UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2022~~March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-26041

F5, INC.

(Exact name of registrant as specified in its charter)


Washington						91-1714307
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

801 5th Avenue

Seattle, Washington 98104

(Address of principal executive offices and zip code)

(206) 272-5555

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, no par value	FFIV	NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer

☑

Accelerated Filer

☐

Non-accelerated Filer

☐ (Do not check if a smaller reporting company)

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of shares outstanding of the registrant’s common stock as of ~~July 29, 2022~~April 28, 2023 was ~~59,562,193.~~60,468,009.

Table of Contents

F5, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended ~~June 30, 2022~~March 31, 2023

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

F5, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)


		June 30, 2022		September 30, 2021			March 31, 2023		September 30, 2022
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	541,883	$	580,977	Cash and cash equivalents	$	734,544	$	758,012
Short-term investments	Short-term investments	196,458		329,630		Short-term investments	20,710		126,554
Accounts receivable, net of allowances of $5,879 and $3,696		455,762		340,536
Accounts receivable, net of allowances of $5,181 and $6,020						Accounts receivable, net of allowances of $5,181 and $6,020	485,622		469,979
Inventories	Inventories	43,787		22,055		Inventories	50,745		68,365
Other current assets	Other current assets	451,035		337,902		Other current assets	533,554		489,314
Total current assets	Total current assets	1,688,925		1,611,100		Total current assets	1,825,175		1,912,224
Property and equipment, net	Property and equipment, net	172,060		191,164		Property and equipment, net	169,771		168,182
Operating lease right-of-use assets	Operating lease right-of-use assets	217,313		244,934		Operating lease right-of-use assets	216,293		227,475
Long-term investments	Long-term investments	19,112		132,778		Long-term investments	4,736		9,544
Deferred tax assets	Deferred tax assets	171,533		128,193		Deferred tax assets	235,109		183,365
Goodwill	Goodwill	2,259,951		2,216,553		Goodwill	2,288,635		2,259,282
Other assets, net	Other assets, net	492,395		472,558		Other assets, net	483,532		516,122
Total assets	Total assets	$	5,021,289	$	4,997,280	Total assets	$	5,223,251	$	5,276,194
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	73,420	$	62,096	Accounts payable	$	69,952	$	113,178
Accrued liabilities	Accrued liabilities	291,605		341,487		Accrued liabilities	295,533		309,819
Deferred revenue	Deferred revenue	1,049,084		968,669		Deferred revenue	1,160,118		1,067,182
Current portion of long-term debt	Current portion of long-term debt	354,591		19,275		Current portion of long-term debt	—		349,772
Total current liabilities	Total current liabilities	1,768,700		1,391,527		Total current liabilities	1,525,603		1,839,951
Deferred tax liabilities	Deferred tax liabilities	2,794		2,414		Deferred tax liabilities	3,401		2,781
Deferred revenue, long-term	Deferred revenue, long-term	588,221		521,173		Deferred revenue, long-term	636,194		624,398
Operating lease liabilities, long-term	Operating lease liabilities, long-term	265,043		296,945		Operating lease liabilities, long-term	259,916		272,376
Long-term debt		—		349,772
Other long-term liabilities	Other long-term liabilities	73,546		75,236		Other long-term liabilities	72,578		67,710
Total long-term liabilities	Total long-term liabilities	929,604		1,245,540		Total long-term liabilities	972,089		967,265
Commitments and contingencies (Note 8)	Commitments and contingencies (Note 8)	0		0		Commitments and contingencies (Note 8)
Shareholders' equity	Shareholders' equity					Shareholders' 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	—		—		Preferred stock, no par value; 10,000 shares authorized, no shares outstanding	—		—
Common stock, no par value; 200,000 shares authorized, 59,556 and 60,652 shares issued and outstanding		32,851		192,458
Common stock, no par value; 200,000 shares authorized, 60,465 and 59,860 shares issued and outstanding						Common stock, no par value; 200,000 shares authorized, 60,465 and 59,860 shares issued and outstanding	190,592		91,048
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(24,626)		(20,073)		Accumulated other comprehensive loss	(22,977)		(26,176)
Retained earnings	Retained earnings	2,314,760		2,187,828		Retained earnings	2,557,944		2,404,106
Total shareholders' equity	Total shareholders' equity	2,322,985		2,360,213		Total shareholders' equity	2,725,559		2,468,978
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	5,021,289	$	4,997,280	Total liabilities and shareholders' equity	$	5,223,251	$	5,276,194

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

Table of Contents

F5, INC.

CONSOLIDATED INCOME STATEMENTS

(unaudited, in thousands, except per share data)


		Three months ended June 30,				Nine months ended June 30,					Three months ended March 31,				Six months ended March 31,
		2022		2021		2022		2021			2023		2022		2023		2022
Net revenues	Net revenues									Net revenues
Products	Products	$	326,482	$	309,929	$	967,149	$	907,163	Products	$	340,581	$	297,518	$	681,139	$	640,667
Services	Services	348,006		341,586		1,028,663		1,014,256		Services	362,594		336,706		722,414		680,657
Total	Total	674,488		651,515		1,995,812		1,921,419		Total	703,175		634,224		1,403,553		1,321,324
Cost of net revenues	Cost of net revenues									Cost of net revenues
Products	Products	73,558		68,974		226,454		209,301		Products	99,795		71,234		198,650		152,896
Services	Services	57,175		51,930		165,711		155,167		Services	55,859		55,125		112,011		108,536
Total	Total	130,733		120,904		392,165		364,468		Total	155,654		126,359		310,661		261,432
Gross profit	Gross profit	543,755		530,611		1,603,647		1,556,951		Gross profit	547,521		507,865		1,092,892		1,059,892
Operating expenses	Operating expenses									Operating expenses
Sales and marketing	Sales and marketing	226,731		237,375		689,592		696,829		Sales and marketing	233,076		228,826		466,181		462,861
Research and development	Research and development	138,737		133,283		404,846		387,927		Research and development	141,363		135,838		283,686		266,109
General and administrative	General and administrative	70,823		63,541		205,038		204,534		General and administrative	67,036		68,554		137,027		134,215
Restructuring charges	Restructuring charges	—		—		7,909		—		Restructuring charges	—		—		8,740		7,909
Total	Total	436,291		434,199		1,307,385		1,289,290		Total	441,475		433,218		895,634		871,094
Income from operations	Income from operations	107,464		96,412		296,262		267,661		Income from operations	106,046		74,647		197,258		188,798
Other expense, net		(6,221)		(2,163)		(10,586)		(4,223)
Other income (expense), net										Other income (expense), net	2,737		(1,934)		7,439		(4,365)
Income before income taxes	Income before income taxes	101,243		94,249		285,676		263,438		Income before income taxes	108,783		72,713		204,697		184,433
Provision for income taxes	Provision for income taxes	18,224		4,645		52,862		42,915		Provision for income taxes	27,347		16,477		50,859		34,638
Net income	Net income	$	83,019	$	89,604	$	232,814	$	220,523	Net income	$	81,436	$	56,236	$	153,838	$	149,795
Net income per share — basic	Net income per share — basic	$	1.38	$	1.49	$	3.85	$	3.63	Net income per share — basic	$	1.35	$	0.93	$	2.55	$	2.47
Weighted average shares — basic	Weighted average shares — basic	59,965		60,186		60,450		60,768		Weighted average shares — basic	60,330		60,573		60,211		60,693
Net income per share — diluted	Net income per share — diluted	$	1.37	$	1.46	$	3.80	$	3.55	Net income per share — diluted	$	1.34	$	0.92	$	2.54	$	2.43
Weighted average shares — diluted	Weighted average shares — diluted	60,460		61,351		61,345		62,064		Weighted average shares — diluted	60,691		61,405		60,537		61,661

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

Table of Contents

F5, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)

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


	Three months ended March 31,				Six months ended March 31,
	2023		2022		2023		2022
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, respectively	1,060		(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 tax	508		(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.

Table of Contents

F5, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited, in thousands)


		Common Stock			Accumulated Other Comprehensive Loss		Retained Earnings		Total Shareholders’ Equity			Common Stock			Accumulated Other Comprehensive Loss		Retained Earnings		Total Shareholders’ Equity
		Shares	Amount									Shares	Amount
		Three months ended June 30, 2021										Three months ended March 31, 2022
Balances, March 31, 2021		60,052	$	39,507	$	(19,194)	$	1,987,506	$	2,007,819
Balances, December 31, 2021											Balances, December 31, 2021	60,711	$	145,189	$	(21,215)	$	2,281,387	$	2,405,361
Exercise of employee stock options	Exercise of employee stock options	47	1,201		—		—		1,201		Exercise of employee stock options	46	1,048		—		—		1,048
Issuance of stock under employee stock purchase plan		312	34,810		—		—		34,810

Issuance of restricted stock	Issuance of restricted stock	353	—		—		—		—		Issuance of restricted stock	334	—		—		—		—
Repurchase of common stock	Repurchase of common stock	(449)	(100,000)		—		—		(100,000)		Repurchase of common stock	(610)	(125,012)		—		—		(125,012)
Purchase of forward contract under accelerated share repurchase program ("ASR")		—	100,000		—		—		100,000
Taxes paid related to net share settlement of equity awards											Taxes paid related to net share settlement of equity awards	(16)	(3,222)		—		—		(3,222)
Stock-based compensation											Stock-based compensation	—	64,130		—		—		64,130
Net income											Net income	—	—		—		56,236		56,236
Other comprehensive loss											Other comprehensive loss	—	—		(1,413)		—		(1,413)
Balances, March 31, 2022											Balances, March 31, 2022	60,465	$	82,133	$	(22,628)	$	2,337,623	$	2,397,128

												Three months ended March 31, 2023
Balances, December 31, 2022											Balances, December 31, 2022	60,117	$	129,060	$	(23,219)	$	2,476,508	$	2,582,349
Exercise of employee stock options											Exercise of employee stock options	12	281		—		—		281

Issuance of restricted stock											Issuance of restricted stock	355	—		—		—		—

Taxes paid related to net share settlement of equity awards	Taxes paid related to net share settlement of equity awards	(16)	(2,992)		—		—		(2,992)		Taxes paid related to net share settlement of equity awards	(19)	(2,788)		—		—		(2,788)
Stock-based compensation	Stock-based compensation	—	61,468		—		—		61,468		Stock-based compensation	—	64,039		—		—		64,039
Net income	Net income	—	—		—		89,604		89,604		Net income	—	—		—		81,436		81,436
Other comprehensive income	Other comprehensive income	—	—		259		—		259		Other comprehensive income	—	—		242		—		242
Balances, June 30, 2021		60,299	$	133,994	$	(18,935)	$	2,077,110	$	2,192,169

		Three months ended June 30, 2022
Balances, March 31, 2022		60,465	$	82,133	$	(22,628)	$	2,337,623	$	2,397,128
Exercise of employee stock options		19	450		—		—		450
Issuance of stock under employee stock purchase plan		243	34,602		—		—		34,602
Issuance of restricted stock		305	—		—		—		—
Repurchase of common stock		(1,463)	(144,118)		—		(105,882)		(250,000)

Taxes paid related to net share settlement of equity awards		(13)	(2,091)		—		—		(2,091)
Stock-based compensation		—	61,875		—		—		61,875
Net income		—	—		—		83,019		83,019
Other comprehensive loss		—	—		(1,998)		—		(1,998)
Balances, June 30, 2022		59,556	$	32,851	$	(24,626)	$	2,314,760	$	2,322,985
Balances, March 31, 2023											Balances, March 31, 2023	60,465	$	190,592	$	(22,977)	$	2,557,944	$	2,725,559

Table of Contents



		Nine months ended June 30, 2021
Balances, September 30, 2020		61,099	$	305,453	$	(18,716)	$	1,945,531	$	2,232,268
Exercise of employee stock options		130	3,810		—		—		3,810
Issuance of stock under employee stock purchase plan		543	60,888		—		—		60,888
Issuance of restricted stock		1,095	—		—		—		—
Repurchase of common stock		(2,501)	(411,056)		—		(88,944)		(500,000)

