F5, INC.

Previous wording

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.

Current wording

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, such as statements regarding our future operating results and financial position, our business strategy and plans, market growth and trends, our product strategy and anticipated future products and capabilities, our objectives for future operations, and the impact of such assumptions on our financial condition and results of operations, 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, customer acceptance of offerings; disruptions to the global supply chain resulting in inability to source required parts for F5’s products or the ability to only do so at greatly increased prices thereby impacting our revenues and/or margins; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; F5’s ability to successfully integrate acquired businesses’ products with F5 technologies; the ability of F5’s sales professionals and distribution partners to sell new solutions and service offerings; the timely development, introduction and acceptance of additional new products and features by F5 or competitors; competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into F5’s markets, and new product and marketing initiatives by our competitors; increased sales discounts; the business impact of the acquisitions and potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement of completion of acquisitions; uncertain global economic conditions which may result in reduced customer demand for our products and services and changes in customer payment patterns; litigation involving patents, intellectual property, shareholder and other matters, and governmental investigations; potential security flaws in networks, products or services; cybersecurity attacks on networks, products or services; natural catastrophic events; a pandemic or epidemic; F5’s ability to sustain, develop and effectively utilize distribution relationships; F5’s ability to attract, train and retain qualified product development, marketing, sales, professional services and c…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

•Revenues. Our revenue is derived from the sales of both products and services. The majority of our product revenues are derived from sales of our application delivery and security solutions including our F5 BIG-IP software and systems, F5 NGINX software, and our F5 Distributed Cloud Services offerings. Our F5 BIG-IP software solutions are sold both on a subscription and perpetual license basis. We sell F5 NGINX on a subscription basis as deployable software or SaaS. F5 Distributed Cloud Services provides security, multicloud networking, and edge-based computing solutions and are offered on a subscription basis, under a unified SaaS platform and managed service platform. Our services revenue includes annual maintenance contracts, training and consulting services.

Current wording

•Revenues. Our revenue is derived from the sales of both products and services. The majority of our product revenues are derived from sales of our application delivery and security solutions including our F5 BIG-IP software and systems, F5 NGINX software, and our F5 Distributed Cloud Services offerings. Our F5 BIG-IP software solutions are sold both on a subscription and perpetual license basis. We sell F5 NGINX on a subscription basis as deployable software or SaaS. F5 Distributed Cloud Services are offered on a subscription basis, under a unified SaaS platform and managed service platform. Our services revenue includes annual maintenance contracts, training and consulting services.

Previous wording

•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, personnel costs, including the salaries, stock-based compensation and related benefits of our personnel, technology costs, including third-party cloud hosting and related services, depreciation of cloud infrastructure costs, software licenses expenses, and amortization expense in connection with developed technology from acquisitions. 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.

Current wording

•Cost of revenues and gross margins. Significant items impacting cost of revenues are hardware costs paid to our contract manufacturers, personnel costs, including the salaries, stock-based compensation and related benefits of our personnel, technology costs, including third-party cloud hosting and related services, depreciation of cloud infrastructure costs, software licenses expenses, and amortization expense in connection with developed technology from acquisitions. 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.

Previous wording

•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 2026 was primarily due to cash provided by operating activities of $525.1 million, partially offset by purchases of property and equipment of $28.1 million and cash used to repurchase outstanding common stock under our stock repurchase program, including excise taxes, of $401.1 million. Going forward, we believe the primary driver of cash flows will continue to 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.

Current wording

•Liquidity and cash flows. We continue to maintain a strong financial position, characterized by substantial cash and investment resources, which provide liquidity, support ongoing operations, and enable us to pursue strategic growth opportunities. The increase in cash and investments for the first nine months of fiscal year 2026 was primarily due to cash provided by operating activities of $841.4 million, partially offset by purchases of property and equipment of $63.7 million, cash used to repurchase outstanding common stock under our stock repurchase program, including excise taxes, of $501.1 million, and cash used in acquisition of a business of $47.6 million. Going forward, we believe the primary driver of cash flows will continue to 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.

