On this page of StockholderLetter.com we present the 1/26/2024 shareholder letter from F5, INC. — ticker symbol FFIV. Reading current and past FFIV letters to shareholders can bring important insights into the investment thesis.

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

FFIV 1/26/2024 Shareholder/Stockholder Letter Transcript:

Annual Report
2023


Fran  ois Locoh-Donou
President, CEO and Director, F5 Inc.
TO OUR SHAREHOLDERS, CUSTOMERS, AND PARTNERS:
F5 enables and protects the applications and APIs that power the largest companies and service providers
across the globe. We are on a mission to bring a better digital world to life, and we are doing so, empowering
employee collaboration and securing the dynamic, responsive digital experiences we all have come to expect.
The way enterprises think about and deploy applications has changed radically in just the last several years.
Not that long ago, all business applications were deployed and managed within a company   s own data centers.
Today, our customers are managing a higher volume of applications, distributed across on-premises data centers,
various public clouds, and even at the network edge. In fact, 88% of our customers report that they are currently
operating across multiple environments. As a result, our customers are grappling with a more intricate set of
challenges. The expanding number of applications across distributed environments demands speci   c expertise
and tools for each environment, which adds operational complexity and costs. At the same time, this expanded
landscape provides cybercriminals with more potential targets, amplifying security concerns. This complexity
is further intensi   ed by the rapid growth in the number of applications, a growth trajectory that is poised to
accelerate signi   cantly with the anticipated widespread adoption and proliferation of arti   cial intelligence (AI).
As we enter 2024, F5 is strategically positioned to support our customers as they navigate these escalating
challenges within a rapidly evolving landscape. Our innovation and product portfolio evolution over the last
several years have been aimed at addressing exactly these challenges head on. We are the only company
capable of securing, delivering, and optimizing any application and any API, regardless of their location   be
it in a data center, any one of the public clouds, or at the network edge. Amidst a complex web of environments
and solutions, F5 empowers customers to establish a consistent security posture across all their applications,
thereby enhancing security, streamlining operations, and reducing costs. Moreover, we are unifying our solutions
to provide customers with unprecedented levels of visibility, manageability, and automation.
Though 2023 was a challenging year for F5 and the world at large, we once again delivered record revenue
with $2.8 billion in sales. Demand for our solutions was tempered, however, by extreme spending caution from
our customers as they contemplated macroeconomic uncertainty, rising interest rates, and the impact
of geopolitical con   icts.
We adjusted to these environmental challenges with a view toward delivering on our commitment to double-digit
earnings growth. In April of 2023, we implemented cost reductions, eliminating projects with more speculative
or longer-term returns. We also executed a 9% reduction in force, impacting 623 of our colleagues.
The combination of our cost reductions, our success in overcoming the supply chain challenges that so
signi   cantly impacted 2022, and our strong operating discipline drove meaningful gross and operating margin
improvement during 2023, enabling us to achieve 15% non-GAAP earnings growth, with revenue growth of 4%.

In addition, there are many positives to cite from the year, including:
    For the second consecutive year, software accounted for at least 50% of our total product revenue.
This showcases that our success in diversifying and expanding our solutions portfolio is rooted in a
purposeful and strategic approach that aligns well with customer requirements.
    Despite the challenging IT-spending environment, our subscription renewals performed largely to plan,
a strong signal that customers are getting the value they expect from our software solutions.
    For the second consecutive year, we delivered more than $1 billion in security-related revenue.
    Our recently launched F5 Distributed Cloud Services    SaaS offerings are gaining traction with both new
and existing customers. In fact, we ended the year with more than 500 customers using the platform,
an increase of more than 200% since the end of 2022.
    Fortune recognized our Board of Directors as the #1 most Modern Board. Fortune examined expertise,
independence, diversity, and tenure of board membership to assess innovation, which is correlated with
high performance.
In summary, in 2023 we leveraged and built upon our strengths to deliver on our commitments to our customers
and our shareholders. I will use the rest of this letter to recap our    scal year    nancial results in more detail, and
to highlight several key elements of our strategy. I will conclude with thoughts about the year ahead.
OUR FINANCIAL PERFORMANCE
As I noted, we delivered $2.8 billion in    scal year 2023 revenue, representing 4% year-over-year growth, driven
by 1% product growth and 7% global services growth.
Faced with a demand environment that was softer than initially anticipated, we took decisive action to align our
operating model accordingly. Through operating discipline, including the previously mentioned cost reductions,
we achieved    scal year 2023 GAAP net income of $395 million, or $6.55 per share. We delivered non-GAAP net
income of $705 million, or $11.70 per share, representing 15% growth from    scal year 2022, underscoring our
commitment to pro   tability.1
Cash    ow from operations also remained very strong, at approximately $653 million for the year. Furthermore,
we ful   lled our commitment to shareholders by returning 58% of our annual free cash    ow via share repurchases,
surpassing our 50% minimum pledge.
1 Fiscal year 2023 non-GAAP net income and net income per share excludes $237 million in stock-based compensation, $53 million in
amortization and impairment of purchased intangible assets, $15 million in acquisition-related charges, $7 million in facility-exit costs, and
$65 million in restructuring charges.

DELIVERING ON OUR STRATEGY
We are creating a global and diverse team that is both
human first and high performance
Our strong culture underpins our ability to continue to grow and evolve. We have worked to create a truly unique
and inclusive culture that values our employees as humans    rst. 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.
Our approach resonates with both prospective and current employees, setting F5 apart from other employers
and underpinning our consistently low attrition rates. Notably, in    scal year 2023 we experienced 6.9% attrition,
well below the industry average of 10.7%.
Over the last several years, like many employers, we have had to adapt to working and collaborating in a hybrid
office-and-remote work model. We have done so successfully, by embedding our BeF5 behaviors and our LeadF5
principles into our systems, processes, decisions, and conversations   constantly reinforcing, recognizing, and
rewarding desired behaviors.
Also like many organizations, in 2023 we began the process of bringing employees back to the office, a change
we believe is critical to retaining our culture, driving innovation, increasing knowledge sharing, and fostering
connections   all in the service of achieving high performance. Recognizing the potential impact of this change,
we conducted extensive research, including running pilots in our Paris and Seattle offices, soliciting employee
feedback, evaluating best practices, and learning from other organizations    approaches. Beginning October 1,
2023, we require employees near an F5 office with 30 or more employees to spend 30 days in the office per
quarter. This approach enables leaders to drive in-office presence when it matters most, while offering
continued    exibility to employees.
We measure employee sentiment through employee surveys, which we conduct via a third-party provider.
Given 2023   s challenging environment, we expected that our employee survey would show a decline in key
sentiment metrics. As of June 2023, employee favorability on one of our key metrics,    I feel a sense of belonging
at F5    declined to 76% compared to 84% a year prior. Employee comments in the survey indicate that changes
related to the April 2023 reduction in force, our return to office policy, and incentive plans were among the key
reasons for the decline.
However, employees continue to feel positively about important elements of their F5 experience, reporting high
trust in their managers (89% favorable) and that diverse perspectives are valued and encouraged (88% favorable).



 1/26/2024 Letter Continued (Full PDF)