UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~March~~December 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 ~~April 28, 2023~~January 30, 2024 was ~~60,468,009.~~58,806,232.

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F5, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended ~~March~~December 31, 2023

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

F5, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)


			March 31, 2023		September 30, 2022
		December 31, 2023						December 31, 2023	September 30, 2023
ASSETS	ASSETS
Current assets	Current assets
Current assets
Current assets
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents	Cash and cash equivalents		$	734,544	$	758,012
Short-term investments	Short-term investments		20,710		126,554
Accounts receivable, net of allowances of $5,181 and $6,020			485,622		469,979
Accounts receivable, net of allowances of $3,879 and $3,561
Inventories	Inventories		50,745		68,365
Other current assets	Other current assets		533,554		489,314
Total current assets	Total current assets		1,825,175		1,912,224
Property and equipment, net	Property and equipment, net		169,771		168,182
Operating lease right-of-use assets	Operating lease right-of-use assets		216,293		227,475
Long-term investments	Long-term investments		4,736		9,544
Deferred tax assets	Deferred tax assets		235,109		183,365
Goodwill	Goodwill		2,288,635		2,259,282
Other assets, net	Other assets, net		483,532		516,122
Total assets	Total assets		$	5,223,251	$	5,276,194
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities	Current liabilities
Current liabilities
Current liabilities
Accounts payable
Accounts payable
Accounts payable	Accounts payable		$	69,952	$	113,178
Accrued liabilities	Accrued liabilities		295,533		309,819
Deferred revenue	Deferred revenue		1,160,118		1,067,182
Current portion of long-term debt			—		349,772

Total current liabilities
Total current liabilities
Total current liabilities	Total current liabilities		1,525,603		1,839,951
Deferred tax liabilities	Deferred tax liabilities		3,401		2,781
Deferred revenue, long-term	Deferred revenue, long-term		636,194		624,398
Operating lease liabilities, long-term	Operating lease liabilities, long-term		259,916		272,376

Other long-term liabilities
Other long-term liabilities
Other long-term liabilities	Other long-term liabilities		72,578		67,710
Total long-term liabilities	Total long-term liabilities		972,089		967,265
Commitments and contingencies (Note 8)	Commitments and contingencies (Note 8)						Commitments and contingencies (Note 8)
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		—		—
Common stock, no par value; 200,000 shares authorized, 60,465 and 59,860 shares issued and outstanding			190,592		91,048
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, 58,797 and 59,207 shares issued and outstanding
Accumulated other comprehensive loss	Accumulated other comprehensive loss		(22,977)		(26,176)
Retained earnings	Retained earnings		2,557,944		2,404,106
Total shareholders' equity	Total shareholders' equity		2,725,559		2,468,978
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity		$	5,223,251	$	5,276,194

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

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F5, INC.

CONSOLIDATED INCOME STATEMENTS

(unaudited, in thousands, except per share ~~data)~~amounts)


			Three months ended March 31,				Six months ended March 31,
		Three months ended December 31,											Three months ended December 31,
			2023		2022		2023		2022		2023	2022
Net revenues	Net revenues
Products
Products
Products	Products		$	340,581	$	297,518	$	681,139	$	640,667
Services	Services		362,594		336,706		722,414		680,657
Total	Total		703,175		634,224		1,403,553		1,321,324
Cost of net revenues	Cost of net revenues
Products
Products
Products	Products		99,795		71,234		198,650		152,896
Services	Services		55,859		55,125		112,011		108,536
Total	Total		155,654		126,359		310,661		261,432
Gross profit	Gross profit		547,521		507,865		1,092,892		1,059,892
Operating expenses	Operating expenses
Sales and marketing	Sales and marketing		233,076		228,826		466,181		462,861
Sales and marketing
Sales and marketing
Research and development	Research and development		141,363		135,838		283,686		266,109
General and administrative	General and administrative		67,036		68,554		137,027		134,215
Restructuring charges	Restructuring charges		—		—		8,740		7,909
Total	Total		441,475		433,218		895,634		871,094
Income from operations	Income from operations		106,046		74,647		197,258		188,798
Other income (expense), net			2,737		(1,934)		7,439		(4,365)
Other income, net
Income before income taxes	Income before income taxes		108,783		72,713		204,697		184,433
Provision for income taxes	Provision for income taxes		27,347		16,477		50,859		34,638
Net income	Net income		$	81,436	$	56,236	$	153,838	$	149,795
Net income per share — basic	Net income per share — basic		$	1.35	$	0.93	$	2.55	$	2.47
Weighted average shares — basic	Weighted average shares — basic		60,330		60,573		60,211		60,693
Net income per share — diluted	Net income per share — diluted		$	1.34	$	0.92	$	2.54	$	2.43
Weighted average shares — diluted	Weighted average shares — diluted		60,691		61,405		60,537		61,661

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

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F5, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)

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


	Three months ended December 31,
	2023		2022
Net income	$	138,382	$	72,402
Other comprehensive income:
Foreign currency translation adjustment	2,504		2,250
Available-for-sale securities:
Unrealized gains on securities, net of taxes of $12 and $114 for the three months ended December 31, 2023 and 2022, respectively	49		767
Reclassification adjustment for realized losses included in net income, net of taxes of $0 and $20 for the three months ended December 31, 2023 and 2022, respectively	—		(60)
Net change in unrealized gains and losses on available-for-sale securities, net of tax	49		707
Total other comprehensive income	2,553		2,957
Comprehensive income	$	140,935	$	75,359

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

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F5, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited, in thousands)

Common Stock Accumulated
Other
Comprehensive
Loss Retained
Earnings Total
Shareholders’
Equity
Shares Amount
Three months ended March 31, 2022
Balances, December 31, 2021 60,711 $ 145,189 $ (21,215) $ 2,281,387 $ 2,405,361
Exercise of employee stock options 46 1,048 — — 1,048
Issuance of restricted stock 334 — — — —
Repurchase of common stock (610) (125,012) — — (125,012)
Taxes paid related to net share settlement of equity awards (16) (3,222) — — (3,222)
Stock-based compensation — 64,130 — — 64,130
Net income — — — 56,236 56,236
Other comprehensive loss — — (1,413) — (1,413)
Balances, March 31, 2022 60,465 $ 82,133 $ (22,628) $ 2,337,623 $ 2,397,128
Three months ended March 31, 2023
Balances, December 31, 2022 60,117 $ 129,060 $ (23,219) $ 2,476,508 $ 2,582,349
Exercise of employee stock options 12 281 — — 281
Issuance of restricted stock 355 — — — —
Taxes paid related to net share settlement of equity awards (19) (2,788) — — (2,788)
Stock-based compensation — 64,039 — — 64,039
Net income — — — 81,436 81,436
Other comprehensive income — — 242 — 242
Balances, March 31, 2023 60,465 $ 190,592 $ (22,977) $ 2,557,944 $ 2,725,559

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											Common Stock	Accumulated Other Comprehensive Loss	Retained Earnings	Total Shareholders’ Equity
		Six months ended March 31, 2022
Balances, September 30, 2021		60,652	$	192,458	$	(20,073)	$	2,187,828	$	2,360,213
Exercise of employee stock options		96	2,303		—		—		2,303
Issuance of stock under employee stock purchase plan		169	26,325		—		—		26,325
Issuance of restricted stock		775	—		—		—		—
Repurchase of common stock		(1,148)	(250,023)		—		—		(250,023)

Taxes paid related to net share settlement of equity awards		(79)	(16,816)		—		—		(16,816)
Stock-based compensation		—	127,886		—		—		127,886
Net income		—	—		—		149,795		149,795
Other comprehensive loss		—	—		(2,555)		—		(2,555)
Balances, March 31, 2022		60,465	$	82,133	$	(22,628)	$	2,337,623	$	2,397,128
		Three months ended December 31, 2022

		Three months ended December 31, 2022
		Six months ended March 31, 2023
		Three months ended December 31, 2022
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		60,465	$	190,592	$	(22,977)	$	2,557,944	$	2,725,559
Balances, December 31, 2022