Taxes paid related to net share settlement of equity awards		(67)	(10,920)		—		—		(10,920)
Stock-based compensation		—	185,819		—		—		185,819
Net income		—	—		—		220,523		220,523
Other comprehensive loss		—	—		(219)		—		(219)
Balances, June 30, 2021		60,299	$	133,994	$	(18,935)	$	2,077,110	$	2,192,169

		Nine months ended June 30, 2022										Six months ended March 31, 2022
Balances, September 30, 2021	Balances, September 30, 2021	60,652	$	192,458	$	(20,073)	$	2,187,828	$	2,360,213	Balances, September 30, 2021	60,652	$	192,458	$	(20,073)	$	2,187,828	$	2,360,213
Exercise of employee stock options	Exercise of employee stock options	115	2,753		—		—		2,753		Exercise of employee stock options	96	2,303		—		—		2,303
Issuance of stock under employee stock purchase plan	Issuance of stock under employee stock purchase plan	412	60,927		—		—		60,927		Issuance of stock under employee stock purchase plan	169	26,325		—		—		26,325
Issuance of restricted stock	Issuance of restricted stock	1,080	—		—		—		—		Issuance of restricted stock	775	—		—		—		—
Repurchase of common stock	Repurchase of common stock	(2,611)	(394,141)		—		(105,882)		(500,023)		Repurchase of common stock	(1,148)	(250,023)		—		—		(250,023)

Taxes paid related to net share settlement of equity awards	Taxes paid related to net share settlement of equity awards	(92)	(18,907)		—		—		(18,907)		Taxes paid related to net share settlement of equity awards	(79)	(16,816)		—		—		(16,816)
Stock-based compensation	Stock-based compensation	—	189,761		—		—		189,761		Stock-based compensation	—	127,886		—		—		127,886
Net income	Net income	—	—		—		232,814		232,814		Net income	—	—		—		149,795		149,795
Other comprehensive loss	Other comprehensive loss	—	—		(4,553)		—		(4,553)		Other comprehensive loss	—	—		(2,555)		—		(2,555)
Balances, June 30, 2022		59,556	$	32,851	$	(24,626)	$	2,314,760	$	2,322,985
Balances, March 31, 2022											Balances, March 31, 2022	60,465	$	82,133	$	(22,628)	$	2,337,623	$	2,397,128

												Six months ended March 31, 2023
Balances, September 30, 2022											Balances, September 30, 2022	59,860	$	91,048	$	(26,176)	$	2,404,106	$	2,468,978
Exercise of employee stock options											Exercise of employee stock options	26	716		—		—		716
Issuance of stock under employee stock purchase plan											Issuance of stock under employee stock purchase plan	179	21,745		—		—		21,745
Issuance of restricted stock											Issuance of restricted stock	731	—		—		—		—
Repurchase of common stock											Repurchase of common stock	(263)	(40,005)		—		—		(40,005)

Taxes paid related to net share settlement of equity awards											Taxes paid related to net share settlement of equity awards	(68)	(9,825)		—		—		(9,825)
Stock-based compensation											Stock-based compensation	—	126,913		—		—		126,913
Net income											Net income	—	—		—		153,838		153,838
Other comprehensive income											Other comprehensive income	—	—		3,199		—		3,199
Balances, March 31, 2023											Balances, March 31, 2023	60,465	$	190,592	$	(22,977)	$	2,557,944	$	2,725,559

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

Table of Contents

F5, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


		Nine months ended June 30,					Six months ended March 31,
		2022		2021			2023		2022
Operating activities	Operating activities					Operating activities
Net income	Net income	$	232,814	$	220,523	Net income	$	153,838	$	149,795
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	Stock-based compensation	189,761		182,757		Stock-based compensation	126,913		127,886
Depreciation and amortization	Depreciation and amortization	88,398		84,985		Depreciation and amortization	54,817		59,798
Non-cash operating lease costs	Non-cash operating lease costs	29,071		28,937		Non-cash operating lease costs	20,231		19,363
Deferred income taxes	Deferred income taxes	(28,956)		(78,092)		Deferred income taxes	(49,492)		(15,832)
Impairment of assets	Impairment of assets	6,175		40,698		Impairment of assets	—		6,175
Other	Other	585		604		Other	1,878		(439)
Changes in operating assets and liabilities (excluding effects of the acquisition of businesses):	Changes in operating assets and liabilities (excluding effects of the acquisition of businesses):					Changes in operating assets and liabilities (excluding effects of the acquisition of businesses):
Accounts receivable	Accounts receivable	(116,137)		(88,685)		Accounts receivable	(14,317)		(72,777)
Inventories	Inventories	(21,732)		5,249		Inventories	17,620		(5,828)
Other current assets	Other current assets	(106,070)		(32,670)		Other current assets	(43,547)		(60,896)
Other assets	Other assets	(50,400)		(58,565)		Other assets	9,354		(27,893)
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	(33,398)		13,586		Accounts payable and accrued liabilities	(59,534)		(35,649)
Deferred revenue	Deferred revenue	136,872		167,199		Deferred revenue	102,933		99,303
Lease liabilities	Lease liabilities	(38,707)		(38,383)		Lease liabilities	(22,140)		(26,131)
Net cash provided by operating activities	Net cash provided by operating activities	288,276		448,143		Net cash provided by operating activities	298,554		216,875
Investing activities	Investing activities					Investing activities
Purchases of investments	Purchases of investments	(58,514)		(255,259)		Purchases of investments	(689)		(53,715)
Maturities of investments	Maturities of investments	178,372		164,900		Maturities of investments	95,773		96,349
Sales of investments	Sales of investments	120,564		271,521		Sales of investments	16,085		78,988
Acquisition of businesses, net of cash acquired	Acquisition of businesses, net of cash acquired	(67,911)		(411,319)		Acquisition of businesses, net of cash acquired	(35,006)		(67,911)
Purchases of property and equipment	Purchases of property and equipment	(25,117)		(23,534)		Purchases of property and equipment	(23,793)		(15,792)
Net cash provided by (used in) investing activities		147,394		(253,691)
Net cash provided by investing activities						Net cash provided by investing activities	52,370		37,919
Financing activities	Financing activities					Financing activities
Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan	Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan	63,681		64,698		Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan	22,461		28,628
Repurchase of common stock	Repurchase of common stock	(500,023)		(500,000)		Repurchase of common stock	(40,005)		(250,023)

Payments on term debt agreement	Payments on term debt agreement	(15,000)		(15,000)		Payments on term debt agreement	(350,000)		(10,000)

Taxes paid related to net share settlement of equity awards	Taxes paid related to net share settlement of equity awards	(18,907)		(10,920)		Taxes paid related to net share settlement of equity awards	(9,825)		(16,816)
Net cash used in financing activities	Net cash used in financing activities	(470,249)		(461,222)		Net cash used in financing activities	(377,369)		(248,211)
Net decrease in cash, cash equivalents and restricted cash		(34,579)		(266,770)
Net (decrease) increase in cash, cash equivalents and restricted cash						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 cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(3,633)		1,107		Effect of exchange rate changes on cash, cash equivalents and restricted cash	2,979		(997)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	584,333		852,826		Cash, cash equivalents and restricted cash, beginning of period	762,207		584,333
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	546,121	$	587,163	Cash, cash equivalents and restricted cash, end of period	$	738,741	$	589,919
Supplemental disclosures of cash flow information	Supplemental disclosures of cash flow information					Supplemental disclosures of cash flow information
Cash paid for amounts included in the measurement of operating lease liabilities	Cash paid for amounts included in the measurement of operating lease liabilities	$	44,115	$	46,178	Cash paid for amounts included in the measurement of operating lease liabilities	$	27,200	$	30,346
Cash paid for interest on long-term debt	Cash paid for interest on long-term debt	4,287		4,003		Cash paid for interest on long-term debt	2,970		2,383
Supplemental disclosures of non-cash activities	Supplemental disclosures of non-cash activities					Supplemental disclosures of non-cash activities
Right-of-use assets obtained in exchange for lease obligations	Right-of-use assets obtained in exchange for lease obligations	$	614	$	11,622	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, Inc. (the "Company") is a leading provider of multi-cloud application security and delivery solutions which enable its customers to develop, deploy, operate, secure, and govern applications in any architecture, from on-premises to the public cloud. The Company's cloud, software, and hardware solutions enable its customers to deliver digital experiences to their customers faster, reliably, and at scale. The Company's enterprise-grade application services are available as cloud-based, software-as-a-service, and software-only solutions optimized for multi-cloud environments, with modules that can run independently, or as part of an integrated solution on its high-performance appliances. In connection with its solutions, the Company offers a broad range of professional services, including consulting, training, installation, maintenance, and other technical support services. ~~On October 1, 2021, the Company completed its acquisition of Threat Stack, Inc. ("Threat Stack"), a provider of cloud security and workload protection solutions.~~

Basis of Presentation

The year-end consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for their fair statement in conformity with accounting principles generally accepted in the United States of America. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2021.~~2022.

There have been no changes to the Company's significant accounting policies as of and for the three and ~~nine~~six months ended ~~June 30, 2022, except for the~~March 31, 2023.

New Accounting Pronouncements

There have been no material changes in recently issued or adopted accounting ~~policy for investments, which has been updated to include equity investments.~~

~~Investments~~

The Company classifies its debt investments as available-for-sale. Debt investments, consisting of certificates of deposit, corporate and municipal bonds and notes, the United States government and agency securities and international government securities are reported at fair value with the related unrealized gains and losses included as a component of accumulated other comprehensive income (loss) in shareholders’ equity. Realized gains and losses, credit allowances and impairments due to credit losses are included in other income (expense) in the Company’s consolidated income statements. Debt investments with maturities of less than one year or where management’s intent is to use the investments to fund current operations are classified as short-term investments. Debt investments with maturities of greater than one year are classified as long-term investments.

As an approximation to fair value, equity investments are measured using net asset value (“NAV”) and are classified as long-term investments. Unrealized and realized gains and losses are recorded in other income (expense)standards from those disclosed in the Company's ~~consolidated income statements.~~Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

~~Recently Adopted Accounting Standards~~

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The Company early adopted this accounting standard update beginning in the first quarter of fiscal 2022 and it did not have a material impact on the Company's consolidated financial statements.

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2. Revenue from Contracts with Customers

Capitalized Contract Acquisition Costs

The table below shows significant movements in capitalized contract acquisition costs (current and noncurrent) for the ~~nine~~six months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ (in thousands):


		Nine months ended June 30,					Six months ended March 31,
		2022		2021			2023		2022
Balance, beginning of period	Balance, beginning of period	$	77,836	$	70,396	Balance, beginning of period	$	77,220	$	77,836
Additional capitalized contract acquisition costs	Additional capitalized contract acquisition costs	27,620		30,431		Additional capitalized contract acquisition costs	13,123		18,530
Amortization of capitalized contract acquisition costs	Amortization of capitalized contract acquisition costs	(28,782)		(25,223)		Amortization of capitalized contract acquisition costs	(19,134)		(19,092)
Balance, end of period	Balance, end of period	$	76,674	$	75,604	Balance, end of period	$	71,209	$	77,274

Amortization of capitalized contract acquisition costs was ~~$9.7~~$9.4 million and ~~$8.6~~$9.7 million for the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively, and ~~$28.8 million and $25.2~~$19.1 million for the ~~nine~~six months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021, respectively,~~ and is recorded in Sales and Marketing expense in the accompanying consolidated income statements. There was no impairment of any capitalized contract acquisition costs during any period presented.

Contract Balances

Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to the Company's contracts with customers. Liabilities are recorded for amounts that are collected in advance of the ~~Company has the unconditional right to transfer goods and services under~~satisfaction

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of performance obligations, or for contracts with ~~customers.~~customers that contain the Company's unconditional rights to consideration, for which the customer has not been billed. These liabilities are classified as current and non-current deferred revenue.