Previous wording

•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 $2.1 billion as of March 31, 2026 from $2.0 billion as of September 30, 2025 primarily due to an increase in maintenance contracts related to strong systems shipments, in addition to an increase in deferred revenue associated with our subscription offerings. Our days sales outstanding for the second quarter of fiscal year 2026 was 47. Days sales outstanding is calculated by dividing ending accounts receivable by revenue per day for a given quarter.

Current wording

•Balance sheet. We view cash, short-term and long-term investments, deferred revenue, and accounts receivable balances as important indicators of our financial health. Deferred revenues increased to $2.2 billion as of June 30, 2026 from $2.0 billion as of September 30, 2025 primarily due to an increase in maintenance contracts related to strong systems shipments, in addition to an increase in deferred revenue associated with our subscription offerings.

Previous wording

Net Product Revenues. Net product revenues increased 21.7% and 16.3% for the three and six months ended March 31, 2026, respectively, from the comparable periods in the prior year. The increase in net product revenues for the three and six months ended March 31, 2026 was due to an increase in revenues associated with systems and software.

Current wording

Net Product Revenues. Net product revenues increased 19.0% and 17.3% for the three and nine months ended June 30, 2026, respectively, from the comparable periods in the prior year. The increase in net product revenues for the three and nine months ended June 30, 2026 was due to an increase in revenues associated with systems and software.

Previous wording

Net Service Revenues. Net service revenues increased 1.8% and 2.7% for the three and six months ended March 31, 2026, respectively, from the comparable periods in the prior year. The increase in net service revenues for the three and six months ended March 31, 2026 was primarily the result of increased purchases of maintenance contracts.

Current wording

Net Service Revenues. Net service revenues increased 2.7% and 2.7% for the three and nine months ended June 30, 2026, respectively, from the comparable periods in the prior year. The increase in net service revenues for the three and nine months ended June 30, 2026 was primarily the result of increased sales of maintenance contracts.

Previous wording

Total systems revenue increased 26.2% and 31.1% for the three and six months ended March 31, 2026, respectively, from the comparable periods in the prior year. The increase in systems revenue was primarily due to increases in customer demand. Total software revenue increased 16.7% and 2.6% for the three and six months ended March 31, 2026, respectively, from the comparable periods in the prior year. The increase in software revenue was primarily due to increases in subscription offerings.

Current wording

Total systems revenue increased 32.4% and 31.6% for the three and nine months ended June 30, 2026, respectively, from the comparable periods in the prior year. The increase in systems revenue was primarily due to increases in customer demand. Total software revenue increased 7.4% and 4.3% for the three and nine months ended June 30, 2026, respectively, from the comparable periods in the prior year. The increase in software revenue was primarily due to increased sales of subscription offerings.

Previous wording

Cost of Net Product Revenues. Cost of net product revenues consist of finished products purchased from our contract manufacturers, personnel costs, including the salaries, stock-based compensation, and related benefits of our personnel, manufacturing overhead, freight, warranty, provisions for excess and obsolete inventory, technology costs, including third-party cloud hosting and related services, depreciation of cloud infrastructure, software licenses expenses, facilities and depreciation expenses, and amortization expenses in connection with developed technology from acquisitions. Cost of net product revenues increased $9.6 million, or 11.8% for the three months ended March 31, 2026 and increased $19.0 million, or 11.6% for the six months ended March 31, 2026 from the comparable periods in the prior year primarily due to systems revenue growth.

