F5 10-Q 2024-03-31

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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 31, 2024

OR

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

For the transition period from to

Commission File Number 000-26041

F5, INC.

(Exact name of registrant as specified in its charter)

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 30, 2024 was 58,611,430.

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F5, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended March 31, 2024

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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			9
Notes to Consolidated Financial Statements			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			28
Item 4. Controls and Procedures			28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			29
Item 1A. Risk Factors			29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			29
Item 4. Mine Safety Disclosures			30
Item 5. Other Information			30
Item 6. Exhibits			30
SIGNATURES			31

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PART I. FINANCIAL INFORMATION

F5, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)

						March 31, 2024						September 30, 2023
ASSETS
Current assets
Cash and cash equivalents						$	902,680					$	797,163
Short-term investments						802						6,160
Accounts receivable, net of allowances of $3,038 and $3,561						388,325						454,832
Inventories						69,760						35,874
Other current assets						589,954						554,744
Total current assets						1,951,521						1,848,773
Property and equipment, net						161,525						170,422
Operating lease right-of-use assets						188,973						195,471
Long-term investments						6,343						5,068
Deferred tax assets						324,875						295,308
Goodwill						2,312,362						2,288,678
Other assets, net						439,071						444,613
Total assets						$	5,384,670					$	5,248,333
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable						$	57,702					$	63,315
Accrued liabilities						266,563						282,890
Deferred revenue						1,178,158						1,126,576
Total current liabilities						1,502,423						1,472,781
Deferred tax liabilities						5,689						4,637
Deferred revenue, long-term						633,818						648,545
Operating lease liabilities, long-term						228,368						239,565
Other long-term liabilities						81,106						82,573
Total long-term liabilities						948,981						975,320
Commitments and contingencies (Note 8)
Shareholders' equity
Preferred stock, no par value; 10,000 shares authorized, no shares outstanding						—						—
Common stock, no par value; 200,000 shares authorized, 58,609 and 59,207 shares issued and outstanding						19,029						24,399
Accumulated other comprehensive loss						(21,034)						(23,221)
Retained earnings						2,935,271						2,799,054
Total shareholders' equity						2,933,266						2,800,232
Total liabilities and shareholders' equity						$	5,384,670					$	5,248,333

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)

						Three months ended March 31,												Six months ended March 31,
						2024						2023						2024						2023
Net revenues
Products						$	300,162					$	340,581					$	606,021					$	681,139
Services						381,192						362,594						767,930						722,414
Total						681,354						703,175						1,373,951						1,403,553
Cost of net revenues
Products						85,313						99,795						168,021						198,650
Services						55,800						55,859						109,481						112,011
Total						141,113						155,654						277,502						310,661
Gross profit						540,241						547,521						1,096,449						1,092,892
Operating expenses
Sales and marketing						210,800						233,076						409,727						466,181
Research and development						122,207						141,363						241,782						283,686
General and administrative						67,184						67,036						131,902						137,027
Restructuring charges						90						—						8,562						8,740
Total						400,281						441,475						791,973						895,634
Income from operations						139,960						106,046						304,476						197,258
Other income, net						5,974						2,737						15,856						7,439
Income before income taxes						145,934						108,783						320,332						204,697
Provision for income taxes						26,913						27,347						62,929						50,859
Net income						$	119,021					$	81,436					$	257,403					$	153,838
Net income per share — basic						$	2.02					$	1.35					$	4.37					$	2.55
Weighted average shares — basic						58,788						60,330						58,956						60,211
Net income per share — diluted						$	2.00					$	1.34					$	4.32					$	2.54
Weighted average shares — diluted						59,580						60,691						59,617						60,537

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,
						2024						2023						2024						2023
Net income						$	119,021					$	81,436					$	257,403					$	153,838
Other comprehensive (loss) income:
Foreign currency translatio

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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; Europe, the Middle East, and Africa (EMEA); and the Asia Pacific region (APAC). Enterprise customers (Fortune 1000 or Business Week Global 1000 companies) in the technology, telecommunications, financial services, transportation, education, manufacturing and health care industries, along with government customers, continue to make up the largest percentage of our customer base.