The table below shows significant movements in the deferred revenue balances (current and noncurrent) for the ~~nine~~six months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ (in thousands):


		Nine months ended June 30,					Six months ended March 31,
		2022		2021			2023		2022
Balance, beginning of period	Balance, beginning of period	$	1,489,841	$	1,272,632	Balance, beginning of period	$	1,691,580	$	1,489,841
Amounts added but not recognized as revenues	Amounts added but not recognized as revenues	973,673		946,186		Amounts added but not recognized as revenues	785,122		723,631
Deferred revenue acquired through acquisition of businesses	Deferred revenue acquired through acquisition of businesses	10,591		779		Deferred revenue acquired through acquisition of businesses	1,800		10,591
Revenues recognized related to the opening balance of deferred revenue	Revenues recognized related to the opening balance of deferred revenue	(836,800)		(778,987)		Revenues recognized related to the opening balance of deferred revenue	(682,190)		(624,327)
Balance, end of period	Balance, end of period	$	1,637,305	$	1,440,610	Balance, end of period	$	1,796,312	$	1,599,736

Remaining Performance Obligations

Remaining performance obligations represent the amount of the transaction price under contracts with customers that are attributable to performance obligations that are unsatisfied or partially satisfied at the reporting date. The composition of unsatisfied performance obligations consists mainly of deferred service revenue, and to a lesser extent, deferred product revenue, for which the Company has an obligation to perform, and has not yet recognized as revenue in the consolidated financial statements. As of ~~June 30, 2022,~~March 31, 2023, the total non-cancelable remaining performance obligations under the Company's contracts with customers was ~~approximately $1.6~~$1.8 billion and the Company expects to recognize revenues on approximately ~~64.1%~~64.6% of these remaining performance obligations over the next 12 months, ~~22.0%~~22.5% in year two, and the remaining balance thereafter.

See Note 12, Segment Information, for disaggregated revenue by significant customer and geographic region, as well as disaggregated product revenue by systems and software.

3. Fair Value Measurements

In accordance with the authoritative guidance on fair value measurements and disclosure under GAAP, the Company determines fair value using a fair value hierarchy that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity, and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances and expands disclosure about fair value measurements.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date, essentially the exit price.

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The levels of fair value hierarchy are:

Level 1: Quoted prices in active markets for identical assets and liabilities at the measurement date that the Company has the ability to access.

Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Unobservable inputs for which there is little or no market data available. These inputs reflect management's assumptions of what market participants would use in pricing the asset or liability.

Level 1 investments are valued based on quoted market prices in active markets and include the Company's cash equivalent investments. Level 2 investments, which include investments that are valued based on quoted prices in markets that are not active, broker or dealer quotations, actual trade data, benchmark yields or alternative pricing sources with reasonable levels of price transparency, include the Company's certificates of deposit, corporate bonds and notes, municipal bonds and notes, U.S. government securities, U.S. government agency securities and international government securities. Fair values for the Company's level 2 investments are based on similar assets without applying significant judgments. In addition, all of the Company's level 2 investments have a sufficient level of trading volume to demonstrate that the fair values used are appropriate for these investments.

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A financial instrument's level within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes "observable" requires significant judgment by the Company. The Company considers observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The Company's financial assets measured at fair value on a recurring basis subject to the disclosure requirements at ~~June 30, 2022~~March 31, 2023 and September 30, ~~2021,~~2022, were as follows (in thousands):


					Gross Unrealized						Classification on Balance Sheet										Gross Unrealized						Classification on Balance Sheet
As of June 30, 2022		Fair Value Level	Cost or Amortized Cost		Gains		Losses		Aggregate Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Changes in fair value recorded in other comprehensive income
As of March 31, 2023																	As of March 31, 2023	Fair Value Level	Cost or Amortized Cost		Gains		Losses		Aggregate Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Changes in fair value recorded in other comprehensive income (loss)																	Changes in fair value recorded in other comprehensive income (loss)
Money Market Funds	Money Market Funds	Level 1	$	79,183	$	—	$	—	$	79,183	$	79,183	$	—	$	—	Money Market Funds	Level 1	$	160,242	$	—	$	—	$	160,242	$	160,242	$	—	$	—
Certificates of deposit		Level 2	250		—		—		250		—		250		—

Corporate bonds and notes	Corporate bonds and notes	Level 2	93,016		1		(1,086)		91,931		—		81,499		10,432		Corporate bonds and notes	Level 2	15,044		—		(260)		14,784		—		14,012		772
Municipal bonds and notes	Municipal bonds and notes	Level 2	7,661		—		(110)		7,551		1,392		4,013		2,146		Municipal bonds and notes	Level 2	2,172		—		(59)		2,113		—		2,113		—
U.S. government securities	U.S. government securities	Level 2	110,639		—		(979)		109,660		—		106,855		2,805		U.S. government securities	Level 2	4,361		—		(60)		4,301		1,463		2,838		—
U.S. government agency securities	U.S. government agency securities	Level 2	5,647		—		(77)		5,570		—		3,841		1,729		U.S. government agency securities	Level 2	1,784		—		(37)		1,747		—		1,747		—
Total debt investments	Total debt investments		$	296,396	$	1	$	(2,252)	$	294,145	$	80,575	$	196,458	$	17,112	Total debt investments		$	183,603	$	—	$	(416)	$	183,187	$	161,705	$	20,710	$	772
Changes in fair value recorded in other net income (expense)	Changes in fair value recorded in other net income (expense)																Changes in fair value recorded in other net income (expense)
Equity investments	Equity investments	*							$	2,000	$	—	$	—	$	2,000	Equity investments	*							$	3,964	$	—	$	—	$	3,964
Total equity investments	Total equity investments								2,000		—		—		2,000		Total equity investments								3,964		—		—		3,964
Total investments	Total investments								$	296,145	$	80,575	$	196,458	$	19,112	Total investments								$	187,151	$	161,705	$	20,710	$	4,736

* The fair value of this equity investment is measured at net asset value (NAV) which approximates fair value and is not classified within the fair value hierarchy.


				Gross Unrealized						Classification on Balance Sheet
As of September 30, 2022	Fair Value Level	Cost or Amortized Cost		Gains		Losses		Aggregate Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Changes in fair value recorded in other comprehensive income (loss)
Money Market Funds	Level 1	$	276,294	$	—	$	—	$	276,294	$	276,294	$	—	$	—

Corporate bonds and notes	Level 2	50,828		—		(950)		49,878		912		44,356		4,610
Municipal bonds and notes	Level 2	5,018		—		(102)		4,916		—		3,812		1,104
U.S. government securities	Level 2	84,734		—		(660)		84,074		10,120		73,954		—
U.S. government agency securities	Level 2	5,825		—		(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 investments								3,118		—		—		3,118
Total investments								$	424,030	$	287,932	$	126,554	$	9,544

* The fair value of this equity investment is measured at NAV which approximates fair value and is not classified within the fair value hierarchy.

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Gross Unrealized Classification on Balance Sheet
As of September 30, 2021 Fair Value Level Cost or Amortized Cost Gains Losses Aggregate
Fair Value Cash and Cash Equivalents Short-Term Investments Long-Term Investments
Changes in fair value recorded in other comprehensive income
Money Market Funds Level 1 $ 17,150 $ — $ — $ 17,150 $ 17,150 $ — $ —
Certificates of deposit Level 2 255 — — 255 — 255 —
Corporate bonds and notes Level 2 243,568 129 (86) 243,611 4,397 186,107 53,107
Municipal bonds and notes Level 2 24,684 2 (9) 24,677 — 13,566 11,111
U.S. government securities Level 2 162,221 14 (12) 162,223 — 102,615 59,608
U.S. government agency securities Level 2 36,053 — (14) 36,039 — 27,087 8,952
Total investments $ 483,931 $ 145 $ (121) $ 483,955 $ 21,547 $ 329,630 $ 132,778

The Company uses the fair value hierarchy for financial assets and liabilities. The carrying amounts of other current financial assets and other current financial liabilities approximate fair value due to their short-term nature.

Interest income from investments was not material for the three and ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 and ~~2021, respectively.~~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 ~~June 30, 2022~~March 31, 2023 and September 30, ~~2021~~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 ~~June 30, 2022,~~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 for impairment annually, during the second quarter of each fiscal year, or as circumstances indicate the possibility of impairment. The Company monitors the carrying value of tangible and intangible long-lived assets for impairment whenever events or changes in circumstances indicate its carrying amount may not be recoverable. ~~Included~~

The Company did not recognize any impairment charges related to its intangible assets during the three months ended March 31, 2023 and 2022, or in the ~~Company’s impairment considerations for non-financial assets and liabilities in~~six months ended March 31, 2023. In the ~~current~~first quarter ~~were the potential impacts~~ of ~~the COVID-19 pandemic.~~

Asfiscal 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 in the first quarter of fiscal 2022. The Company did not recognize any impairment charges related to its intangible assets in the second and third quarters of fiscal 2022 and for the three and nine months ended June 30, 2021.

There were no long-lived asset impairment charges for the three and nine months ended June 30, 2022. During the second quarter of 2021, the Company recorded an impairment of $23.5 million against the operating lease right-of-use asset related to the permanent exit of six floors in its corporate headquarters. Impairment charges for the second quarter of fiscal 2021 also included $10.3 million for tenant improvements and other fixed assets associated with the permanently exited floors. In the first quarter of fiscal 2021, the Company recorded an impairment of $6.7 million against the operating lease right-of-use asset related to the integration of the former Shape headquarters in Santa Clara, California. Impairment charges for the first quarter of fiscal 2021 also included $0.2 million for other fixed assets associated with the Shape headquarters in Santa Clara, California. The Company calculated the fair value of the right-of-use assets, tenant improvements and other fixed assets based on estimated future discounted cash flows and classified the fair value as a Level 3 measurement due to the significance of unobservable inputs, which included the amount and timing of estimated sublease rental receipts that the Company could reasonably obtain over the remaining lease term and the discount rate. The impairment charges for the nine months ended June 30, 2021 were allocated to various expense line items on the Company’s consolidated income statements based on the employee base that previously worked out of the exited space.

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

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

During the three and ~~nine~~six months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the Company did not recognize any impairment charges related to ~~goodwill.~~goodwill 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 iswas not ~~expected to be~~ deductible for tax purposes. The results of operations of Threat Stack have been included in the Company's consolidated financial statements from the date of acquisition. 

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The allocated purchase consideration to assets acquired and liabilities assumed based on preliminary estimated fair values is presented in the following table (in thousands):

Estimated

Useful Life

Assets acquired

Deferred tax assets

~~13,366~~14,041

Other net tangible assets acquired, at fair value

5,481

Cash, cash equivalents, and restricted cash

~~912~~911

Identifiable intangible assets:

Developed technology

11,400

5 years

Customer relationships

4,400

5 years

Goodwill

~~43,956~~43,282

Total assets acquired

79,515

Liabilities assumed

Deferred revenue

(10,591)

Total liabilities assumed

(10,591)

Net assets acquired

68,924

~~Table~~The measurement period for the Threat Stack acquisition lapsed during the first quarter of ~~Contents~~

fiscal 2023. The ~~initial allocation of~~Company recorded immaterial adjustments to consideration exchanged for the purchase ~~price was based on preliminary valuations and assumptions and is subject to change~~of Threat Stack within the post-close measurement period. ~~The Company expects to finalize the allocation of the purchase price as soon as practicable and no later than one year from the acquisition date.~~

The developed technology intangible asset ~~will be~~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 ~~will be~~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 amortizable intangible assets recognized from the Threat Stack acquisition was five years as of October 1, 2021, the date the transaction closed. The estimated useful lives for the acquired intangible assets were based on the expected future cash flows associated with the respective asset.

~~Since the Threat Stack acquisition was completed on October 1, 2021, the F5 and Threat Stack teams have been executing a plan to integrate ongoing operations.~~ The pro forma financial information, as well as the revenue and earnings generated by Threat Stack, ~~were not material to the Company's operations for the periods presented.~~

~~Fiscal Year 2021 Acquisition of Volterra, Inc.~~

On January 5, 2021, the Company entered into a Merger Agreement (the “Volterra Merger Agreement”) with Volterra, Inc. ("Volterra"), a provider of edge-as-a-service platform solutions. The transaction closed on January 22, 2021 with Volterra becoming a wholly-owned subsidiary of F5. With the addition of Volterra’s technology platform, F5 is creating an edge platform built for enterprises and service providers that will be security-first and app-driven with unlimited scale.