		Three months ended December 31, 2023
		Three months ended December 31, 2023
		Three months ended December 31, 2023
Balances, September 30, 2023
Exercise of employee stock options
Issuance of stock under employee stock purchase plan
Issuance of restricted stock
Repurchase of common stock, including excise taxes
Taxes paid related to net share settlement of equity awards
Stock-based compensation
Net income
Other comprehensive income
Balances, December 31, 2023

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

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F5, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


		Six months ended March 31,				Three months ended December 31,
		2023		2022		2023	2022
Operating activities	Operating activities
Net income	Net income	$	153,838	$	149,795
Net income
Net income
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
Stock-based compensation	Stock-based compensation	126,913		127,886
Depreciation and amortization	Depreciation and amortization	54,817		59,798
Non-cash operating lease costs	Non-cash operating lease costs	20,231		19,363
Deferred income taxes	Deferred income taxes	(49,492)		(15,832)
Impairment of assets		—		6,175

Other	Other	1,878		(439)
Changes in operating assets and liabilities (excluding effects of the acquisition of businesses):
Other
Other
Changes in operating assets and liabilities:
Accounts receivable
Accounts receivable
Accounts receivable	Accounts receivable	(14,317)		(72,777)
Inventories	Inventories	17,620		(5,828)
Other current assets	Other current assets	(43,547)		(60,896)
Other assets	Other assets	9,354		(27,893)
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	(59,534)		(35,649)
Deferred revenue	Deferred revenue	102,933		99,303
Lease liabilities	Lease liabilities	(22,140)		(26,131)
Net cash provided by operating activities	Net cash provided by operating activities	298,554		216,875
Investing activities	Investing activities
Purchases of investments	Purchases of investments	(689)		(53,715)
Purchases of investments
Purchases of investments
Maturities of investments	Maturities of investments	95,773		96,349
Sales of investments	Sales of investments	16,085		78,988
Acquisition of businesses, net of cash acquired		(35,006)		(67,911)

Purchases of property and equipment	Purchases of property and equipment	(23,793)		(15,792)
Net cash provided by investing activities		52,370		37,919
Purchases of property and equipment
Purchases of property and equipment
Net cash (used in) provided by investing 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	22,461		28,628
Repurchase of common stock		(40,005)		(250,023)
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
Payments for repurchase of common stock

Payments on term debt agreement
Payments on term debt agreement
Payments on term debt agreement	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	(9,825)		(16,816)
Taxes paid related to net share settlement of equity awards
Taxes paid related to net share settlement of equity awards
Net cash used in financing activities	Net cash used in financing activities	(377,369)		(248,211)
Net (decrease) increase in cash, cash equivalents and restricted cash		(26,445)		6,583
Net increase (decrease) in cash, cash equivalents and restricted cash
Effect of exchange rate changes on cash, cash equivalents and restricted cash	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	762,207		584,333
Cash, cash equivalents and restricted cash, end of period	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
Cash paid for amounts included in the measurement of operating lease liabilities	Cash paid for amounts included in the measurement of operating lease liabilities	$	27,200	$	30,346
Cash paid for amounts included in the measurement of operating lease liabilities
Cash paid for amounts included in the measurement of operating lease liabilities
Cash paid for interest on long-term debt	Cash paid for interest on long-term debt	2,970		2,383
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	$	9,577	$	818
Right-of-use assets obtained in exchange for lease obligations
Right-of-use assets obtained in exchange for lease obligations

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.

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, ~~2022.~~2023.

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

New Accounting Pronouncements

~~There have been no material changes in recently~~In December 2023, the Financial Accounting Standards Board (“FASB”) issued ~~or adopted accounting standards from those disclosed in the Company's Annual Report on Form 10-K~~Accounting Standards Update ("ASU") No. 2023-09 , Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-19"). This ASU requires disclosure of disaggregated income taxes paid, prescribes standard categories for the ~~fiscal year ended September 30, 2022.~~components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. ASU 2023-09 will be effective for annual periods beginning after December 15, 2024. Early adoption is permitted. This ASU will impact our income tax disclosures, but not our consolidated financial statements.

2. Revenue from Contracts with Customers

Capitalized Contract Acquisition Costs

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


			Six months ended March 31,
			2023		2022
		Three months ended December 31,						Three months ended December 31,
		2023					2023		2022
Balance, beginning of period	Balance, beginning of period		$	77,220	$	77,836
Additional capitalized contract acquisition costs	Additional capitalized contract acquisition costs		13,123		18,530
Amortization of capitalized contract acquisition costs	Amortization of capitalized contract acquisition costs		(19,134)		(19,092)
Balance, end of period	Balance, end of period		$	71,209	$	77,274

Amortization of capitalized contract acquisition costs was ~~$9.4~~$9.1 million and $9.7 million for the three months ended ~~March~~December 31, 2023 and 2022, respectively, ~~and $19.1 million for the six months ended March 31, 2023 and 2022,~~ and is recorded in Sales and Marketing expense in the accompanying consolidated income statements. There was no impairment of any capitalized contract acquisition costs during any period presented.

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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 satisfaction

~~Table of Contents~~

of performance obligations, or for contracts with 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 ~~six~~three months ended ~~March~~December 31, 2023 and 2022 (in thousands):


			Six months ended March 31,
			2023		2022
		Three months ended December 31,						Three months ended December 31,
		2023					2023		2022
Balance, beginning of period	Balance, beginning of period		$	1,691,580	$	1,489,841
Amounts added but not recognized as revenues	Amounts added but not recognized as revenues		785,122		723,631
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
Revenues recognized related to the opening balance of deferred revenue	Revenues recognized related to the opening balance of deferred revenue		(682,190)		(624,327)
Balance, end of period	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 ~~March~~December 31, 2023, the total non-cancelable remaining performance obligations under the Company's contracts with customers was $1.8 billion and the Company expects to recognize revenues on approximately ~~64.6%~~64.8% of these remaining performance obligations over the next 12 months, ~~22.5%~~22.4% in year two, and the remaining balance thereafter.

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

3. Fair Value Measurements

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

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

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.

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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.

~~Table of Contents~~

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

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

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


					Gross Unrealized						Classification on Balance Sheet										Gross Unrealized				Classification on Balance Sheet
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)
December 31, 2023																	December 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
Money Market Funds
Money Market Funds
Money Market Funds	Money Market Funds	Level 1	$	160,242	$	—	$	—	$	160,242	$	160,242	$	—	$	—

Corporate bonds and notes	Corporate bonds and notes	Level 2	15,044		—		(260)		14,784		—		14,012		772
Corporate bonds and notes
Corporate bonds and notes
Municipal bonds and notes	Municipal bonds and notes	Level 2	2,172		—		(59)		2,113		—		2,113		—
U.S. government securities		Level 2	4,361		—		(60)		4,301		1,463		2,838		—
U.S. government agency securities		Level 2	1,784		—		(37)		1,747		—		1,747		—

Total debt investments

Total debt investments

Total debt investments	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)
Equity investments	Equity investments	*							$	3,964	$	—	$	—	$	3,964
Equity investments
Equity investments
Total equity investments	Total equity investments								3,964		—		—		3,964
Total investments	Total investments								$	187,151	$	161,705	$	20,710	$	4,736

* The fair value of this equity investment is measured at net asset value ~~(NAV)~~("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

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				Gross Unrealized						Classification on Balance Sheet
September 30, 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
Money Market Funds	Level 1	$	392,592	$	—	$	—	$	392,592	$	392,592	$	—	$	—

Corporate bonds and notes	Level 2	4,412		—		(88)		4,324		—		4,324		—
Municipal bonds and notes	Level 2	1,108		—		(9)		1,099		—		1,099		—

U.S. government agency securities	Level 2	740		—		(3)		737		—		737		—
Total debt investments		$	398,852	$	—	$	(100)	$	398,752	$	392,592	$	6,160	$	—
Changes in fair value recorded in other net income (expense)
Equity investments	*							$	5,068	$	—	$	—	$	5,068
Total equity investments								5,068		—		—		5,068
Total investments								$	403,820	$	392,592	$	6,160	$	5,068

* 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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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 cash and cash equivalents and investments was ~~not material~~$7.9 million and $3.2 million for the three ~~and six~~ months ended ~~March~~December 31, 2023 and ~~2022.~~2022, respectively. Interest income is included in other income (expense), net on the Company's consolidated income statements. Unrealized losses on investments held for a period greater than 12 months at ~~March~~December 31, 2023 and September 30, ~~2022~~2023 were not material.