Current wording

Cost of Net Product Revenues. Cost of net product revenues consist of finished products purchased from our contract manufacturers, personnel costs, including the salaries, stock-based compensation, and related benefits of our personnel, manufacturing overhead, freight, warranty, provisions for excess and obsolete inventory, technology costs, including third-party cloud hosting and related services, depreciation of cloud infrastructure, software licenses expenses, facilities and depreciation expenses, and amortization expenses in connection with developed technology from acquisitions. Cost of net product revenues increased $4.7 million, or 5.3% for the three months ended June 30, 2026 and increased $23.8 million, or 9.4% for the nine months ended June 30, 2026 from the comparable periods in the prior year primarily due to systems revenue growth.

Previous wording

Cost of Net Service Revenues. Cost of net service revenues consist of personnel costs, including the salaries, stock-based compensation, and related benefits of our professional services personnel, travel, technology costs, including cloud hosting and software licenses expenses, facilities and depreciation expenses. Cost of net service revenues increased $0.3 million, or 0.6% for the three months ended March 31, 2026 and increased $2.2 million, or 1.9% for the six months ended March 31, 2026 from the comparable periods in the prior year. The increase in cost of net service revenues was primarily due to an increase in personnel costs.

Current wording

Cost of Net Service Revenues. Cost of net service revenues consist of personnel costs, including the salaries, stock-based compensation, and related benefits of our professional services personnel, travel, technology costs, including cloud hosting and software licenses expenses, facilities and depreciation expenses. Cost of net service revenues increased $0.2 million, or 0.4% for the three months ended June 30, 2026 and increased $2.4 million, or 1.4% for the nine months ended June 30, 2026 from the comparable periods in the prior year. The increase in cost of net service revenues was primarily due to an increase in personnel and technology costs.

Previous wording

Sales and Marketing. Sales and marketing expenses consist of personnel costs, including the salaries, commissions, stock-based compensation, and related benefits of our sales and marketing personnel, the costs of our marketing programs, including public relations, advertising and trade shows, travel, facilities, technology costs, including cloud hosting and software licenses expenses, facilities, and depreciation expenses. Sales and marketing expenses increased $21.4 million, or 9.8% for the three months ended March 31, 2026 and increased $40.1 million, or 9.5% for the six months ended March 31, 2026 from the comparable periods in the prior year. The increase in sales and marketing expense for the three and six months ended March 31, 2026 was primarily due to an increase of $18.9 million and $33.5 million, respectively, in personnel costs from the comparable periods in the prior year.

Current wording

Sales and Marketing. Sales and marketing expenses consist of personnel costs, including the salaries, commissions, stock-based compensation, and related benefits of our sales and marketing personnel, the costs of our marketing programs, including public relations, advertising and trade shows, travel, technology costs, including cloud hosting and software licenses expenses, facilities, and depreciation expenses. Sales and marketing expenses increased $17.6 million, or 8.0% for the three months ended June 30, 2026 and increased $57.7 million, or 9.0% for the nine months ended June 30, 2026 from the comparable periods in the prior year. The increase in sales and marketing expense for the three and nine months ended June 30, 2026 was primarily due to an increase of $13.5 million and $47.0 million, respectively, in personnel costs from the comparable periods in the prior year.

Previous wording

Research and Development. Research and development expenses consist of personnel costs, including the salaries, stock-based compensation, and related benefits of our product development personnel, prototype materials, and other expenses related to the development of new and improved products, technology costs, including cloud hosting and software licenses expenses, facilities, depreciation, and amortization expenses. Research and development expenses increased $14.5 million, or 10.6% for the three months ended March 31, 2026 and increased $25.1 million, or 9.4% for the six months ended March 31, 2026 from the comparable periods in the prior year. The increase in research and development expenses for the three and six months ended March 31, 2026 was primarily due to an increase in personnel costs of $7.9 million and $8.6 million, respectively, and an increase in technology costs of $5.1 million and $9.2 million, respectively, from the comparable periods in the prior year. In addition, expenses for professional services increased $2.0 million and $7.6 million, driven by costs incurred in response to the Cyber Incident, for the three and six months ended March 31, 2026, respectively, from the comparable periods in the prior year.

