F5(FFIV) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section covers the company's unaudited financial statements, management's analysis, market risks, and internal controls Item 1. Financial Statements (unaudited) This section presents F5 Networks' unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and detailed accounting notes Consolidated Balance Sheets This section details the company's financial position, including assets, liabilities, and equity, highlighting year-over-year changes | Metric | June 30, 2020 (in thousands) | September 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------- | :-------------------------------- | :----------- | | Total Assets | $4,573,357 | $3,390,275 | +34.9% | | Total Liabilities | $2,419,458 | $1,628,778 | +48.5% | | Total Shareholders' Equity | $2,153,899 | $1,761,497 | +22.3% | | Goodwill | $1,858,966 | $1,065,379 | +74.5% | - The significant increase in Goodwill is primarily due to the acquisition of Shape Security, Inc. in fiscal year 2020[15][71] Consolidated Income Statements This section presents the company's revenues, gross profit, operating income, and net income for the three and nine months Three Months Ended June 30 | Metric | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (YoY) | | :----------------- | :--------------------------- | :--------------------------- | :----------- | | Net Revenues | $583,252 | $563,394 | +3.5% | | Gross Profit | $477,212 | $472,627 | +1.0% | | Income from Operations | $87,621 | $102,740 | -14.8% | | Net Income | $69,872 | $85,905 | -18.6% | | Diluted EPS | $1.14 | $1.43 | -20.3% | Nine Months Ended June 30 | Metric | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (YoY) | | :----------------- | :--------------------------- | :--------------------------- | :----------- | | Net Revenues | $1,736,006 | $1,652,059 | +5.1% | | Gross Profit | $1,440,086 | $1,386,400 | +3.9% | | Income from Operations | $293,654 | $403,749 | -27.3% | | Net Income | $229,778 | $332,897 | -31.0% | | Diluted EPS | $3.76 | $5.51 | -31.7% | Consolidated Statements of Comprehensive Income This section outlines the company's net income and other comprehensive income components for the three and nine months Three Months Ended June 30 | Metric | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | | :--------------------- | :--------------------------- | :--------------------------- | | Net Income | $69,872 | $85,905 | | Total Other Comprehensive Income | $4,408 | $1,148 | | Comprehensive Income | $74,280 | $87,053 | Nine Months Ended June 30 | Metric | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | | :--------------------- | :--------------------------- | :--------------------------- | | Net Income | $229,778 | $332,897 | | Total Other Comprehensive Income | $695 | $3,985 | | Comprehensive Income | $230,473 | $336,882 | Consolidated Statements of Shareholders' Equity This section details changes in the company's shareholders' equity, including common stock and retained earnings - Total Shareholders' Equity increased from $1,761,497 thousand as of September 30, 2019, to $2,153,899 thousand as of June 30, 2020[29] - Common stock increased from $142,597 thousand (September 30, 2019) to $304,526 thousand (June 30, 2020), and retained earnings increased from $1,638,090 thousand to $1,867,868 thousand over the same period[29] Consolidated Statements of Cash Flows This section presents the company's cash flows from operating, investing, and financing activities for the nine months Nine Months Ended June 30 | Activity | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | | :----------------- | :--------------------------- | :--------------------------- | | Operating Activities | $484,994 | $541,755 | | Investing Activities | $(762,816) | $(120,585) | | Financing Activities | $393,950 | $(155,590) | | Net Increase in Cash | $116,128 | $265,580 | - Cash used in investing activities significantly increased in 2020, primarily due to $955.6 million paid for the acquisition of Shape Security[34][154] - Cash provided by financing activities in 2020 was driven by $400.0 million in proceeds from a term debt agreement[34][155] Notes to Consolidated Financial Statements This section provides detailed explanations of significant accounting policies and financial statement items Note 1. Summary of Significant Accounting Policies This note outlines the company's core business, recent acquisition, accounting policy adoptions, and COVID-19 impact - F5 Networks, Inc. is a leading provider of multi-cloud application services, offering cloud-based, software-as-a-service, and software-only solutions for application development, deployment, operation, security, and governance[38][126] - On January 24, 2020, the company acquired Shape Security, Inc., a leader in online fraud and abuse prevention, enhancing its application services portfolio[38][69][71] - The company adopted ASU 2016-02, Leases (Topic 842), on October 1, 2019, recognizing right-of-use assets and lease liabilities on the balance sheet, with no impact on consolidated income or cash flow statements[39][40][94] - The extent to which the COVID-19 pandemic may impact the company's financial condition or results of operations remains uncertain as of the filing date[39][132] Note 2. Revenue from Contracts with Customers This note details the company's revenue recognition policies, capitalized contract costs, and deferred revenue Capitalized Contract Acquisition Costs (Nine Months Ended June 30, 2020) | Metric | Amount (in thousands) | | :----------------------------------------------- | :-------------------- | | Balances, September 30, 2019 | $59,446 | | Additional capitalized contract acquisition costs | $31,759 | | Amortization of capitalized contract costs | $(24,768) | | Balances, June 30, 2020 | $66,437 | Deferred Revenue Balances (Nine Months Ended June 30, 2020) | Metric | Amount (in thousands) | | :----------------------------------------------- | :-------------------- | | Balances, September 30, 2019 | $1,198,116 | | Amounts billed but not recognized as revenues | $740,050 | | Amounts acquired through Shape acquisition | $39,000 | | Revenues recognized from opening balance | $(702,114) | | Balances, June 30, 2020 | $1,275,052 | - Total non-cancelable remaining performance obligations were approximately $1.3 billion as of June 30, 2020, with 69.7% expected to be recognized as revenue over the next 12 months[49] [Note 3. Fair Value Measurements](index=1