What changed in this filing

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Item 1A. Risk Factors

2021-09-03 compared with 2020-09-04 · 230 added, 162 removed, 587 unchanged (40% of the section changed)

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This situation is changing rapidly, and additional impacts may arise that we are not currently aware of.

RISK FACTOR SUMMARY

Our business is subject to numerous risks and uncertainties.

These risks include, but are not limited to, the following:

• The ongoing global COVID-19 outbreak could harm our business and results of operations.

• Our business and operations have experienced growth in recent periods, and if we do not effectively manage any future growth or are unable to improve our systems, processes, and controls, our operating results could be adversely affected.

• Our operating results may vary significantly from period to period and be unpredictable, which could cause the market price of our common stock to decline.

• Ongoing global economic uncertainty could have an adverse effect on our business and operating results.

• Our revenue growth rate in recent periods may not be indicative of our future performance.

• We have a history of losses, anticipate increasing our operating expenses in the future, and may not be able to achieve or maintain profitability or maintain or increase cash flow on a consistent basis, which could cause our business, financial condition, and operating results to suffer.

• If we are unable to sell new and additional product, subscription, and support offerings to our end-customers, our future revenue and operating results will be harmed.

• We face intense competition in our market and we may lack sufficient financial or other resources to maintain or improve our competitive position.

• A network or data security incident may allow unauthorized access to our network or data, harm our reputation, create additional liability, and adversely impact our financial results.

• Reliance on shipments at the end of the quarter could cause our revenue for the applicable period to fall below expected levels.

• Seasonality may cause fluctuations in our revenue.

• If we are unable to hire, integrate, train, retain, and motivate qualified personnel and senior management, our business could suffer.

• If we are not successful in executing our strategy to increase sales of our products, subscriptions and support offerings to new and existing medium and large enterprise end-customers, our operating results may suffer.

• We rely on revenue from subscription and support offerings, and because we recognize revenue from subscription and support over the term of the relevant service period, downturns or upturns in sales of these subscription and support offerings are not immediately reflected in full in our operating results.

• Defects, errors, or vulnerabilities in our products, subscriptions, or support offerings, the failure of our products or subscriptions to block a virus or prevent a security breach or incident, misuse of our products, or risks of product liability claims could harm our reputation and adversely impact our operating results.

• False detection of applications, viruses, spyware, vulnerability exploits, data patterns, or URL categories could adversely affect our business.

• We rely on our channel partners to sell substantially all of our products, including subscriptions and support, and if these channel partners fail to perform, our ability to sell and distribute our products and subscriptions will be limited, and our operating results will be harmed.

• If we do not accurately predict, prepare for, and respond promptly to rapidly evolving technological and market developments and successfully manage product and subscription introductions and transitions to meet changing end-customer needs in the enterprise security industry, our competitive position and prospects will be harmed.

• Our current research and development efforts may not produce successful products, subscriptions, or features that result in significant revenue, cost savings or other benefits in the near future, if at all.

• We may acquire other businesses, which could subject us to adverse claims or liabilities, require significant management attention, disrupt our business, and adversely affect our operating results, may not result in the expected benefits of such acquisitions and may dilute stockholder value.

• Because we depend on manufacturing partners to build and ship our products, we are susceptible to manufacturing and logistics delays and pricing fluctuations that could prevent us from shipping customer orders on time, if at all, or on a cost-effective basis, which may result in the loss of sales and end-customers.

• Managing the supply of our products and product components is complex.

Insufficient supply and inventory may result in lost sales opportunities or delayed revenue, while excess inventory may harm our gross margins.

• Because some of the key components in our products come from limited sources of supply, we are susceptible to supply shortages or supply changes, which could disrupt or delay our scheduled product deliveries to our end-customers and may result in the loss of sales and end-customers.

• The sales prices of our products and subscriptions may decrease, which may reduce our gross profits and adversely impact our financial results.

• We generate a significant amount of revenue from sales to distributors, resellers, and end-customers outside of the United States, and we are therefore subject to a number of risks associated with international sales and operations.

• We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and operating results.

• We are exposed to the credit and liquidity risk of some of our channel partners and end-customers, and to credit exposure in weakened markets, which could result in material losses.

• A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.

• Our ability to sell our products and subscriptions is dependent on the quality of our technical support services and those of our channel partners, and the failure to offer high-quality technical support services could have a material adverse effect on our end-customers’ satisfaction with our products and subscriptions, our sales, and our operating results.

• Claims by others that we infringe their proprietary technology or other rights could harm our business.

• Our proprietary rights may be difficult to enforce or protect, which could enable others to copy or use aspects of our products or subscriptions without compensating us.

• Our use of open source software in our products and subscriptions could negatively affect our ability to sell our products and subscriptions and subject us to possible litigation.

• We license technology from third parties, and our inability to maintain those licenses could harm our business.

• Our failure to adequately protect personal information could have a material adverse effect on our business.

• We face risks associated with having operations and employees located in Israel.

• We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.

• Our failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products and subscriptions could reduce our ability to compete and could harm our business.

• We have a corporate structure aligned with the international nature of our business activities, and if we do not achieve increased tax benefits as a result of our corporate structure, our financial condition and operating results could be adversely affected.

