F5 : 2021 Annual Report

Annual Report

2021

François Locoh-Donou

President, Chief Executive Officer, and Director

TO OUR SHAREHOLDERS, CUSTOMERS, AND PARTNERS:

As we enter 2022, I feel an overwhelming sense of pride for what the F5 team has accomplished together, humility for how F5ers have persevered in the face of adversity, and gratitude for the privilege of leading this amazing team.

During this extraordinary year, and with the backdrop of a world at war with a seemingly unrelenting virus, we continued to drive our software transformation, evolving our core offerings, expanding our portfolio with organic innovation and strategic acquisitions, and fulfilling our mission to solve our customers' most critical application challenges. We delivered strong financial performance with 11% annual revenue growth, serving our customers when they most needed and depended on us. Our achievements are a whole company effort, and our collective performance is a source of great inspiration for me.

I also am proud of the impact F5 is having on the world. At a time when applications are an integral part of our everyday experiences-from how we collaborate, shop, and bank to how we exercise, socialize, and entertain- F5 underpins this new normal. With digital access so essential to our daily life, digital security is more critical than ever before. Cyberattacks, including high-profile ransomware and hacking attacks, have been wake-up calls for our customers and the consumers who use their applications, highlighting the gravity, complexity, and omnipresence of cybersecurity threats. The reality that digital security will remain a top-of-mind issue for the foreseeable future coupled with the fact that applications are opening a world of prospects for businesses and society has, in turn, unlocked significant opportunity for F5. Our solutions and innovations have positioned us at the nexus of opportunities created by demand for digital access, applications, and security.

As proud as I am about our performance and our ability to support our customers and their businesses more broadly than ever before, I am humbled that we have done this at a time that has been personally challenging for so many. The pandemic has brought a great deal of suffering and uncertainty, and many F5ers have shared with me the stress and anxiety they are experiencing. They have had to cope with sickness and with the loss of family members and friends. In spite of these struggles, F5ers have been there for our customers and for one another, helping each other through hardship.

Our business success in 2021 comes from the F5ers who affect change and make an impact every day. As a result, I will begin this year's review with a discussion about our efforts to cultivate a differentiated culture that fundamentally focuses on F5ers as humans first and foremost. This philosophy is core to our belief system and is embedded in how we operate as a company. It is also fundamental to how we think about our responsibility to our communities and the world at large, and therefore, reflected in our expanded commitment to our Environmental, Social, and Governance (ESG) programs, which I will also discuss. I will then speak about our path forward, including our vision for adaptive applications and how the investments we have made to transform F5, combined with the persistent work of the F5 team globally, has positioned us at the intersection of several important macro trends. I also will briefly recap our fiscal year 2021 financial results before concluding with thoughts about our future.

OUR CULTURE AND OUR COMMITMENT TO CONTINUED ENVIRONMENTAL, SOCIAL, AND GOVERNANCE PROGRESS

At F5, we care deeply not just about what we do, but how we do it. Our guiding principle to "do the right thing" applies to our employees, officers, board of directors, and our subsidiaries and controlled affiliates across the globe. Most importantly, our principle to "do the right thing" is expressed every day in the behaviors we call BeF5 and LeadF5.

Creating an Iconic Culture

Since 2017, we have put enormous focus on creating a truly unique and iconic culture capable of differentiating F5 from other technology companies. We believe our "human-first" culture benefits all our stakeholders: our customers, our employees, our shareholders, and our communities. Like many other companies, we are in a fight to attract and retain world-class talent. While we continue to experience lower than industry average attrition rates, we anticipate regrettable attrition will rise in fiscal year 2022. We firmly believe that furthering our cultural differentiation and our reputation as a human-first employer will be a significant tool in attracting and retaining world-class talent.

