F5 10-Q 2024-06-30

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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 June 30, 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 July 30, 2024 was 58,284,449.

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F5, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended June 30, 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)

						June 30, 2024						September 30, 2023
ASSETS
Current assets
Cash and cash equivalents						$	934,809					$	797,163
Short-term investments						812						6,160
Accounts receivable, net of allowances of $3,685 and $3,561						419,986						454,832
Inventories						78,537						35,874
Other current assets						552,023						554,744
Total current assets						1,986,167						1,848,773
Property and equipment, net						154,238						170,422
Operating lease right-of-use assets						185,253						195,471
Long-term investments						7,298						5,068
Deferred tax assets						343,611						295,308
Goodwill						2,312,362						2,288,678
Other assets, net						425,521						444,613
Total assets						$	5,414,450					$	5,248,333
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable						$	53,618					$	63,315
Accrued liabilities						259,874						282,890
Deferred revenue						1,142,090						1,126,576
Total current liabilities						1,455,582						1,472,781
Deferred tax liabilities						6,146						4,637
Deferred revenue, long-term						630,494						648,545
Operating lease liabilities, long-term						222,486						239,565
Other long-term liabilities						88,997						82,573
Total long-term liabilities						948,123						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, 58,284 and 59,207 shares issued and outstanding						17,898						24,399
Accumulated other comprehensive loss						(22,257)						(23,221)
Retained earnings						3,015,104						2,799,054
Total shareholders' equity						3,010,745						2,800,232
Total liabilities and shareholders' equity						$	5,414,450					$	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 June 30,												Nine months ended June 30,
						2024						2023						2024						2023
Net revenues
Products						$	308,489					$	328,175					$	914,510					$	1,009,314
Services						387,006						374,467						1,154,936						1,096,881
Total						695,495						702,642						2,069,446						2,106,195
Cost of net revenues
Products						80,813						87,940						248,834						286,590
Services						55,612						53,743						165,093						165,754
Total						136,425						141,683						413,927						452,344
Gross profit						559,070						560,959						1,655,519						1,653,851
Operating expenses
Sales and marketing						205,550						207,202						615,277						673,383
Research and development						124,387						128,765						366,169						412,451
General and administrative						65,950						64,775						197,852						201,802
Restructuring charges						93						56,648						8,655						65,388
Total						395,980						457,390						1,187,953						1,353,024
Income from operations						163,090						103,569						467,566						300,827
Other income, net						8,529						2,896						24,385						10,335
Income before income taxes						171,619						106,465						491,951						311,162
Provision for income taxes						27,540						17,489						90,469						68,348
Net income						$	144,079					$	88,976					$	401,482					$	242,814
Net income per share — basic						$	2.46					$	1.48					$	6.82					$	4.04
Weighted average shares — basic						58,584						59,977						58,832						60,133
Net income per share — diluted						$	2.44					$	1.48					$	6.75					$	4.02
Weighted average shares — diluted						59,147						60,314						59,461						60,463

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 June 30,												Nine months ended June 30,
						2024						2023						2024						2023
Net income						$	144,079					$	88,976					$	401,482					$	242,814
Other comprehensive (loss) income:
Foreign curre

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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 multicloud 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 multicloud 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, multicloud 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. In fiscal 2023 and as we entered fiscal 2024, continued customer budget constraints brought on by uncertainties in the macroeconomic environment 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. Over the course of fiscal 2024, we have seen customer demand stabilizing. During our third quarter of fiscal 2024, we saw early signs of improving demand, however, we will continue to closely monitor the macroeconomic environment and its impacts on our business.

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• 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 nine months of fiscal year 2024 was primarily due to cash provided by operating activities of $545.9 million, partially offset by $400.0 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 June 30, 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. Total deferred revenues remained relatively flat for the first three quarters of fiscal 2024. Our days sales outstanding for the third quarter of fiscal year 2024 was 54. 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 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.

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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 June 30,												Nine months ended June 30,
						2024						2023						2024						2023
						(in thousands, except percentages)
Net revenues
Products						$	308,489					$	328,175					$	914,510					$	1,009,314
Services						387,006						374,467						1,154,936						1,096,881
Total						$	695,495					$	702,642					$	2,069,446					$	2,106,195
Percentage of net revenues
Products						44.4		%				46.7		%				44.2		%				47.9		%
Services						55.6						53.3						55.8						52.1
Total						100.0		%				100.0		%				100.0		%				100.0		%

Net Revenues. Total net revenues decreased 1.0% and 1.7% for the three and nine months ended June 30, 2024, respectively, from the comparable periods in the prior year. The decrease in total net revenues for the three and nine months ended June 30, 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 48.0% and 48.0% of total net revenues for the three and nine months ended June 30, 2024, respectively, compared to 46.8% and 47.3% for the same periods in the prior year, respectively.