• We may not have the ability to raise the funds necessary to settle conversions of our Notes, repurchase our Notes upon a fundamental change, or repay our Notes in cash at their maturity, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of our Notes.

• Our charter documents and Delaware law, as well as certain provisions contained in the indentures governing our Notes, could discourage takeover attempts and lead to management entrenchment, which could also reduce the market price of our common stock.

Risks Related to Our Business and Our Industry

The recent global COVID-19 outbreak could harm our business and results of operations.

The ongoing global COVID-19 outbreak could harm our business and results of operations.

The novel strain of COVID-19 identified in late 2019 has spread globally, including within the United States, and has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns.

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In light of the uncertain and rapidly evolving situation relating to the spread of this virus and various government restrictions and guidelines, we have taken measures intended to mitigate the spread of the virus and minimize the risk to our employees, channel partners, end-customers, and the communities in which we operate.

These measures include transitioning our employee population to work remotely from home beginning in March 2020, which is planned to continue through the first quarter of fiscal 2021 and is likely to expand into future quarters.

Although we continue to monitor the situation and may adjust our current policies as more information and public health guidance become available, these precautionary measures that we have adopted could negatively affect our customer success efforts, sales and marketing efforts, delay and lengthen our sales cycles, and create operational or other challenges, any of which could harm our business and results of operations.

In addition, COVID-19 may disrupt the operations of our end-customers and channel partners for an indefinite period of time, including as a result of travel restrictions and/or business shutdowns, all of which could negatively impact our business and results of operations, including cash flows.

The impact of COVID-19 is fluid and uncertain, but it has caused and may continue to cause various negative effects, including an inability to meet with our actual or potential end-customers;

These measures include transitioning our employee population to work remotely from home beginning in March 2020, which continued through the fiscal year ended July 31, 2021, and may continue into future quarters.

Although we continue to monitor the situation and may adjust our current policies as more information and public health guidance become available, including progress made through vaccinations, these precautionary measures that we have adopted could negatively affect our customer success efforts, sales and marketing efforts, delay and lengthen our sales cycles, and create operational or other challenges, any of which could harm our business and results of operations.

In addition, COVID-19 may continue to disrupt the operations of our end-customers and channel partners for an indefinite period of time, including as a result of travel restrictions and/or business shutdowns, all of which could negatively impact our business and results of operations, including cash flows.

The ongoing impact of COVID-19 is fluid and uncertain, but it has caused and may continue to cause various negative effects, including an inability to meet with our existing or potential end-customers;

our end-customers deciding to delay or abandon their planned purchases;

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us delaying, canceling, or withdrawing from user and industry conferences and other marketing events, including some of our own;

changes in the demand of our products, which has caused us to reprioritize our engineering and research and development efforts and make changes to our original offering roadmap;

changes in the demand for our products, which has caused us to reprioritize our engineering and research and development efforts and make changes to our original offering roadmap;

and delays or possible disruptions in our supply chain.

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and it has been and, until the COVID-19 outbreak is contained and global economic activity stabilizes, will continue to be more difficult for us to forecast our operating results.

More generally, the outbreak has not only significantly and adversely increased economic and demand uncertainty, but it has caused a global economic slowdown, and it is likely that it will cause a global recession which could likely decrease technology spending and adversely affect demand for our offerings and harm our business and results of operations.

More generally, the outbreak has not only significantly and adversely increased economic and demand uncertainty, but it has caused a global economic slowdown, and continuing global economic uncertainty which could decrease technology spending and adversely affect demand for our offerings and harm our business and results of operations.

Our business and operations have experienced growth in recent periods, and if we do not effectively manage any future growth or are unable to improve our systems, processes, and controls, our operating results could be adversely affected.

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Any future growth would add complexity to our organization and require effective coordination throughout our organization.

Failure to manage any future growth effectively could result in increased costs,

disrupt our existing end-customer relationships, reduce demand for or limit us to smaller deployments of our products, or harm our business performance and operating results.

Failure to manage any future growth effectively could result in increased costs, disrupt our existing end-customer relationships, reduce demand for or limit us to smaller deployments of our products, or harm our business performance and operating results.

Our operating results may vary significantly from period to period and be unpredictable, which could cause the market price of our common stock to decline.

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• our ability to attract and retain new end-customers or sell additional products and subscriptions to our existing end-customers;

• the budgeting cycles, seasonal buying patterns, and purchasing practices of our end-customers, including the likely slowdown in technology spending due to the recent global economic downturn;

• the budgeting cycles, seasonal buying patterns, and purchasing practices of our end-customers, including the likely slowdown in technology spending due to the global economic downturn;

• changes in end-customer, distributor or reseller requirements, or market needs;

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• our ability to successfully and continuously expand our business domestically and internationally, particularly in the current global economic slowdown;

• changes in the growth rate of the enterprise security market;

• changes in the growth rate of the enterprise security industry;

• deferral of orders from end-customers in anticipation of new products or product enhancements announced by us or our competitors;

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• our ability to manage production and manufacturing related costs, global customer service organization costs, inventory excess and obsolescence costs, and warranty costs, especially due to potential disruptions in our supply chain as a result of COVID-19 ;

• our ability to manage cloud hosting costs and scale the cloud-based subscription offerings;

• our ability to manage cloud hosting service costs and scale the cloud-based subscription offerings;

• insolvency or credit difficulties confronting our end-customers, w hich could increase due to the effects of COVID-19 and adversely affect their ability to purchase or pay for our products and subscription and support offerings in a timely manner or at all, or confronting our key suppliers, including our sole source suppliers, which could disrupt our supply chain;

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• increases or decreases in our expenses caused by fluctuations in foreign currency exchange rates, as an increasing amount of our expenses is incurred and paid in currencies other than the U.S.