The Company invests in debt securities that are rated investment grade. The Company reviews the individual debt securities in its portfolio to determine whether a credit loss exists by comparing the extent to which the fair value is less than the amortized cost and considering any changes to ratings of a debt security by a ratings agency. The Company determined that as of ~~March~~December 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 long-lived assets, ~~and liabilities,~~ which include goodwill ~~intangible assets,~~ and ~~long-lived~~other intangible 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.

The Company did not recognize any impairment charges related to ~~its intangible~~non-financial long-lived assets ~~during~~for the three months ended ~~March~~December 31, 2023 and 2022, or in the six months ended March 31, 2023. In the first quarter of fiscal 2022, as a result of a planned change in the use of the asset, the Company recorded an impairment of $6.2 million against the Shape trade name intangible asset, which was reflected in the Sales and Marketing line item on the Company's consolidated income statement.

~~During the three and six months ended March 31, 2023 and 2022, the Company did not recognize any impairment charges related to goodwill or long-lived assets.~~2022.

4. Business Combinations

Fiscal Year 2023 Acquisition ~~of Lilac Cloud, Inc.~~

~~On January 22,~~In February 2023, the Company ~~entered into a Merger Agreement (the “Lilac Merger Agreement”) with~~acquired Lilac Cloud, Inc. ("Lilac"), a provider of innovative application delivery services. The ~~transaction closed on February 1, 2023 with~~acquired assets and assumed liabilities of Lilac ~~becoming~~were not material. The Company recorded $29.4 million of goodwill as a ~~wholly-owned subsidiary~~result of ~~F5.~~the acquisition. The addition of Lilac’s Content Delivery Network ("CDN") technologies will enhance F5’s portfolio of solutions that secure and optimize any application and Application Programming Interface ("API") anywhere. The acquisition ~~of Lilac~~ did not have a material impact to the Company's operating results. 

~~Fiscal Year 2022 Acquisition of Threat Stack, Inc.~~

In September 2021, the Company entered into a Merger Agreement (the “Threat Stack Merger Agreement”) with Threat Stack, Inc. ("Threat Stack"), a provider of cloud security and workload protection solutions. The transaction closed on October 1, 2021 with Threat Stack becoming a wholly-owned subsidiary of F5. The addition of Threat Stack’s cloud security capabilities to F5’s application and API protection solutions is expected to enhance visibility across application infrastructure and workloads to deliver more actionable security insights for customers.

Pursuant to the Threat Stack Merger Agreement, at the effective time of the Merger, the capital stock of Threat Stack and the vested outstanding and unexercised stock options in Threat Stack were cancelled and converted to the right to receive approximately $68.9 million in cash, subject to certain adjustments and conditions set forth in the Threat Stack Merger Agreement. Transaction costs associated with the acquisition were not material.

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

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~~The 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~~

~~14,041~~

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

~~5,481~~

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

~~911~~

~~Identifiable intangible assets:~~

~~Developed technology~~

~~11,400~~

~~5 years~~

~~Customer relationships~~

~~4,400~~

~~5 years~~

~~Goodwill~~

~~43,282~~

~~Total assets acquired~~

~~79,515~~

~~Liabilities assumed~~

~~Deferred revenue~~

~~(10,591)~~

~~Total liabilities assumed~~

~~(10,591)~~

~~Net assets acquired~~

~~68,924~~

The measurement period for the Threat Stack acquisition lapsed during the first quarter of fiscal 2023. The Company recorded immaterial adjustments to consideration exchanged for the purchase of Threat Stack within the post-close measurement period.

The developed technology intangible asset is amortized on a straight-line basis over its estimated useful life of five years and included in cost of net product revenues. The customer relationships intangible asset is amortized on a straight-line basis over its estimated useful life of five years and included in sales and marketing expenses. The weighted-average life of the 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.

~~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.~~

5. Balance Sheet Details

Cash, Cash Equivalents and Restricted Cash

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


		March 31, 2023		September 30, 2022		December 31, 2023	September 30, 2023
Cash and cash equivalents	Cash and cash equivalents	$	734,544	$	758,012
Restricted cash included in other assets, net	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	$	738,741	$	762,207

Inventories

Inventories consist of the following (in thousands):

March 31,
2023 September 30,
2022
Finished goods $ 9,697 $ 10,164
Raw materials 41,048 58,201
$ 50,745 $ 68,365

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	December 31, 2023		September 30, 2023
Finished goods	$	13,453	$	11,699
Raw materials	22,387		24,175
	$	35,840	$	35,874

Other Current Assets

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


			March 31, 2023		September 30, 2022
		December 31, 2023					December 31, 2023	September 30, 2023
Unbilled receivables	Unbilled receivables		$	339,029	$	319,707
Prepaid expenses	Prepaid expenses		87,430		57,340
Capitalized contract acquisition costs	Capitalized contract acquisition costs		33,031		34,658
Other1	Other1		74,064		77,609
			$	533,554	$	489,314
		$

(1) As of ~~March~~December 31, 2023 and September 30, ~~2022,~~2023, includes a deposit of ~~$47.5~~$34.1 million and ~~$57.0~~$36.2 million, respectively, used to support the working capital needs of the Company’s primary contract manufacturer's procurement of components used in the manufacturing of system hardware.

Other Assets

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


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

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Accrued Liabilities

Accrued liabilities consist of the following (in thousands):


			March 31, 2023		September 30, 2022		December 31, 2023	September 30, 2023
Payroll and benefits	Payroll and benefits		$	162,588	$	165,437
Operating lease liabilities, current	Operating lease liabilities, current		43,215		42,523
Income and other tax accruals	Income and other tax accruals		38,375		41,217
Other	Other		51,355		60,642
			$	295,533	$	309,819
		$

Other Long-term Liabilities

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


			March 31, 2023		September 30, 2022
		December 31, 2023					December 31, 2023	September 30, 2023
Income taxes payable	Income taxes payable		$	64,151	$	59,553

Other	Other		8,427		8,157
			$	72,578	$	67,710
Other
Other
		$

6. Debt Facilities

Term Credit Agreement

In connection with the acquisition of Shape, on January 24, 2020, the Company entered into a Term Credit Agreement ("Term Credit Agreement") with certain institutional lenders that provides for a senior unsecured term loan facility in an aggregate principal amount of $400.0 million (the "Term Loan Facility"). The Term Loan Facility had an original maturity date of January 24, 2023 with quarterly installments equal to 1.25% of the original principal amount. Borrowings under the Term Loan Facility bore interest at a rate equal to LIBOR, plus an applicable margin of 1.125% to 1.75% depending on the Company's leverage ratio. The proceeds from the Term Loan Facility were primarily used to finance the acquisition of Shape and related expenses. In connection with the Term Loan Facility, the Company incurred $2.2 million in debt issuance costs, which were recorded as a reduction to the carrying value of the principal amount of the debt.

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On December 15, 2022, the Company voluntarily prepaid, in full, all borrowings under the Term Loan Facility, including the outstanding principal balance of $350.0 million, and all accrued, but unpaid interest outstanding of $3.0 million. All remaining debt issuance costs were amortized to interest expense associated with the prepayment. As a result of the payoff of its Term Loan Facility, the Company was released of any and all obligations, maintenance of covenants, and indebtedness under the Term Credit Agreement. The weighted average interest rate on the principal amount under the Term Loan Facility outstanding balance was 4.072% for the period of October 1, 2022 to December 15, 2022.

As of September 30, 2022, $350.0 million of principal amount under the Term Loan Facility was outstanding, excluding unamortized debt issuance costs of $0.2 million. The weighted average interest rate on the principal amount under the Term Loan Facility outstanding balance was 1.282% for the three and six months ended March 31, 2022, respectively.