During fiscal year 2021, we emphasized efforts across four key elements of F5's culture and reputation as an employer:

1. Being human first, always. This means caring for F5ers and their families and ensuring our employees know that they are valued and appreciated first and foremost, as human beings.
   In our December 2020 and May 2021 engagement surveys, employees responded to "F5 has demonstrated that employee well-being and health is a priority during the COVID-19 outbreak" with scores of 95% and 94% respectively, suggesting our human-first approach is recognized and appreciated by F5ers.
   Our human-first approach compelled us to respond when, during our recent employee engagement surveys, F5ers told us loud and clear that they are working more hours than ever. What was a blurred line between their work and personal lives had all but disappeared. In response, we implemented wellness programs
   to help our employees create space from work including adding four additional vacation days annually in the form of "F5 Wellness Fridays." We also are providing increased access to mental health support and maintaining our "radical flexibility" approach, which enables F5ers to work remotely on a global basis.
2. Creating a more diverse and inclusive F5. We believe our differences-when embraced with humility and respect-drive smarter decisions, increased innovation, stronger performance, and a culture where everyone can be themselves and reach their full potential.
   Built around our "IDEA" framework, our diversity and inclusion strategy recognizes a complex system of change required for:
3. • Inclusion: A sense of belonging for everyone at F5 that helps F5ers love what they do and the company they do it with.
   • Diversity: Variety in our employee demographics to incorporate diverse backgrounds, thinking, and viewpoints into our innovation.
   • Equity: Ensuring everyone has access to the resources, opportunities, and information they need to succeed.
   • Allyship: Listening and learning from those whose experiences are different from our own and getting feedback on the impact of our actions.

Our progress from fiscal year 2018 through 2021 across our IDEA framework is detailed in the inaugural F5 Diversity and Inclusion Report available at f5.com. Our diversity and inclusion reporting will be provided on an annual basis going forward.

Our commitment to diversity and inclusion is exemplified by our board of directors, where we recognize and value the diverse attributes that our directors bring to our corporate governance. Of our 11 directors, three are women and an additional four identify as racially or ethnically diverse, with one director identifying as African American or Black, two directors identifying as Asian, and one director identifying as Hispanic or Latinx. For fiscal year 2022, the Compensation Committee also added additional metrics for year-over-year increases in diverse employee representation, as well as employee inclusion scores to our executives' short-term cash incentive program.

1. Investing in F5ers and raising the bar on talent. It is important that F5ers know we value them and that we want to invest in them. Ongoing development of our teams is supported across multiple learning organizations within F5, providing opportunities to improve technical and professional knowledge, better understand our business and products, and strengthen management and leadership. This includes LeadF5 Coaching, which provides an opportunity for several hundred F5ers to receive professional and personal coaching annually, and through learning paths created to support specific areas of knowledge. F5ers have access to multiple third- party resources to enhance their learning opportunities, as well as dedicated time each quarter on "Zoom Out Day" where the entire company prioritizes learning and exploring new ideas.
   In addition to investing in our employees with training and development programs, we also are launching formal programs to foster and accelerate innovation while developing and recognizing our brightest technical minds. In fiscal year 2021, we adopted best practices used by top tech companies and launched our Technical Awards of Distinction program to recognize contributions that raise the bar for technology excellence at F5. We also launched our InnovateF5 program, intended to encourage innovation and creativity and establish
   a pathway that transforms cool ideas into customer solutions. In the program's first year, F5ers submitted 41 innovations, 20 of which were accepted, and five of which already have graduated to product development. As we grow, these programs will contribute to our ability to recruit and retain great talent from diverse backgrounds.
2. Empowering F5ers to do Global Good. We also continue to create channels for F5ers to direct their passions, giving back to our communities and building a cumulative force for good. Established in 2018, F5 Global Good represents our commitment to social impact. Over the last three years, the program has grown significantly in its engagement both with our employees and within our communities. In fiscal year 2021, F5 and our employees donated more than $4.8 million to over 2,900 nonprofits worldwide.
   By aligning Global Good to our employee engagement and diversity and inclusion programs, the growth of this program is driven by three key initiatives:
3. • Community. F5 supports charitable causes that our employees feel passionately about through corporate matching of employee donations, volunteer time off, and employee-led grant selection committees. In fiscal year 2021, more than half of all F5ers worldwide participated in Global Good programs, including volunteering over 6,000 hours in their communities and directing $100,000 in F5 Community Impact Grants.
   • Science, Technology, Engineering, and Math (STEM) Education. F5 enables girls, women, minorities, and other underrepresented groups to develop STEM skills through grants that provide global educational and employment opportunities. In fiscal year 2021, 10 students received F5 Women in STEM Scholarships from the United Negro College Fund. In addition, nine nonprofits serving majority women of color each received $50,000 in F5 STEM Education Grants.