• political, economic and social instability caused by the referendum in June 2016, in which voters in the United Kingdom (the “U.K.”) approved an exit from the European Union (the “E.U.”) and the U.K.

government subsequently notified the E.U.

of its withdrawal, which is commonly referred to as “Brexit,” continued hostilities in the Middle East, terrorist activities, and any disruption from COVID-19 and any disruption these events may cause to the broader global industrial economy;

• general macroeconomic conditions, both domestically and in our foreign markets that could impact some or all regions where we operate, including the expected global economic slowdown and potential global recession caused by the COVID-19 pandemic.

• political, economic and social instability caused by the United Kingdom’s exit from the European Union (“Brexit”), continued hostilities in the Middle East, terrorist activities, any disruptions from COVID-19 and any disruption these events may cause to the broader global industrial economy;

• general macroeconomic conditions, both domestically and in our foreign markets that could impact some or all regions where we operate, including the expected global economic slowdown, increased risk of inflation, and potential global recession caused by the COVID-19 pandemic.

Any one of the factors above, or the cumulative effect of some of the factors referred to above, may result in significant fluctuations in our financial and other operating results.

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If we fail to meet or exceed such expectations for these or any other reasons, the market price of our common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.

The sudden and significant global economic downturn could have an adverse effect on our business and operating results.

Ongoing global economic uncertainty could have an adverse effect on our business and operating results.

We operate globally and as a result our business and revenues are impacted by global macroeconomic conditions.

The multinational efforts to contain the spread of COVID-19 have had a significant adverse effect on the global macroeconomic environment that could lead to a global recession.

In addition, the instability in the global credit markets, the recent contraction of China’s economy, falling demand for oil and other commodities, uncertainties regarding the effects of Brexit, uncertainties related to the timing of the lifting of governmental restrictions to mitigate the spread of COVID-19, uncertainties related to elections and changes in public policies such as domestic and international regulations, taxes, or international trade agreements, international trade disputes, government shutdowns, geopolitical turmoil and other disruptions to global and regional economies and markets could continue to add uncertainty to global economic conditions.

The multinational efforts to contain the spread of COVID-19 have had a significant adverse effect on the global macroeconomic environment that continues to cause economic uncertainty.

In addition, the instability in the global credit markets, falling demand for oil and other commodities, uncertainties regarding the effects of Brexit, uncertainties related to the timing of the lifting of governmental restrictions to mitigate the spread of COVID-19, changes in public policies such as domestic and international regulations, taxes, or international trade agreements, international trade disputes, government shutdowns, geopolitical turmoil and other disruptions to global and regional economies and markets continue to add uncertainty to global economic conditions.

These adverse conditions could result in reductions in sales of our products and subscriptions, longer sales cycles, reductions in subscription or contract duration and value, slower adoption of new technologies, and increased price competition.

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Our future success depends, in part, on our ability to expand the deployment of our portfolio with existing end-customers and create demand for our new offerings, including cloud security, AI, and analytics offerings.

This may require increasingly sophisticated

and costly sales efforts that may not result in additional sales.

This may require increasingly sophisticated and costly sales efforts that may not result in additional sales.

The rate at which our end-customers purchase additional products, subscriptions, and support depends on a number of factors, including the perceived need for additional security products, including subscription and support offerings, as well as general economic conditions.

Further, existing end-customers have no contractual obligation to and may not renew their subscription and support contracts after the completion of their initial contract period.

Our end-customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their level of satisfaction with our subscriptions and our support offerings, the frequency and severity of subscription outages, our product uptime or latency, and the pricing of our, or competing, subscriptions.

Our end-customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their level of satisfaction with our

subscriptions and our support offerings, the frequency and severity of subscription outages, our product uptime or latency, and the pricing of our, or competing, subscriptions.

Additionally, our end-customers may renew their subscription and support agreements for shorter contract lengths or on other terms that are less economically beneficial to us.

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We face intense competition in our market and we may lack sufficient financial or other resources to maintain or improve our competitive position.

The market for enterprise security products is intensely competitive, and we expect competition to increase in the future from established competitors and new market entrants.

The industry for enterprise security products is intensely competitive, and we expect competition to increase in the future from established competitors and new market entrants.

Our main competitors fall into five categories:

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(“Zscaler”) that offer a mix of network and endpoint security products;

• startups and single-vertical vendors that offer independent or emerging solutions in network;

• startups and single-vertical vendors that offer independent or emerging solutions across various areas of security;

• public cloud vendors and startups that offer solutions for cloud security (private, public and hybrid cloud);

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Many of our smaller competitors that specialize in providing protection from a single type of security threat are often able to deliver these specialized security products to the market more quickly than we can.