Revolving Credit Agreement

On January 31, 2020, the Company entered into a Revolving Credit Agreement (the "Revolving Credit Agreement") that provides for a senior unsecured revolving credit facility in an aggregate principal amount of $350.0 million (the "Revolving Credit Facility"). The Company has the option to increase commitments under the Revolving Credit Facility from time to time, subject to certain conditions, by up to $150.0 million. ~~Borrowings~~Historically, borrowings under the Revolving Credit Facility bore 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. On May 26, 2023, the Company amended the Revolving Credit Agreement as a result of the cessation of the LIBOR borrowing reference rate. The amendment modified and directly replaced the LIBOR borrowing reference rate within the Revolving Credit Agreement to the Secured Overnight Financing Rate ("SOFR"). After the amendment, 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,~~SOFR plus 0.10%, plus an applicable margin of 1.125% to 1.75% depending on the Company's leverage ratio, or (b) an alternate base rate determined in accordance with the Revolving Credit Agreement, plus an applicable margin of 0.125% to 0.750% depending on the Company's leverage ratio. The Revolving Credit Agreement also requires payment of a commitment fee calculated at a rate per annum of 0.125% to 0.300% depending on the Company's leverage ratio on the undrawn portion of the Revolving Credit Facility. Commitment fees incurred during the three ~~and six~~ months ended ~~March~~December 31, 2023 were not material.

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The Revolving Credit Facility matures on January 31, 2025, at which time any remaining outstanding principal of borrowings under the Revolving Credit Facility is due. The Company has the option to request up to two extensions of the maturity date in each case for an additional period of one year. Among certain affirmative and negative covenants provided in the Revolving Credit Agreement, there is a financial covenant that requires the Company to maintain a leverage ratio, calculated as of the last day of each fiscal quarter, of consolidated total indebtedness to consolidated EBITDA. As of ~~March~~December 31, 2023, the Company was in compliance with all covenants. As of ~~March~~December 31, 2023, there were no outstanding borrowings under the Revolving Credit Facility, and the Company had available borrowing capacity of $350.0 million.

7. Leases

The majority of the Company's operating lease payments relate to its corporate headquarters in Seattle, Washington, which includes approximately 515,000 square feet of office space. The lease commenced in April 2019 and expires in 2033 with an option for renewal. The Company also leases additional office and lab space for product development and sales and support personnel in the United States and internationally. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of the Company's operating lease expenses for the three ~~and six~~ months ended ~~March~~December 31, 2023 and 2022 were as follows (in thousands):


			Three months ended March 31,				Six months ended March 31,
		Three months ended December 31,											Three months ended December 31,
			2023		2022		2023		2022		2023	2022
Operating lease expense	Operating lease expense		$	12,181	$	11,870	$	24,697	$	23,784
Short-term lease expense	Short-term lease expense		744		619		1,399		1,175
Variable lease expense	Variable lease expense		5,650		6,034		10,986		12,278
Total lease expense	Total lease expense		$	18,575	$	18,523	$	37,082	$	37,237

Variable lease expense primarily consists of common area maintenance, real estate taxes and parking expenses.

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Supplemental balance sheet information related to the Company's operating leases was as follows (in thousands, except lease term and discount rate):


			March 31, 2023			September 30, 2022
		December 31, 2023										December 31, 2023			September 30, 2023
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net		$	216,293		$	227,475

Operating lease liabilities, current1
Operating lease liabilities, current1
Operating lease liabilities, current1	Operating lease liabilities, current1		43,215			42,523
Operating lease liabilities, long-term	Operating lease liabilities, long-term		259,916��			272,376
Total operating lease liabilities	Total operating lease liabilities		$	303,131		$	314,899

Weighted average remaining lease term (in years)	Weighted average remaining lease term (in years)		8.8			9.2
Weighted average remaining lease term (in years)
Weighted average remaining lease term (in years)										8.4			8.6
Weighted average discount rate	Weighted average discount rate		2.73		%	2.66		%	Weighted average discount rate	2.83	%		2.77	%

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

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As of ~~March~~December 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
2023 (remainder)		$	25,738
2024		49,002
2024 (remainder)
2025	2025	41,249
2026	2026	31,530
2027	2027	30,310
2028	2028	28,444
2029
Thereafter	Thereafter	138,797
Total lease payments	Total lease payments	345,070
Less: imputed interest	Less: imputed interest	(41,939)
Total lease liabilities	Total lease liabilities	$	303,131

Operating lease liabilities above do not include sublease income. As of ~~March~~December 31, 2023, the Company expects to receive sublease income of approximately ~~$18.3~~$12.8 million, which consists of ~~$3.9~~$5.4 million to be received for the remainder of fiscal ~~2023~~2024 and ~~$14.4~~$7.4 million to be received over the ~~three~~two fiscal years thereafter. ~~There were no impairments against right-of-use assets for the three and six months ended March 31, 2023 and 2022.~~

As of ~~March~~December 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~~its systems product offerings. Additional warranty coverage can be purchased by customers ~~without~~through service ~~contracts, with the option of purchasing additional warranty coverage~~maintenance agreements in yearly increments. The Company accrues for warranty costs as part of its cost of sales based on associated material product costs and technical support labor costs. Accrued warranty costs as of ~~March~~December 31, 2023 and September 30, ~~2022~~2023 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~~$10.0 million of component inventory annually, with a total committed amount of ~~$40~~$40.0 million over a four-year term. As of ~~March~~December 31, 2023, the Company ~~has $1.2~~had $0.2 million of remaining ~~purchases~~purchase commitments under the ~~first~~second year of ~~its commitment.~~the agreement. The Company's total non-cancelable long-term purchase commitments outstanding as of ~~March~~December 31, 2023 was ~~$31.2~~$20.2 million.

The Company leases its facilities under operating leases that expire at various dates through 2033. There have been no material changes in the Company's lease obligations compared to those discussed in Note 7 to its annual consolidated financial statements.

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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 asserted 26 causes of action against the various defendants, including copyright infringement, violation of trademark law, tortious interference, conspiracy, and fraud. The complaint sought damages, disgorgement of profits, 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 Lynwood’s case. On March 25 and 30, 2021, the Court granted the Company’s and the other defendants’ motions to dismiss with leave to amend. Lynwood filed its amended complaint on April 29, 2021, seeking the same relief against the Company and other defendants. On May 27, 2021, the Company and other defendants filed a consolidated motion to dismiss.

The Court granted the consolidated motion to dismiss without leave to amend on August 16, 2022 and entered final judgment against Lynwood on September 9, 2022. On September 14, 2022, Lynwood filed a notice of appeal to the Ninth Circuit Court of Appeals to appeal the dismissal. Lynwood filed its opening brief on December 16, 2022. The Company filed its opening appellate brief on April 10, ~~2023. Lynwood’s~~2023, and Lynwood filed its reply ~~brief is due~~on 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 Court subsequently granted the Company ~~filed a motion for an award~~attorneys' fees of ~~attorneys’~~over $0.8 million, which Lynwood appealed to the Ninth Circuit Court of Appeals. The dismissal appeal and the fees ~~and costs incurred in defending against Lynwood’s claim of direct copyright infringement and related claims that~~appeal were ~~dismissed~~heard by the ~~Court. The Company’s motion for attorneys’ fees was granted~~Ninth Circuit Court of Appeals on December ~~19, 2022 and after further briefing, the~~7, 2023. The Court of Appeals has not yet ruled on ~~April 11, 2023 that~~ the ~~Company is entitled to an award of $0.8 million in attorneys’ fees.~~appeals.

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 determine if an unfavorable outcome is probable or estimate any potential amount or range of possible loss of these or similar 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.

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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 ~~25.1%~~20.7% and ~~24.8%~~24.5% for the three ~~and six~~ months ended ~~March~~December 31, 2023 ~~respectively, compared to 22.7%~~ and ~~18.8% for the three and six months ended March 31,~~ 2022, respectively. The ~~change~~decrease in the effective tax rate for the three ~~and six~~ months ended ~~March~~December 31, 2023 as compared to the three ~~and six~~ months ended ~~March~~December 31, 2022 is primarily due to the tax impact of stock-based ~~compensation.~~compensation and foreign operations.