Current wording

Research and Development. Research and development expenses consist of personnel costs, including the salaries, stock-based compensation, and related benefits of our product development personnel, prototype materials, and other expenses related to the development of new and improved products, technology costs, including cloud hosting and software licenses expenses, facilities, depreciation, and amortization expenses. Research and development expenses increased $28.3 million, or 20.8% for the three months ended June 30, 2026 and increased $53.4 million, or 13.2% for the nine months ended June 30, 2026 from the comparable periods in the prior year. The increase in research and development expenses for the three and nine months ended June 30, 2026 was primarily due to an increase in technology costs of $13.5 million and $22.7 million, respectively, and an increase in personnel costs of $10.9 million and $19.5 million, respectively, from the comparable periods in the prior year. In addition, expenses for professional services increased $2.6 million and $10.2 million, driven by costs incurred in response to the Cyber Incident, for the three and nine months ended June 30, 2026, respectively, from the comparable periods in the prior year.

Previous wording

General and Administrative. General and administrative expenses consist of personnel costs, including the salaries, benefits and related costs of our executive, finance, information technology, human resource, and legal personnel, third-party professional service fees, bad debt charges, costs associated with cyber and enterprise-wide security, technology costs, including cloud hosting and software licenses expenses, facilities, and depreciation expenses. General and administrative expenses increased $15.0 million, or 19.6% for the three months ended March 31, 2026 and increased $32.6 million, or 21.8% for the six months ended March 31, 2026 from the comparable periods in the prior year. The increase in general and administrative expenses for the three and six months ended March 31, 2026 was primarily due to an increase in personnel costs of $7.6 million and $18.0 million, respectively, from the comparable periods in the prior year. In addition, expenses for professional services increased $5.5 million and $12.1 million, driven by costs incurred in response to the Cyber Incident, for the three and six months ended March 31, 2026, respectively, from the comparable periods in the prior year.

Current wording

General and Administrative. General and administrative expenses consist of personnel costs, including the salaries, benefits and related costs of our executive, finance, information technology, human resource, and legal personnel, third-party professional service fees, bad debt charges, costs associated with cyber and enterprise-wide security, technology costs, including cloud hosting and software licenses expenses, facilities, and depreciation expenses. General and administrative expenses increased $16.9 million, or 21.5% for the three months ended June 30, 2026 and increased $49.5 million, or 21.7% for the nine months ended June 30, 2026 from the comparable periods in the prior year. The increase in general and administrative expenses for the three and nine months ended June 30, 2026 was primarily due to an increase in personnel costs of $11.7 million and $29.7 million, respectively, from the comparable periods in the prior year. In addition, expenses for professional services increased $3.2 million and $15.3 million, driven by costs incurred in response to the Cyber Incident, for the three and nine months ended June 30, 2026, respectively, from the comparable periods in the prior year.

Previous wording

Restructuring Charges. In the first fiscal quarter of 2025, we completed a restructuring plan to align strategic and financial objectives and optimize resources for long term growth. As a result of our restructuring initiative, we recorded charges of $11.3 million, net of adjustments, related to a reduction in workforce that is reflected in our results for the six months ended March 31, 2025.

Current wording

Restructuring Charges. In the first fiscal quarter of 2025, we completed a restructuring plan to align strategic and financial objectives and optimize resources for long term growth. As a result of our restructuring initiative, we recorded charges of $11.3 million, net of adjustments, related to a reduction in workforce that is reflected in our results for the nine months ended June 30, 2025.

Previous wording

Other Income, Net. The change in other income, net for the three and six months ended March 31, 2026 compared to the same periods in the prior year was primarily driven by interest income and expense, investment income, and foreign currency transaction gains and losses.

Current wording

Other Income, Net. The change in other income, net for the three and nine months ended June 30, 2026 compared to the same periods in the prior year was primarily driven by interest income and expense, investment income, and foreign currency transaction gains and losses.

