outstanding, excluding unamortized debt issuance costs of $0.2 million. The weighted average interest rate on the principal amount under the Term Loan Facility outstanding balance was 1.282% for the three and six months ended March 31, 2022, respectively.
Revolving Credit Agreement
On January 31, 2020, the Company entered into a Revolving Credit Agreement (the "Revolving Credit Agreement") that provides for a senior unsecured revolving credit facility in an aggregate principal amount of $350.0 million (the "Revolving Credit Facility"). The Company has the option to increase commitments under the Revolving Credit Facility from time to time, subject to certain conditions, by up to $150.0 million. Borrowings under the Revolving Credit Facility bear interest at a rate equal to, at the Company's option, (a) LIBOR, adjusted for customary statutory reserves, plus an applicable margin of 1.125% to 1.75% depending on the Company's leverage ratio, or (b) an alternate base rate determined in accordance with the Revolving Credit Agreement, plus an applicable margin of 0.125% to 0.750% depending on the Company's leverage ratio. The Revolving Credit Agreement also requires payment of a commitment fee calculated at a rate per annum of 0.125% to 0.300% depending on the Company's leverage ratio on the undrawn portion of the Revolving Credit Facility. Commitment fees incurred during the three and six months ended March 31, 2023 were not material.
The Revolving Credit Facility matures on January 31, 2025, at which time any remaining outstanding principal of borrowings under the Revolving Credit Facility is due. The Company has the option to request up to two extensions of the maturity date in each case for an additional period of one year. Among certain affirmative and negative covenants provided in the Revolving Credit Agreement, there is a financial covenant that requires the Company to maintain a leverage ratio, calculated as of the last day of each fiscal quarter, of consolidated total indebtedness to consolidated EBITDA. As of March 31, 2023, the Company was in compliance with all covenants. As of March 31, 2023, there were no outstanding borrowings under the Revolving Credit Facility, and the Company had available borrowing capacity of $350.0 million.
7. Leases
The majority of the Company's operating lease payments relate to its corporate headquarters in Seattle, Washington, which includes approximately 515,000 square feet of office space. The lease commenced in April 2019 and expires in 2033 with an option for renewal. The Company also leases additional office and lab space for product development and sales and support personnel in the United States and internationally. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The components of the Company's operating lease expenses for the three and six months ended March 31, 2023 and 2022 were as follows (in thousands):
Three months ended
March 31,
Six months ended
March 31,
 2023202220232022
Operating lease expense$12,181 $11,870 $24,697 $23,784 
Short-term lease expense744 619 1,399 1,175 
Variable lease expense5,650 6,034 10,986 12,278 
Total lease expense$18,575 $18,523 $37,082 $37,237 
Variable lease expense primarily consists of common area maintenance, real estate taxes and parking expenses.
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Supplemental balance sheet information related to the Company's operating leases was as follows (in thousands, except lease term and discount rate):
March 31,
2023
September 30, 2022
Operating lease right-of-use assets, net$216,293 $227,475 
Operating lease liabilities, current1
43,215 42,523 
Operating lease liabilities, long-term259,916��272,376 
Total operating lease liabilities$303,131 $314,899 
Weighted average remaining lease term (in years)8.89.2
Weighted average discount rate2.73 %2.66 %
(1)Current portion of operating lease liabilities is included in accrued liabilities on the Company's consolidated balance sheets.
As of March 31, 2023, the future operating lease payments for each of the next five years and thereafter is as follows (in thousands):
Fiscal Years Ending September 30:Operating Lease
Payments
2023 (remainder)$25,738 
202449,002 
202541,249 
202631,530 
202730,310 
202828,444 
Thereafter138,797 
Total lease payments345,070 
Less: imputed interest(41,939)
Total lease liabilities$303,131 
Operating lease liabilities above do not include sublease income. As of March 31, 2023, the Company expects to receive sublease income of approximately $18.3 million, which consists of $3.9 million to be received for the remainder of fiscal 2023 and $14.4 million to be received over the three fiscal years thereafter. There were no impairments against right-of-use assets for the three and six months ended March 31, 2023 and 2022.
As of March 31, 2023, the Company had no significant operating leases that were executed but not yet commenced.
8. Commitments and Contingencies
Guarantees and Product Warranties
In the normal course of business to facilitate sales of its products, the Company indemnifies other parties, including customers, resellers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold the other party harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within