At ~~March~~December 31, 2023, the Company had ~~$70.5~~$73.8 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, 2018. Major jurisdictions where there are wholly owned subsidiaries of F5, Inc. which require income tax filings include the United Kingdom, Singapore, Israel, and India. The earliest periods open for review by local taxing authorities are fiscal years ~~2020~~2022 for the United Kingdom, ~~2018~~2019 for Singapore, 2013 for Israel, and ~~2019~~2018 for India. The Company is ~~currently~~ under audit by the

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Internal Revenue Service for fiscal year 2019, by various states for fiscal years 2015 through ~~2021,~~2022, and by various foreign jurisdictions including ~~Germany for fiscal years 2016 to 2019,~~ India for fiscal years ~~2019~~2018 to ~~2020,~~2022, Israel for fiscal years 2013 to 2017, Saudi Arabia for fiscal years 2015 to 2020, and Singapore for fiscal years 2019 to 2020.

10. Shareholders' Equity

Common Stock Repurchase

On July 25, 2022, the Company announced that its Board of Directors authorized an additional $1.0 billion for its common stock share repurchase program. This authorization is incremental to the existing $5.4 billion program, initially approved in October 2010 and expanded in subsequent fiscal years. Acquisitions for the share repurchase programs will be made from time to time in private transactions, accelerated share repurchase programs, or open market purchases as permitted by securities laws and other legal requirements. The programs can be terminated at any time.

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


		Three months ended March 31,				Six months ended March 31,					Three months ended December 31,
		2023		2022		2023		2022			2023	2022
Shares repurchased	Shares repurchased	—		610		263		1,148		Shares repurchased	922	263
Average price per share	Average price per share	$	—	$	204.96	$	151.87	$	217.71
Amount repurchased	Amount repurchased	$	—	$	125,012	$	40,005	$	250,023

As of ~~March~~December 31, 2023, the Company had ~~$1,232~~$772.4 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 March 31,				Six months ended March 31,				Three months ended December 31,
		2023		2022		2023		2022		2023	2022
Numerator	Numerator
Net income	Net income	$	81,436	$	56,236	$	153,838	$	149,795
Net income
Net income
Denominator	Denominator
Weighted average shares outstanding — basic
Weighted average shares outstanding — basic
Weighted average shares outstanding — basic	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	361		832		326		968
Weighted average shares outstanding — diluted	Weighted average shares outstanding — diluted	60,691		61,405		60,537		61,661
Basic net income per share	Basic net income per share	$	1.35	$	0.93	$	2.55	$	2.47
Diluted net income per share	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 six~~ months ended ~~March~~December 31, 2023 and 2022.

12. Segment Information

Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Management has determined that the Company is organized as, and operates in, one reportable operating segment.

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Revenues by Geographic Location and Other Information

The Company does business in three main geographic regions: the Americas (primarily the United States); Europe, the Middle East, and Africa ~~(EMEA)~~("EMEA"); and the Asia Pacific region ~~(APAC)~~("APAC"). The Company's chief operating decision-maker reviews financial information presented on a consolidated basis accompanied by information about net product revenues and 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.

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

Three months ended
March 31, Six months ended
March 31,
2023 2022 2023 2022
Americas:
United States $ 359,906 $ 339,231 $ 735,654 $ 720,520
Other 23,197 19,324 49,607 41,026
Total Americas 383,103 358,555 785,261 761,546
EMEA 190,439 156,374 374,554 318,435
Asia Pacific 129,633 119,295 243,738 241,343
$ 703,175 $ 634,224 $ 1,403,553 $ 1,321,324

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	Three months ended December 31,
	2023		2022
Americas:
United States	$	350,075	$	375,748
Other	26,315		26,410
Total Americas	376,390		402,158
EMEA	193,363		184,115
APAC	122,844		114,105
	$	692,597	$	700,378

The Company continues to offer its products through a range of consumption models, from physical systems to software solutions and managed services. The following presents net product revenues by systems and software (in thousands):


		Three months ended March 31,				Six months ended March 31,				Three months ended December 31,
		2023		2022		2023		2022		2023	2022
Net product revenues	Net product revenues
Systems revenue	Systems revenue	$	208,689	$	145,975	$	381,721	$	326,132
Systems revenue
Systems revenue
Software revenue	Software revenue	131,892		151,543		299,418		314,535
Total net product revenue	Total net product revenue	$	340,581	$	297,518	$	681,139	$	640,667

The following distributors of the Company's products accounted for more than 10% of total net revenue:


		Three months ended March 31,				Six months ended March 31,					Three months ended December 31,
		2023		2022		2023		2022			2023		2022
Ingram Micro, Inc.	Ingram Micro, Inc.	16.5	%	20.3	%	17.1	%	19.5	%	Ingram Micro, Inc.	15.3	%	17.6	%

Synnex Corporation	Synnex Corporation	14.7	%	14.3	%	14.2	%	13.2	%

Synnex Corporation

Synnex Corporation											15.6	%	13.6	%

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

March 31,
2023

September 30,
2022

Americas:

United States

128,440

134,699

United States

Other

Total Americas

EMEA

23,399

17,376

Other countries

17,932

16,107

169,771

168,182

EMEA

APAC

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13. Restructuring Charges

In the first ~~quarters~~quarter of fiscal ~~2023 and 2022,~~2024, the Company initiated a restructuring ~~plans~~plan to match strategic and financial objectives and optimize resources for long term growth, including a reduction in force program. ~~In the first quarter of fiscal 2023, the~~The Company recorded a restructuring charge of ~~$8.7 million. The Company~~$9.8 million and does not expect to record any significant future charges related to the first quarter of fiscal ~~2023~~2024 restructuring plan.

In the ~~first~~third 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~~ This included $53.2 million in severance benefits costs and related ~~to restructuring~~employer payroll taxes, and ~~other~~$3.5 million in charges related to ~~these actions in fiscal year 2023. The Company will also reduce some~~the reduction of its leased ~~facilities space,~~

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~~consisting of lease termination and other~~ facility ~~costs.~~space. The Company isincurred $56.7 million in restructuring costs and did not ~~able~~record any significant subsequent charges related to ~~estimate~~ the ~~cost~~third quarter of fiscal 2023 restructuring plan.

In the ~~reductions~~first quarter of fiscal 2023, the Company initiated a restructuring plan to ~~leased facilities at this time.~~match strategic and financial objectives and optimize resources for long term growth, including a reduction in force program. The Company recorded a restructuring charge of $8.7 million and did not record any significant subsequent charges related to the first quarter of fiscal 2023 restructuring plan.

During the three months ended December 31, 2023 and 2022, the following activity was recorded (in thousands):


	Three months ended December 31,
	2023		2022
Employee Severance, Benefits and Related Costs
Accrued expenses, beginning of period	$	3,496	$	—
Restructuring charges1	8,472		8,740
Cash payments	(9,510)		(6,354)
Accrued expenses, end of period	$	2,458	$	2,386

(1) Includes relief of unused benefits and foreign currency fluctuations.

Charges related to employee severance, benefits, and related costs are reflected in the restructuring charges line item on the Company's consolidated income statements.

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; Europe, the Middle East, and Africa ~~(EMEA)~~("EMEA"); and the Asia Pacific region ~~(APAC)~~("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.

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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 solutions including our BIG-IP software and systems, F5 NGINX software, and our F5 ~~Silverline~~Distributed Cloud Services 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 provides security, multi-cloud networking, and edge-based computing solutions, encompassing software solutions from what were previously branded as our Shape, Volterra, and Silverline product offerings. F5 Distributed Cloud Services are offered on a subscription basis, under a unified software-as-a-service ("SaaS") platform.