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

• Revenues. Our revenue is derived from the sales of both global services and products. Our global services revenue includes annual maintenance contracts, training and consulting services. The majority of our product revenues are derived from sales of our application security and delivery solutions including our BIG-IP software and systems, F5 NGINX software, and our F5 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. 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.

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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. In fiscal 2023 and into the first half of fiscal 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 led to softer demand 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 stems from the growth of applications and APIs. In addition, our stronger than normal maintenance renewals 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 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 could significantly impact our gross 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 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 increase in cash and investments for the first six months of fiscal year 2024 was primarily due to cash provided by operating activities of $387.0 million, partially offset by $250.0 million of cash used for the repurchase of 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 31, 2024, 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 increased to $1.81 billion as of March 31, 2024 from $1.78 billion as of September 30, 2023 due to an increase in maintenance renewal contracts related to our existing product installation base. Our days sales outstanding for the second quarter of fiscal year 2024 was 51. 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, revenue recognition requires estimates and assumptions that require complex, subjective judgments by management, which can materially impact reported results. 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, 2023. Refer to the "New Accounting 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. Uncertain economic conditions, including inflation, higher interest rates, slower growth, fluctuations in foreign exchange rates, 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

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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, 2023.

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,
						2024						2023						2024						2023
						(in thousands, except percentages)
Net revenues
Products						$	300,162					$	340,581					$	606,021					$	681,139
Services						381,192						362,594						767,930						722,414
Total						$	681,354					$	703,175					$	1,373,951					$	1,403,553
Percentage of net revenues
Products						44.1		%				48.4		%				44.1		%				48.5		%
Services						55.9						51.6						55.9						51.5
Total						100.0		%				100.0		%				100.0		%				100.0		%

Net Revenues. Total net revenues decreased 3.1% and 2.1% for the three and six months ended March 31, 2024, respectively, from the comparable periods in the prior year. The decrease in total net revenues for the three and six months ended March 31, 2024 was primarily due to a decrease in product revenues associated with systems, partially offset by an increase in service revenues. The increase in service revenues was primarily due to an increase in the renewal of maintenance contracts on existing perpetual assets held by customers, along with continued realization of price increases from prior periods. International revenues represented 46.6% and 48.0% of total net revenues for the three and six months ended March 31, 2024, respectively, compared to 48.8% and 47.6% for the same periods in the prior year, respectively.

Net Product Revenues. Net product revenues decreased 11.9% and 11.0% for the three and six months ended March 31, 2024, respectively, from the comparable periods 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:

						Three months ended March 31,												Six months ended March 31,
						2024						2023						2024						2023
						(in thousands, except percentages)
Net product revenues
Systems revenue						$	141,654					$	208,689					$	277,028					$	381,721
Software revenue						158,508						131,892						328,993						299,418
Total net product revenue						$	300,162					$	340,581					$	606,021					$	681,139
Percentage of net product revenues
Systems revenue						47.2		%				61.3		%				45.7		%				56.0		%
Software revenue						52.8						38.7						54.3						44.0
Total net product revenue						100.0		%				100.0		%				100.0		%				100.0		%

Software Revenues. As a component of net product revenues, software revenues increased 20.2% and 9.9% for the three and six months ended March 31, 2024, respectively, from the comparable periods in the prior year.

Net Service Revenues. Net service revenues increased 5.1% and 6.3% for the three and six months ended March 31, 2024, respectively, from the comparable periods in the prior year. The increase in net service revenues for the three and six months ended March 31, 2024 was the result of the renewal of maintenance agreements associated with perpetual offerings as customers continue to utilize their assets for longer periods of time, as well as the realization of price increases from prior periods.