Organizations that use legacy products and services may believe that these products and services are sufficient to meet their security needs or that our offerings only serve the needs of a portion of the enterprise security market.

Accordingly, these organizations may continue allocating their information technology budgets for legacy products and services and may not adopt our security offerings.

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New start-up companies that innovate and large competitors that are making significant investments in research and development may invent similar or superior products and technologies that compete with our products and subscriptions.

Some of our competitors have made or could make acquisitions of businesses that may allow them to offer more directly competitive and comprehensive solutions than they had previously offered and adapt more quickly to new technologies and end-customer needs.

to new technologies and end-customer needs.

Our current and potential competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their resources.

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In addition to traditional computer “hackers,” malicious code (such as viruses and worms), phishing attempts, employee theft or misuse, and denial of service attacks, sophisticated nation-state and nation-state supported actors engage in intrusions and attacks (including advanced persistent threat intrusions) and add to the risks to our internal networks, cloud-deployed enterprise and customer-facing environments and the information they store and process.

These risks may increase due to COVID-19.

The incidence of cybersecurity breaches have increased.

Despite significant efforts to create security barriers to such threats, it is virtually impossible for us to entirely mitigate these risks.

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Competition for highly skilled personnel, particularly in engineering, is often intense, especially in the San Francisco Bay Area, where we have a substantial presence and need for such personnel.

Due to COVID-19, we slowed hiring in the third quarter of 2020, which could adversely affect our ability to retain qualified personnel.

Additionally, potential changes in U.S.

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The loss of services of senior management, the decrease in the effectiveness of such services due to working remotely from home, or the ineffective management of any leadership transitions, especially within our sales organization, could significantly delay or prevent the achievement of our development and strategic objectives, which could adversely affect our business, financial condition, and operating results.

Further, we believe that a critical contributor to our success and our ability to retain highly skilled personnel has been our corporate culture, which we believe fosters innovation, teamwork, passion for end-customers, focus on execution, and the facilitation of critical knowledge transfer and knowledge sharing.

Further, we believe that a critical contributor to our success and our ability to retain highly skilled personnel has been our corporate culture, which we believe fosters innovation, inclusion, teamwork, passion for end-customers, focus on execution, and the facilitation of critical knowledge transfer and knowledge sharing.

As we grow and change, we may find it difficult to maintain these important aspects of our corporate culture.

While we are taking steps to develop a more inclusive and diverse workforce, there is no guarantee that we will be able to do so.

Any failure to preserve our culture as we grow could limit our ability to innovate and could negatively affect our ability to retain and recruit personnel, continue to perform at current levels or execute on our business strategy.

If we are not successful in executing our strategy to increase sales of our products and subscriptions to new and existing medium and large enterprise end-customers, our operating results may suffer.

If we are not successful in executing our strategy to increase sales of our products, subscriptions and support offerings to new and existing medium and large enterprise end-customers, our operating results may suffer.

Our growth strategy is dependent, in part, upon increasing sales of our products, services, subscriptions and offerings to new and existing medium and large enterprise end-customers.

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In addition, product purchases by large enterprises are frequently subject to budget constraints, multiple approvals, and unplanned administrative, processing, and other delays.

Finally, large enterprises typically have longer implementation cycles, require

greater product functionality and scalability and a broader range of services, demand that vendors take on a larger share of risks, sometimes require acceptance provisions that can lead to a delay in revenue recognition, and expect greater payment flexibility from vendors.

Finally, large enterprises typically have longer implementation cycles, require greater product functionality and scalability and a broader range of services, demand that vendors take on a larger share of risks, sometimes require acceptance provisions that can lead to a delay in revenue recognition, and expect greater payment flexibility from vendors.

All of these factors can add further risk to business conducted with these end-customers.

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Also, it is difficult for us to rapidly increase our subscription and support revenue through additional subscription and support sales in any period, as revenue from new and renewal subscription and support contracts must be recognized over the applicable service period.

Defects, errors, or vulnerabilities in our products, subscriptions, or support offerings, the failure of our products or subscriptions to block a virus or prevent a security breach, misuse of our products, or risks of product liability claims could harm our reputation and adversely impact our operating results.

Defects, errors, or vulnerabilities in our products, subscriptions, or support offerings, the failure of our products or subscriptions to block a virus or prevent a security breach or incident, misuse of our products, or risks of product liability claims could harm our reputation and adversely impact our operating results.

Because our products and subscriptions are complex, they have contained and may contain design or manufacturing defects or errors that are not detected until after their commercial release and deployment by our end-customers.

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Although we may be indemnified by our third-party manufacturers for product liability claims arising out of manufacturing defects, because we control the design of our products and subscriptions, we may not be indemnified for product liability claims arising out of design defects.

We maintain insurance to protect against certain claims associated with the use of our products and subscriptions, but our insurance coverage may not adequately cover any claim asserted against us.

maintain insurance to protect against certain claims associated with the use of our products and subscriptions, but our insurance coverage may not adequately cover any claim asserted against us.

In addition, even claims that ultimately are unsuccessful could result in our expenditure of funds in litigation, divert management’s time and other resources, and harm our reputation.