We 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. ~~Toward the end of fiscal 2022, and continuing through the first half of~~In fiscal 2023 ~~we saw changes in customer buying patterns due to~~and into the ~~uncertain macroeconomic environment. In our second~~first quarter of fiscal ~~2023,~~2024, continued customer budget constraints brought on by uncertainties in the macroeconomic environment have led to delays in customer purchase decisions. 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 the fact that demand for our products and services ~~unique market position relative to our peers,~~stems from the ~~softer demand being a matter~~growth of ~~customer budget constraints rather than competitive pressures or architectural shifts,~~applications and APIs. In addition, our stronger than normal maintenance renewals ~~which~~ signal delays in purchases as customers extend their maintenance contracts over the products they currently own. We believe this softer demand for new products is brought on by the current macroeconomic uncertainties and related customer budget constraints, rather than ~~decisions, which are typical indicators we have witnessed in times of macroeconomic uncertainty.~~architectural shifts or losses to competitors. We will continue to closely monitor the macroeconomic environment and its impacts on our business.

•Cost of revenues and gross margins. We strive to control our cost of revenues and thereby maintain our gross margins. Significant items impacting cost of revenues are hardware costs paid to our contract manufacturers, third-party software license fees, 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, and global supply chain constraints ~~and the remaining uncertainty surrounding the COVID-19 pandemic~~ could significantly impact our gross ~~margins from quarter to quarter.~~margins.

•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~~increase in cash and investments for the first ~~six~~three months of fiscal year ~~2023~~2024 was primarily due to cash used for the voluntary prepayment of the Term Loan Facility, including the outstanding principal balance of $350.0 million, and all accrued, but unpaid interest outstanding of $3.0 million. In addition, $40.0 million of cash was used for the repurchase of outstanding common stock in the first quarter of fiscal 2023. The decrease was partially offset by cash provided by operating activities of ~~$298.6 million.~~$165.3 million, largely offset by $150.0 million of cash used to repurchase outstanding common stock under our stock repurchase program. Going forward, we believe the primary driver of cash flows will be net income from operations. We will continue to evaluate possible acquisitions of, or investments in businesses, products, or technologies that we believe are strategic, which may require the use of cash. Additionally, on January 31, 2020, we entered into a Revolving Credit Agreement (the "Revolving Credit Agreement") that provides for a senior unsecured revolving credit facility in an aggregate principal amount of $350.0 million (the "Revolving Credit Facility"). We have the option to increase commitments under the Revolving Credit Facility from time to time, subject to certain conditions, by up to $150.0 million. As of ~~March~~December 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 ~~second~~first quarter of fiscal year ~~2023~~2024 primarily due to ~~the growth of~~an increase in maintenance renewal contracts related to our ~~subscriptions business.~~existing product installation base. Our days sales outstanding for the ~~second~~first quarter of fiscal year ~~2023~~2024 was ~~62.~~67. 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~~revenue recognition requires 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.~~results. Actual results may differ from these estimates under different assumptions or conditions.

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There were no material changes to our critical accounting policies and estimates compared to the critical accounting policies and estimates described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Form 10-K for the fiscal year ended September 30, ~~2022.~~2023. Refer to the ~~"Recently Adopted~~"New Accounting ~~Standards"~~Pronouncements" section of Note 1 in this Quarterly Report on Form 10-Q for a summary of the new accounting policies.

Impact of Current Macroeconomic Conditions

Our overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on customer behavior. ~~Worsening~~Uncertain economic conditions, including inflation, higher interest rates, slower growth, fluctuations in foreign exchange rates, ~~and developments related to the COVID-19 pandemic,~~ and other changes in economic conditions, may adversely affect our results of operations and financial performance. For further discussion of the potential impacts of recent macroeconomic events on our business, financial condition, and operating results, see Part 1, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2022 and Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q.~~2023.

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Results of Operations

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


		Three months ended March 31,						Six months ended March 31,							Three months ended December 31,
		2023			2022			2023			2022				2023		2022
		(in thousands, except percentages)													(in thousands, except percentages)
Net revenues	Net revenues
Products	Products	$	340,581		$	297,518		$	681,139		$	640,667
Products
Products
Services	Services	362,594			336,706			722,414			680,657
Total	Total	$	703,175		$	634,224		$	1,403,553		$	1,321,324
Percentage of net revenues	Percentage of net revenues
Products	Products	48.4		%	46.9		%	48.5		%	48.5		%
Products
Products															44.2	%	48.6	%
Services	Services	51.6			53.1			51.5			51.5
Total	Total	100.0		%	100.0		%	100.0		%	100.0		%	Total	100.0	%	100.0	%

Net Revenues. Total net revenues ~~increased 10.9% and 6.2%~~decreased 1.1% for the three ~~and six~~ months ended ~~March~~December 31, 2023, ~~respectively,~~ from the comparable ~~periods~~period in the prior year. The decrease in total net revenues was primarily due to a decrease in product revenues associated with systems, partially offset by an increase in service revenues, primarily due to an increase in the renewal of maintenance contracts on existing perpetual assets held by customers. Revenues outside of the United States represented 49.5% of total net revenues for the three months ended ~~March~~December 31, 2023, ~~was primarily due to an increase in product revenue from stronger systems sales through greater availability of product~~ compared to ~~supply constraints in the previous year. In addition, service revenue increased largely based on continued growth in maintenance contract renewals. Overall revenue growth~~46.4% for the six months ended March 31, 2023 was primarily due to increases in both product and service revenue. International revenues represented 48.8% and 47.6% of total net revenues for the three and six months ended March 31, 2023, respectively, compared to 46.5% and 45.5% for the same periods in the prior year, respectively.

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

Net Product Revenues. Net product revenues decreased 10.2% for the three months ended December 31, 2023, from the comparable period in the prior year. The decrease in net product revenues was primarily due to a decrease in systems sales, partially offset by an increase in software revenue primarily from packaged software sales.

The following presents net product revenues by systems and ~~software:~~software (in thousands):


		Three months ended March 31,						Six months ended March 31,
		2023			2022			2023			2022				Three months ended December 31,
		(in thousands, except percentages)													2023		2022
Net product revenues	Net product revenues
Systems revenue	Systems revenue	$	208,689		$	145,975		$	381,721		$	326,132
Systems revenue
Systems revenue
Software revenue	Software revenue	131,892			151,543			299,418			314,535
Total net product revenue	Total net product revenue	$	340,581		$	297,518		$	681,139		$	640,667
Percentage of net product revenues	Percentage of net product revenues
Systems revenue	Systems revenue	61.3		%	49.1		%	56.0		%	50.9		%
Systems revenue
Systems revenue															44.3	%	50.8	%
Software revenue	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	%

Software Revenues. As a component of net product revenues, software revenues increased 1.8% for the three months ended December 31, 2023, from the comparable period in the prior year.

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Net Service Revenues. Net service revenues increased ~~7.7% and 6.1%~~7.5% for the three ~~and six~~ months ended ~~March~~December 31, 2023, ~~respectively,~~ from the comparable ~~periods~~period in the prior year. The increase in ~~net~~ service revenues ~~for the three and six months ended March 31, 2023~~ was the result of ~~increased purchases or renewals~~the renewal of maintenance ~~contracts driven by delayed purchase decisions in new product purchases by our install base and additions~~agreements associated with perpetual offerings as customers continue to ~~our installed base~~utilize their assets for longer periods of ~~products. In addition, we are starting to see the benefits of price increases put in place in fiscal 2022.~~time.

