On this page of StockholderLetter.com we present the 1/25/2023 shareholder letter from F5, INC. — ticker symbol FFIV. Reading current and past FFIV letters to shareholders can bring important insights into the investment thesis.

 •  1/25/2023 Letter Continued (Full PDF)
 •  1/26/2024 FFIV Stockholder Letter
 •  1/27/2025 FFIV Stockholder Letter
 •  More "Information Technology Services" Category Stockholder Letters
 •  FFIV Benford's Law Stock Score = 74

FFIV 1/25/2023 Shareholder/Stockholder Letter Transcript:

Annual Report
2022


Fran  ois Locoh-Donou
President, CEO and Director, F5 Inc.
TO OUR SHAREHOLDERS, CUSTOMERS, AND PARTNERS:
In    scal year 2022, we made strong strides toward our mission of bringing a better digital world to life.
As a partner to many of the largest organizations across the globe, F5 protects and enables the applications
and digital experiences that have become an integral part of how we work, communicate, shop, and play.
The increasing demand for and reliance on digital experiences and the applications that enable them are what
drives F5   s opportunity. As a result,    scal year 2022 ranks as F5   s best year yet with $2.7 billion in revenue.
In addition to record revenue, we also achieved several meaningful milestones this year:
First, we marked a turning point in our multi-year transformation efforts, with software revenue accounting for
the majority of our product revenue for the    rst time ever. In    scal year 2022, software revenue represented
51% of our product revenue, up from just 13% in    scal year 2017. This is no small feat, and I am proud of
our achievement, especially considering that other technology infrastructure players have unsuccessfully
attempted to evolve from hardware- to software-led businesses.
Second, with the expansion of our application security portfolio and increasing demand for securing
applications and Application Programming Interfaces, or APIs, we ascended to the ranks of a billion dollar
cybersecurity company, solidifying our role as a leading application security player. F5 solutions safeguard
billions of transactions every day. Every day, we protect the passwords, bank accounts, medical records,
family photos, and other personal data   the most precious digital assets of human life   for millions of
people around the globe.
Finally, we launched three signi   cant new platforms during the year, further expanding our portfolio and
leveraging customer-focused innovation across a continuum of deployment models from hardware to
Software as a Service, or SaaS.
These achievements demonstrate how signi   cantly we have evolved F5 over the last    ve years. Today, F5 is
a multi-cloud application services and security company that partners with the world   s largest, most advanced
organizations to secure and optimize applications and APIs anywhere. We enable organizations to provide
exceptional, secure digital experiences for their customers and continuously stay ahead of threats. We have
more to do yet, however, and I will focus most of this letter on the key elements of our strategy before I recap
our    scal year 2022    nancial results, concluding with thoughts about the year ahead.