Pursuant to the Volterra Merger Agreement, at the effective time of the Merger, the capital stock of Volterra and the vested outstanding and unexercised stock options in Volterra were cancelled and converted to the right to receive approximately $427.2 million in cash, subject to certain adjustments and conditions set forth in the Volterra Merger Agreement. The unvested stock options and restricted stock units in Volterra held by continuing employees of Volterra were assumed by F5, on the terms and conditions set forth in the Volterra Merger Agreement. The Company incurred $9.5 million of transaction costs associated with the acquisition, which was included in General and Administrative expenses in fiscal 2021.

As a result of the acquisition, the Company acquired all the assets and assumed all the liabilities of Volterra. The goodwill related to the Volterra acquisition is comprised primarily of expected synergies from combining operations and the acquired intangible assets that do not qualify for separate recognition. Goodwill related to the Volterra acquisition is not expected to be deductible for tax purposes. The results of operations of Volterra have been included in the Company's consolidated financial statements from the date of acquisition.

~~The allocated purchase consideration to assets acquired and liabilities assumed based on preliminary estimated fair values is presented in the following table (in thousands):~~

~~Estimated~~

~~Useful Life~~

~~Assets acquired~~

~~Cash, cash equivalents, and restricted cash~~

~~14,012~~

~~Other tangible assets acquired, at fair value~~

~~7,499~~

~~Identifiable intangible assets:~~

~~Developed technology~~

~~59,500~~

~~7 years~~

~~Customer relationships~~

~~500~~

~~1 year~~

~~Goodwill~~

~~350,863~~

~~Total assets acquired~~

~~432,374~~

~~Liabilities assumed~~

~~(5,233)~~

~~Net assets acquired~~

~~427,141~~

The measurement period for the Volterra acquisition lapsed during the second quarter of fiscal 2022. The Company recorded immaterial adjustments to consideration exchanged for the purchase of Volterra within the post-close measurement period.

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The developed technology intangible asset is being amortized on a straight-line basis over its estimated useful life of seven years and included in cost of net product revenues. The customer relationships intangible asset was amortized on a straight-line basis over its estimated useful life of one year and included in sales and marketing expenses. The weighted-average life of the amortizable intangible assets recognized from the Volterra acquisition was 6.95 years as of January 22, 2021, the date the transaction closed. The estimated useful lives for the acquired intangible assets were based on the expected future cash flows associated with the respective asset.

~~The pro forma financial information, as well as the revenue and earnings generated by Volterra,~~ were not material to the Company's operations for the periods presented.

5. Balance Sheet Details

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of the Company's cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total cash, cash equivalents and restricted cash shown in the Company's consolidated statements of cash flows for the periods presented (in thousands):


		June 30, 2022		September 30, 2021			March 31, 2023		September 30, 2022
Cash and cash equivalents	Cash and cash equivalents	$	541,883	$	580,977	Cash and cash equivalents	$	734,544	$	758,012
Restricted cash included in other assets, net	Restricted cash included in other assets, net	4,238		3,356		Restricted cash included in other assets, net	4,197		4,195
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	546,121	$	584,333	Total cash, cash equivalents and restricted cash	$	738,741	$	762,207

Inventories

Inventories consist of the following (in thousands):


		June 30, 2022		September 30, 2021			March 31, 2023		September 30, 2022
Finished goods	Finished goods	$	10,528	$	13,081	Finished goods	$	9,697	$	10,164
Raw materials	Raw materials	33,259		8,974		Raw materials	41,048		58,201
		$	43,787	$	22,055		$	50,745	$	68,365

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Other Current Assets

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


		June 30, 2022		September 30, 2021			March 31, 2023		September 30, 2022
Unbilled receivables	Unbilled receivables	$	277,766	$	215,396	Unbilled receivables	$	339,029	$	319,707
Prepaid expenses	Prepaid expenses	65,401		59,636		Prepaid expenses	87,430		57,340
Capitalized contract acquisition costs	Capitalized contract acquisition costs	34,429		34,265		Capitalized contract acquisition costs	33,031		34,658
Other1	Other1	73,439		28,605		Other1	74,064		77,609
		$	451,035	$	337,902		$	533,554	$	489,314

(1) As of ~~June~~March 31, 2023 and September 30, 2022, includes ~~$53.3~~a deposit of $47.5 million ~~of cash~~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):

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

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	March 31, 2023		September 30, 2022
Intangible assets	$	178,099	$	200,288
Unbilled receivables	216,244		224,780
Capitalized contract acquisition costs	38,178		42,561
Other	51,011		48,493
	$	483,532	$	516,122

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):


		June 30, 2022		September 30, 2021			March 31, 2023		September 30, 2022
Payroll and benefits	Payroll and benefits	$	148,792	$	179,147	Payroll and benefits	$	162,588	$	165,437
Operating lease liabilities, current	Operating lease liabilities, current	43,529		49,286		Operating lease liabilities, current	43,215		42,523
Income and other tax accruals	Income and other tax accruals	36,928		44,075		Income and other tax accruals	38,375		41,217
Other	Other	62,356		68,979		Other	51,355		60,642
		$	291,605	$	341,487		$	295,533	$	309,819

Other Long-term Liabilities

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


		June 30, 2022		September 30, 2021			March 31, 2023		September 30, 2022
Income taxes payable	Income taxes payable	$	65,395	$	66,081	Income taxes payable	$	64,151	$	59,553

Other	Other	8,151		9,155		Other	8,427		8,157
		$	73,546	$	75,236		$	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 ~~are~~were recorded as a reduction to the carrying value of the principal amount of the debt.

Borrowings under the Term Loan Facility bear interest at a rate equal to, at the Company's option, (a) LIBOR, adjusted for customary statutory reserves, plus an applicable margin of 1.125% to 1.75% depending on the Company's leverage ratio, or (b) an alternate base rate determined in accordance with the Term Credit Agreement, plus an applicable margin of 0.125% to 0.750% depending on the Company's leverage ratio. Interest on the outstanding principal of borrowings is currently due quarterly in arrears. As of June 30, 2022, the margin for LIBOR-based loans was 1.125% and the margin for alternate base rate loans was 0.125%.

The Term Loan Facility matures on January 24, 2023 with quarterly installments (commencing with the first full fiscal quarter ended after January 24, 2020) equal to 1.25% of the original principal amount of the Term Loan Facility. The remaining outstanding principal of borrowings under the Term Loan Facility is due upon maturity on January 24, 2023. Borrowings under the Term Loan Facility may be voluntarily prepaid, in whole or in part, without penalty or premium. Borrowings repaid or prepaid under the Term Loan Facility may not be reborrowed.

Among certain affirmative and negative covenants provided in the Term Credit Agreement, there is a financial covenant that requires the Company to maintain a leverage ratio, calculated as of the last day of each fiscal quarter, of consolidated total indebtedness to consolidated EBITDA. This covenant may result in a higher interest rate on its outstanding principal borrowings on the Term Loan Facility in future periods, depending on the Company's performance. As of June 30, 2022, the Company was in compliance with all covenants.

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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 ~~June~~September 30, 2022, ~~$355.0~~$350.0 million of principal amount under the Term Loan Facility was outstanding, excluding unamortized debt issuance costs of ~~$0.4~~$0.2 million. ~~The outstanding principal amount was included in current liabilities on the Company's balance sheet as of June 30, 2022.~~ The weighted average interest rate on the principal amount under the Term Loan Facility outstanding balance was ~~2.092% and 1.553%~~1.282% for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2022, respectively. The weighted average interest rate on the principal amount under the Term Loan Facility outstanding balance was 1.332% and 1.371% for the three and nine months ended June 30, 2021, respectively. The following table presents the scheduled principal maturities as of June 30, 2022 (in thousands):

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

Revolving Credit Agreement

On January 31, 2020, the Company entered into a Revolving Credit Agreement (the "Revolving Credit Agreement") that provides for a senior unsecured revolving credit facility in an aggregate principal amount of $350.0 million (the "Revolving Credit Facility"). The Company has the option to increase commitments under the Revolving Credit Facility from time to time, subject to certain conditions, by up to $150.0 million. Borrowings under the Revolving Credit Facility bear interest at a rate equal to, at the Company's option, (a) LIBOR, adjusted for customary statutory reserves, plus an applicable margin of 1.125% to 1.75% depending on the Company's leverage ratio, or (b) an alternate base rate determined in accordance with the Revolving Credit Agreement, plus an applicable margin of 0.125% to 0.750% depending on the Company's leverage ratio. The Revolving Credit Agreement also requires payment of a commitment fee calculated at a rate per annum of 0.125% to 0.300% depending on the Company's leverage ratio on the undrawn portion of the Revolving Credit Facility. Commitment fees incurred during the three and ~~nine~~six months ended ~~June 30, 2022~~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 2two 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 ~~June 30, 2022,~~March 31, 2023, the Company was in compliance with all covenants. As of ~~June 30, 2022,~~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 ~~nine~~six months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ were as follows (in thousands):


		Three months ended June 30,				Nine months ended June 30,					Three months ended March 31,				Six months ended March 31,
		2022		2021		2022		2021			2023		2022		2023		2022
Operating lease expense	Operating lease expense	$	11,810	$	11,899	$	35,594	$	36,238	Operating lease expense	$	12,181	$	11,870	$	24,697	$	23,784
Short-term lease expense	Short-term lease expense	683		741		1,858		2,302		Short-term lease expense	744		619		1,399		1,175
Variable lease expense	Variable lease expense	5,208		6,478		17,486		18,814		Variable lease expense	5,650		6,034		10,986		12,278
Total lease expense	Total lease expense	$	17,701	$	19,118	$	54,938	$	57,354	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):


		June 30, 2022			September 30, 2021				March 31, 2023			September 30, 2022
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	$	217,313		$	244,934		Operating lease right-of-use assets, net	$	216,293		$	227,475

Operating lease liabilities, current1	Operating lease liabilities, current1	43,529			49,286			Operating lease liabilities, current1	43,215			42,523
Operating lease liabilities, long-term	Operating lease liabilities, long-term	265,043			296,945			Operating lease liabilities, long-term	259,916��			272,376
Total operating lease liabilities	Total operating lease liabilities	$	308,572		$	346,231		Total operating lease liabilities	$	303,131		$	314,899

Weighted average remaining lease term (in years)	Weighted average remaining lease term (in years)	9.5			9.7			Weighted average remaining lease term (in years)	8.8			9.2
Weighted average discount rate	Weighted average discount rate	2.67		%	2.60		%	Weighted average discount rate	2.73		%	2.66		%

(1)Current portion of operating lease liabilities is included in accrued liabilities on the Company's consolidated balance sheets.

As of ~~June 30, 2022,~~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:	Fiscal Years Ending September 30:	Operating Lease Payments		Fiscal Years Ending September 30:	Operating Lease Payments
2022 (remainder)		$	13,897
2023		48,325
2023 (remainder)				2023 (remainder)	$	25,738
2024	2024	41,311		2024	49,002
2025	2025	33,618		2025	41,249
2026	2026	26,462		2026	31,530
2027	2027	26,127		2027	30,310
2028				2028	28,444
Thereafter	Thereafter	164,860		Thereafter	138,797
Total lease payments	Total lease payments	354,600		Total lease payments	345,070
Less: imputed interest	Less: imputed interest	(46,028)		Less: imputed interest	(41,939)
Total lease liabilities	Total lease liabilities	$	308,572	Total lease liabilities	$	303,131

Operating lease liabilities above do not include sublease income. As of ~~June 30, 2022,~~March 31, 2023, the Company expects to receive sublease income of approximately ~~$14.3~~$18.3 million, which consists of ~~$1.9~~$3.9 million to be received for the remainder of fiscal ~~2022~~2023 and ~~$12.4~~$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 ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 and the three months ended June 30, 2021. In the second quarter of fiscal 2021, the Company recorded an impairment of $23.5 million against the operating lease right-of-use asset related to the permanent exit of six floors in its corporate headquarters. In the first quarter of fiscal 2021, the Company recorded an impairment of $6.7 million against the right-of-use asset related to the integration of the former Shape headquarters in Santa Clara, California.2022.