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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,
			2024						2023						2024						2023
Ingram Micro, Inc.			18.6		%				16.5		%				17.0		%				17.1		%
Synnex Corporation			16.5		%				14.7		%				16.0		%				14.2		%

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

			March 31, 2024						September 30, 2023
Ingram Micro, Inc.			13.4		%				—
Synnex Corporation			15.8		%				16.0		%
Carahsoft Technology Corporation			—						10.1		%

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

						Three months ended March 31,												Six months ended March 31,
						2024						2023						2024						2023
						(in thousands, except percentages)
Cost of net revenues and gross profit
Products						$	85,313					$	99,795					$	168,021					$	198,650
Services						55,800						55,859						109,481						112,011
Total						141,113						155,654						277,502						310,661
Gross profit						$	540,241					$	547,521					$	1,096,449					$	1,092,892
Percentage of net revenues and gross margin (as a percentage of related net revenue)
Products						28.4		%				29.3		%				27.7		%				29.2		%
Services						14.6						15.4						14.3						15.5
Total						20.7						22.1						20.2						22.1
Gross margin						79.3		%				77.9		%				79.8		%				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 decreased $14.5 million, or 14.5% for the three months ended March 31, 2024 and decreased $30.6 million, or 15.4% for the six months ended March 31, 2024 from the comparable periods in the prior 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 31, 2024, cost of net service revenues as a percentage of net service revenues was 14.6% and 14.3%, respectively, compared to 15.4% and 15.5% for the comparable periods in the prior year, respectively. Professional services headcount at the end of March 2024 decreased to 1,049 from 1,072 at the end of March 2023.

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						Three months ended March 31,												Six months ended March 31,
						2024						2023						2024						2023
						(in thousands, except percentages)
Operating expenses
Sales and marketing						$	210,800					$	233,076					$	409,727					$	466,181
Research and development						122,207						141,363						241,782						283,686
General and administrative						67,184						67,036						131,902						137,027
Restructuring charges						90						—						8,562						8,740
Total						$	400,281					$	441,475					$	791,973					$	895,634
Operating expenses (as a percentage of net revenue)
Sales and marketing						30.9		%				33.2		%				29.8		%				33.2		%
Research and development						17.9						20.1						17.6						20.2
General and administrative						9.9						9.5						9.6						9.8
Restructuring charges						—						—						0.6						0.6
Total						58.7		%				62.8		%				57.6		%				63.8		%

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 decreased $22.3 million, or 9.6% for the three months ended March 31, 2024 and decreased $56.5 million, or 12.1% for the six months ended March 31, 2024 from the comparable periods in the prior year. The decrease in sales and marketing expense for the three and six months ended March 31, 2024 was primarily due to a decrease of $14.3 million and $34.9 million, respectively, in personnel costs from the comparable periods in the prior year. In addition, commissions for the three and six months ended March 31, 2024 decreased $5.9 million and $11.8 million, respectively, from the comparable periods in the prior year. Sales and marketing headcount at the end of March 2024 decreased to 2,166 from 2,480 at the end of March 2023. Sales and marketing expenses included stock-based compensation expense of $21.4 million and $43.0 million for the three and six months ended March 31, 2024, respectively, compared to $26.9 million and $52.6 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 decreased $19.2 million, or 13.6% for the three months ended March 31, 2024 and decreased $41.9 million, or 14.8% for the six months ended March 31, 2024 from the comparable periods in the prior year. The decrease in research and development expense for the three and six months ended March 31, 2024 was primarily due to a decrease of $12.7 million and $30.9 million, respectively, in personnel costs from the comparable periods in the prior year. Research and development headcount at the end of March 2024 decreased to 1,981 from 2,212 at the end of March 2023. Research and development expenses included stock-based compensation expense of $15.5 million and $31.5 million for the three and six months ended March 31, 2024, respectively, compared to $18.7 million and $37.2 million for the same periods in the prior year, respectively.

