Business context and reporting period
F5, Inc. filed this Form 10-K for the fiscal year ended September 30, 2022. The request refers to 2022 Q4, but the filing primarily reports full-year results and does not provide a complete standalone fourth-quarter income statement. F5 sells application security and delivery products, software, SaaS and services for on-premises and multi-cloud environments.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $2,695.8 million | $2,603.4 million | +3.6% |
| Product revenue | $1,317.1 million | $1,247.1 million | +5.6% |
| Services revenue | $1,378.7 million | $1,356.3 million | +1.7% |
| Gross profit / margin | $2,156.2 million / 80.0% | $2,110.3 million / 81.1% | Margin down 1.1 points |
| Operating income / margin | $403.8 million / 15.0% | $394.0 million / 15.1% | Income +2.5% |
| Net income | $322.2 million | $331.2 million | -2.7% |
| Diluted EPS | $5.27 | $5.34 | -1.3% |
| Cash from operations | $442.6 million | $645.2 million | -31.4% |
Software product revenue rose to $665.2 million, up from $498.9 million; systems revenue fell to $651.9 million from $748.2 million. Cash, cash equivalents and investments totaled $894.1 million at year-end, down $149.3 million. The company attributed the operating cash-flow decline partly to annual billing on multi-year subscriptions and prepayments to its contract manufacturer.
F5 had $350.0 million outstanding under its term loan, classified as current and due January 24, 2023. It also had an undrawn $350.0 million revolving credit facility. Deferred revenue was $1.69 billion, and non-cancelable remaining performance obligations were $1.7 billion; approximately 63.1% was expected to be recognized within 12 months. The company reported fourth-quarter days sales outstanding of 60.
Material changes versus the prior comparable period
- Revenue growth slowed to 3.6% from 10.7% in FY2021. Software growth was offset in part by a decline in systems revenue attributed to semiconductor and component shortages.
- Gross margin declined to 80.0% from 81.1%, with higher product costs, component prices, expedite fees and sourcing costs among the factors described.
- Net income declined despite higher operating income, reflecting higher other expense and a higher effective tax rate: 16.4% versus 14.4%.
- F5 acquired Threat Stack for approximately $68.9 million in October 2021. Its reported revenue and earnings were not material to F5 for the period.
Outlook, commentary, risks and unusual items
Management provided no specific forward-year revenue or earnings guidance in the supplied filing text. It expects challenging supply conditions, particularly semiconductor constraints, to limit hardware shipments and affect systems revenue. Management said available cash and investments, expected operating cash flows and the revolver should meet liquidity needs, including operating requirements over the next 12 months.
Key risks include continued supply-chain constraints and reliance on a single contract manufacturer; competition and execution in SaaS and cloud markets; cybersecurity and product vulnerabilities; economic uncertainty and customer spending changes; dependence on distribution channels; and revenue concentration. Two distributors represented 33.4% of FY2022 revenue. F5 also disclosed $69.7 million of uncertain-tax-position liabilities, including interest and penalties, with timing of potential cash outflows unclear.
FY2022 included $7.9 million of restructuring charges tied to a workforce reduction affecting approximately 70 positions and a $6.2 million impairment of the Shape trade name. The company repurchased approximately $500 million of shares and authorized an additional $1.0 billion for repurchases; $1.272 billion remained authorized at year-end. The Lynwood intellectual-property case was dismissed with prejudice, but the plaintiff appealed; F5 had recorded no loss-contingency accrual. The October 2022 supply agreement commits F5 to purchase $10 million of components annually for four years, or $40 million total.
Important facts for investors to verify
- Review subsequent disclosures on repayment or refinancing of the $350 million term loan due in January 2023.
- Track whether semiconductor availability improves and systems revenue recovers, while monitoring software and SaaS growth and gross margins.
- Assess operating cash-flow trends, subscription billing and collection patterns, and the growth and conversion of deferred revenue and remaining performance obligations.
- Monitor distributor concentration, the contract-manufacturer and component commitments, and progress integrating Threat Stack.
- Check updates on the Lynwood appeal and the resolution of uncertain tax positions and related audits.