F5 10-Q 2022-06-30

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2022

OR

For the transition period from to

Commission File Number 000-26041

F5, INC.

(Exact name of registrant as specified in its charter)

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:

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):

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

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

The number of shares outstanding of the registrant’s common stock as of July 29, 2022 was 59,562,193.

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F5, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended June 30, 2022

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PART I. FINANCIAL INFORMATION

F5, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)

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)

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)

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The following discussion of our financial condition and results of operations contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. These statements include, but are not limited to, statements about our plans, objectives, expectations, strategies, intentions or other characterizations of future events or circumstances and are generally identified by the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and similar expressions. These forward-looking statements are based on current information and expectations and are subject to a number of risks and uncertainties. Our actual results could differ materially from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part II, Item 1A. "Risk Factors" herein and in other documents we file from time to time with the Securities and Exchange Commission. We assume no obligation to revise or update any such forward-looking statements.

Overview

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

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

• Revenues. The majority of our revenues are derived from sales of our application security and delivery products including our BIG-IP software and systems (appliances), NGINX software, F5 Distributed Cloud Services, and Silverline offerings. Our BIG-IP software solutions are sold both on a perpetual license and a subscription basis. We sell NGINX on a subscription basis. F5 Distributed Cloud Services provide 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. Our Silverline solution is a managed services offering, also sold on a subscription basis.

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We also derive revenues from the sales of global services including annual maintenance contracts, training and consulting services. We monitor the sales mix of our revenues within each reporting period. We believe customer acceptance rates of our new products, feature enhancements and consumption models are indicators of future trends. We also consider overall revenue concentration by geographic region as an additional indicator of current and future trends. Near term, we expect challenging global supply chain conditions, particularly semiconductor constraints, will result in a shortfall in our ability to meet customer demand for our hardware-based solutions, thereby impacting revenues from systems sales.

• Cost of revenues and gross margins. We strive to control our cost of revenues and thereby maintain our gross margins. Significant items impacting cost of revenues are hardware costs paid to our contract manufacturers, third-party software license fees, software-as-a-service infrastructure costs, amortization of developed technology and personnel and overhead expenses. In addition, factors such as sales price, product and services mix, inventory obsolescence, returns, component price increases, warranty costs, global supply chain constraints, and the remaining uncertainty surrounding the COVID-19 pandemic could significantly impact our gross margins from quarter to quarter and represent significant indicators we monitor on a regular basis.

• Operating expenses. Operating expenses are substantially driven by personnel and related overhead expenses. Existing headcount and future hiring plans are the predominant factors in analyzing and forecasting future operating expense trends. Other significant operating expenses that we monitor include marketing and promotions, travel, professional fees, computer costs related to the development of new products and provision of services, facilities and depreciation expenses.

• Liquidity and cash flows. Our financial condition remains strong with significant cash and investments. The decrease in cash and investments for the first nine months of fiscal year 2022 was primarily due to $500.0 million of cash used for the repurchase of shares and $68.0 million in cash paid for the acquisition of Threat Stack in the first quarter of fiscal 2022. The decrease was partially offset by cash provided by operating activities of $288.3 million. Going forward, we believe the primary driver of cash flows will be net income from operations. Capital expenditures of $25.1 million for the first nine months of fiscal year 2022 were primarily related to the expansion of our facilities to support our operations worldwide as well as investments in information technology infrastructure and equipment purchases to support our core business activities. We will continue to evaluate possible acquisitions of, or investments in businesses, products, or technologies that we believe are strategic, which may require the use of cash. Additionally, on January 31, 2020, we entered into a Revolving Credit Agreement (the "Revolving Credit Agreement") that provides for a senior unsecured revolving credit facility in an aggregate principal amount of $350.0 million (the "Revolving Credit Facility"). We have the option to increase commitments under the Revolving Credit Facility from time to time, subject to certain conditions, by up to $150.0 million. As of June 30, 2022, there were no outstanding borrowings under the Revolving Credit Facility, and we had available borrowing capacity of $350.0 million.