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


		Three months ended March 31,				Six months ended March 31,					Three months ended December 31,
		2023		2022		2023		2022			2023		2022
Ingram Micro, Inc.	Ingram Micro, Inc.	16.5	%	20.3	%	17.1	%	19.5	%	Ingram Micro, Inc.	15.3	%	17.6	%

Synnex Corporation	Synnex Corporation	14.7	%	14.3	%	14.2	%	13.2	%

Synnex Corporation

Synnex Corporation											15.6	%	13.6	%

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

March 31,
2023 September 30, 2022
Ingram Micro, Inc. — 12.9 %
Synnex Corporation 13.9 % 12.6 %
Carahsoft Technology — 16.2 %


	December 31, 2023		September 30, 2023

Synnex Corporation	12.9	%	16.0	%
Carahsoft Technology Corporation	—		10.1	%
Arrow Electronics, Inc.	10.6	%	—

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


		Three months ended March 31,						Six months ended March 31,							Three months ended December 31,
		2023			2022			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
Products
Products
Products	Products	$	99,795		$	71,234		$	198,650		$	152,896
Services	Services	55,859			55,125			112,011			108,536
Total	Total	155,654			126,359			310,661			261,432
Gross profit	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	29.3		%	23.9		%	29.2		%	23.9		%	Products	27.0	%	29.0	%
Services	Services	15.4			16.4			15.5			15.9
Total	Total	22.1			19.9			22.1			19.8
Gross margin	Gross margin	77.9		%	80.1		%	77.9		%	80.2		%	Gross margin	80.3	%	77.9	%

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 $28.6~~decreased $16.1 million, or ~~40.1%~~16.3% for the three months ended ~~March~~December 31, 2023 and increased $45.8 million, or 29.9% for the six months ended March 31, 2023 from the comparable periods in the prior year. The increase in cost of net product revenues was primarily due to systems product revenue growth for the three and six months ended March 31, 2023 from the comparable periods in the prior year. In addition, cost of product revenues increased due to component cost increases, expedite fees, and other sourcing-related costs in the first half of fiscal 2023, from the comparable period in the prior ~~year.~~year primarily due to a decrease in systems revenue.

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 six~~ months ended ~~March~~December 31, 2023, cost of net service revenues as a percentage of net service revenues was ~~15.4% and 15.5%~~13.9%, ~~respectively,~~ compared to ~~16.4% and 15.9%~~15.6% for the comparable ~~periods~~period in the prior ~~year, respectively.~~year. Professional services headcount at the end of ~~March~~December 2023 ~~increased~~decreased to ~~1,072~~1,049 from ~~1,059~~1,082 at the end of ~~March~~December 2022.

2523

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		Three months ended March 31,						Six months ended March 31,							Three months ended December 31,
		2023			2022			2023			2022				2023		2022
		(in thousands, except percentages)													(in thousands, except percentages)
Operating expenses	Operating expenses
Sales and marketing
Sales and marketing
Sales and marketing	Sales and marketing	$	233,076		$	228,826		$	466,181		$	462,861
Research and development	Research and development	141,363			135,838			283,686			266,109
General and administrative	General and administrative	67,036			68,554			137,027			134,215
Restructuring charges	Restructuring charges	—			—			8,740			7,909
Total	Total	$	441,475		$	433,218		$	895,634		$	871,094
Operating expenses (as a percentage of net revenue)	Operating expenses (as a percentage of net revenue)
Sales and marketing	Sales and marketing	33.2		%	36.1		%	33.2		%	35.0		%
Sales and marketing
Sales and marketing															28.7	%	33.3	%
Research and development	Research and development	20.1			21.4			20.2			20.1
General and administrative	General and administrative	9.5			10.8			9.8			10.2
Restructuring charges	Restructuring charges	—			—			0.6			0.6
Total	Total	62.8		%	68.3		%	63.8		%	65.9		%	Total	56.6	%	64.8	%

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 ~~increased $4.3~~decreased $34.2 million, or ~~1.9%~~14.7% for the three months ended ~~March~~December 31, 2023, and increased $3.3 million, or 0.7% for the six months ended March 31, 2023 from the comparable periods in the prior year. The increase in sales and marketing expense for the three months ended March 31, 2023 was primarily due to an increase of $6.7 million in commissions from the comparable period in the prior year. The ~~increase~~decrease in sales and marketing ~~expense~~expenses for the ~~six~~three months ended ~~March~~December 31, 2023 was primarily due to ~~an increase~~a decrease of ~~$8.0~~$20.6 million in ~~employee travel and customer outreach as well as an increase~~personnel costs from the comparable period in the prior year. In addition, commissions ~~of $6.6~~for the three months ended December 31, 2023 decreased $5.9 million from the comparable period in the prior year. The increase in sales and marketing expense for the six months ended March 31, 2023 was partially offset by a decrease in marketing spend of $4.0 million as part of cost reductions implemented by management. In addition, sales and marketing expenses for the first quarter of fiscal 2022 included an impairment charge of $6.2 million related to the write-off of the Shape trade name intangible asset which offset the year-over-year increase. Sales and marketing headcount at the end of ~~March~~December 2023 ~~increased~~decreased to ~~2,480~~2,154 from ~~2,437~~2,490 at the end of ~~March~~December 2022. Sales and marketing expenses included stock-based compensation expense of ~~$26.9 million and $52.6~~$21.6 million for the three ~~and six~~ months ended ~~March~~December 31, 2023, ~~respectively,~~ compared to ~~$27.6 million and $54.4~~$25.7 million for the same ~~periods~~period in the prior ~~year, respectively.~~year.

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~~decreased $22.7 million, or ~~4.1%~~16.0% for the three months ended ~~March~~December 31, 2023, and increased $17.6 million, or 6.6% for the six months ended March 31, 2023 from the comparable periods in the prior year. The increase in research and development expense for the three months ended March 31, 2023 was primarily due to an increase of $5.3 million in personnel costs from the comparable period in the prior year. The ~~increase~~decrease in research and development ~~expense~~expenses for the ~~six~~three months ended ~~March~~December 31, 2023 was primarily ~~related~~due to ~~an increase~~a decrease of ~~$17.1~~$18.1 million in personnel costs from the comparable period in the prior year. Research and development headcount at the end of ~~March~~December 2023 ~~increased~~decreased to ~~2,212~~1,986 from ~~2,019~~2,165 at the end of ~~March~~December 2022. Research and development expenses included stock-based compensation expense of ~~$18.7 million and $37.2~~$16.0 million for the three ~~and six~~ months ended ~~March~~December 31, 2023, ~~respectively,~~ compared to ~~$18.2 million and $36.8~~$18.5 million for the same ~~periods~~period in the prior ~~year, respectively.~~year.

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 decreased ~~$1.5~~$5.3 million, or ~~2.2%~~7.5% for the three months ended ~~March 31, 2023 and increased $2.8 million, or 2.1% for the six months ended March~~December 31, 2023, from the comparable ~~periods~~period in the prior year. The decrease in general and administrative expenses for the three months ended December 31, 2023 was primarily due to a decrease of $2.3 million in personnel costs from the comparable period in the prior year. In addition, expenses for professional services decreased $2.1 million for the three months ended December 31, 2023 from the comparable period in the prior year. General and administrative headcount at the end of ~~March~~December 2023 ~~increased~~decreased to ~~972~~882 from ~~905~~959 at the end of ~~March~~December 2022. General and administrative expenses included stock-based compensation expense of ~~$10.9 million and $21.9~~$10.7 million for the three ~~and six~~ months ended ~~March~~December 31, 2023, ~~respectively,~~ compared to ~~$10.9 million and $21.8~~$11.0 million for the same ~~periods~~period in the prior ~~year, respectively.~~year.

Restructuring Charges. In the first fiscal quarters of ~~2023~~2024 and ~~2022,~~2023, we completed restructuring plans to align strategic and financial objectives and optimize resources for long term growth. As a result of ~~these~~our restructuring initiatives, we recorded ~~restructuring~~charges of $8.5 million and $8.7 million, net of adjustments, related to reductions in workforce that are reflected in our results for the three months ended December 31, 2023 and December 31, 2022, respectively.