As of ~~June 30, 2022,~~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's bylaws contain similar indemnification obligations to the Company's agents. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement.

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

~~Table of Contents~~

its cost of sales based on associated material product costs and technical support labor costs. Accrued warranty costs as of ~~June 30, 2022~~March 31, 2023 and September 30, ~~2021~~2022 were not 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 ~~June 30, 2022,~~March 31, 2023, the ~~Company's principal commitments consisted~~Company has $1.2 million of ~~borrowings~~remaining purchases under the ~~Term Loan Facility and obligations~~first year of its commitment. The Company's total non-cancelable long-term purchase commitments outstanding ~~under operating leases. Refer to Note 6 for the scheduled principal maturities of the Term Loan Facility~~ as of ~~June 30, 2022.~~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 87 to its annual consolidated financial statements.

Legal Proceedings

Lynwood Investment CY Limited v. F5 Networks et al.

On June 8, 2020, Lynwood Investment CY Limited (“Lynwood”) filed a lawsuit in the United States District Court for the Northern District of California against the Company and certain affiliates, along with other defendants. In its complaint, Lynwood claims to be the assignee of all rights and interests of Rambler Internet Holding LLC (“Rambler”), and alleges that the intellectual property in the NGINX software originally released by the co-founder of NGINX in 2004 belongs to Rambler (and therefore Lynwood, by assignment) because the software was created and developed while the co-founder was employed by Rambler. Lynwood ~~asserts~~asserted 26 causes of action against the various defendants, including copyright infringement, violation of trademark law, tortious interference, conspiracy, and fraud. The complaint ~~seeks~~sought damages, disgorgement of profits, ~~fees and costs,~~ declarations of copyright and trademark ownership, trademark cancellations, and injunctive relief. Lynwood also initiated several trademark opposition and cancellation proceedings before the Trademark Trial and Appeal Board of the United States Patent and Trademark Office, which have all since been suspended.

In August and October 2020, the Company and the other defendants filed motions to dismiss all claims asserted against them in the lawsuit. While these motions were pending, the Court ordered Lynwood to select ten of its twenty-six claims to litigate through trial while the remaining sixteen claims would be stayed pending resolution of the ten selected claims.

Lynwood’s case. On March 25 and 30, 2021, the Court ~~dismissed the ten selected claims and~~ granted Lynwood leave to cure the deficiencies in its complaint though it expressed doubt about Lynwood’s ability to do so. The Court further ruled that Lynwood may not add new causes of action or add new parties without stipulation or leave of court, and that unless Lynwood corrects “all the defects” identified in the Court’s orders and the Company’s and the other defendants’ motions to dismiss ~~the Court will dismiss the ten claims~~ with ~~prejudice. On April 6, 2021, the Court referred the parties~~leave to ~~private mediation to be completed by June 1, 2021. Pursuant to the Court’s order, the parties held a private mediation on May 27, 2021. The matter did not resolve.~~

~~On April 29, 2021,~~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 consolidated motion to ~~dismiss~~dismiss.

The Court granted the ~~claims Lynwood had selected to proceed to litigate through trial, reserving their right to move to dismiss the 16 stayed claims once the Court lifts the stay. The~~consolidated motion to dismiss ~~was set~~without leave to ~~be heard~~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 on October 14, 2021, but on October 11, 2021, the Court vacated the hearing and gave notice that it will decide the motion on the papers without oral argument.~~

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 entitled to ~~dismiss the amended complaint remains pending. This case was reassigned to a new judge who has yet to indicate when she will issue a ruling on the Company’s motion.~~an award of $0.8 million in attorneys’ fees.

In addition to the above matters, the Company is subject to a variety of legal proceedings, claims, investigations, and litigation arising in the ordinary course of business, including intellectual property litigation. Management believes that the Company has meritorious defenses to the allegations made in its pending cases and intends to vigorously defend these lawsuits; however, the Company is unable to currently to determine ~~the ultimate~~if 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 any accrual for loss contingencies associated with such legal proceedings or the investigations discussed above.

2018

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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 ~~18.0%~~25.1% and ~~18.5%~~24.8% for the three and ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, respectively, compared to ~~4.9%~~22.7% and ~~16.3%~~18.8% for the three and ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, respectively. The ~~increase~~change in the effective tax rate for the three and ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023, as compared to the three and ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022, is primarily due to the ~~discrete~~tax impact ~~from filing the Company’s fiscal year 2020 U.S. federal income tax return during the period ended June 30, 2021.~~of stock-based compensation.

At ~~June 30, 2022,~~March 31, 2023, the Company had ~~$69.5~~$70.5 million of unrecognized tax benefits 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, ~~2017.~~2018. Major jurisdictions where there are wholly owned subsidiaries of F5, Inc. which require income tax filings include the United Kingdom, Singapore, Israel, and ~~Israel.~~India. The earliest periods open for review by local taxing authorities are fiscal years 2020 for the United Kingdom, ~~2017~~2018 for Singapore, ~~and~~ 2013 for ~~Israel.~~Israel, and 2019 for India. The Company is currently under audit by various states for fiscal years ~~2016~~2015 through ~~2020,~~2021, and by various foreign jurisdictions including Germany for fiscal years 2016 to 2019, India for fiscal years 2019 to 2020, Israel for fiscal years 2013 to 2017, Saudi Arabia for fiscal years 2015 to 2020, and ~~India~~Singapore for fiscal years 2019 to 2020. Within the next four fiscal quarters, the statute of limitations will begin to close on the fiscal year 2018 federal income tax return, fiscal years 2017 and 2018 state income tax returns, and fiscal years 2015 to 2020 foreign income tax returns.

10. Shareholders' Equity

Common Stock Repurchase

On ~~October 31, 2018,~~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 ~~$4.4~~$5.4 billion program, initially approved in October 2010 and expanded in subsequent fiscal years. Acquisitions for the share repurchase programs will be made from time to time in private transactions, accelerated share repurchase programs, or open market purchases as permitted by securities laws and other legal requirements. The programs can be terminated at any time.

On February 3, 2021, the Company entered into Accelerated Share Repurchase (ASR) agreements with two financial institutions under which the Company paid an aggregate of $500 million. The ASR agreements were accounted for as two separate transactions (1) a repurchase of common stock and (2) an equity-linked contract on the Company's own stock. Upon execution of the ASR agreements, the Company received an initial delivery of 2.1 million shares for an aggregate price of $400 million, based on the market price of $194.91 per share of Company's common stock on the date of the transaction. The initial shares received by the Company were retired immediately upon receipt. The equity-linked contract for the remaining $100 million, representing remaining shares to be delivered by the financial institutions under the ASR agreements, was recorded to common stock as of March 31, 2021 and was settled in the third quarter of fiscal 2021 with the Company receiving 449,049 additional shares, which were retired immediately upon receipt. The total ASR resulted in a repurchase of 2.5 million shares of the Company's common stock at a volume weighted average repurchase price, less an agreed upon discount, of $199.90 per share. The shares received by the Company were retired, accounted for as a reduction to stockholder’s equity in the Consolidated Balance Sheets, and treated as a repurchase of common stock for purposes of calculating earnings per share. The Company was not required to make any additional cash payments or delivery of common stock to the financial institutions upon settlement of the agreements.

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The following table summarizes the Company's repurchases and retirements of its common stock under its Stock Repurchase Program ~~including the ASR~~ (in thousands, except per share data):


		Three months ended June 30,				Nine months ended June 30,					Three months ended March 31,				Six months ended March 31,
		2022		2021		2022		2021			2023		2022		2023		2022
Shares repurchased	Shares repurchased	1,463		449		2,611		2,501		Shares repurchased	—		610		263		1,148
Average price per share	Average price per share	$	170.88	$	199.90	$	191.47	$	199.90	Average price per share	$	—	$	204.96	$	151.87	$	217.71
Amount repurchased	Amount repurchased	$	250,000	$	100,000	$	500,023	$	500,000	Amount repurchased	$	—	$	125,012	$	40,005	$	250,023

As of ~~June 30, 2022,~~March 31, 2023, the Company had ~~$272~~$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 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):


		Three months ended June 30,				Nine months ended June 30,					Three months ended March 31,				Six months ended March 31,
		2022		2021		2022		2021			2023		2022		2023		2022
Numerator	Numerator									Numerator
Net income	Net income	$	83,019	$	89,604	$	232,814	$	220,523	Net income	$	81,436	$	56,236	$	153,838	$	149,795
Denominator	Denominator									Denominator
Weighted average shares outstanding — basic	Weighted average shares outstanding — basic	59,965		60,186		60,450		60,768		Weighted average shares outstanding — basic	60,330		60,573		60,211		60,693
Dilutive effect of common shares from stock options and restricted stock units	Dilutive effect of common shares from stock options and restricted stock units	495		1,165		895		1,296		Dilutive effect of common shares from stock options and restricted stock units	361		832		326		968
Weighted average shares outstanding — diluted	Weighted average shares outstanding — diluted	60,460		61,351		61,345		62,064		Weighted average shares outstanding — diluted	60,691		61,405		60,537		61,661
Basic net income per share	Basic net income per share	$	1.38	$	1.49	$	3.85	$	3.63	Basic net income per share	$	1.35	$	0.93	$	2.55	$	2.47
Diluted net income per share	Diluted net income per share	$	1.37	$	1.46	$	3.80	$	3.55	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 ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 and ~~2021.~~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, 1one reportable operating ~~segment: the development, marketing and sale of application security and delivery services across multi-cloud environments.~~segment.

Revenues by Geographic Location and Other Information

The Company does business in 3three main geographic regions: the Americas (primarily the United States); Europe, the Middle East, and Africa (EMEA); and the Asia Pacific region (APAC). The Company's chief operating decision-maker reviews financial information presented on a consolidated basis accompanied by information about revenues by geographic region. The Company's foreign offices conduct sales, marketing and support activities. Revenues are attributed by geographic location based on the location of the customer.

~~Table of Contents~~

The following presents revenues by geographic region (in thousands):


		Three months ended June 30,				Nine months ended June 30,					Three months ended March 31,				Six months ended March 31,
		2022		2021		2022		2021			2023		2022		2023		2022
Americas:	Americas:									Americas:
United States	United States	$	364,333	$	348,345	$	1,084,853	$	992,090	United States	$	359,906	$	339,231	$	735,654	$	720,520
Other	Other	22,797		21,031		63,824		66,474		Other	23,197		19,324		49,607		41,026
Total Americas	Total Americas	387,130		369,376		1,148,677		1,058,564		Total Americas	383,103		358,555		785,261		761,546
EMEA	EMEA	156,471		168,118		474,906		502,424		EMEA	190,439		156,374		374,554		318,435
Asia Pacific	Asia Pacific	130,887		114,021		372,229		360,431		Asia Pacific	129,633		119,295		243,738		241,343
		$	674,488	$	651,515	$	1,995,812	$	1,921,419		$	703,175	$	634,224	$	1,403,553	$	1,321,324

~~The Company generates revenues from the sale~~

Table of ~~products and services.~~ Contents

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 June 30,				Nine months ended June 30,					Three months ended March 31,				Six months ended March 31,
		2022		2021		2022		2021			2023		2022		2023		2022
Net product revenues	Net product revenues									Net product revenues
Systems revenue	Systems revenue	$	147,540	$	180,448	$	473,671	$	559,970	Systems revenue	$	208,689	$	145,975	$	381,721	$	326,132
Software revenue	Software revenue	178,942		129,481		493,478		347,193		Software revenue	131,892		151,543		299,418		314,535
Total net product revenue	Total net product revenue	$	326,482	$	309,929	$	967,149	$	907,163	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 June 30,				Nine months ended June 30,					Three months ended March 31,				Six months ended March 31,
		2022		2021		2022		2021			2023		2022		2023		2022
Ingram Micro, Inc.	Ingram Micro, Inc.	20.7	%	20.7	%	19.9	%	18.8	%	Ingram Micro, Inc.	16.5	%	20.3	%	17.1	%	19.5	%