which an indemnification claim can be made and the amount of the claim. The Company has entered into indemnification agreements with its officers and directors and certain other employees, and the Company’sCompany's bylaws contain similar indemnification obligations to the Company’sCompany's agents. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement.
The Company generally offers warranties of one year for hardware for those customers without service contracts, with the option of purchasing additional warranty coverage in yearly increments. The Company accrues for warranty costs as part of its cost of sales based on associated material product costs and technical support labor costs. Accrued warranty costs as of DecemberMarch 31, 20172023 and September 30, 20172022 were not considered material.
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Commitments
In October 2022, the Company entered into an unconditional purchase commitment with one of its suppliers for the delivery of systems components. Under the terms of the agreement, the Company is obligated to purchase $10 million of component inventory annually, with a total committed amount of $40 million over a four-year term. As of DecemberMarch 31, 2017,2023, the Company’s principalCompany has $1.2 million of remaining purchases under the first year of its commitment. The Company's total non-cancelable long-term purchase commitments consistedoutstanding as of obligations outstanding under operating leases. March 31, 2023 was $31.2 million.
The Company leases its facilities under operating leases that expire at various dates through 2033. There have been no material changes in the Company's lease obligations compared to those discussed in Note 7 to its annual consolidated financial statements.
The Company currently has arrangements with contract manufacturers and other suppliers for the manufacturing of its products. The arrangement with the primary contract manufacturer allows them to procure component inventory on the Company’s behalf based on a rolling production forecast provided by the Company. The Company is obligated to the purchase of component inventory that the contract manufacturer procures in accordance with the forecast, unless it gives notice of order cancellation in advance of applicable lead times. There have been no material changes in the Company's inventory purchase obligations compared to those discussed in Note 7 to its annual consolidated financial statements.
Legal Proceedings
Lynwood Investment CY Limited v. F5 Networks et al.
On April 4, 2016, the Company sued Radware, Inc.June 8, 2020, Lynwood Investment CY Limited (“Lynwood”) filed a lawsuit in the United States District Court for the WesternNorthern District of Washington accusing RadwareCalifornia against the Company and certain affiliates, along with other defendants. In its complaint, Lynwood claims to be the assignee of infringing three other Company patents.all rights and interests of Rambler Internet Holding LLC (“Rambler”), and alleges that the intellectual property in the NGINX software originally released by the co-founder of NGINX in 2004 belongs to Rambler (and therefore Lynwood, by assignment) because the software was created and developed while the co-founder was employed by Rambler. Lynwood asserted 26 causes of action against the various defendants, including copyright infringement, violation of trademark law, tortious interference, conspiracy, and fraud. The Company’s complaint seeks a jury trialsought damages, disgorgement of profits, declarations of copyright and an unspecified amount of monetary damages, as well as interest, costs,trademark ownership, trademark cancellations, and injunctive relief. Radware movedLynwood also initiated several trademark opposition and cancellation proceedings before the Trademark Trial and Appeal Board of the United States Patent and Trademark Office, which have all since been suspended.
In August and October 2020, the Company and the other defendants filed motions to dismiss Lynwood’s case. On March 25 and 30, 2021, the allegations of one patent butCourt granted the motion was denied. Radware has alsoCompany’s and the other defendants’ motions to dismiss with leave to amend. Lynwood filed its amended complaint on April 29, 2021, seeking the same relief against the Company and other defendants. On May 27, 2021, the Company and other defendants filed a counterclaim separately assertingconsolidated motion to dismiss.
The Court granted the consolidated motion to dismiss without leave to amend on August 16, 2022 and entered final judgment against Lynwood on September 9, 2022. On September 14, 2022, Lynwood filed a notice of appeal to the Ninth Circuit Court of Appeals to appeal the dismissal. Lynwood filed its opening brief on December 16, 2022. The Company filed its opening appellate brief on April 10, 2023. Lynwood’s reply brief is due May 31, 2023.
Following the Court’s order granting the consolidated motion to dismiss and final judgment in the Company’s favor, on September 30, 2022, the Company filed a motion for an award of attorneys’ fees and costs incurred in defending against Lynwood’s claim of direct copyright infringement and related claims that were dismissed by the Court. The Company’s motion for attorneys’ fees was granted on December 19, 2022 and after further briefing, the Court ruled on April 11, 2023 that the Company is infringing U.S. patent no. 9,231,853, another ISP link load balancing patent relatedentitled to the patents involvedan award of $0.8 million in the California litigation. The Company has denied infringement. The parties have also filed petitions for inter partes reviews on all four patents in the litigation. On May 25, 2017, the parties stipulated to transfer in the wake of the Supreme Court’s TC Heartland decision, and the court transferred the case to the Northern District of California on June 5, 2017. All of the inter partes review petitions filed by Radware have been completely denied: Radware’s IPR2017-00654 and IPR2017-00653 as to the Company ’413 patent were denied on July 31, 2017; Radware’s IPR2017-1185 and IPR2017-1187 as to the Company ’955 patent were denied on October 11, 2017; and Radware’s IPR2017-01249 as to the Company ’278 patent was denied on October 23, 2017. The Company’s IPR2017-00124 as to the ’853 patent was instituted in part (claims 1, 2, 4-15, 17-24) and denied in part (claims 3 and 16) on April 27, 2017.  The Court has stayed litigation relating to Radware’s ‘853 counterclaims pending the outcome of the Company’s IPR but allowed discovery to proceed with respect to F5’s claims of infringement.attorneys’ fees.
In addition to the above referenced matters, the Company is subject to a variety of legal proceedings, claims, investigations, and litigation arising in the ordinary course of business, including intellectual property litigation. Management believes that the Company has meritorious defenses to the allegations made in its pending cases and intends to vigorously defend these lawsuits; however, the Company is unable to currently to determine the ultimateif an unfavorable outcome is probable or estimate any potential amount or range of possible loss of these or similar matters or the potential exposure to loss, if any.matters. There are many uncertainties associated with any litigation and these actions or other third-party claims against the Company may cause it to incur costly litigation and/or substantial settlement charges that could have a material adverse effect on the Company's business, financial condition, results of operations, and cash flows.
The Company records an accrual for loss contingencies for legal proceedings when it believes that an unfavorable outcome is both (a) probable and (b) the amount or range of any possible loss is reasonably estimable. The Company has not recorded anany accrual for loss contingencies associated with thesuch legal proceedings or the investigations discussed above.
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9. Income Taxes
The Company's tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items in the related period.
The effective tax rate was 38.7%25.1% and 32.7%24.8% for the three and six months ended DecemberMarch 31, 20172023, respectively, compared to 22.7% and 2016,18.8% for the three and six months ended March 31, 2022, respectively. The change in the effective tax rate for the three and six months ended DecemberMarch 31, 2017 includes various impacts from the Tax Cuts and Jobs Act enacted on December 22, 2017. These impacts include a reduction in the U.S. federal income tax rate from 35% to 24.5%, a $7.0 million provisional tax expense for the deemed repatriation of undistributed foreign earnings2023, as of December 31, 2017, and a $11.6 million expense from the remeasurement of the Company’s net deferred tax assets to reflect the change in the U.S.