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If we fail to effectively manage our sales channels or channel partners, our ability to sell our products and subscriptions and operating results will be harmed.

If we do not accurately predict, prepare for, and respond promptly to rapidly evolving technological and market developments and successfully manage product and subscription introductions and transitions to meet changing end-customer needs in the enterprise security market, our competitive position and prospects will be harmed.

The enterprise security market has grown quickly and is expected to continue to evolve rapidly.

If we do not accurately predict, prepare for, and respond promptly to rapidly evolving technological and market developments and successfully manage product and subscription introductions and transitions to meet changing end-customer needs in the enterprise security industry, our competitive position and prospects will be harmed.

The enterprise security industry has grown quickly and is expected to continue to evolve rapidly.

Moreover, many of our end-customers operate in markets characterized by rapidly changing technologies and business plans, which require them to add numerous network access points and adapt increasingly complex enterprise networks, incorporating a variety of hardware, software applications, operating systems, and networking protocols.

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The development of our portfolio is difficult and the timetable for commercial release and availability is uncertain as there can be long time periods between releases and availability of new features.

If we experience unanticipated delays in the availability of new products, features, and subscriptions, and fail to meet customer expectations for such availability, our competitive position and business prospects will be harmed.

If we experience

unanticipated delays in the availability of new products, features and subscriptions, and fail to meet customer expectations for such availability, our competitive position and business prospects will be harmed.

Additionally, we must commit significant resources to developing new features and new cloud security, AI/analytics and other offerings before knowing whether our investments will result in products, subscriptions, and features the market will accept.

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However, we may not receive significant revenue from these investments in the near future, if at all, or these investments may not yield the expected benefits, either of which could adversely affect our business and operating results.

We may acquire other businesses, which could require significant management attention, disrupt our business, dilute stockholder value, and adversely affect our operating results.

We may acquire other businesses, which could subject us to adverse claims or liabilities, require significant management attention, disrupt our business, adversely affect our operating results, may not result in the expected benefits of such acquisitions and may dilute stockholder value.

As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies.

For example, in March 2018, we acquired Evident.io, Inc., in April 2018, we acquired Cyber Secdo Ltd.

(“Secdo”), in October 2018, we acquired RedLock, in March 2019, we acquired Demisto, in June 2019, we acquired PureSec, in July 2019, we acquired Twistlock, in September 2019, we acquired Zingbox, in December 2019, we acquired Aporeto and in April 2020, we acquired CloudGenix.

The identification of suitable acquisition candidates is difficult, and we may not be able to complete such acquisitions on favorable terms, if at all.

If we do complete future acquisitions, we may not ultimately strengthen our competitive position or achieve our goals and business strategy;

we may be subject to claims or liabilities assumed from an acquired company, product, or technology;

In addition, we may be subject to claims or liabilities assumed from an acquired company, product, or technology;

acquisitions we complete could be viewed negatively by our end-customers, investors, and securities analysts;

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Additionally, we may be subject to litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former stockholders, or other third parties, which may differ from or be more significant than the risks our business faces.

If we are unsuccessful at integrating past or future acquisitions in a timely manner, or the technologies and operations associated with such acquisitions, into our company, the revenue and operating results of the combined company could be adversely affected.

If we are unsuccessful at integrating past or future acquisitions in a timely manner, or the technologies and operations associated with such acquisitions, into our company, our revenue and operating results could be adversely affected.

Any integration process may require significant time and resources, which may disrupt our ongoing business and divert management’s attention, and we may not be able to manage the integration process successfully or in a timely manner.

We may not successfully evaluate or utilize the acquired technology or personnel, realize anticipated synergies from the acquisition, or accurately forecast the financial impact of an acquisition transaction and integration of such acquisition, including accounting charges and any potential impairment of goodwill and intangible assets recognized in connection with such acquisitions.

Our completed or future acquisitions may not ultimately strengthen our competitive position or achieve our goals and business strategy.

We may find that the acquired businesses, products, or technologies do not further our business strategy as we expected.

Our acquisitions may be viewed negatively by our customers, financial markets, or investors.

We may experience difficulty integrating the operations and personnel of the acquired business, and we may have difficulty retaining the key personnel of the acquired business.

We may have difficulty integrating the acquired technologies or products with our existing product lines and we may have difficulty maintaining uniform standards, controls, procedures, and policies across diverse or expanding geographic locations.

We may have to pay cash, incur debt, or issue equity or equity-linked securities to pay for any future acquisitions, each of which could adversely affect our financial condition or the market price of our common stock.

Furthermore, the sale of equity or issuance of equity-linked debt to finance any future acquisitions could result in dilution to our stockholders.

See the risk factors entitled “Our failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products and subscriptions could reduce our ability to compete and could harm our business” and “The issuance of additional stock in connection with financings, acquisitions, investments, our stock incentive plans, the conversion of our Notes or exercise of the related Warrants, or otherwise will dilute all other stockholders.” The occurrence of any of these risks could harm our business, operating results, and financial condition.

” and “ The issuance of additional stock in connection with financings, acquisitions, investments, our stock incentive plans, the conversion of our Notes or exercise of the

related Warrants, or otherwise will dilute all other stockholders .” The occurrence of any of these risks could harm our business, operating results, and financial condition.