Synnex Corporation	Synnex Corporation	13.4	%	12.0	%	13.3	%	11.2	%	Synnex Corporation	14.7	%	14.3	%	14.2	%	13.2	%

The Company tracks assets by physical location. Long-lived assets consist of property and equipment, net, and are shown below (in thousands):


		June 30, 2022		September 30, 2021			March 31, 2023		September 30, 2022
United States	United States	$	136,831	$	153,030	United States	$	128,440	$	134,699
EMEA	EMEA	19,042		20,526		EMEA	23,399		17,376
Other countries	Other countries	16,187		17,608		Other countries	17,932		16,107
		$	172,060	$	191,164		$	169,771	$	168,182

13. Restructuring Charges

In the first ~~quarter~~quarters of fiscal 2023 and 2022, the Company initiated a restructuring ~~plan~~plans to match strategic and financial objectives and optimize resources for long term growth, including a reduction in force ~~program affecting approximately 70 positions. The~~program. In the first quarter of fiscal 2023, the Company recorded a restructuring charge of ~~$7.9 million in the first quarter of fiscal 2022.~~$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,
	2023		2022
Employee Severance, Benefits and Related Costs
Accrued expenses, beginning of period	$	—	$	—
Restructuring charges	8,740		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,

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~~During the nine months ended June 30, 2022, the following activity was recorded (in thousands):~~


	~~Employee Severance, Benefits and Related Costs~~
~~Accrued expenses, October 1, 2021~~	$	—
~~Restructuring charges~~	~~7,909~~
~~Cash payments~~	~~(7,689)~~
~~Accrued expenses, June 30, 2022~~	$	~~220~~

~~14. Subsequent Events~~

~~On July 22, 2022, the Company's Board~~consisting of Directors authorized an additional $1 billion for its common stock share repurchase program. This new authorization is incremental to the $272 million currently unused in the existing program, which was initially approved in October 2010.

~~Acquisitions for the share repurchase program will be made from time to time in private transactions or open market purchases as permitted by securities laws~~lease termination and other ~~legal requirements.~~facility costs. The ~~timing and amounts~~Company is not able to estimate the cost of ~~any purchases will be based on market conditions and other factors including but not limited~~the reductions to ~~price, regulatory requirements and capital availability. The program does not require the purchase of any minimum number of shares and the program may be modified, suspended or discontinued~~leased facilities at ~~any~~this time.

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," 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" herein and in other documents we file from time to time with the Securities and Exchange Commission. We assume no obligation to revise or update any such forward-looking statements.

Overview

F5 is a leading provider of multi-cloud application security and delivery solutions which enable our customers to develop, deploy, operate, secure, and govern applications in any architecture, from on-premises to the public cloud. Our enterprise-grade application services are available as cloud-based, software-as-a-service, and software-only solutions optimized for multi-cloud environments, with modules that can run independently, or as part of an integrated solution on our high-performance appliances. We market and sell our products primarily through multiple indirect sales channels in the ~~Americas (primarily the United States);~~Americas; Europe, the Middle East, and Africa (EMEA); and the Asia Pacific region (APAC). Enterprise customers (Fortune 1000 or Business Week Global 1000 companies) in the technology, telecommunications, financial services, transportation, education, manufacturing and health care industries, along with government customers, continue to make up the largest percentage of our customer base.

Our management team monitors and analyzes a number of key performance indicators in order to manage our business and evaluate our financial and operating performance on a consolidated basis. Those indicators include:

•Revenues. 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 ~~products~~solutions including our BIG-IP software and systems, ~~(appliances),~~F5 NGINX software, and our F5 ~~Distributed Cloud Services, and~~ Silverline offerings. Our BIG-IP software solutions are sold both on a perpetual license and a subscription basis. We sell F5 NGINX on a subscription basis. Our Silverline solution is a managed services offering, also sold on a subscription basis. F5 Distributed Cloud Services ~~provide~~provides security, multi-cloud networking, and edge-based computing solutions, encompassing software solutions from what were previously branded as our Shape, Volterra, and Silverline product offerings. F5 Distributed Cloud Services are offered on a subscription basis, under a unified software-as-a-service ~~(SaaS)~~("SaaS") platform. ~~Our Silverline solution is a managed services offering, also sold on a subscription basis.~~

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~~We also derive revenues from the sales of global services including annual maintenance contracts, training and consulting services.~~ We monitor the sales mix of our revenues within each reporting period. We believe customer acceptance rates of our new products, feature enhancements and consumption models are indicators of future trends. We also consider overall revenue concentration by geographic region as an additional indicator of current and future trends. ~~Near term,~~Toward the end of fiscal 2022, and continuing through the first half of fiscal 2023, we ~~expect challenging global supply chain conditions, particularly semiconductor~~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 ~~result in a shortfall in~~continue to closely monitor the macroeconomic environment and its impacts on our ~~ability to meet customer demand for our hardware-based solutions, thereby impacting revenues from systems sales.~~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, software-as-a-service infrastructure costs, amortization of developed technology and personnel and overhead expenses. In addition, factors such as sales price, product and services mix, inventory obsolescence, returns, component price increases, warranty costs, global supply chain constraints, and the remaining uncertainty surrounding the COVID-19 pandemic could significantly impact our gross margins from quarter to ~~quarter 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

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fees, computer costs related to the development of new products and provision of services, facilities and depreciation expenses.

•Liquidity and cash flows. Our financial condition remains strong with significant cash and investments. The decrease in cash and investments for the first ~~nine~~six months of fiscal year ~~2022~~2023 was primarily due to ~~$500.0~~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 ~~shares and $68.0 million in cash paid for the acquisition of Threat Stack~~outstanding common stock in the first quarter of fiscal ~~2022.~~2023. The decrease was partially offset by cash provided by operating activities of ~~$288.3~~$298.6 million. Going forward, we believe the primary driver of cash flows will be net income from operations. Capital expenditures of $25.1 million for the first nine months of fiscal year 2022 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 ~~June 30, 2022,~~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 continued to increase in the ~~third~~second quarter of fiscal year ~~2022~~2023 due to the growth of our subscriptions business. Our days sales outstanding for the ~~third~~second quarter of fiscal year ~~2022~~2023 was ~~61.~~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, accounting for business combinations and accounting for 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, ~~2021.~~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.

~~COVID-19 Update~~Impact of Current Macroeconomic Conditions

~~Management has prioritized a human-first approach~~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.~~pandemic, and other changes in economic conditions, may adversely affect our results of operations and financial performance. For ~~F5,~~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 means ensuring the health and safety of employees, their families and our communities. Further, this approach extends to our customers as we look for ways that we can support their operations during this crisis.Quarterly Report on Form 10-Q.

2523

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We continue to monitor the ongoing uncertainty related to the global pandemic on our business and financial outlook. Global supply chain constraints in the wake of the COVID-19 pandemic may reduce our visibility into component availability, and lead times may increase for components necessary for our hardware-based solutions. We are continuing to undertake efforts to mitigate supply chain constraints, but pandemic-related impacts to component availability may lengthen lead times on shipments of products to customers, delaying our ability to fulfill some hardware orders. In addition, we are conducting business with substantial modifications to employee travel, employee work locations, and virtualization or cancellation of certain sales and marketing events, among other modifications. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers and prospects, or on our financial results.

Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements, related notes and risk factors included elsewhere in this Quarterly Report on Form 10-Q.


		Three months ended June 30,						Nine months ended June 30,							Three months ended March 31,						Six months ended March 31,
		2022			2021			2022			2021				2023			2022			2023			2022
		(in thousands, except percentages)													(in thousands, except percentages)
Net revenues	Net revenues													Net revenues
Products	Products	$	326,482		$	309,929		$	967,149		$	907,163		Products	$	340,581		$	297,518		$	681,139		$	640,667
Services	Services	348,006			341,586			1,028,663			1,014,256			Services	362,594			336,706			722,414			680,657
Total	Total	$	674,488		$	651,515		$	1,995,812		$	1,921,419		Total	$	703,175		$	634,224		$	1,403,553		$	1,321,324
Percentage of net revenues	Percentage of net revenues													Percentage of net revenues
Products	Products	48.4		%	47.6		%	48.5		%	47.2		%	Products	48.4		%	46.9		%	48.5		%	48.5		%
Services	Services	51.6			52.4			51.5			52.8			Services	51.6			53.1			51.5			51.5
Total	Total	100.0		%	100.0		%	100.0		%	100.0		%	Total	100.0		%	100.0		%	100.0		%	100.0		%

Net Revenues. Total net revenues increased ~~3.5%~~10.9% and 6.2% for the three and six months ended ~~June 30, 2022 and increased 3.9% for the nine months ended June 30, 2022~~March 31, 2023, respectively, from the comparable periods in the prior year. The increase in total net revenues for the three months ended ~~June 30, 2022~~March 31, 2023 was primarily due to ~~software~~an increase in product revenue ~~increases~~ from ~~both perpetual and subscription-based offerings.~~stronger systems sales through greater availability of product compared to supply constraints in the previous year. In addition, service revenue increased ~~due to~~largely based on continued growth ~~of our install base, specifically associated with licensed-based subscription offerings.~~in maintenance contract renewals. Overall revenue growth for the ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 was primarily due to increases in both product and service revenue. The product revenue increase was driven by software revenue increases, specifically from our software-as-a-service product offerings and our subscription-based offerings, which include software sold via our flexible consumption program or multi-year subscriptions. This was partially offset by a decrease in systems revenue associated with a shortage of supplies to meet systems demand. Service revenues increased as a result of our increased installed base of products. International revenues represented ~~46.0%~~48.8% and ~~45.6%~~47.6% of total net revenues for the three and ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, respectively, compared to 46.5% and ~~48.4%~~45.5% for the same periods in the prior year, respectively.

Net Product Revenues. Net product revenues increased ~~5.3%~~14.5% and 6.3% for the three and six months ended ~~June 30, 2022 and increased 6.6% for the nine months ended June 30, 2022~~March 31, 2023, respectively, from the comparable periods in the prior year. The increase in net product revenues for the three months ended ~~June 30, 2022~~March 31, 2023 was primarily due to ~~continued growth~~an increase in ~~software~~systems revenue, partially offset by a decrease in ~~systems~~software revenue ~~associated with~~from a ~~shortage~~decline in sales of ~~supplies to meet systems demand.~~new term-based subscriptions. The increase in net product revenues for the ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 was due to an increase in ~~software~~systems revenue compared to the same period in the prior year.

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The following presents net product revenues by systems and software:


		Three months ended June 30,						Nine months ended June 30,							Three months ended March 31,						Six months ended March 31,
		2022			2021			2022			2021				2023			2022			2023			2022
		(in thousands, except percentages)													(in thousands, except percentages)
Net product revenues	Net product revenues													Net product revenues
Systems revenue	Systems revenue	$	147,540		$	180,448		$	473,671		$	559,970		Systems revenue	$	208,689		$	145,975		$	381,721		$	326,132
Software revenue	Software revenue	178,942			129,481			493,478			347,193			Software revenue	131,892			151,543			299,418			314,535
Total net product revenue	Total net product revenue	$	326,482		$	309,929		$	967,149		$	907,163		Total net product revenue	$	340,581		$	297,518		$	681,139		$	640,667
Percentage of net product revenues	Percentage of net product revenues													Percentage of net product revenues
Systems revenue	Systems revenue	45.2		%	58.2		%	49.0		%	61.7		%	Systems revenue	61.3		%	49.1		%	56.0		%	50.9		%
Software revenue	Software revenue	54.8			41.8			51.0			38.3			Software revenue	38.7			50.9			44.0			49.1
Total net product revenue	Total net product revenue	100.0		%	100.0		%	100.0		%	100.0		%	Total net product revenue	100.0		%	100.0		%	100.0		%	100.0		%

Net Service Revenues. Net service revenues increased ~~1.9%~~7.7% and 6.1% for the three and six months ended ~~June 30, 2022 and increased 1.4% for the nine months ended June 30, 2022~~March 31, 2023, respectively, from the comparable periods in the prior year. The increase in net service revenues for the three and ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 was ~~primarily due to an increase in~~the result of increased purchases or renewals of ~~initial~~ maintenance contracts driven by delayed purchase decisions in new product purchases by our install base and additions to our installed base of ~~products, primarily associated with our licensed-based subscriptions.~~products. In addition, we are starting to see the benefits of price increases put in place in fiscal 2022.