federal income tax rate when temporary differences are expected to reverse. The U.S. federal income tax rate for fiscal year 2018 is 24.5% and reduces to 21% in fiscal year 2019.
In accordance with SEC Staff Accounting Bulletin No. 118, the Company recorded a provisional tax expense of $7.0 million relatedcompared to the deemed repatriation of undistributed foreign earnings. Itthree and six months ended March 31, 2022, is anticipatedprimarily due to the calculation will be finalized by the end of fiscal year 2018 after assessing thetax impact of additional regulatory guidance. Beginning in fiscal year 2018, the Company will record a deferred tax liability for any estimated foreign, federal or state tax liabilities associated with a future repatriation of foreign earnings.stock-based compensation.
At DecemberMarch 31, 2017,2023, the Company had $25.0$70.5 million of unrecognized tax benefitbenefits that, if recognized, would affect the effective tax rate. It is anticipated that the Company’s existing liabilities for unrecognized tax benefits will change within the next twelve months due to audit settlements or the expiration of statutes of limitations. The Company does not expect these changes to be material to the consolidated financial statements. The Company recognizes interest and, if applicable, penalties for any uncertain tax positions as a component of income tax expense.
The Company and its subsidiaries are subject to U.S. federal income tax as well as the income tax of multiple state and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters for fiscal years through September 30, 2013. The Company is currently under audit by various states for fiscal years 2013 through 2016.2018. Major jurisdictions where there are wholly owned subsidiaries of F5, Networks, Inc. which require income tax filings include the United Kingdom, Japan, Singapore, Israel, and Australia.India. The earliest periods open for review by local taxing authorities are fiscal years 20162020 for the United Kingdom, 20122018 for Japan,Singapore, 2013 for Singapore,Israel, and 20132019 for Australia. Within the next fourIndia. The Company is currently under audit by various states for fiscal quarters, the statute of limitations will beginyears 2015 through 2021, and by various foreign jurisdictions including Germany for fiscal years 2016 to close on the2019, India for fiscal year 2014 federal income tax return, andyears 2019 to 2020, Israel for fiscal years 2013 to 2017, Saudi Arabia for fiscal years 2015 to 2020, and 2014 stateSingapore for fiscal years 2019 to 2020.
10. Shareholders' Equity
Common Stock Repurchase
On July 25, 2022, the Company announced that its Board of Directors authorized an additional $1.0 billion for its common stock share repurchase program. This authorization is incremental to the existing $5.4 billion program, initially approved in October 2010 and expanded in subsequent fiscal years. Acquisitions for the share repurchase programs will be made from time to time in private transactions, accelerated share repurchase programs, or open market purchases as permitted by securities laws and other legal requirements. The programs can be terminated at any time.
The following table summarizes the Company's repurchases and retirements of its common stock under its Stock Repurchase Program (in thousands, except per share data):
 Three months ended
March 31,
Six months ended
March 31,
 2023202220232022
Shares repurchased6102631,148
Average price per share$— $204.96 $151.87 $217.71 
Amount repurchased$— $125,012 $40,005 $250,023 
As of March 31, 2023, the Company had $1,232 million remaining authorized to purchase shares under its share repurchase program.
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11. Net Income Per Share
Basic net income tax returns.per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. The Company's nonvested restricted stock units do not have nonforfeitable rights to dividends or dividend equivalents and are not considered participating securities that should be included in the computation of earnings per share under the two-class method.
The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data):
7. Geographic Sales
 Three months ended
March 31,
Six months ended
March 31,
 2023202220232022
Numerator
Net income$81,436 $56,236 $153,838 $149,795 
Denominator
Weighted average shares outstanding — basic60,330 60,573 60,211 60,693 
Dilutive effect of common shares from stock options and restricted stock units361 832 326 968 
Weighted average shares outstanding — diluted60,691 61,405 60,537 61,661 
Basic net income per share$1.35 $0.93 $2.55 $2.47 
Diluted net income per share$1.34 $0.92 $2.54 $2.43 
Anti-dilutive stock-based awards excluded from the calculations of diluted earnings per share were not material for the three and Significant Customerssix months ended March 31, 2023 and 2022.
12. Segment Information
Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Management has determined that the Company is organized as, and operates in, one reportable operating segment: the development, marketingsegment.
Revenues by Geographic Location and sale of application delivery networking products that optimize the security, performance and availability of network applications, servers and storage systems.Other Information
The Company does business in fourthree main geographic regions: the Americas (primarily the United States); Europe, the Middle East, and Africa (EMEA); Japan; and the Asia Pacific region (APAC). The Company’sCompany's chief operating decision-making groupdecision-maker reviews financial information presented on a consolidated basis accompanied by information about revenues by geographic region. The Company’sCompany's foreign offices conduct sales, marketing and support activities. Revenues are attributed by geographic location based on the location of the customer.
The following presents revenues by geographic region (in thousands):
 Three months ended
March 31,
Six months ended
March 31,
 2023202220232022
Americas:
United States$359,906 $339,231 $735,654 $720,520 
Other23,197 19,324 49,607 41,026 
Total Americas383,103 358,555 785,261 761,546 
EMEA190,439 156,374 374,554 318,435 
Asia Pacific129,633 119,295 243,738 241,343 
$703,175 $634,224 $1,403,553 $1,321,324 
20

Table of Contents
  Three months ended
December 31,
  2017 2016
Americas:    
United States $264,143
 $256,250
Other 27,368
 30,453
Total Americas 291,511
 286,703
EMEA 138,988
 129,914
Japan 21,810
 24,774
Asia Pacific 70,882
 74,567
  $523,191
 $515,958
The Company continues to offer its products through a range of consumption models, from physical systems to software solutions and managed services. The following presents net product revenues by systems and software (in thousands):

 Three months ended
March 31,
Six months ended
March 31,
 2023202220232022
Net product revenues
Systems revenue$208,689 $145,975 $381,721 $326,132 
Software revenue131,892 151,543 299,418 314,535 
Total net product revenue$340,581 $297,518 $681,139 $640,667 
The following distributors of the Company's products accounted for more than 10% of total net revenue:
 Three months ended
March 31,
Six months ended
March 31,
 2023202220232022
Ingram Micro, Inc.16.5 %20.3 %17.1 %19.5 %
Synnex Corporation14.7 %14.3 %14.2 %13.2 %
  Three months ended
December 31,
  2017 2016
Ingram Micro, Inc. 15.3% 16.0%
Tech Data 1
 12.3% 12.3%
Arrow ECS 2
 11.5% 10.1%
Synnex Corporation 10.9% 
Westcon Group, Inc. 10.1% 18.8%
     
(1)On February 27, 2017, Tech Data completed the acquisition of Avnet Technology Solutions. Revenues for the three months ended December 31, 2017 represent combined revenues for Tech Data and Avnet while revenues for the three months ended December 31, 2016 represent revenues from Avnet only.
(2)On September 1, 2017, Synnex Corporation completed the acquisition of Westcon Americas.
The Company tracks assets by physical location. Long-lived assets consist of property and equipment, net, and are shown below (in thousands):
 March 31,
2023
September 30,
2022
United States$128,440 $134,699 
EMEA23,399 17,376 
Other countries17,932 16,107 
$169,771 $168,182 
13. Restructuring Charges
In the first quarters of fiscal 2023 and 2022, the Company initiated restructuring plans to match strategic and financial objectives and optimize resources for long term growth, including a reduction in force program. In the first quarter of fiscal 2023, the Company recorded a restructuring charge of $8.7 million. The Company does not expect to record any significant future charges related to the first quarter of fiscal 2023 restructuring plan. In the first quarter of fiscal 2022, the Company recorded a restructuring charge of $7.9 million. The Company did not record any significant subsequent charges related to the first quarter of fiscal 2022 restructuring plan.
During the six months ended March 31, 2023 and 2022, the following activity was recorded (in thousands):
Six months ended
March 31,
20232022
Employee Severance, Benefits and Related Costs
Accrued expenses, beginning of period$— $— 
Restructuring charges8,740 7,909 
Cash payments(8,130)(6,644)
Accrued expenses, end of period$610 $1,265 

14. Subsequent Events
On April 19, 2023, the Company initiated a restructuring plan to better align strategic and financial objectives, optimize operations, and drive efficiencies for long-term growth and profitability, including a reduction in force affecting approximately 620 employees, or approximately 9% of the Company’s global workforce as of April 19, 2023.
The Company expects it will incur approximately $45.0 million in severance benefits costs related to restructuring and other charges related to these actions in fiscal year 2023. The Company will also reduce some of its leased facilities space,
21