Risks Related to our Supply Chain

Because we depend on manufacturing partners to build and ship our products, we are susceptible to manufacturing and logistics delays and pricing fluctuations that could prevent us from shipping customer orders on time, if at all, or on a cost-effective basis, which may result in the loss of sales and end-customers.

We depend on manufacturing partners, primarily Flex, our EMS provider, as our sole source manufacturers for our product lines.

We depend on manufacturing partners, primarily our EMS provider, Flex, as our sole source manufacturers for our product lines.

Our reliance on these manufacturing partners reduces our control over the manufacturing process and exposes us to risks, including reduced control over quality assurance, product costs, product supply, timing and transportation risk.

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If we are required to change manufacturing partners, our ability to meet our scheduled product deliveries to our end-customers could be adversely affected, which could cause the loss of sales to existing or potential end-customers, delayed revenue or an increase in our costs which could adversely affect our gross margins.

COVID-19 has resulted in certain cases to cause delays and challenges in obtaining components and inventory, as well as increases to freight and shipping costs, and may result in a material adverse effect on our results of operations.

COVID-19 and the global semiconductor shortage have in certain cases caused delays and challenges in obtaining components and inventory, as well as increases to freight and shipping costs, and may result in a material adverse effect on our results of operations.

Any production interruptions for any reason, such as a natural disaster, epidemic or pandemic such as COVID-19, capacity shortages, or quality problems at one of our manufacturing partners would negatively affect sales of our product lines manufactured by that manufacturing partner and adversely affect our business and operating results.

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If our actual component usage and product demand are lower than the forecast we provide to our manufacturing partners, we accrue for losses on manufacturing commitments in excess of forecasted demand.

Alternatively, insufficient supply levels may lead to shortages that result in delayed product revenue or loss of sales opportunities altogether as potential end-customers turn to competitors’ products that are readily available.

Alternatively, insufficient supply levels, including due to the recent global shortage of semiconductors, may lead to shortages that result in delayed product revenue or loss of sales opportunities

altogether as potential end-customers turn to competitors’ products that are readily available.

If we are unable to effectively manage our supply and inventory, our operating results could be adversely affected.

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Our products rely on key components, including integrated circuit components, which our manufacturing partners purchase on our behalf from a limited number of component suppliers, including sole source providers.

The manufacturing operations of some of our component suppliers are geographically concentrated in Asia and elsewhere, which makes our supply chain vulnerable to regional disruptions, such as natural disasters, fire, political instability, civil unrest, a power outage, or health risks, such as epidemics and pandemics like COVID-19, and as a result could impair the volume of components that we are able to obtain.

Lead times for components may also be adversely impacted by factors outside of our control including COVID-19.

The manufacturing operations of some of our component suppliers are geographically concentrated in Asia and elsewhere, which makes our supply chain vulnerable to regional disruptions, such as natural disasters, fire, political instability, civil unrest, a power outage, or health risks, such as epidemics and pandemics like COVID-19, and as a result have impaired, and could impair in the future, the volume of components that we are able to obtain.

Lead times for components have also been adversely impacted by factors outside of our control, including COVID-19 and the recent global shortage of semiconductors.

For example, we have experienced, and could continue to experience, increased difficulties in obtaining a sufficient amount of materials in the semiconductor market, which could reduce our flexibility to react to product mix changes and unforecasted orders.

Further, we do not have volume purchase contracts with any of our component suppliers, and they could cease selling to us at any time.

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The resulting stoppage or delay in selling our products and the expense of redesigning our products could result in lost sales opportunities and damage to customer relationships, which would adversely affect our business and operating results.

The sales prices of our products and subscriptions may decrease, which may reduce our gross profits and adversely impact our financial results.

The sales prices for our products and subscriptions may decline for a variety of reasons, including competitive pricing pressures, discounts, a change in our mix of products and subscriptions, anticipation of the introduction of new products or subscriptions, or promotional programs or pricing pressures as a result to the economic downturn resulting from COVID-19.

Risks Related to Sales of our Products, Subscriptions and Support Offerings

The sales prices of our products, subscriptions and support offerings may decrease, which may reduce our gross profits and adversely impact our financial results.

The sales prices for our products, subscriptions and support offerings may decline for a variety of reasons, including competitive pricing pressures, discounts, a change in our mix of products, subscriptions and support offerings, anticipation of the introduction of new products, subscriptions or support offerings, or promotional programs or pricing pressures as a result of the economic downturn resulting from COVID-19.

Competition continues to increase in the market segments in which we participate, and we expect competition to further increase in the future, thereby leading to increased pricing pressures.

Larger competitors with more diverse product and service offerings may reduce the price of products or subscriptions that compete with ours or may bundle them with other products and subscriptions.

Additionally, although we price our products and subscriptions worldwide in U.S.

Additionally, although we price our products, subscriptions and support offerings worldwide in U.S.

dollars, currency fluctuations in certain countries and regions may negatively impact actual prices that channel partners and end-customers are willing to pay in those countries and regions.

Furthermore, we anticipate that the sales prices and gross profits for our products could decrease over product life cycles.