• Balance sheet. We view cash, short-term and long-term investments, deferred revenue, accounts receivable balances and days sales outstanding as important indicators of our financial health. Deferred revenues continued to increase in the third quarter of fiscal year 2022 due to the growth of our subscriptions business. Our days sales outstanding for the third quarter of fiscal year 2022 was 61. Days sales outstanding is calculated by dividing ending accounts receivable by revenue per day for a given quarter.

Summary of Critical Accounting Policies and Estimates

The preparation of our financial condition and results of operations requires us to make judgments and estimates that may have a significant impact upon our financial results. We believe that, of our significant accounting policies, the following require estimates and assumptions that require complex, subjective judgments by management, which can materially impact reported results: revenue recognition, accounting for business combinations and accounting for leases. Actual results may differ from these estimates under different assumptions or conditions.

There were no material changes to our critical accounting policies and estimates compared to the critical accounting policies and estimates described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Form 10-K for the fiscal year ended September 30, 2021. Refer to the "Recently Adopted Accounting Standards" section of Note 1 in this Quarterly Report on Form 10-Q for a summary of the new accounting policies.

COVID-19 Update

Management has prioritized a human-first approach to the COVID-19 pandemic. For F5, this means ensuring the health and safety of employees, their families and our communities. Further, this approach extends to our customers as we look for ways that we can support their operations during this crisis.

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

Results of Operations

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

Net Revenues. Total net revenues increased 3.5% for the three months ended June 30, 2022 and increased 3.9% for the nine months ended June 30, 2022 from the comparable periods in the prior year. The increase in total net revenues for the three months ended June 30, 2022 was primarily due to software revenue increases from both perpetual and subscription-based offerings. In addition, service revenue increased due to growth of our install base, specifically associated with licensed-based subscription offerings. Overall revenue growth for the nine months ended June 30, 2022 was primarily due to increases in both product and service revenue. The product revenue increase was driven by software revenue increases, specifically from our software-as-a-service product offerings and our subscription-based offerings, which include software sold via our flexible consumption program or multi-year subscriptions. This was partially offset by a decrease in systems revenue associated with a shortage of supplies to meet systems demand. Service revenues increased as a result of our increased installed base of products. International revenues represented 46.0% and 45.6% of total net revenues for the three and nine months ended June 30, 2022, respectively, compared to 46.5% and 48.4% for the same periods in the prior year, respectively.

Net Product Revenues. Net product revenues increased 5.3% for the three months ended June 30, 2022 and increased 6.6% for the nine months ended June 30, 2022 from the comparable periods in the prior year. The increase in net product revenues for the three months ended June 30, 2022 was primarily due to continued growth in software revenue, partially offset by a decrease in systems revenue associated with a shortage of supplies to meet systems demand. The increase in net product revenues for the nine months ended June 30, 2022 was due to an increase in software revenue compared to the same period in the prior year.

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The following presents net product revenues by systems and software:

Net Service Revenues. Net service revenues increased 1.9% for the three months ended June 30, 2022 and increased 1.4% for the nine months ended June 30, 2022 from the comparable periods in the prior year. The increase in net service revenues for the three and nine months ended June 30, 2022 was primarily due to an increase in purchases of initial maintenance contracts driven by additions to our installed base of products, primarily associated with our licensed-based subscriptions.

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

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

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

Cost of Net Product Revenues. Cost of net product revenues consists of finished products purchased from our contract manufacturers, manufacturing overhead, freight, warranty, provisions for excess and obsolete inventory, software-as-a-service infrastructure costs and amortization expenses in connection with developed technology from acquisitions. Cost of net product revenues increased $4.6 million, or 6.6% for the three months ended June 30, 2022 and increased $17.2 million, or 8.2% for the