Table of Contents
  December 31,
2017
 September 30,
2017
United States $99,234
 $103,486
EMEA 14,373
 15,054
Other countries 3,703
 3,880
  $117,310
 $122,420
consisting of lease termination and other facility costs. The Company is not able to estimate the cost of the reductions to leased facilities at this time.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 2.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,”"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 in Part II, Item 1A. “Risk Factors”"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
We areF5 is a globalleading provider of software-definedmulti-cloud application security and delivery services designedsolutions which enable our customers to ensure the fast,develop, deploy, operate, secure, and reliable delivery ofgovern applications and data.in any architecture, from on-premises to the public cloud. Our products include hardware-based software,enterprise-grade application services are available as cloud-based, software-as-a-service, and software-only solutions cloud-based subscription services and a common management frameworkoptimized for multi-cloud environments, with modules that enable customers to accelerate, optimize, secure and manage applications across hybrid computing infrastructures that combine traditional networks and data centers with software-defined networks, virtualized data centers and cloud-based resources.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 (primarily the United States);Americas; Europe, the Middle East, and Africa (EMEA); Japan; 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. Our revenue is derived from the sales of both global services and products. Our global services revenue includes annual maintenance contracts, training and consulting services. The majority of our product revenues are derived from sales of our application security and delivery networking (ADN) productssolutions including our BIG-IP appliancessoftware and high end VIPRION chassis and relatedsystems, F5 NGINX software, modules and our software-only Virtual Editions; Local Traffic Manager (LTM), DNS Services (formerly Global Traffic Manager); Advanced Firewall Manager (AFM) and Policy Enforcement Manager (PEM), that leverage the unique performance characteristics of our hardware andF5 Silverline offerings. Our BIG-IP software architecture; and products that incorporate acquired technology, including Application Security Manager (ASM) and Access Policy Manager (APM); signaling delivery controller products (SDC); and the WebSafe, MobileSafe, Secure Web Gateway and Silverline DDoS and Application security offerings whichsolutions are sold to customersboth on a perpetual license and a subscription basis. We sell F5 NGINX on a subscription basis. WeOur Silverline solution is a managed services offering, also derive revenuessold on a subscription basis. F5 Distributed Cloud Services provides security, multi-cloud networking, and edge-based computing solutions, encompassing software solutions from the sales of services including annual maintenance contracts, trainingwhat were previously branded as our Shape, Volterra, and consulting services. Silverline product offerings. F5 Distributed Cloud Services are offered on a subscription basis, under a unified software-as-a-service ("SaaS") platform.
We carefully monitor the sales mix of our revenues within each reporting period. We believe customer acceptance rates of our new products, and feature enhancements and consumption models are indicators of future trends. We also consider overall revenue concentration by customer and by geographic region as an additional indicatorsindicator of current and future trends.
Toward the end of fiscal 2022, and continuing through the first half of fiscal 2023, we saw changes in customer buying patterns due to the uncertain macroeconomic environment. In our second quarter of fiscal 2023, the impact of these buying patterns have led to softer demand in customer orders for both our software and systems products and services. We believe the current demand environment is temporary based on several factors, notably our products and services unique market position relative to our peers, the softer demand being a matter of customer budget constraints rather than competitive pressures or architectural shifts, and our stronger than normal maintenance renewals, which signal delays in purchases rather than decisions, which are typical indicators we have witnessed in times of macroeconomic uncertainty. We will continue to closely monitor the macroeconomic environment and its impacts on our business.
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, Silverlinesoftware-as-a-service infrastructure costs, amortization of developed technology and personnel and overhead expenses. Our margins have remained relatively stable; however,In addition, factors such as sales price, product and services mix, inventory obsolescence, returns, component price increases, and 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 and represent significant indicators we monitor on a regular basis.
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
22

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 and no long term debt.investments. The increasedecrease in cash and investments for the first threesix months of fiscal year 20182023 was primarily due to cash used for the voluntary prepayment of the Term Loan Facility, including the outstanding principal balance of $350.0 million, and all accrued, but unpaid interest outstanding of $3.0 million. In addition, $40.0 million of cash was used for the repurchase of outstanding common stock in the first quarter of fiscal 2023. The decrease was partially offset by cash provided by operating activities of $190.0 million, largely offset by $150.0 million of cash used to repurchase outstanding common stock under our stock repurchase program.$298.6 million. Going forward, we believe the primary driver of cash flows will be net income from operations. Capital expenditures of $6.5 million for the first three months of fiscal year 2018 were primarily 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. We will continue to evaluate possible acquisitions of, or investments in businesses, products, or technologies that we believe are strategic, which may 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 March 31, 2023, 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 increasedcontinued to increase in the firstsecond quarter of fiscal year 20182023 due to the growth in the amount of annual maintenance contracts purchased on new products and maintenance renewal contracts related to our existing product installation base.subscriptions business. Our days sales outstanding for the firstsecond quarter of fiscal year 20182023 was 50.
62. Days sales outstanding is calculated by dividing ending accounts receivable by revenue per day for a given quarter.
Summary of Critical Accounting Policies and Estimates
The preparation of our financial condition and results of operations requires us to make judgments and estimates that may have a significant impact upon our financial results. We believe that, of our significant accounting policies, the following require estimates and assumptions that require complex, subjective judgments by management, which can materially impact reported results: revenue recognition; reserve for doubtful accounts; reserve for product returns;recognition, accounting for income taxes; stock-based compensation; goodwillbusiness combinations and intangible assets; and investments. None of these accounting policies and estimates have significantly changed since our annual report on Form 10-K for the year ended September 30, 2017 (Form 10-K). Critical accounting policies and estimates are more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K.leases. Actual results may differ from these estimates under different assumptions or conditions.
There were no material changes to our critical accounting policies and estimates compared to the critical accounting policies and estimates described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Form 10-K for the fiscal year ended September 30, 2022. Refer to the "Recently Adopted Accounting Standards" section of Note 1 in this Quarterly Report on Form 10-Q for a summary of the new accounting policies.
Impact of Current Macroeconomic Conditions
Our overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on customer behavior. Worsening economic conditions, including inflation, higher interest rates, slower growth, fluctuations in foreign exchange rates, and developments related to the COVID-19 pandemic, and other changes in economic conditions, may adversely affect our results of operations and financial performance. For further discussion of the potential impacts of recent macroeconomic events on our business, financial condition, and operating results, see Part 1, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 and Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q.
23

Table of Contents
Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements, related notes and risk factors included elsewhere in this Quarterly Report on Form 10-Q.
 Three months ended
March 31,
Six months ended
March 31,
 2023202220232022
 (in thousands, except percentages)
Net revenues
Products$340,581 $297,518 $681,139 $640,667 
Services362,594 336,706 722,414 680,657 
Total$703,175 $634,224 $1,403,553 $1,321,324 
Percentage of net revenues
Products48.4 %46.9 %48.5 %48.5 %
Services51.6 53.1 51.5 51.5 
Total100.0 %100.0 %100.0 %100.0 %