Net Product Revenues. Net product revenues decreased 6.0% and 9.4% for the three and nine months ended June 30, 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 June 30,												Nine months ended June 30,
						2024						2023						2024						2023
						(in thousands, except percentages)
Net product revenues
Systems revenue						$	129,845					$	154,659					$	406,873					$	536,379
Software revenue						178,644						173,516						507,637						472,935
Total net product revenue						$	308,489					$	328,175					$	914,510					$	1,009,314
Percentage of net product revenues
Systems revenue						42.1		%				47.1		%				44.5		%				53.1		%
Software revenue						57.9						52.9						55.5						46.9
Total net product revenue						100.0		%				100.0		%				100.0		%				100.0		%

Software Revenues. As a component of net product revenues, software revenues increased 3.0% and 7.3% for the three and nine months ended June 30, 2024, respectively, from the comparable periods in the prior year.

Net Service Revenues. Net service revenues increased 3.3% and 5.3% for the three and nine months ended June 30, 2024, respectively, from the comparable periods in the prior year. The increase in net service revenues for the three and nine months ended June 30, 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 June 30,												Nine months ended June 30,
			2024						2023						2024						2023
Ingram Micro, Inc.			15.7		%				14.3		%				16.5		%				16.1		%
Synnex Corporation			15.9		%				15.8		%				16.0		%				14.7		%
Carahsoft Technology Corporation			10.5		%				10.7		%				—						—

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

			June 30, 2024						September 30, 2023
Ingram Micro, Inc.			10.5		%				—
Synnex Corporation			12.3		%				16.0		%
Carahsoft Technology Corporation			11.1		%				10.1		%

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

						Three months ended June 30,												Nine months ended June 30,
						2024						2023						2024						2023
						(in thousands, except percentages)
Cost of net revenues and gross profit
Products						$	80,813					$	87,940					$	248,834					$	286,590
Services						55,612						53,743						165,093						165,754
Total						136,425						141,683						413,927						452,344
Gross profit						$	559,070					$	560,959					$	1,655,519					$	1,653,851
Percentage of net revenues and gross margin (as a percentage of related net revenue)
Products						26.2		%				26.8		%				27.2		%				28.4		%
Services						14.4						14.4						14.3						15.1
Total						19.6						20.2						20.0						21.5
Gross margin						80.4		%				79.8		%				80.0		%				78.5		%

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 $7.1 million, or 8.1% for the three months ended June 30, 2024 and decreased $37.8 million, or 13.2% for the nine months ended June 30, 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 nine months ended June 30, 2024, cost of net service revenues as a percentage of net service revenues was 14.4% and 14.3%, respectively, compared to 14.4% and 15.1% for the comparable periods in the prior year, respectively. Professional services headcount at the end of June 2024 increased to 1,088 from 1,045 at the end of June 2023.

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						Three months ended June 30,												Nine months ended June 30,
						2024						2023						2024						2023
						(in thousands, except percentages)
Operating expenses
Sales and marketing						$	205,550					$	207,202					$	615,277					$	673,383
Research and development						124,387						128,765						366,169						412,451
General and administrative						65,950						64,775						197,852						201,802
Restructuring charges						93						56,648						8,655						65,388
Total						$	395,980					$	457,390					$	1,187,953					$	1,353,024
Operating expenses (as a percentage of net revenue)
Sales and marketing						29.5		%				29.5		%				29.7		%				32.0		%
Research and development						17.9						18.3						17.7						19.6
General and administrative						9.5						9.2						9.6						9.5
Restructuring charges						—						8.1						0.4						3.1
Total						56.9		%				65.1		%				57.4		%				64.2		%

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 $1.7 million, or 0.8% for the three months ended June 30, 2024 and decreased $58.1 million, or 8.6% for the nine months ended June 30, 2024 from the comparable periods in the prior year. The decrease in sales and marketing expense for the three and nine months ended June 30, 2024 was primarily due to a decrease of $2.3 million and $37.2 million, respectively, in personnel costs from the comparable periods in the prior year. In addition, commissions for the nine months ended June 30, 2024 decreased $9.9 million from the comparable period in the prior year. Sales and marketing headcount at the end of June 2024 decreased to 2,166 from 2,194 at the end of June 2023. Sales and marketing expenses included stock-based compensation expense of $20.8 million and $63.8 million for the three and nine months ended June 30, 2024, respectively, compared to $22.6 million and $75.2 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 $4.4 million, or 3.4% for the three months ended June 30, 2024 and decreased $46.3 million, or 11.2% for the nine months ended June 30, 2024 from the comparable periods in the prior year. The decrease in research and development expense for the three and nine months ended June 30, 2024 was primarily due to a decrease of $4.3 million and $35.2 million, respectively, in personnel costs from the comparable periods in the prior year. Research and development headcount at the end of June 2024 decreased to 1,995 from 2,052 at the end of June 2023. Research and development expenses included stock-based compensation expense of $14.8 million and $46.3 million for the three and nine months ended June 30, 2024, respectively, compared to $16.3 million and $53.5 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 increased $1.2 million, or 1.8% for the three months ended June 30, 2024 and decreased $4.0 million, or 2.0% for the nine months ended June 30, 2024 from the comparable periods in the prior year. The increase in general and administrative expenses for the three months ended June 30, 2024 was primarily due to an increase of $1.7 million in personnel costs from the comparable period in the prior year. The decrease in general and administrative expenses for the nine months ended June 30, 2024 was primarily due to a decrease of $6.0 million in fees paid for professional services. General and administrative headcount at the end of June 2024 increased to 874 from 858 at the end of June 2023. General and administrative expenses included stock-based compensation expense of $11.5 million and $32.9 million for the three and nine months ended June 30, 2024, respectively, compared to $10.3 million and $32.2 million for the same periods in the prior year, respectively.