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

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

Sales and Marketing. Sales and marketing expenses consist of salaries, commissions and related benefits of our sales and marketing staff, the costs of our marketing programs, including public relations, advertising and trade shows, travel, facilities, and depreciation expenses. Sales and marketing expenses decreased $10.6 million, or 4.5% for the three months ended June 30, 2022 and decreased $7.2 million, or 1.0% for the nine months ended June 30, 2022 from the comparable periods in the prior year. The decrease in sales and marketing expense for the three months ended June 30, 2022 was primarily due to a decrease of $6.3 million in commissions from the comparable period in the prior year. In addition, personnel costs for the three months ended June 30, 2022 decreased $6.0 million from the comparable period in the prior year. The decrease in sales and marketing expense for the nine months ended June 30, 2022 was primarily related to a decrease of $13.0 million in commissions, partially offset by an increase in employee travel and customer outreach of $7.5 million from the comparable period in the prior year. Sales and marketing headcount at the end of June 2022 increased to 2,452 from 2,449 at the end of June 2021. Sales and marketing expenses included stock-based compensation expense of $25.6 million and $79.9 million for the three and nine months ended June 30, 2022, respectively, compared to $26.4 million and $78.7 million for the same periods in the prior year, respectively.

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

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

Restructuring Charges. In the first fiscal quarter of 2022, we completed a restructuring plan to align strategic and financial objectives and optimize resources for long term growth. As a result of these initiatives, we recorded a restructuring charge of $7.9 million related to a reduction in workforce that is reflected in our results for the nine months ended June 30, 2022.

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

Provision for Income Taxes. The effective tax rate was 18.0% and 18.5% for the three and nine months ended June 30, 2022, respectively, compared to 4.9% and 16.3% for the three and nine months ended June 30, 2021, respectively. The increase in the effective tax rate for the three and nine months ended June 30, 2022 as compared to the three and nine months ended June 30, 2021 is primarily due to the discrete impact from filing our fiscal year 2020 U.S. federal income tax return during the period ended June 30, 2021.

We record a valuation allowance to reduce our deferred tax assets to the amount we believe is more likely than not to be realized. In making these determinations we consider historical and projected taxable income, and ongoing prudent and feasible tax planning strategies in assessing the appropriateness of a valuation allowance. Our net deferred tax assets at June 30, 2022 and September 30, 2021 were $168.7 million and $125.8 million, respectively. The net deferred tax assets include valuation allowances of $46.5 million and $40.4 million as of June 30, 2022 and September 30, 2021, respectively, which are primarily related to certain state and foreign net operating losses and tax credit carryforwards.

Our worldwide effective tax rate may fluctuate based on a number of factors, including variations in projected taxable income in the various geographic locations in which we operate, the impact of stock-based compensation, changes in the valuation of our net deferred tax assets, resolution of potential exposures, tax positions taken on tax returns filed in the various geographic locations in which we operate, and the introduction of new accounting standards or changes in tax laws or interpretations thereof in the various geographic locations in which we operate. We have recorded liabilities to address potential tax exposures related to business and income tax positions we have taken that could be challenged by taxing authorities. The

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ultimate resolution of these potential exposures may be greater or less than the liabilities recorded which could result in an adjustment to our future tax expense.

Liquidity and Capital Resources

Cash and cash equivalents, short-term investments and long-term investments totaled $757.5 million as of June 30, 2022, compared to $1,043.4 million as of September 30, 2021, representing a decrease of $285.9 million. The decrease was primarily due to $500.0 million of cash used for the repurchase of outstanding common stock and $68.0 million in cash paid for the acquisition of Threat Stack in the first quarter of fiscal 2022. The decrease was partially offset by cash provided by operating activities of $288.3 million for the nine months ended June 30, 2022.

Cash provided by operating activities for the first nine months of fiscal year 2022 resulted from net income of $232.8 million combined with changes in operating assets and liabilities, as adjusted for various non-cash items including stock-based compensation, deferred revenue, depreciation, impairment and amortization charges. Cash provided by operating activities for the first nine months of fiscal year 2022 decreased from the comparable period in the prior year primarily due to strong multi-year subscription sales in the first three quarters of fiscal year 2022, which are generally sold on three-year terms. Multi-year subscriptions are billed on an annual basis with the remainder recognized on the balance sheet as unbilled assets. In addition, during the first and third quarters of fiscal year 2022, we had significant prepayments with our contract manufacturer associated with components for future hardware-based solution builds.