  Three months ended
December 31,
  2017 2016
  (in thousands, except percentages)
Net Revenues    
Products $227,303
 $239,483
Services 295,888
 276,475
Total $523,191
 $515,958
Percentage of net revenues    
Products 43.4% 46.4%
Services 56.6
 53.6
Total 100.0% 100.0%
Net revenues.Revenues. Total net revenues increased 1.4%10.9% and 6.2% for the three and six months ended DecemberMarch 31, 2017,2023, respectively, from the same periodcomparable periods in the prior year. The increase in total net revenues for the three months ended March 31, 2023 was primarily due to an increase in product revenue from stronger systems sales through greater availability of product compared to supply constraints in the previous year. In addition, service revenue increased largely based on continued growth in maintenance contract renewals. Overall revenue growth for the threesix months ended DecemberMarch 31, 20172023 was primarily due to increasedincreases in both product and service revenues as a result of our increased installed base of products.revenue. International revenues represented 49.5%48.8% and 47.6% of total net revenues for the three and six months ended DecemberMarch 31, 2017,2023, respectively, compared to 50.3%46.5% and 45.5% for the same periodperiods in the prior year. We expect international sales will continue to represent a significant portion of net revenues, although we cannot provide assurance that international revenues as a percentage of net revenues will remain at current levels.year, respectively.
Net Product Revenues.Net product revenues decreased 5.1%increased 14.5% and 6.3% for the three and six months ended DecemberMarch 31, 2017,2023, respectively, from the same periodcomparable periods in the prior year. The decreaseincrease in net product revenues for the three months ended DecemberMarch 31, 20172023 was primarily due to an increase in systems revenue, partially offset by a decrease in software revenue from a decline in sales of new term-based subscriptions. The increase in net product revenues for the six months ended March 31, 2023 was due to a decrease of $11.0 millionan increase in sales of our ADN products fromsystems revenue compared to the same period in the prior year.
The following presents net product revenues by systems and software:
 Three months ended
March 31,
Six months ended
March 31,
 2023202220232022
(in thousands, except percentages)
Net product revenues
Systems revenue$208,689 $145,975 $381,721 $326,132 
Software revenue131,892 151,543 299,418 314,535 
Total net product revenue$340,581 $297,518 $681,139 $640,667 
Percentage of net product revenues
Systems revenue61.3 %49.1 %56.0 %50.9 %
Software revenue38.7 50.9 44.0 49.1 
Total net product revenue100.0 %100.0 %100.0 %100.0 %
Net Service Revenues. Net service revenues increased 7.0%7.7% and 6.1% for the three and six months ended DecemberMarch 31, 2017,2023, respectively, from the same periodcomparable periods in the prior year. The increase in net service revenues for the three and six months ended March 31, 2023 was primarily due to increases in the purchaseresult of increased purchases or renewalrenewals of maintenance contracts driven by delayed purchase decisions in new product purchases by our install base and additions to our installed base of products. In addition, we are starting to see the benefits of price increases put in place in fiscal 2022.
24

Table of Contents
The following distributors of the Company'sour products accounted for more than 10% of total net revenue:
 Three months ended
March 31,
Six months ended
March 31,
 2023202220232022
Ingram Micro, Inc.16.5 %20.3 %17.1 %19.5 %
Synnex Corporation14.7 %14.3 %14.2 %13.2 %
  Three months ended
December 31,
  2017 2016
Ingram Micro, Inc. 15.3% 16.0%
Tech Data 1
 12.3% 12.3%
Arrow ECS 2
 11.5% 10.1%
Synnex Corporation 10.9% 
Westcon Group, Inc. 10.1% 18.8%
     
(1)On February 27, 2017, Tech Data completed the acquisition of Avnet Technology Solutions. Revenues for the three months ended December 31, 2017 represent combined revenues for Tech Data and Avnet while revenues for the three months ended December 31, 2016 represent revenues from Avnet only.
(2)On September 1, 2017, Synnex Corporation completed the acquisition of Westcon Americas.
The following distributors of the Company'sour products accounted for more than 10% of total receivables:
March 31,
2023
September 30, 2022
Ingram Micro, Inc.— 12.9 %
Synnex Corporation13.9 %12.6 %
Carahsoft Technology— 16.2 %
  December 31,
2017
 December 31,
2016
Ingram Micro, Inc. 12.9% 12.6%
Westcon Group, Inc. 12.0% 18.3%
Arrow ECS 11.6% 11.4%
Synnex Corporation1
 10.3% 
(1)On September 1, 2017, Synnex Corporation completed the acquisition of Westcon Americas.
No other distributors accounted for more than 10% of total net revenue or receivables.

 Three months ended
March 31,
Six months ended
March 31,
 2023202220232022
 (in thousands, except percentages)
Cost of net revenues and gross profit
Products$99,795 $71,234 $198,650 $152,896 
Services55,859 55,125 112,011 108,536 
Total155,654 126,359 310,661 261,432 
Gross profit$547,521 $507,865 $1,092,892 $1,059,892 
Percentage of net revenues and gross margin (as a percentage of related net revenue)
Products29.3 %23.9 %29.2 %23.9 %
Services15.4 16.4 15.5 15.9 
Total22.1 19.9 22.1 19.8 
Gross margin77.9 %80.1 %77.9 %80.2 %
  Three months ended
December 31,
  2017 2016
  (in thousands, except percentages)
Cost of net revenues and Gross Margin    
Products $43,265
 $41,676
Services 44,122
 43,586
Total 87,387
 85,262
Gross profit $435,804
 $430,696
Percentage of net revenues and Gross Margin (as a percentage of related net revenue)
Products 19.0% 17.4%
Services 14.9
 15.8
Total 16.7
 16.5
Gross profit 83.3% 83.5%
Cost of net product revenuesNet Product Revenues. Cost of net product revenues consistconsists 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 3.8%$28.6 million, or 40.1% for the three months ended DecemberMarch 31, 2017, as compared to2023 and increased $45.8 million, or 29.9% for the same periodsix months ended March 31, 2023 from the comparable periods in the prior year. The increase in cost of net product revenues iswas primarily due to an increasesystems product revenue growth for the three and six months ended March 31, 2023 from the comparable periods in payments to our contract manufacturersthe prior year. In addition, cost of product revenues increased due to global memory shortages,component cost increases, expedite fees, and additional investmentsother sourcing-related costs in our subscription-based software services.the first half of fiscal 2023, from the comparable period in the prior year.
Cost of net service revenuesNet Service Revenues. Cost of net service revenues consistconsists of the salaries and related benefits of our professional services staff, travel, facilities and depreciation expenses. For the three and six months ended DecemberMarch 31, 2017,2023, cost of net service revenues as a percentage of net service revenues was 14.9%15.4% and 15.5%, respectively, compared to 15.8%16.4% and 15.9% for the same periodcomparable periods in the prior year. The decrease in cost of net service revenues as a percentage of net service revenues is primarily due to the scalability of our existing customer support infrastructure and increased revenue from maintenance contracts.year, respectively. Professional services headcount at the end of December 2017 decreasedMarch 2023 increased to 8961,072 from 9051,059 at the end of December 2016. In addition, costMarch 2022.
25