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The following distributors of our products accounted for more than 10% of total net revenue:


		Three months ended June 30,				Nine months ended June 30,					Three months ended March 31,				Six months ended March 31,
		2022		2021		2022		2021			2023		2022		2023		2022
Ingram Micro, Inc.	Ingram Micro, Inc.	20.7	%	20.7	%	19.9	%	18.8	%	Ingram Micro, Inc.	16.5	%	20.3	%	17.1	%	19.5	%

Synnex Corporation	Synnex Corporation	13.4	%	12.0	%	13.3	%	11.2	%	Synnex Corporation	14.7	%	14.3	%	14.2	%	13.2	%

The following distributors of our products accounted for more than 10% of total receivables:


		June 30, 2022		September 30, 2021			March 31, 2023		September 30, 2022
Ingram Micro, Inc.	Ingram Micro, Inc.	18.5	%	12.6	%	Ingram Micro, Inc.	—		12.9	%

Synnex Corporation	Synnex Corporation	12.9	%	11.9	%	Synnex Corporation	13.9	%	12.6	%
Carahsoft Technology	Carahsoft Technology	—		11.5	%	Carahsoft Technology	—		16.2	%

No other distributors accounted for more than 10% of total net revenue or receivables.


		Three months ended June 30,						Nine months ended June 30,							Three months ended March 31,						Six months ended March 31,
		2022			2021			2022			2021				2023			2022			2023			2022
		(in thousands, except percentages)													(in thousands, except percentages)
Cost of net revenues and gross profit	Cost of net revenues and gross profit													Cost of net revenues and gross profit
Products	Products	$	73,558		$	68,974		$	226,454		$	209,301		Products	$	99,795		$	71,234		$	198,650		$	152,896
Services	Services	57,175			51,930			165,711			155,167			Services	55,859			55,125			112,011			108,536
Total	Total	130,733			120,904			392,165			364,468			Total	155,654			126,359			310,661			261,432
Gross profit	Gross profit	$	543,755		$	530,611		$	1,603,647		$	1,556,951		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)	Percentage of net revenues and gross margin (as a percentage of related net revenue)													Percentage of net revenues and gross margin (as a percentage of related net revenue)
Products	Products	22.5		%	22.3		%	23.4		%	23.1		%	Products	29.3		%	23.9		%	29.2		%	23.9		%
Services	Services	16.4			15.2			16.1			15.3			Services	15.4			16.4			15.5			15.9
Total	Total	19.4			18.6			19.6			19.0			Total	22.1			19.9			22.1			19.8
Gross margin	Gross margin	80.6		%	81.4		%	80.4		%	81.0		%	Gross margin	77.9		%	80.1		%	77.9		%	80.2		%

Cost of Net Product Revenues. Cost of net product revenues consists 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 ~~$4.6~~$28.6 million, or ~~6.6%~~40.1% for the three months ended ~~June 30, 2022~~March 31, 2023 and increased ~~$17.2~~$45.8 million, or ~~8.2%~~29.9% for the

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~~nine~~ six months ended ~~June 30, 2022~~March 31, 2023 from the comparable periods in the prior year. The increase in cost of net product revenues was primarily due to ~~software~~systems product revenue growth for the three and ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 from the comparable periods in the prior year. In addition, ~~we experienced an increase in~~cost of product revenues increased due to component ~~prices,~~cost increases, expedite fees, and other sourcing-related costs in the first ~~three quarters~~half of fiscal ~~2022.~~2023, from the comparable period in the prior year.

Cost of Net Service Revenues. Cost of net service revenues consists of the salaries and related benefits of our professional services staff, travel, facilities and depreciation expenses. For the three and ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, cost of net service revenues as a percentage of net service revenues was ~~16.4%~~15.4% and ~~16.1%~~15.5%, respectively, compared to ~~15.2%~~16.4% and ~~15.3%~~15.9% for the comparable periods in the prior year, respectively. Professional services headcount at the end of ~~June 2022~~March 2023 increased to ~~1,083~~1,072 from ~~997~~1,059 at the end of ~~June 2021.~~March 2022.

Three months ended
June 30, Nine months ended
June 30,
2022 2021 2022 2021
(in thousands, except percentages)
Operating expenses
Sales and marketing $ 226,731 $ 237,375 $ 689,592 $ 696,829
Research and development 138,737 133,283 404,846 387,927
General and administrative 70,823 63,541 205,038 204,534
Restructuring charges — — 7,909 —
Total $ 436,291 $ 434,199 $ 1,307,385 $ 1,289,290
Operating expenses (as a percentage of net revenue)
Sales and marketing 33.6 % 36.4 % 34.5 % 36.3 %
Research and development 20.6 20.5 20.3 20.2
General and administrative 10.5 9.7 10.3 10.6
Restructuring charges — — 0.4 —
Total 64.7 % 66.6 % 65.5 % 67.1 %

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	Three months ended March 31,						Six months ended March 31,
	2023			2022			2023			2022
	(in thousands, except percentages)
Operating expenses
Sales and marketing	$	233,076		$	228,826		$	466,181		$	462,861
Research and development	141,363			135,838			283,686			266,109
General and administrative	67,036			68,554			137,027			134,215
Restructuring charges	—			—			8,740			7,909
Total	$	441,475		$	433,218		$	895,634		$	871,094
Operating expenses (as a percentage of net revenue)
Sales and marketing	33.2		%	36.1		%	33.2		%	35.0		%
Research and development	20.1			21.4			20.2			20.1
General and administrative	9.5			10.8			9.8			10.2
Restructuring charges	—			—			0.6			0.6
Total	62.8		%	68.3		%	63.8		%	65.9		%

Sales and 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 ~~decreased $10.6~~increased $4.3 million, or ~~4.5%~~1.9% for the three months ended ~~June 30, 2022~~March 31, 2023 and ~~decreased $7.2~~increased $3.3 million, or ~~1.0%~~0.7% for the ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 from the comparable periods in the prior year. The ~~decrease~~increase in sales and marketing expense for the three months ended ~~June 30, 2022~~March 31, 2023 was primarily due to ~~a decrease~~an increase of ~~$6.3~~$6.7 million in commissions from the comparable period in the prior year. ~~In addition, personnel costs~~The increase in sales and marketing expense for the ~~three~~six months ended ~~June 30, 2022 decreased $6.0~~March 31, 2023 was primarily due to an increase of $8.0 million in employee travel and customer outreach as well as an increase in commissions of $6.6 million from the comparable period in the prior year. The ~~decrease~~increase in sales and marketing expense for the ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 was ~~primarily related to a decrease of $13.0 million in commissions,~~ 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 ~~increase in employee travel and customer outreach~~impairment charge of ~~$7.5~~$6.2 million ~~from~~related to the ~~comparable period in~~write-off of the ~~prior year.~~Shape trade name intangible asset which offset the year-over-year increase. Sales and marketing headcount at the end of ~~June 2022~~March 2023 increased to ~~2,452~~2,480 from ~~2,449~~2,437 at the end of ~~June 2021.~~March 2022. Sales and marketing expenses included stock-based compensation expense of ~~$25.6~~$26.9 million and ~~$79.9~~$52.6 million for the three and ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, respectively, compared to ~~$26.4~~$27.6 million and ~~$78.7~~$54.4 million for the same periods in the prior year, respectively.

Research and Development. Research and development expenses consist of the salaries and related benefits of our product development personnel, prototype materials and other expenses related to the development of new and improved products, facilities and depreciation expenses. Research and development expenses increased $5.5 million, or 4.1% for the three months ended ~~June 30, 2022~~March 31, 2023 and increased ~~$16.9~~$17.6 million, or ~~4.4%~~6.6% for the ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 from the comparable periods in the prior year. The increase in research and development expense for the three months ended ~~June 30, 2022~~March 31, 2023 was primarily due to an increase of ~~$4.0~~$5.3 million in personnel costs from the comparable period in the prior year. The increase in research and development expense for the ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 was primarily related to an increase of ~~$18.2~~$17.1 million in personnel costs from the comparable period in the prior year. Research and development headcount at the end of ~~June 2022~~March 2023 increased to ~~2,093~~2,212 from ~~1,881~~2,019 at the end of ~~June 2021.~~March 2022. Research and development expenses included stock-based compensation expense of ~~$17.5~~$18.7 million and ~~$54.3~~$37.2 million for the three and ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, respectively, compared to ~~$17.3~~$18.2 million and ~~$50.0~~$36.8 million for the same periods in the prior year, respectively.

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General and Administrative. General and administrative expenses consist of the salaries, benefits and related costs of our executive, finance, information technology, human resource and legal personnel, third-party professional service fees, facilities and depreciation expenses. General and administrative expenses ~~increased $7.3~~decreased $1.5 million, or ~~11.5%~~2.2% for the three months ended ~~June 30, 2022~~March 31, 2023 and ~~was relatively flat~~increased $2.8 million, or 2.1% for the ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 from the comparable periods in the prior year. The increase in general and administrative expense for the three months ended June 30, 2022 was primarily due to an increase of $4.2 million in personnel costs from the comparable period in the prior year. General and administrative headcount at the end of ~~June 2022~~March 2023 increased to ~~951~~972 from ~~802~~905 at the end of ~~June 2021.~~March 2022. General and administrative expenses included stock-based compensation expense of ~~$11.6~~$10.9 million and ~~$33.4~~$21.9 million for the three and ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, respectively, compared to ~~$10.5~~$10.9 million and ~~$32.1~~$21.8 million for the same periods in the prior year, respectively.

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

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charges of $8.7 million and $7.9 million related to a reduction in workforce that is reflected in our results for the ~~nine~~six months ended ~~June 30, 2022.~~March 31, 2023 and 2022, respectively.


		Three months ended June 30,						Nine months ended June 30,							Three months ended March 31,						Six months ended March 31,
		2022			2021			2022			2021				2023			2022			2023			2022
		(in thousands, except percentages)													(in thousands, except percentages)
Other income and income taxes	Other income and income taxes													Other income and income taxes
Income from operations	Income from operations	$	107,464		$	96,412		$	296,262		$	267,661		Income from operations	$	106,046		$	74,647		$	197,258		$	188,798
Other expense, net		(6,221)			(2,163)			(10,586)			(4,223)
Other income (expense), net														Other income (expense), net	2,737			(1,934)			7,439			(4,365)
Income before income taxes	Income before income taxes	101,243			94,249			285,676			263,438			Income before income taxes	108,783			72,713			204,697			184,433
Provision for income taxes	Provision for income taxes	18,224			4,645			52,862			42,915			Provision for income taxes	27,347			16,477			50,859			34,638
Net income	Net income	$	83,019		$	89,604		$	232,814		$	220,523		Net income	$	81,436		$	56,236		$	153,838		$	149,795
Other income and income taxes (as percentage of net revenue)
Income from operations	Income from operations	15.9		%	14.8		%	14.8		%	13.9		%	Income from operations	15.1		%	11.8		%	14.1		%	14.3		%
Other expense, net	Other expense, net	(0.9)			(0.3)			(0.5)			(0.2)			Other expense, net	0.4			(0.3)			0.5			(0.3)
Income before income taxes	Income before income taxes	15.0			14.5			14.3			13.7			Income before income taxes	15.5			11.5			14.6			14.0
Provision for income taxes	Provision for income taxes	2.7			0.7			2.6			2.2			Provision for income taxes	3.9			2.6			3.6			2.7
Net income	Net income	12.3		%	13.8		%	11.7		%	11.5		%	Net income	11.6		%	8.9		%	11.0		%	11.3		%

Other ~~Expense,~~Income (Expense), Net. Other ~~expense,~~income (expense), net consists primarily of interest income and expense and foreign currency transaction gains and losses. The ~~decrease~~increase in other ~~expense,~~income (expense), net for the three months ended ~~June 30, 2022~~March 31, 2023 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 ~~loss~~gains of ~~$3.3 million. The decrease in other expense, net for the nine months ended June 30, 2022 was primarily due to an increase in foreign currency loss of $4.8~~$6.6 million and ~~a decrease~~an increase in interest income of ~~$1.6~~$5.7 million from our investments compared to the same period in the prior year.

