F5, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021. This is an annual filing; the supplied text does not provide standalone fourth-quarter financial results.
Business context
F5 provides application security and delivery products and services across on-premises, software, SaaS, and multi-cloud environments. It reports as one operating segment. The company is shifting toward software and SaaS: software revenue grew 40% and reached 40% of product revenue in FY2021. F5 acquired edge-platform provider Volterra in January 2021 for approximately $427 million.
Key financial metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $2.603 billion | $2.351 billion | +10.7% |
| Product revenue | $1.247 billion | $1.026 billion | +21.6% |
| Service revenue | $1.356 billion | $1.325 billion | +2.4% |
| Software product revenue | $498.9 million | $357.5 million | +39.5% |
| Gross profit / margin | $2.110 billion / 81.1% | $1.943 billion / 82.6% | Margin down 1.5 percentage points |
| Operating income / margin | $394.0 million / 15.1% | $392.3 million / 16.7% | Income nearly flat; margin down |
| Net income | $331.2 million | $307.4 million | +7.7% |
| Diluted EPS | $5.34 | $5.01 | +6.6% |
| Cash from operations | $645.2 million | $660.9 million | Down $15.7 million |
FY2021 operating expenses were $1.716 billion, up from $1.551 billion. Reported expenses included $40.7 million of asset impairments, primarily associated with exiting office space. The effective tax rate was 14.4%, compared with 22.4% in FY2020.
At September 30, 2021, cash, cash equivalents, and short- and long-term investments totaled $1.043 billion, down $269.4 million year over year. Current assets were $1.611 billion and current liabilities $1.392 billion. Deferred revenue totaled $1.490 billion, including current and long-term balances. F5 reported $370 million of term-loan principal outstanding and no revolving-credit borrowings; $350 million of revolver capacity remained available. The term loan matures in January 2023, with $20 million scheduled for FY2022 and $350 million for FY2023.
Material changes versus FY2020
- Product revenue accelerated, led by software subscriptions and SaaS; software rose to 40% of product revenue from 34.9%.
- Services revenue grew more slowly, at 2.4%, while product revenue rose 21.6%.
- Gross margin decreased to 81.1% from 82.6%, and operating margin fell to 15.1% from 16.7%, despite higher revenue.
- Operating cash flow declined modestly. Cash and investments fell mainly due to $500 million of share repurchases and $411.3 million paid for acquisitions, primarily Volterra.
- Deferred revenue increased to $1.490 billion from $1.273 billion, reflecting subscription growth and acquired balances.
Outlook, risks, contingencies, and unusual items
- Management gave no specific revenue or earnings guidance in the supplied filing text. It expects operating cash flow, existing cash and investments, and available revolver capacity to meet operating needs for at least the next 12 months, while noting future cash needs may depend on growth and acquisitions.
- Management said COVID-19 did not significantly affect FY2021 results, but the outlook remained uncertain. Pandemic-related component shortages were increasing lead times and reducing supply visibility, potentially constraining hardware fulfillment.
- Key risks include intense competition and execution in cloud/SaaS markets, pricing and product transitions, reliance on a single contract manufacturer and constrained component sources, and sales concentration: Ingram Micro and Synnex represented 19.2% and 11.1% of FY2021 revenue.
- Legal matters include NGINX-related intellectual-property claims and multiple patent cases brought by Proven Networks. F5 said it intended to defend the matters; it had recorded no loss-contingency accrual and could not estimate ultimate outcomes or potential exposure.
- Uncertain tax-position liabilities were approximately $75.2 million, including interest and penalties; timing of potential cash outflows was unclear. FY2021 also included $40.7 million of asset impairments and $9.5 million of Volterra transaction costs.
- Threat Stack acquisition closed October 1, 2021 for approximately $68 million in cash. The acquisition accounting was incomplete at filing, and the company could not yet provide acquired asset, liability, goodwill, or combined pro forma results.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified Volterra developed-technology valuation, particularly the royalty-rate assumption, as a critical audit matter.
Important facts for investors to verify
- Whether software and SaaS growth continues and offsets slower service growth and declining systems mix.
- Whether gross and operating margins stabilize as product mix, acquisition costs, and ongoing investment evolve.
- Whether supply constraints affect hardware shipments, backlog conversion, or customer demand; reported product backlog was approximately $124.9 million and was not considered a reliable revenue indicator.
- Cash generation and capital allocation, including the $370 million term loan, scheduled 2023 maturity, and remaining $773 million repurchase authorization.
- Developments in the NGINX and Proven Networks litigation, tax examinations, and the final accounting and integration results for Threat Stack.