Table of net service revenues included stock-based compensation expense of $4.8 million for the three months ended December 31, 2017, compared to $4.7 million for the same period in the prior year.
 Three months ended
December 31,
Three months ended
March 31,
Six months ended
March 31,
 2017 2016 2023202220232022
 (in thousands, except percentages) (in thousands, except percentages)
Operating expenses    Operating expenses
Sales and marketing $167,934
 $164,514
Sales and marketing$233,076 $228,826 $466,181 $462,861 
Research and development 85,889
 87,050
Research and development141,363 135,838 283,686 266,109 
General and administrative 39,984
 41,678
General and administrative67,036 68,554 137,027 134,215 
Restructuring chargesRestructuring charges— — 8,740 7,909 
Total $293,807
 $293,242
Total$441,475 $433,218 $895,634 $871,094 
Operating expenses (as a percentage of net revenue)    Operating expenses (as a percentage of net revenue)
Sales and marketing 32.1% 31.9%Sales and marketing33.2 %36.1 %33.2 %35.0 %
Research and development 16.4
 16.8
Research and development20.1 21.4 20.2 20.1 
General and administrative 7.6
 8.1
General and administrative9.5 10.8 9.8 10.2 
Restructuring chargesRestructuring charges— — 0.6 0.6 
Total 56.1% 56.8%Total62.8 %68.3 %63.8 %65.9 %
Sales and marketing.Marketing. Sales and marketing expenses consist of 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 expenses increased 2.1%$4.3 million, or 1.9% for the three months ended DecemberMarch 31, 2017,2023 and increased $3.3 million, or 0.7% for the six months ended March 31, 2023 from the comparable periods in the prior year. The increase in sales and marketing expense for the three months ended March 31, 2023 was primarily due to an increase of $6.7 million in commissions from the comparable period in the prior year. The increase in sales and marketing expense for the six months ended March 31, 2023 was primarily due to an increase of $2.7$8.0 million in employee travel and customer outreach as well as an increase in commissions and personnel costs for the three months ended December 31, 2017,of $6.6 million from the comparable period in the prior year. The increase in sales and marketing expense for the six months ended March 31, 2023 was partially offset by a decrease in marketing spend of $4.0 million as part of cost reductions implemented by management. In addition, sales and marketing expenses for the first quarter of fiscal 2022 included an impairment charge of $6.2 million related to the write-off of the Shape trade name intangible asset which offset the year-over-year increase. Sales and marketing headcount at the end of December 2017 decreasedMarch 2023 increased to 1,7382,480 from 1,7642,437 at the end of December 2016 due to a reduction in workforce that took place in the fourth quarter of fiscal year 2017.March 2022. Sales and marketing expenseexpenses included stock-based compensation expense of $15.5$26.9 million and $52.6 million for the three and six months ended DecemberMarch 31, 2017,2023, respectively, compared to $17.0$27.6 million and $54.4 million for the same periodperiods in the prior year.year, respectively.

Research and developmentDevelopment. 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 expenses decreased 1.3%increased $5.5 million, or 4.1% for the three months ended DecemberMarch 31, 2017,2023 and increased $17.6 million, or 6.6% for the six months ended March 31, 2023 from the comparable periods in the prior year. The increase in research and development expense for the three months ended March 31, 2023 was primarily due to an increase of $5.3 million in personnel costs from the comparable period in the prior year. The decreaseincrease in research and development expense for the six months ended March 31, 2023 was primarily duerelated to a decreasean increase of $1.5$17.1 million in stock-based compensation expense for the three months ended December 31, 2017,personnel costs from the comparable period in the prior year. Research and development headcount at the end of December 2017 decreasedMarch 2023 increased to 1,1752,212 from 1,2292,019 at the end of December 2016.March 2022. Research and development expenseexpenses included stock-based compensation expense of $12.4$18.7 million and $37.2 million for the three and six months ended DecemberMarch 31, 2017,2023, respectively, compared to $13.9$18.2 million and $36.8 million for the same periodperiods in the prior year. We expect research and development expenses to remain consistent as a percentage of net revenue in the foreseeable future.year, respectively.
General and administrativeAdministrative. 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 expenses decreased 4.1%$1.5 million, or 2.2% for the three months ended DecemberMarch 31, 2017,2023 and increased $2.8 million, or 2.1% for the six months ended March 31, 2023 from the comparable period in the prior year. The decrease in general and administrative expense was primarily due to a decrease of $2.8 million in stock-based compensation expense, partially offset by an increase of $1.2 million in personnel costs for the three months ended December 31, 2017, from the comparable periodperiods in the prior year. General and administrative headcount at the end of December 2017March 2023 increased to 467972 from 464905 at the end of December 2016. Stock-basedMarch 2022. General and administrative expenses included stock-based compensation expense was $7.6of $10.9 million and $21.9 million for the three and six months ended DecemberMarch 31, 2017,2023, respectively, compared to $10.4$10.9 million and $21.8 million for the same periodperiods in the prior year.year, respectively.

Restructuring Charges. In the first fiscal quarters of 2023 and 2022, we completed restructuring plans to align strategic and financial objectives and optimize resources for long term growth. As a result of these initiatives, we recorded restructuring
26

Table of Contents
  Three months ended
December 31,
  2017 2016
  (in thousands, except percentages)
Other income and income taxes    
Income from operations $141,997
 $137,454
Other income, net 2,145
 2,643
Income before income taxes 144,142
 140,097
Provision for income taxes 55,713
 45,879
Net income $88,429
 $94,218
Other income and income taxes (as percentage of net revenue)
Income from operations 27.1% 26.7%
Other income, net 0.4
 0.5
Income before income taxes 27.5
 27.2
Provision for income taxes 10.6
 8.9
Net income 16.9% 18.3%
charges of $8.7 million and $7.9 million related to a reduction in workforce that is reflected in our results for the six months ended March 31, 2023 and 2022, respectively.
 Three months ended
March 31,
Six months ended
March 31,
 2023202220232022
 (in thousands, except percentages)
Other income and income taxes
Income from operations$106,046 $74,647 $197,258 $188,798 
Other income (expense), net2,737 (1,934)7,439 (4,365)
Income before income taxes108,783 72,713 204,697 184,433 
Provision for income taxes27,347 16,477 50,859 34,638 
Net income$81,436 $56,236 $153,838 $149,795 
Other income and income taxes (as percentage of net revenue)
Income from operations15.1 %11.8 %14.1 %14.3 %
Other expense, net0.4 (0.3)0.5 (0.3)
Income before income taxes15.5 11.5 14.6 14.0 
Provision for income taxes3.9 2.6 3.6 2.7 
Net income11.6 %8.9 %11.0 %11.3 %
Other Income (Expense), Net.Other income net. Other income,(expense), net consists primarily of interest income and expense and foreign currency transaction gains and losses. OtherThe increase in other income (expense), net for the three months ended DecemberMarch 31, 2017 remained relatively consistent2023 was primarily due to an increase in interest income of $2.7 million from our investments and a decrease in interest expense of $1.3 million compared to the same period in the prior year. The increase in other income (expense), net for the six months ended March 31, 2023 was primarily due to an increase in foreign currency gains of $6.6 million and an increase in interest income of $5.7 million from our investments compared to the same period in the prior year.
Provision for income taxesIncome Taxes. The effective tax rate was 38.7%25.1% and 32.7%24.8% for the three and six months ended DecemberMarch 31, 20172023, respectively, compared to 22.7% and 2016,18.8% for the three and six months ended March 31, 2022, respectively. The increasechange in the effective tax rate for the three and six months ended DecemberMarch 31, 20172023, as compared to the three and six months ended March 31, 2022, is primarily due to the tax impact of the Tax Cuts and Jobs Act enacted on December 22, 2017. Significant impacts include a tax on the deemed repatriation of undistributed foreign earnings as of December 31, 2017 and a remeasurement of the Company’s net deferred tax assets, partially offset with a reduction in the U.S. federal income tax rate from 35.0% to 24.5%. Several provisions of the Tax Cuts and Jobs Act are not effective for the Company until fiscal year 2019, including a further reduction in the U.S. federal income tax rate to 21%, a deduction for foreign derived intangible income, and repeal of the deduction for income attributable to domestic production activities.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. Our net deferred tax assets at DecemberMarch 31, 20172023 and September 30, 20172022 were $39.7$231.7 million and $53.2$180.6 million, respectively. The net deferred tax assets include valuation