Restructuring Charges. In the first fiscal quarter of 2024, and the first and third fiscal quarters of 2023, we completed restructuring plans to better align strategic and financial objectives, optimize operations, and drive efficiencies for long-term growth and profitability. As a result of the first fiscal quarter of 2024 restructuring initiative, we recorded a charge of $8.7 million, net of adjustments, related to a reduction in workforce that is reflected in our results for the nine months ended June 30, 2024. As a result of the first and third fiscal quarters of 2023 restructuring initiatives, we recorded charges of $8.7 million and

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$56.7 million, respectively, related to a reduction in workforce and exit of leased space that is reflected in our results for the nine months ended June 30, 2023.

						Three months ended June 30,												Nine months ended June 30,
						2024						2023						2024						2023
						(in thousands, except percentages)
Other income and income taxes
Income from operations						$	163,090					$	103,569					$	467,566					$	300,827
Other income, net						8,529						2,896						24,385						10,335
Income before income taxes						171,619						106,465						491,951						311,162
Provision for income taxes						27,540						17,489						90,469						68,348
Net income						$	144,079					$	88,976					$	401,482					$	242,814
Other income and income taxes (as percentage of net revenue)
Income from operations						23.4		%				14.8		%				22.6		%				14.3		%
Other income, net						1.3						0.4						1.2						0.5
Income before income taxes						24.7						15.2						23.8						14.8
Provision for income taxes						4.0						2.5						4.4						3.3
Net income						20.7		%				12.7		%				19.4		%				11.5		%

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 June 30, 2024 was primarily due to an increase in interest income of $3.5 million from our investments, as well as a decrease in foreign currency losses of $1.7 million compared to the same period in the prior year. The increase in other income, net for the nine months ended June 30, 2024 was primarily due to an increase in interest income of $13.5 million from our investments and a decrease in interest expense of $3.0 million compared to the same period in the prior year. The increase in other income, net for the nine months ended June 30, 2024 was partially offset by an increase in foreign currency losses of $3.1 million compared to the same period in the prior year.

Provision for Income Taxes. The effective tax rate was 16.0% and 18.4% for the three and nine months ended June 30, 2024, respectively, compared to 16.4% and 22.0% for the three and nine months ended June 30, 2023, respectively. The decrease in the effective tax rate for the three and nine months ended June 30, 2024, as compared to the three and nine months ended June 30, 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 June 30, 2024 and September 30, 2023 were $337.5 million and $290.7 million, respectively. The net deferred tax assets include valuation allowances of $42.0 million and $43.9 million as of June 30, 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 $942.9 million as of June 30, 2024, compared to $808.4 million as of September 30, 2023, representing an increase of $134.5 million. The increase was primarily due to cash provided by operating activities of $545.9 million for the nine months ended June 30, 2024, partially offset by cash used for the repurchase of common stock during the nine months ended June 30, 2024 of $400.0 million.

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Cash provided by operating activities for the first nine months of fiscal year 2024 resulted from net income of $401.5 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 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 $53.5 million for the nine months ended June 30, 2024, compared to cash provided by investing activities of $44.0 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 nine months ended June 30, 2024 was primarily the result of $32.9 million in cash paid for acquisitions and $24.4 million in capital expenditures related to maintaining our operations worldwide.

Cash used in financing activities was $355.1 million for the nine months ended June 30, 2024, compared to cash used in financing activities of $591.9 million for the same period in the prior year. Our financing activities for the nine months ended June 30, 2024 primarily consisted of $400.0 million of cash used to repurchase shares of common stock. In addition, $10.0 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 $54.9 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 June 30, 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 June 30, 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 June 30, 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 June 30, 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 June 30, 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 nine month period ended June 30, 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 June 30, 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 June 30, 2024.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 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 June 30, 2024, the Company had $522.4 million remaining authorized to purchase shares under its share repurchase program.

Shares repurchased and retired for the three months ended June 30, 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
April 1, 2024 — April 30, 2024						—						—						—						$	672,421
May 1, 2024 — May 31, 2024						879,915						$	171.93					872,209						$	522,421
June 1, 2024 — June 30, 2024						—						—						—						$	522,421

(1)Includes 7,706 shares withheld from restricted stock units that vested in the third 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 June 30, 2024, certain of our officers and directors adopted or terminated Rule 10b5-1 trading arrangements as follows:

On May 23, 2024, Chad Whalen, EVP, Worldwide Sales, adopted a written plan intended to satisfy the affirmative defense of Rule 10b5-1(c) that is designed to be in effect until June 27, 2025 with respect to the sale of 15,579 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 August, 2024.

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