General and Administrative. General and administrative expenses consist of the salaries, benefits and related costs of our executive, finance, information technology, human resources and legal personnel, third-party professional service fees, facilities and depreciation expenses. General and administrative expenses remained relatively flat for the three months ended March 31, 2024 and decreased $5.1 million, or 3.7% for the six months ended March 31, 2024 from the comparable periods in the prior year. The decrease in general and administrative expenses for the six months ended March 31, 2024 was primarily due to a decrease of $4.1 million in fees paid for professional services. In addition, personnel costs decreased $2.5 million for the six months ended March 31, 2024 from the comparable period in the prior year. General and administrative headcount at the end of March 2024 decreased to 881 from 972 at the end of March 2023. General and administrative expenses included stock-based compensation expense of $10.8 million and $21.5 million for the three and six months ended March 31, 2024, respectively, compared to $10.9 million and $21.9 million for the same periods in the prior year, respectively.

Restructuring Charges. In the first fiscal quarters of 2024 and 2023, we completed restructuring plans to align strategic and financial objectives and optimize resources for long term growth. As a result of our restructuring initiatives, we recorded charges of $8.6 million and $8.7 million, net of adjustments, related to reductions in workforce that are reflected in our results for the six months ended March 31, 2024 and March 2023, respectively.

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						Three months ended March 31,												Six months ended March 31,
						2024						2023						2024						2023
						(in thousands, except percentages)
Other income and income taxes
Income from operations						$	139,960					$	106,046					$	304,476					$	197,258
Other income, net						5,974						2,737						15,856						7,439
Income before income taxes						145,934						108,783						320,332						204,697
Provision for income taxes						26,913						27,347						62,929						50,859
Net income						$	119,021					$	81,436					$	257,403					$	153,838
Other income and income taxes (as percentage of net revenue)
Income from operations						20.5		%				15.1		%				22.2		%				14.1		%
Other income, net						0.9						0.4						1.1						0.5
Income before income taxes						21.4						15.5						23.3						14.6
Provision for income taxes						3.9						3.9						4.6						3.6
Net income						17.5		%				11.6		%				18.7		%				11.0		%

Other Income, Net. Other income, net consists primarily of interest income and expense and foreign currency transaction gains and losses. The increase in other income, net for the three months ended March 31, 2024 was primarily due to an increase in interest income of $5.4 million from our investments, partially offset by an increase in foreign currency losses of $2.3 million compared to the same period in the prior year. The increase in other income, net for the six months ended March 31, 2024 was primarily due to an increase in interest income of $10.0 million from our investments and a decrease in interest expense of $3.2 million compared to the same period in the prior year. The increase in other income, net for the six months ended March 31, 2024 was partially offset by an increase in foreign currency losses of $4.7 million compared to the same period in the prior year.

Provision for Income Taxes. The effective tax rate was 18.4% and 19.6% for the three and six months ended March 31, 2024, respectively, compared to 25.1% and 24.8% for the three and six months ended March 31, 2023, respectively. The decrease in the effective tax rate for the three and six months ended March 31, 2024, as compared to the three and six months ended March 31, 2023, is primarily due to the tax impact of stock-based compensation.

We record a valuation allowance to reduce our deferred tax assets to the amount we believe is more likely than not to be realized. In making these determinations we consider historical and projected taxable income, and ongoing prudent and feasible tax planning strategies in assessing the appropriateness of a valuation allowance. Our net deferred tax assets at March 31, 2024 and September 30, 2023 were $319.2 million and $290.7 million, respectively. The net deferred tax assets include valuation allowances of $42.1 million and $43.9 million as of March 31, 2024 and September 30, 2023, respectively, which are primarily related to certain state and foreign net operating loss 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 $909.8 million as of March 31, 2024, compared to $808.4 million as of September 30, 2023, representing an increase of $101.4 million. The increase was primarily due to cash provided by operating activities of $387.0 million for the six months ended March 31, 2024, partially offset by cash used for the repurchase of common stock during the six months ended March 31, 2024 of $250.0 million.