allowances of $19.0$46.7 million and $18.2$46.1 million as of DecemberMarch 31, 20172023 and September 30, 2017,2022, respectively, which are primarily related to taxcertain state and foreign net operating losses incurred in certain foreign jurisdictions, and state tax credit carryforwards.
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, the impact of stock-based compensation, 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.
Liquidity and Capital Resources
Cash and cash equivalents, short-term investments and long-term investments totaled $1,352.8$760.0 million as of DecemberMarch 31, 2017,2023, compared to $1,301.7$894.1 million as of September 30, 2017,2022, representing an increasea decrease of $51.0$134.1 million. The increasedecrease was primarily due to cash provided by operating activities of $190.0 millionused for the three months ended December 31, 2017, which was largely offset by $150.0voluntary prepayment of the Term Loan Facility, including the outstanding principal balance of $350.0 million, and all accrued, but unpaid interest outstanding of $3.0 million. In addition, $40.0 million of cash was used for the repurchase of outstanding common stock under our stock repurchase program. in the first quarter of fiscal 2023. The decrease was partially offset by cash provided by operating activities of $298.6 million for the six months ended March 31, 2023.
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Cash provided by operating activities for the first threesix months of fiscal year 20182023 resulted from net income of $88.4$153.8 million combined with changes in operating assets and liabilities, as adjusted for various non-cash items including stock-based compensation, deferred revenue, depreciation, impairment and amortization charges. BasedCash provided by operating activities for the first six months of fiscal year 2023 increased from the comparable period in the prior year primarily due to an increase in cash received from customers, which partially offset strong billings and an increase in the balance of accounts receivable.
Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the effects of the risks detailed in Part I, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 and Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q. However, we anticipate our current operating and capital expenditure forecasts, we believe that our existing cash, cash equivalents and investment balances, together withanticipated cash flows generated from operations, shouldand available borrowing capacity on the Revolver Credit Facility will be sufficient to meet our operating requirements for at least the next twelve months.liquidity needs.
Cash used inprovided by investing activities was $121.1$52.4 million for the threesix months ended DecemberMarch 31, 2017,2023, compared to cash used inprovided by investing activities of $0.1$37.9 million for the same period in the prior year. Investing activities include purchases, sales and maturities of available-for-sale securities, business acquisitions and capital expenditures and changes in restricted cash requirements.expenditures. The amount of cash used inprovided by investing activities for the threesix months ended DecemberMarch 31, 20172023 was primarily the result of the purchase$95.8 million in maturities of investments and $16.1 million in sales of investments, partially offset by $35.0 million in cash paid for acquisitions and $23.8 million in capital expenditures related to maintaining our operations worldwide, partially offset by the sale and maturity of investments.worldwide.
Cash used in financing activities was $130.1$377.4 million for the threesix months ended DecemberMarch 31, 2017,2023, compared to cash used in financing activities of $128.2$248.2 million for the same period in the prior year. Our financing activities for the threesix months ended DecemberMarch 31, 20172023 primarily consisted primarilyof $350.0 million of cash requiredused for the voluntary prepayment of the Term Loan Facility, as well as $40.0 million of cash used to repurchase shares. In addition, $9.8 million in cash was used for taxes related to net share settlement of outstanding common stock under our stock repurchase program of $150.0 million,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 $19.9$22.5 million.
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 March 31, 2023, there were no outstanding borrowings under the Revolving Credit Facility, and we had available borrowing capacity of $350.0 million.
Obligations and Commitments
As of DecemberMarch 31, 2017,2023, our principal commitments consisted of obligations outstanding under operating leases. leases and purchase obligations with one of our component suppliers.
We lease our facilities under operating leases that expire at various dates through 2033. There have been no material changes in our principal lease commitments compared to those discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2022.
We outsource the manufacturingIn October 2022, we entered into an unconditional purchase commitment with one of our pre-configured hardware platforms to contract manufacturers who assemble each product to our specifications. Oursuppliers for the delivery of systems components. Under the terms of the agreement, with our largest contract manufacturer allows them to procure component inventory on our behalf based upon a rolling production forecast. Wewe are contractually obligated to purchase the$10 million of component inventory annually, with a total committed amount of $40 million over a four-year term. As of March 31, 2023, we have $1.2 million of remaining purchases under the first year of our commitment. Our total non-cancelable long-term purchase commitments outstanding as of March 31, 2023 was $31.2 million.
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, unless we give notice of order cancellation in advance of applicable lead times. There have been no material changes inwill, from time-to-time prepay our primary contract manufacturer for inventory purchase obligations compared to those discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.purchases.
Recent Accounting Pronouncements
The anticipated impact of recent accounting pronouncements is discussed in Note 1 to the accompanying Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. We maintain an investment portfolio of various holdings, types, and maturities. Our primary objective for holding fixed income securities is to achieve an appropriate investment return consistent with preserving principal and managing risk. At any time, a sharp rise in market interest rates could have a material adverse impact on the fair value of our fixed income investment portfolio. Conversely, declines in interest rates, including the impact from lower credit spreads, could have a material adverse impact on interest income for our investment portfolio. Our fixed income investments are held for purposes other than trading. Our fixed income investments were not leveraged as of DecemberMarch 31, 2017.2023. We monitor our interest rate and credit risks, including our credit exposures to specific rating categories and to individual issuers. As of DecemberMarch 31, 2017, 27.5%2023, 3% of our fixed income securities balance consisted of U.S. government and U.S. government agency securities. We believe the overall credit quality of our portfolio is strong.
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.
Management believes there have been no material changes to our quantitative and qualitative disclosures about market risk during the threesix month period ended DecemberMarch 31, 2017,2023, compared to those discussed in our Annual Report on Form 10-K for the year ended September 30, 2017.2022.
Item 4.Controls and Procedures
OurItem 4.Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”"Exchange Act")) which are designed to ensure that required information is properly recorded, processed, summarized and reported within the required timeframe, as specified in the rules set forth by the SEC.Securities Exchange Commission. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed is accumulated and communicated to management, including ourthe Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of DecemberMarch 31, 2017. Based upon that2023 and, based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of DecemberMarch 31, 2017.2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during the period covered by this quarterly reportquarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1.Legal Proceedings
Item 1.Legal Proceedings
See Note 58 - Commitments and Contingencies of the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q) for information regarding legal proceedings in which we are involved.
Item 1A.Risk Factors
Item 1A.Risk Factors
The following information updates, and should be read in conjunction with, the information discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2022. The risks discussed below and in our Annual Report on Form 10-K could materially affect our business, financial condition and future results. These are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be insignificant also may materially and adversely affect our business, financial condition or operating results in the future.
Our success depends onContinued macroeconomic downturns or uncertainties may harm our key personnelindustry, business, and results of operations.
We operate globally and as a result, our business, revenues, and profitability may be impacted global macroeconomic conditions. The continuing adverse global macroeconomic conditions and related market uncertainties have, among other things, softened customer demand and customer purchase decisions, which may in turn, limit our ability to hire, retainforecast future business activities involving our products and motivate qualified executives, salesservices. Prolonged adverse macroeconomic conditions both in the U.S. and marketing, operations, product developmentabroad, including, but not limited to, rising interest rates to combat inflationary pressures of goods and professional services, personnel
Our success depends,challenges in large part, on our ability to attract, engage, retain,the financial and integrate qualified executivescredit markets, labor shortages, supply chain disruptions, trade uncertainty, adverse changes in global taxation and tariffs, sanctions, outbreaks of pandemic diseases such as COVID-19, political unrest and social strife, armed conflicts, such as the Russian invasion of Ukraine, or 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 obtainimpacts from 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 couldmacroeconomic environment have a significant impact on our operations. François Locoh-Donou became the Company's CEO effective April 3, 2017. Transitioningled to a new chief executive