We cannot guarantee that we will be successful in developing and introducing new offerings with enhanced functionality on a timely basis, or that our product and subscription offerings, if introduced, will enable us to maintain our prices and gross profits at levels that will allow us to achieve and maintain profitability.

We cannot guarantee that we will be successful in developing and introducing new offerings with enhanced functionality on a timely basis, or that our products, subscriptions and support offerings, if introduced, will enable us to maintain our prices and gross profits at levels that will allow us to achieve and maintain profitability.

We generate a significant amount of revenue from sales to distributors, resellers, and end-customers outside of the United States, and we are therefore subject to a number of risks associated with international sales and operations.

We have a limited history of marketing, selling, and supporting our products and subscriptions internationally.

We have a limited history of marketing, selling, and supporting our products, subscriptions and support offerings internationally.

We may experience difficulties in recruiting, training, managing, and retaining an international staff, and specifically staff related to sales management and sales personnel.

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Further, we are subject to risks associated with changes in economic and political conditions in countries in which we operate or sell our products and subscriptions.

For instance, Brexit creates an uncertain political and economic environment in the U.K.

and across E.U.

member states for the foreseeable future, including during the transition period connected to Brexit.

Any agreements arising out of negotiations which the U.K.

government makes to retain access to E.U.

markets may lead to greater restrictions on the free movement of goods, services, people and capital between the U.K.

and the remaining E.U.

member states.

Our financial condition and operating results in the U.K.

may be impacted by such uncertainty with potential disruptions to our relationships with existing and future customers, suppliers and employees all possibly having a material adverse impact on our business, prospects, financial condition and/or operating results.

For instance, Brexit creates an uncertain political and economic environment in the United Kingdom (“U.K.”) and across European Union (“E.U.”) member states for the foreseeable future.

On January 31, 2020 the U.K.

left the E.U.

The rules governing the new relationship between the E.U.

were set out in the E.U.-U.K.

Trade and Cooperation Agreement (i.e., the Brexit deal) and came into force on January 1, 2021.

At this time, we cannot predict the impact that the Brexit deal and any future agreements will have on our business.

Our financial condition and operating results may be impacted by such uncertainty with potential disruptions to our relationships with existing and future customers, suppliers and employees all possibly having a material adverse impact on our business, prospects, financial condition and/or operating results.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and operating results.

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The majority of these demands are currently facilitated by leasing and other financing arrangements provided by our distributors and resellers.

To respond to this demand, we expect to increase our customer financing activities in the future.

To respond to this demand, our customer

financing activities may increase in the future.

We also provide financings to certain end-customers.

We monitor customer payment capability in granting such financing arrangements, seek to limit such open credit to amounts we believe the end-customers can pay and maintain reserves we believe are adequate to cover exposure for doubtful accounts to mitigate credit risks of these end-customers.

However, there can be no assurance that these programs will be effective in reducing our credit risks.

We believe customer financing is a competitive factor in obtaining business.

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A material portion of our sales is derived through our distributo rs.

For fiscal 2020 , four distributors represented 68.8% of our total revenue and as of July 31, 2020, one distributor represented 31.5% of our gross accounts receivable.

For fiscal 2021 , three distributors individually represented 10% or more of our total revenue, and in the aggregate represented 56.0% of our total revenue.

As of July 31, 2021, four distributors individually represented 10% or more of our gross accounts receivable, and in the aggregate represented 56.6% of our gross accounts receivable.

Additionally, to the degree that turmoil in the credit markets makes it more difficult for some customers to obtain financing, those customers’ ability to pay could be adversely impacted, which in turn could have a material adverse impact on our business, operating results, and financial condition.

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Government certification requirements for products and subscriptions like ours may change, thereby restricting our ability to sell into the federal government sector until we have attained the revised certification.

If our products and subscriptions are late in achieving or fail to achieve compliance with these certifications and standards, or our competitors achieve compliance with these certifications and standards, we may be disqualified from selling our products and subscriptions to such governmental entity, or be at a competitive disadvantage, which would harm our business, operating results, and financial condition.

Government demand and payment for our products and subscriptions may be impacted by government shutdowns, public sector budgetary cycles, contracting requirements, and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our products and subscriptions.

If our products and subscriptions are late in achieving or fail to achieve compliance with these certifications and standards, or our competitors achieve compliance with these certifications and standards, we may be disqualified from selling our products, subscriptions and support offerings to such governmental entity, or be at a competitive disadvantage, which would harm our business, operating results, and financial condition.

Government demand and payment for our products, subscriptions and support offerings may be impacted by government shutdowns, public sector budgetary cycles, contracting requirements, and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our products, subscriptions and support offerings.

Government entities may have statutory, contractual, or other legal rights to terminate contracts with our distributors and resellers for convenience or due to a default, and any such termination may adversely impact our future operating results.

Governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government refusing to continue buying our products and subscriptions, a reduction of revenue, or fines or civil or criminal liability if the audit uncovers improper or illegal activities, which could adversely impact our operating results in a material way.

Governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government refusing to continue buying our products, subscriptions and support offerings, a reduction of revenue, or fines or civil or criminal liability if the audit uncovers improper or illegal activities, which could adversely impact our operating results in a material way.