Previous wording

Provision for Income Taxes. 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, 2026 and September 30, 2025 were $465.5 million and $444.5 million, respectively. The net deferred tax assets include valuation allowances of $34.3 million as of March 31, 2026 and September 30, 2025, which are primarily related to certain state and foreign net operating losses and tax credit carryforwards.

Current wording

Provision for Income Taxes. 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, 2026 and September 30, 2025 were $485.2 million and $444.5 million, respectively. The net deferred tax assets include valuation allowances of $34.8 million and $34.3 million as of June 30, 2026 and September 30, 2025, respectively, which are primarily related to certain state and foreign net operating losses and tax credit carryforwards.

Previous wording

Cash and cash equivalents, short-term investments and long-term investments totaled $1,463.6 million as of March 31, 2026, compared to $1,360.0 million as of September 30, 2025, representing an increase of $103.6 million. The increase was primarily due to cash provided by operating activities of $525.1 million for the six months ended March 31, 2026, partially offset by cash used for the repurchase of common stock, including excise taxes, during the six months ended March 31, 2026 of $401.1 million.

Current wording

Cash and cash equivalents, short-term investments, and long-term investments totaled $1,627.8 million as of June 30, 2026, compared to $1,360.0 million as of September 30, 2025, representing an increase of $267.8 million. The increase was primarily due to cash provided by operating activities of $841.4 million for the nine months ended June 30, 2026, partially offset by cash used for the repurchase of common stock, including excise taxes, during the nine months ended June 30, 2026 of $501.1 million.

Previous wording

Cash provided by operating activities for the first six months of fiscal year 2026 resulted from net income of $327.8 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 six months of fiscal year 2026 increased from the comparable period in the prior year primarily due to growth of our business as reflected by increases in collections during the six months ended March 31, 2026.

Current wording

Cash provided by operating activities for the first nine months of fiscal year 2026 resulted from net income of $536.0 million combined with changes in operating assets and liabilities, as adjusted for various non-cash items including stock-based compensation, deferred revenue, depreciation, and amortization charges. Cash provided by operating activities for the first nine months of fiscal year 2026 increased from the comparable period in the prior year primarily due to growth of our business as reflected by increases in collections duringthe nine months ended June 30, 2026.

Previous wording

Cash used in investing activities was $29.2 million for the six months ended March 31, 2026, compared to cash used in investing activities of $30.6 million for the same period in the prior year. Investing activities include purchases, sales and maturities of long-term investments, business acquisitions, and capital expenditures. The amount of cash used in investing activities for the six months ended March 31, 2026 was primarily the result of $28.1 million in capital expenditures related to maintaining our operations worldwide.

Current wording

Cash used in investing activities was $114.2 million for the nine months ended June 30, 2026, compared to cash used in investing activities of $55.7 million for the same period in the prior year. Investing activities include purchases, sales and maturities of long-term investments, business acquisitions, and capital expenditures. The amount of cash used in investing activities for the nine months ended June 30, 2026 was primarily the result of $47.6 million used in the acquisition of a business and $63.7 million in capital expenditures related to maintaining our operations worldwide.

Previous wording

Cash used in financing activities was $396.3 million for the six months ended March 31, 2026, compared to cash used in financing activities of $244.3 million for the same period in the prior year. Our financing activities for the six months ended March 31, 2026 primarily consisted of $401.1 million of cash used to repurchase shares of common stock and the payment of related excise taxes. In addition, $18.1 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 $22.9 million.

Current wording

Cash used in financing activities was $464.2 million for the nine months ended June 30, 2026, compared to cash used in financing activities of $337.7 million for the same period in the prior year. Our financing activities for the nine months ended June 30, 2026 primarily consisted of $501.1 million of cash used to repurchase shares of common stock and the payment of related excise taxes. In addition, $22.7 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 $59.6 million.