could be disruptive to our business andslowing of global economic growth. Continued worsening of macroeconomic conditions could adversely affect our business, andfinancial condition, results of operations. In addition, on December 12, 2017, we announced that Andy Reinland, our Chief Financial Officer notified the Company of his intention to retire during the third quarter of fiscal 2018operations and we will be initiating a search for his replacement. Further 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 complexitycash flows through, among others, softer demand of our application delivery networking products and their integration into existing networks and ongoing support,services 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 stockunfavorable increases to our employees, since these employees are generally granted restricted stock units. The loss of services of any ofoperating costs, which could negatively impact 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.profitability.
We may have exposure to greater than anticipated tax liabilities
Our provision for income taxes is subject to volatility and could be adversely affected by nondeductible 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. The U.S., the European Union and its member states, and a number of other countries are actively pursuing changes in this regard. In addition, like other companies, 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.
The “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017 state that, “we do not provide for U.S. income taxes on certain foreign subsidiaries in which we intend to indefinitely reinvest such earnings outside the U.S. If our intent changes or if these funds are needed for U.S. operations, we would be required to accrue or pay U.S. taxes on some or all of these undistributed earnings and our effective tax rate would be adversely affected. Additionally, any changes in U.S. tax laws that would limit the ability to defer taxation on earnings outside of the U.S. could affect the tax treatment of our foreign earnings.”
The Tax Cuts and Jobs Act enacted on December 22, 2017 imposes a tax on the deemed repatriation of undistributed foreign earnings as of December 31, 2017. Effective January 1, 2018, the new U.S. tax law provides a deduction for the foreign-source portion of dividends received from specified foreign corporations. We have recorded a tax expense for the deemed repatriation of foreign earnings as of December 31, 2017, and will record any estimated deferred tax liabilities associated with a future repatriation of earnings to the United States.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
On OctoberJuly 25, 2017,2022, the Company announced that its Board of Directors authorized an additional $1.0 billion for its common stock share repurchase program. This new authorization is incremental to the existing $3.4$5.4 billion program, initially approved in October 2010 and expanded in eachsubsequent fiscal year.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. During the first quarterAs of fiscal 2018, the Company repurchased and retired 1,242,610 shares at an average price of $120.73 per share andMarch 31, 2023, the Company had $1.0$1.2 billion remaining authorized to purchase shares at December 31, 2017.
Shares repurchased and retired as of December 31, 2017 are as follows (in thousands, except shares and perunder its share data):repurchase program.
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Total Number
of Shares
Purchased
 
Average Price
Paid per Share
 
Total Number of
Shares
Purchased
per the Publicly
Announced Plan
 
Approximate Dollar
Value of Shares
that May Yet be
Purchased
Under the Plan
October 1, 2017 — October 31, 2017 100,000
 $121.38
 100,000
 $1,161,514
November 1, 2017 — November 30, 2017 1,142,610
 $120.68
 1,142,610
 $1,023,627
December 1, 2017 — December 31, 2017 
 $
 
 $1,023,627

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Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
None.

Item 6.Exhibits
Item 6.Exhibit
Number
Exhibits
Exhibit Description
Exhibit
Number
10.1
Exhibit Description
31.1*10.2
10.3
10.4
10.5
31.1*
31.2*
32.1*
101.INS*XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*Cover Page Interactive Data File (embedded within the Inline XBRL document)
 
*     Filed herewith.
§Indicates a management contract or compensatory plan or arrangement.
(1)Incorporated by reference to Exhibit 10.1 on Current Report on Form 8-K filed with the SEC on March 10, 2023.
(2)Incorporated by reference to Exhibit 10.2 on Current Report on Form 8-K filed with the SEC on March 10, 2023.
(3)Incorporated by reference to Exhibit 10.1 on Current Report on Form 8-K filed with the SEC on January 9, 2023.
(4)Incorporated by reference to Exhibit 99.1 on Form S-8 filed with the SEC on February 2, 2023.
(5)Incorporated by reference to Exhibit 99.2 on Form S-8 filed with the SEC on February 2, 2023.
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*Filed herewith.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 2nd5th day of February, 2018.May, 2023.
 
F5, INC.
F5 NETWORKS, INC.By:/s/ FRANCIS J. PELZER
Francis J. Pelzer
By:/s/ ANDY REINLAND
Andy Reinland
Executive Vice President,
Chief Financial Officer
(principal financial officer and principal accounting officer)



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