OUR FINANCIAL PERFORMANCE
Executing on our strategy and delivering for our customers drove $2.7 billion in    scal year 2022 revenue,
representing 4% year-over-year growth driven by 6% product growth and 2% global services growth. In addition
to delivering strong software revenue growth of 33%, and software revenue contributing the majority of our
product revenue, our operating discipline led to    scal year 2022 GAAP net income of $322 million, or $5.27 per
share. Fiscal year 2022 non-GAAP net income was $623 million, or $10.19 per share.1 For the year, cash    ow from
operations also remained very strong, at approximately $443 million.
We achieved these results despite a global supply chain crisis that signi   cantly constrained our ability to meet
customer demand for hardware, while also pressuring our earnings as a result of sharply escalating component
and supply chain costs. In true F5 fashion, we tackled this challenge from multiple fronts. While our supply chain
team worked with our vendors and partners to improve the    ow of thousands of components, our engineering
teams worked tirelessly to adapt our hardware designs to reduce our reliance on components that are in short
supply. We expect that these efforts, combined with increased capacity from our component vendors, will
meaningfully improve our ability to meet customer demand for our systems in    scal year 2023.
While I am extremely proud of the F5 team and its ability to cope with adversity, because of the extreme supply
chain challenges, we did not deliver the earnings growth we expected in    scal year 2022. However, we have
built an extremely resilient business and an operating model capable of signi   cant leverage, which is why we are
committed to achieving double-digit non-GAAP earnings growth annually.
OUR ESG EFFORTS ARE CORE TO OUR BUSINESS AND OUR STRATEGY
At F5, we care deeply not just about what we do, but how we do it. Our guiding principle to       do the right thing       is
re   ected in our commitment to Environmental, Social, and Governance (ESG)   extending from the environmental
sustainability of our products and operations to the wellbeing of our employees and our communities. We made
considerable strides in our ESG efforts this year, perhaps most notably, by announcing F5   s    rst-ever climate
target to cut the Scope 1 and 2 emissions from our operations in half by 2030.
Throughout the year, we continued to raise awareness amongst our stakeholders of F5   s investments in
environmental, social, and governance programs.
Environmental. Since F5 formed the ESG team in    scal year 2021, the focus has been on bringing the
environmental program at the company up to the standards we are proud to have set over the last 27 years in
social and governance. In    scal year 2022, F5 took its    rst step towards a climate target, committing to reduce
our absolute Scope 1 and 2 emissions 50% by 2030 from a 2021 baseline year. We will complete our Scope 3
emissions inventory across our value chain to issue our complete science-based target with the Science Based
Target Initiative by the close of    scal year 2023. To start taking immediate action on our target, F5 made its    rstever purchase of renewable energy certi   cates in    scal year 2022. We focused on buying renewable energy in
the Western region of the United States    rst, given that our highest volume of emissions worldwide is currently
concentrated around our headquarters in Seattle, WA and offices in Spokane, WA and San Jose, CA.
1 Fiscal year 2022 non-GAAP net income and net income per share excludes $249 million in stock-based compensation, $58 million in
amortization and impairment of purchased intangible assets, $49 million in acquisition-related charges, $10 million in facility-exit costs, and
$8 million in restructuring charges.

Social. We continue to prioritize F5 Global Good, the community development initiative that ampli   es our
employee engagement and diversity and inclusion programs. In    scal year 2022, more than half of all worldwide
employees participated in Global Good programs, volunteering more than 7,200 hours and directing the entirety
of F5   s donations, through both the company matching program and grant selection committees. In fact, F5
employees directed 97% of all Global Good grant funding in    scal year 2022 to non-pro   t organizations serving
majority Black, Indigenous, People of Color (BIPOC) and underserved communities. F5 and its employees
donated over $4.6 million to more than 3,000 non-pro   ts worldwide in    scal year 2022.
Governance. Our guiding principle to do the right thing for each other, our customers, our shareholders, and
our communities is set forth in F5   s Code of Business Conduct and Ethics, compliance training programs,
and most importantly, in the behaviors and principles by which we measure all employees: BeF5 and LeadF5.
The Nominating and ESG Committee of the Board of Directors oversees our ESG programs and reviews our
ESG strategy, disclosures, and metrics each quarter. This year, we bolstered governance of the working and
environmental conditions in our supply chain by joining the Responsible Business Alliance. In addition, the Talent
and Compensation Committee of the Board demonstrated our commitment to our strong pay-for-performance
culture by increasing the performance-based portion of my target equity award to 60% from 50% previously.
The Talent and Compensation Committee also introduced ESG metrics to the short-term cash incentive program
for the company   s executives in the form of measurements related to year-over-year increases in diversity
representation and measurement of employee inclusion.
DELIVERING ON OUR STRATEGY
We are creating a global and diverse team that is both
human-first and high-performance
None of what we have accomplished would be possible without our employees and their relentless pursuit of
our vision. Our strong culture underpins our ability to continue to grow and evolve. Since 2017, we have worked
to create a truly unique and inclusive culture that values our employees as humans    rst. This approach has
resonated with both current and prospective employees and differentiates F5 from other potential employers.
Our culture and the employee engagement it engenders is a signi   cant competitive strength for F5 and is
therefore a key component of our strategy.
Like many other companies, we have had to adapt to working and collaborating in a hybrid office-and-remote
work model. We have done so successfully by continually embedding our BeF5 behaviors and our Lead F5
principles into our systems, processes, decisions, and conversations   constantly reinforcing, recognizing, and
rewarding desired behaviors to send the message that they are key to successfully realizing our strategy.



 1/25/2023 Letter Continued (Full PDF)