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Cash provided by operating activities for the first six months of fiscal year 2024 resulted from net income of $257.4 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 of fiscal year 2024 increased from the comparable period in the prior year primarily due to an increase in cash received from customers.

Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the effects of the risks detailed in Part 1, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended September 30, 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 used in investing activities was $47.0 million for the six months ended March 31, 2024, compared to cash provided by investing activities of $52.4 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 used in investing activities for the six months ended March 31, 2024 was primarily the result of $32.9 million in cash paid for acquisitions and $18.5 million in capital expenditures related to maintaining our operations worldwide.

Cash used in financing activities was $236.1 million for the six months ended March 31, 2024, compared to cash used in financing activities of $377.4 million for the same period in the prior year. Our financing activities for the six months ended March 31, 2024 primarily consisted of $250.0 million of cash used to repurchase shares of common stock. In addition, $8.7 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 $22.6 million.

On January 31, 2020, we entered into a Revolving Credit Agreement (the "Revolving Credit Agreement") that provides for a senior unsecured revolving credit facility in an aggregate principal amount of $350.0 million (the "Revolving Credit Facility"). We have the option to increase commitments under the Revolving Credit Facility from time to time, subject to certain conditions, by up to $150.0 million. As of March 31, 2024, 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 31, 2024, 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, 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 31, 2024, we had no remaining purchase commitments under the second year of the agreement. Our total non-cancelable long-term purchase commitments outstanding as of March 31, 2024 was $20.0 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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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 31, 2024. We monitor our interest rate and credit risks, including our credit exposures to specific rating categories and to individual issuers. We believe the overall credit quality of our portfolio is strong.

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

Foreign Currency Risk. The majority of our sales, cost of net revenues, and operating expenses are denominated in U.S. dollars and as a result, we have not experienced significant foreign currency transaction gains and losses to date. While we conduct transactions in foreign currencies and expect to continue to do so, we do not anticipate that foreign currency transaction gains or losses will be significant at our current level of operations. However, as we continue to expand our operations internationally, transaction gains or losses may become significant in the future.

Management believes there have been no material changes to our quantitative and qualitative disclosures about market risk during the six month period ended March 31, 2024, compared to those discussed in our Annual Report on Form 10-K for the year ended September 30, 2023.

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 31, 2024 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 31, 2024.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2024 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, 2023, which was filed with the Securities and Exchange Commission on November 14, 2023.

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

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. As of March 31, 2024, the Company had $672.4 million remaining authorized to purchase shares under its share repurchase program.

Shares repurchased and retired for the three months ended March 31, 2024 are as follows (in thousands, except shares and per share data):

						Total Number of Shares Purchased****1						Average Price Paid per Share						Total Number of Shares Purchased per the Publicly Announced Plan						Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan****2
January 1, 2024 — January 31, 2024						—						—						—						$	772,421
February 1, 2024 — February 29, 2024						553,136						$	184.10					543,263						$	672,421
March 1, 2024 — March 31, 2024						—						—						—						$	672,421

(1)Includes 9,873 shares withheld from restricted stock units that vested in the second 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.

Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements

During the three months ended March 31, 2024, certain of our officers and directors adopted or terminated Rule 10b5-1 trading arrangements as follows:

On March 6, 2024, Scot Rogers, EVP, General Counsel, adopted a written plan intended to satisfy the affirmative defense of Rule 10b5-1(c) that is designed to be in effect until March 6, 2025 with respect to the sale of 9,270 Company shares.

Exhibit Number									Exhibit Description
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.

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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 6th day of May, 2024.

			F5, INC.
			By:						/s/ FRANCIS J. PELZER
									Francis J. Pelzer
									Executive Vice President,
									Chief Financial Officer
									(principal financial officer and principal accounting officer)