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

Cash provided by investing activities was $147.4 million for the nine months ended June 30, 2022, compared to cash used in investing activities of $253.7 million for the same period in the prior year. Investing activities include purchases, sales and maturities of available-for-sale securities, business acquisitions and capital expenditures. The amount of cash provided by investing activities for the nine months ended June 30, 2022 was primarily the result of $178.4 million in maturities of investments and $120.6 million in sales of investments, partially offset by $68.0 million in cash paid for the acquisition of Threat Stack in the first quarter of fiscal 2022 and purchases of investments of $58.5 million.

Cash used in financing activities was $470.2 million for the nine months ended June 30, 2022, compared to cash used in financing activities of $461.2 million for the same period in the prior year. Our financing activities for the nine months ended June 30, 2022 primarily consisted of $500.0 million in cash used to repurchase shares under our share repurchase program, as well as $18.9 million in cash used for taxes related to net share settlement of equity awards and $15.0 million in cash used to make principal payments on our term loan. Cash used in financing activities was partially offset by $63.7 million of cash received from the exercise of employee stock options and stock purchases under our employee stock purchase plan.

On January 31, 2020, we entered into a Revolving Credit Agreement (the "Revolving Credit Agreement") that provides for a senior unsecured revolving credit facility in an aggregate principal amount of $350.0 million (the "Revolving Credit Facility"). We have the option to increase commitments under the Revolving Credit Facility from time to time, subject to certain conditions, by up to $150.0 million. As of June 30, 2022, there were no outstanding borrowings under the Revolving Credit Facility, and we had available borrowing capacity of $350.0 million.

Obligations and Commitments

As of June 30, 2022, our principal commitments consisted of borrowings under the Term Loan Facility and obligations outstanding under operating leases.

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

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We lease our facilities under operating leases that expire at various dates through 2033. There have been no material changes in our principal lease commitments compared to those discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

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.

Interest Rate Risk. We maintain an investment portfolio of various holdings, types, and maturities. Our primary objective for holding fixed income securities is to achieve an appropriate investment return consistent with preserving principal and managing risk. At any time, a sharp rise in market interest rates could have a material adverse impact on the fair value of our fixed income investment portfolio. Conversely, declines in interest rates, including the impact from lower credit spreads, could have a material adverse impact on interest income for our investment portfolio. Our fixed income investments are held for purposes other than trading. Our fixed income investments were not leveraged as of June 30, 2022. We monitor our interest rate and credit risks, including our credit exposures to specific rating categories and to individual issuers. As of June 30, 2022, 39% of our fixed income securities balance consisted of U.S. government and U.S. government agency securities. We believe the overall credit quality of our portfolio is strong.

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

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

Inflation Risk. We are actively monitoring the current inflationary environment, but we do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations. If the current inflationary environment constrains our customers’ ability to procure goods and services from us, we may see customers reprioritize these investment decisions. These macroeconomic conditions could harm our business, financial condition and results of operations.

Foreign Currency Risk. The majority of our sales and expenses are denominated in U.S. dollars and as a result, we have not experienced significant foreign currency transaction gains and losses to date.

Management believes there have been no material changes to our quantitative and qualitative disclosures about market risk during the nine month period ended June 30, 2022, compared to those discussed in our Annual Report on Form 10-K for the year ended September 30, 2021.

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The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) which are designed to ensure that required information is recorded, processed, summarized and reported within the required timeframe, as specified in the rules set forth by the Securities Exchange Commission. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022 and, based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2022.

Changes in Internal Control over Financial Reporting

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

There have been no material changes to our risk factors from those described in Part 1, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, which was filed with the Securities and Exchange Commission on November 16, 2021.

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

On October 31, 2018, the Company announced that its Board of Directors authorized an additional $1.0 billion for its common stock share repurchase program. This authorization is incremental to the existing $4.4 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. As of June 30, 2022, the Company had $272 million remaining authorized to purchase shares under its share repurchase program.

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

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

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

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**Item 4.**Mine Safety Disclosures

Not applicable.

None.

• Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 5th day of August, 2022.