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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 six months ended March 31, 2023 and 2022, respectively.~~


		Three months ended March 31,						Six months ended March 31,							Three months ended December 31,
		2023			2022			2023			2022				2023		2022
		(in thousands, except percentages)													(in thousands, except percentages)
Other income and income taxes	Other income and income taxes
Income from operations	Income from operations	$	106,046		$	74,647		$	197,258		$	188,798
Other income (expense), net		2,737			(1,934)			7,439			(4,365)
Income from operations
Income from operations
Other income, net
Income before income taxes	Income before income taxes	108,783			72,713			204,697			184,433
Provision for income taxes	Provision for income taxes	27,347			16,477			50,859			34,638
Net income	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	15.1		%	11.8		%	14.1		%	14.3		%	Income from operations	23.8	%	13.0	%
Other expense, net		0.4			(0.3)			0.5			(0.3)
Other income, net
Income before income taxes	Income before income taxes	15.5			11.5			14.6			14.0
Provision for income taxes	Provision for income taxes	3.9			2.6			3.6			2.7
Net income	Net income	11.6		%	8.9		%	11.0		%	11.3		%	Net income	20.0	%	10.3	%

Other Income, ~~(Expense),~~ Net. Other income, ~~(expense),~~ net consists primarily of interest income and expense and foreign currency transaction gains and losses. The increase in other income, ~~(expense),~~ net for the three months ended ~~March~~December 31, 2023 was primarily due to an increase in interest income ~~of $2.7 million~~ from our investments of $4.6 million, and a decrease in interest expense of ~~$1.3~~$3.3 million ~~compared to~~from the ~~same~~comparable period in the prior year. The increase in other income, ~~(expense),~~ net for the ~~six~~three months ended ~~March~~December 31, 2023 was ~~primarily due to an increase~~partially offset by a decrease in foreign currency gains of ~~$6.6 million and an increase in interest income of $5.7~~$2.4 million from ~~our investments compared to~~ the ~~same~~comparable period in the prior year.

Provision for Income Taxes. The effective tax rate was ~~25.1%~~20.7% and ~~24.8%~~24.5% for the three ~~and six~~ months ended ~~March~~December 31, 2023 ~~respectively, compared to 22.7%~~ and ~~18.8% for the three and six months ended March 31,~~ 2022, respectively. The ~~change~~decrease in the effective tax rate for the three ~~and six~~ months ended ~~March~~December 31, 2023 as compared to the three ~~and six~~ months ended ~~March~~December 31, 2022 is primarily due to the tax impact of stock-based ~~compensation.~~compensation and foreign operations.

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 ~~March~~December 31, 2023 and September 30, ~~2022~~2023 were ~~$231.7~~$301.9 million and ~~$180.6~~$290.7 million, respectively. The net deferred tax assets include valuation allowances of ~~$46.7 million and $46.1~~$44.0 million as of ~~March~~December 31, 2023 and $43.9 million as of September 30, ~~2022, respectively,~~2023, 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 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 ~~$760.0~~$832.0 million as of ~~March~~December 31, 2023, compared to ~~$894.1~~$808.4 million as of September 30, ~~2022,~~2023, representing ~~a decrease~~an increase of ~~$134.1~~$23.6 million. The ~~decrease~~increase was primarily due to cash used for the voluntary prepayment of the Term Loan Facility, including the outstanding principal balance of $350.0 million, and all accrued, but unpaid interest outstanding of $3.0 million. In addition, $40.0 million of cash was used for the repurchase of outstanding common stock in the first quarter of fiscal 2023. The decrease was partially offset by cash provided by operating activities of ~~$298.6~~$165.3 million for the ~~six~~three months ended ~~March~~December 31, 2023.

~~Table~~ The increase in cash and investments for the first quarter of ~~Contents~~

fiscal 2024 was partially offset by cash used for the repurchase of common stock during the three months ended December 31, 2023 of $150.0 million.

Cash provided by operating activities for the first ~~six~~three months of fiscal year ~~2023~~2024 resulted from net income of ~~$153.8~~$138.4 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 ~~six months~~quarter of fiscal ~~year 2023~~2024 increased from the comparable period in the prior year primarily due to an increase in cash received from customers, which partially offset strong billings for the quarter and an increase in the balance of accounts receivable.

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Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the effects of the risks detailed in Part I,1, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2022 and Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q.~~2023. 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~~used in investing activities was ~~$52.4~~$7.1 million for the ~~six~~three months ended ~~March~~December 31, 2023, compared to cash provided by investing activities of ~~$37.9~~$61.9 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~~used in investing activities for the ~~six~~three months ended ~~March~~December 31, 2023 was primarily the result of ~~$95.8 million in maturities of investments and $16.1 million in sales of investments, partially offset by $35.0 million in cash paid for acquisitions and $23.8~~$9.0 million in capital expenditures related to maintaining our operations ~~worldwide.~~worldwide, partially offset by $2.9 million in maturities of investments.

Cash used in financing activities was ~~$377.4~~$135.0 million for the ~~six~~three months ended ~~March~~December 31, 2023, compared to cash used in financing activities of ~~$248.2~~$374.9 million for the same period in the prior year. Our financing activities for the ~~six~~three months ended ~~March~~December 31, 2023 primarily consisted of ~~$350.0 million of cash used for the voluntary prepayment of the Term Loan Facility, as well as $40.0~~$150.0 million of cash used to repurchase ~~shares.~~shares of common stock. In addition, ~~$9.8~~$6.8 million in cash was used for taxes related to net share settlement of equity awards. Cash used in financing activities was partially offset by cash received from the exercise of employee stock options and stock purchases under our employee stock purchase plan of ~~$22.5~~$21.9 million.

On January 31, 2020, we entered into a Revolving Credit Agreement (the "Revolving Credit Agreement") that provides for a senior unsecured revolving credit facility in an aggregate principal amount of $350.0 million (the "Revolving Credit Facility"). We have the option to increase commitments under the Revolving Credit Facility from time to time, subject to certain conditions, by up to $150.0 million. As of ~~March~~December 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 ~~March~~December 31, 2023, our principal commitments consisted of obligations outstanding under operating leases and purchase obligations with one of our component suppliers.

We lease our facilities under operating leases that expire at various dates through 2033. There have been no material changes in our principal lease commitments compared to those discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2022.~~2023.

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~~December 31, 2023, we ~~have $1.2~~had $0.2 million of remaining ~~purchases~~purchase commitments under the ~~first~~second year of ~~our commitment.~~the agreement. Our total non-cancelable long-term purchase commitments outstanding as of ~~March~~December 31, 2023 was ~~$31.2~~$20.2 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 ~~March~~December 31, 2023. We monitor our interest rate and credit risks, including our credit exposures to specific rating categories and to individual issuers. ~~As of 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.

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

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 ~~March~~December 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 ~~March~~December 31, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended ~~March~~December 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

~~The following information updates, and should be read in conjunction with, the information discussed~~There have been no material changes to our risk factors from those described in Part I,1, Item ~~1A. “Risk Factors” in~~1A, "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2022. The risks discussed below~~2023, which was filed with the Securities and ~~in our Annual Report~~Exchange Commission 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.November 14, 2023.

~~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 may in turn, limit our ability to forecast future business activities involving our products and services. Prolonged adverse macroeconomic conditions both in the U.S. and 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.

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

Shares repurchased and retired for the three months ended December 31, 2023 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
October 1, 2023 — October 31, 2023	—	—		—	$	922,439
November 1, 2023 — November 30, 2023	967,045	$	162.17	922,128	$	772,440
December 1, 2023 — December 31, 2023	115	$	171.60	115	$	772,421

(1)Includes 44,917 shares withheld from restricted stock units that vested in the first quarter of fiscal 2024 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.~~Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements

During the three months ended December 31, 2023, certain of our officers and directors adopted or terminated Rule 10b5-1 trading arrangements as follows:

On November 29, 2023, François Locoh-Donou, Chief Executive Officer and President, adopted a written plan intended to satisfy the affirmative defense of Rule 10b5-1(c) that is designed to be in effect until December 17, 2024 with respect to the sale of 19,450 Company shares.

On November 3, 2023, Thomas Fountain, EVP, Global Services and Chief Strategy Officer, adopted a written plan intended to satisfy the affirmative defense of Rule 10b5-1(c) that is designed to be in effect until November 18, 2024 with respect to the sale of 6,485 Company shares.

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 ~~May, 2023.~~February, 2024.


			F5, INC.

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

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			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			98
Notes to Consolidated Financial Statements			109
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2220
Item 3. Quantitative and Qualitative Disclosures About Market Risk			2926
Item 4. Controls and Procedures			2927
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			3027
Item 1A. Risk Factors			3027
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			3028
Item 4. Mine Safety Disclosures			3129
Item 5. Other Information			3129
Item 6. Exhibits			3129
SIGNATURES			3230


				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