Provision for Income Taxes. The effective tax rate was ~~18.0%~~25.1% and ~~18.5%~~24.8% for the three and ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, respectively, compared to ~~4.9%~~22.7% and ~~16.3%~~18.8% for the three and ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, respectively. The ~~increase~~change in the effective tax rate for the three and ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023, as compared to the three and ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022, is primarily due to the ~~discrete~~tax impact ~~from filing our fiscal year 2020 U.S. federal income tax return during the period ended June 30, 2021.~~of 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 ~~June 30, 2022~~March 31, 2023 and September 30, ~~2021~~2022 were ~~$168.7~~$231.7 million and ~~$125.8~~$180.6 million, respectively. The net deferred tax assets include valuation allowances of ~~$46.5~~$46.7 million and ~~$40.4~~$46.1 million as of ~~June 30, 2022~~March 31, 2023 and September 30, ~~2021,~~2022, respectively, which are primarily related to certain state and foreign net operating losses and 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

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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 ~~$757.5~~$760.0 million as of ~~June 30, 2022,~~March 31, 2023, compared to ~~$1,043.4~~$894.1 million as of September 30, ~~2021,~~2022, representing a decrease of ~~$285.9~~$134.1 million. The decrease was primarily due to ~~$500.0~~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 ~~and $68.0 million in cash paid for the acquisition of Threat Stack~~ in the first quarter of fiscal ~~2022.~~2023. The decrease was partially offset by cash provided by operating activities of ~~$288.3~~$298.6 million for the ~~nine~~six months ended ~~June 30, 2022.~~March 31, 2023.

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Cash provided by operating activities for the first ~~nine~~six months of fiscal year ~~2022~~2023 resulted from net income of ~~$232.8~~$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. Cash provided by operating activities for the first ~~nine~~six months of fiscal year ~~2022 decreased~~2023 increased from the comparable period in the prior year primarily due to an increase in cash received from customers, which partially offset strong ~~multi-year subscription sales~~billings and an increase in the ~~first three quarters~~balance of fiscal year 2022, which are generally sold on three-year terms. Multi-year subscriptions are billed on an annual basis with the remainder recognized on the balance sheet as unbilled assets. In addition, during the first and third quarters of fiscal year 2022, we had significant prepayments with our contract manufacturer associated with components for future hardware-based solution builds.accounts receivable.

Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the effects of the ~~COVID-19 pandemic and other~~ risks detailed in Part ~~II,~~I, Item 1A, ~~titled “Risk Factors”~~"Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2021.~~2022 and Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q. However, we anticipate our current cash, cash equivalents and investment balances, anticipated cash flows generated from operations, and available borrowing capacity on the Revolver Credit Facility will be sufficient to meet our liquidity needs.

Cash provided by investing activities was ~~$147.4~~$52.4 million for the ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, compared to cash ~~used in~~provided by investing activities of ~~$253.7~~$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. The amount of cash provided by investing activities for the ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 was primarily the result of ~~$178.4~~$95.8 million in maturities of investments and ~~$120.6~~$16.1 million in sales of investments, partially offset by ~~$68.0~~$35.0 million in cash paid for ~~the acquisition of Threat Stack~~acquisitions and $23.8 million in ~~the first quarter of fiscal 2022 and purchases of investments of $58.5 million.~~capital expenditures related to maintaining our operations worldwide.

Cash used in financing activities was ~~$470.2~~$377.4 million for the ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, compared to cash used in financing activities of ~~$461.2~~$248.2 million for the same period in the prior year. Our financing activities for the ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 primarily consisted of ~~$500.0~~$350.0 million inof cash used for the voluntary prepayment of the Term Loan Facility, as well as $40.0 million of cash used to repurchase ~~shares under our share repurchase program, as well as $18.9~~shares. In addition, $9.8 million in cash was used for taxes related to net share settlement of equity ~~awards and $15.0 million in cash used to make principal payments on our term loan.~~awards. Cash used in financing activities was partially offset by ~~$63.7 million of~~ cash received from the exercise of employee stock options and stock purchases under our employee stock purchase ~~plan.~~plan of $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 ~~June 30, 2022,~~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 ~~June 30, 2022,~~March 31, 2023, our principal commitments consisted of ~~borrowings under the Term Loan Facility and~~ obligations outstanding under operating ~~leases.~~

~~In connection~~leases and purchase obligations with the acquisition of Shape, on January 24, 2020, we entered into a Term Credit Agreement ("Term Credit Agreement") with certain institutional lenders that provides for a senior unsecured term loan facility in an aggregate principal amount of $400.0 million (the "Term Loan Facility"). The proceeds from the Term Loan Facility were primarily used to finance the acquisition of Shape and related expenses. As of June 30, 2022, $355.0 million of principal amount under the Term Loan Facility was outstanding. There is a financial covenant that requires us to maintain a leverage ratio, calculated as of the last day of each fiscal quarter, of consolidated total indebtedness to consolidated EBITDA. This covenant may result in a higher interest rate on our outstanding principal borrowings on the Term Loan Facility in future periods, depending on the Company's performance. Refer to Note 6one of our ~~Consolidated Financial Statements for the scheduled principal maturities of the Term Loan Facility as of June 30, 2022.~~

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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, ~~2021.~~2022.

In October 2022, we entered into an unconditional purchase commitment with one of our suppliers for the delivery of systems components. Under the terms of the agreement, we are obligated to purchase $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, we will, from time-to-time prepay our primary contract manufacturer for inventory 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

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 ~~June 30, 2022.~~March 31, 2023. We monitor our interest rate and credit risks, including our credit exposures to specific rating categories and to individual issuers. As of ~~June 30, 2022, 39%~~March 31, 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.

Refer to Note 6 of our Consolidated Financial Statements for information on our recent borrowings under the Term Loan Facility. Borrowings under the Term Loan Facility bear interest at a rate equal to, at our option, (a) LIBOR, adjusted for customary statutory reserves, plus an applicable margin of 1.125% to 1.75% depending on our leverage ratio, or (b) an alternate base rate determined in accordance with the Term Credit Agreement, plus an applicable margin of 0.125% to 0.750% depending on our leverage ratio.

The Term Loan Facility requires us to maintain a leverage ratio financial covenant, calculated as of the last day of each fiscal quarter, of consolidated total indebtedness to consolidated EBITDA. This covenant may result in a higher interest rate on our outstanding principal borrowings on the Term Loan Facility in future periods, depending on the Company's performance. At any time, a sharp rise in market interest rates could have a material adverse impact on the interest payable on outstanding principal borrowings on our Term Loan Facility. As of June 30, 2022, we have not noted any adverse impacts to interest rates that would have a material impact to interest owed on principal borrowings.

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 ~~nine~~six month period ended ~~June 30, 2022,~~March 31, 2023, compared to those discussed in our Annual Report on Form 10-K for the year ended September 30, ~~2021.~~

2022.

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Item 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")) which are designed to ensure that required information is recorded, processed, summarized and reported within the required timeframe, as specified in the rules set forth by the Securities Exchange Commission. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

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 ~~June 30, 2022~~March 31, 2023 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 ~~June 30, 2022.~~March 31, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended ~~June 30, 2022~~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

See Note 8 - 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

~~There have been no material changes to our risk factors from those described~~The following information updates, and should be read in conjunction with, the information discussed in Part 1,I, Item ~~1A, "Risk Factors" of~~1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2021,~~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.

Continued macroeconomic downturns or uncertainties may harm our industry, 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 ~~was filed with~~may in turn, limit our ability to forecast future business activities involving our products and services. Prolonged adverse macroeconomic conditions both in the ~~Securities~~U.S. and ~~Exchange Commission on November 16, 2021.~~abroad, including, but not limited to, rising interest rates to combat inflationary pressures of goods and services, challenges in the financial and credit 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 impacts from the macroeconomic environment have led to a slowing of global economic growth. Continued worsening of macroeconomic conditions could adversely affect our business, financial condition, results of operations and cash flows through, among others, softer demand of our products and services as well as unfavorable increases to our operating costs, which could negatively impact our profitability.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

~~Shares repurchased and retired for the three months ended June 30, 2022 are as follows (in thousands, except shares and per share data):~~

Total Number
of Shares
Purchased1
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 Plan2
April 1, 2022 — April 30, 2022 102,762 $ 169.80 102,762 $ 505,039
May 1, 2022 — May 31, 2022 1,372,741 $ 170.97 1,360,269 $ 272,488
June 1, 2022 — June 30, 2022 — — — $ 272,488

~~(1)Includes 12,472 shares withheld from restricted stock units that vested in the third quarter of 2022 to satisfy minimum tax withholding obligations that arose on the vesting of restricted stock units.~~

~~(2)~~Shares withheld from restricted stock units that vested to satisfy minimum tax withholding obligations that arose on the vesting of such awards do not deplete the dollar amount available for purchases under the repurchase program.

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Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

None.

Item 6.Exhibits


Exhibit Number		Exhibit Description

10.1	—	F5, Inc. Incentive Plan, as amended and restated (1) §

10.2	—	F5, Inc. Employee Stock Purchase Plan, as amended and restated (2) §

10.3	—	Severance Agreement by Haiyan Song and F5, Inc. (3) §

10.4	—	F5, Inc. Assumed Lilac Cloud 2018 Equity Incentive Plan (4) §

10.5	—	F5, Inc. Lilac Acquisition Equity Incentive Plan (5) §

31.1*	—	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*	—	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*	—	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*	—	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH*	—	Inline XBRL Taxonomy Extension Schema Document

101.CAL*	—	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*	—	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*	—	Inline XBRL Taxonomy Extension Label Linkbase Document

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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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 5th day of ~~August, 2022.~~May, 2023.


			F5, INC.

			By:						/s/ FRANCIS J. PELZER
									Francis J. Pelzer
									Executive Vice President,
									Chief Financial Officer
									(principal financial officer and principal accounting officer)

3532


			Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)			4
Consolidated Balance Sheets			4
Consolidated Income Statements			5
Consolidated Statements of Comprehensive Income			6
Consolidated Statements of Shareholders' Equity			7
Consolidated Statements of Cash Flows			9
Notes to Consolidated Financial Statements			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2422
Item 3. Quantitative and Qualitative Disclosures About Market Risk			3129
Item 4. Controls and Procedures			3229
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			3330
Item 1A. Risk Factors			3330
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			3330
Item 4. Mine Safety Disclosures			3431
Item 5. Other Information			3431
Item 6. Exhibits			3431
SIGNATURES			3532


				Gross Unrealized						Classification on Balance Sheet
As of September 30, 2021	Fair Value Level	Cost or Amortized Cost		Gains		Losses		Aggregate Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Changes in fair value recorded in other comprehensive income
Money Market Funds	Level 1	$	17,150	$	—	$	—	$	17,150	$	17,150	$	—	$	—
Certificates of deposit	Level 2	255		—		—		255		—		255		—
Corporate bonds and notes	Level 2	243,568		129		(86)		243,611		4,397		186,107		53,107
Municipal bonds and notes	Level 2	24,684		2		(9)		24,677		—		13,566		11,111
U.S. government securities	Level 2	162,221		14		(12)		162,223		—		102,615		59,608
U.S. government agency securities	Level 2	36,053		—		(14)		36,039		—		27,087		8,952




Total investments		$	483,931	$	145	$	(121)	$	483,955	$	21,547	$	329,630	$	132,778


	Total Number of Shares Purchased1	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 Plan2
April 1, 2022 — April 30, 2022	102,762	$	169.80	102,762	$	505,039
May 1, 2022 — May 31, 2022	1,372,741	$	170.97	1,360,269	$	272,488
June 1, 2022 — June 30, 2022	—	—		—	$	272,488