Additionally, the U.S.

government may require certain of the products that it purchases to be manufactured in the United States and other relatively high cost manufacturing locations, and we may not manufacture all products in locations that meet such requirements, affecting our ability to sell these products and subscriptions to the U.S.

Our ability to sell our products and subscriptions is dependent on the quality of our technical support services and those of our channel partners, and the failure to offer high-quality technical support services could have a material adverse effect on our end-customers’ satisfaction with our products and subscriptions, our sales, and our operating results.

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Many larger enterprise, service provider, and government entity end-customers have more complex networks and require higher levels of support than smaller end-customers.

If we or our channel partners fail to meet the requirements of these larger end-customers, it may be more difficult to execute on our strategy to increase our coverage with larger end-customers.

If we or our channel partners fail to meet the requirements of these larger end-customers,

it may be more difficult to execute on our strategy to increase our coverage with larger end-customers.

Additionally, if our channel partners do not effectively provide support to the satisfaction of our end-customers, we may be required to provide direct support to such end-customers, which would require us to hire additional personnel and to invest in additional resources.

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Our failure or our channel partners’ failure to provide and maintain high-quality support services could have a material adverse effect on our business, financial condition, and operating results.

Risks Related to Intellectual Property and Technology Licensing

Claims by others that we infringe their proprietary technology or other rights could harm our business.

Companies in the enterprise security industry own large numbers of patents, copyrights, trademarks, domain names, and trade secrets and frequently enter into litigation based on allegations of infringement, misappropriation, or other violations of intellectual property or other rights.

Third parties have asserted and may in the future assert claims of infringement of intellectual property rights against us.

Third parties are currently asserting, have asserted and may in the future assert claims of infringement of intellectual property rights against us.

For example, in December 2011, Juniper, one of our competitors, filed a lawsuit against us alleging patent infringement.

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While we intend to increase the size of our patent portfolio, our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have.

In addition, litigation may involve patent holding companies or other adverse patent owners who have no relevant product revenue and against whom our own patents may therefore provide little or no deterrence or protection.

In addition, litigation has involved and will likely continue to involve patent holding companies or other adverse patent owners who have no relevant product revenue and against whom our own patents may therefore provide little or no deterrence or protection.

In addition, we have not registered our trademarks in all of our geographic markets and failure to secure those registrations could adversely affect our ability to enforce and defend our trademark rights.

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We generally enter into confidentiality or license agreements with our employees, consultants, vendors, and end-customers, and generally limit access to and distribution of our proprietary information.

However, we cannot be certain that we have entered into such agreements with all parties who may have or have had access to our confidential information or that the agreements we have entered into will not be breached.

However, we cannot be certain that we have entered into such agreements with all parties who may have or have had

access to our confidential information or that the agreements we have entered into will not be breached.

We cannot guarantee that any of the measures we have taken will prevent misappropriation of our technology.

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Attempts to enforce our rights against third parties could also provoke these third parties to assert their own intellectual property or other rights against us or result in a holding that invalidates or narrows the scope of our rights, in whole or in part.

If we are unable to protect our proprietary rights (including aspects of our software and products protected other than by patent rights), we may find ourselves at a competitive disadvantage to others who need not incur the additional expense, time, and effort

required to create the innovative products that have enabled us to be successful to date.

Any of these events would have a material adverse effect on our business, financial condition, and operating results.

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As a result, our margins, market share, and operating results could be significantly harmed.

We face risks associated with having operations and employees located in Israel.

As a result of various of our acquisitions, including Secdo, PureSec and Twistlock, we have offices and employees located in Israel.

Accordingly, political, economic, and military conditions in Israel directly affect our operations.

The future of peace efforts between Israel and its Arab neighbors remains uncertain.

There has been a significant increase in hostilities and political unrest between Hamas and Israel in the past few years.

The effects of these hostilities and violence on the Israeli economy and our operations in Israel are unclear, and we cannot predict the effect on us of further increases in these hostilities or future armed conflict, political instability or violence in the region.

Current or future tensions and conflicts in the Middle East could adversely affect our business, operating results, financial condition and cash flows.

In addition, many of our employees in Israel are obligated to perform annual reserve duty in the Israeli military and are subject to being called for active duty under emergency circumstances.

We cannot predict the full impact of these conditions on us in the

future, particularly if emergency circumstances or an escalation in the political situation occurs.

If many of our employees in Israel are called for active duty for a significant period of time, our operations and our business could be disrupted and may not be able to function at full capacity.

Any disruption in our operations in Israel could adversely affect our business.

Risks Related to Privacy and Data Protection

Our failure to adequately protect personal information could have a material adverse effect on our business.

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For example, the E.U.

General Data Protection Regulation (“GDPR”), which became effective in May 2018, imposes more stringent data protection requirements, and provides for greater penalties for noncompliance, than E.U.

laws that previously applied.

The GDPR requires, among other things, that personal data only be transferred outside of the E.U.

to certain jurisdictions, including the United States, if steps are taken to legitimize those data transfers.

We have relied on the E.U.-U.S.

General Data Protection Regulation (“E.U.

GDPR”), which became effective in May 2018, imposes more stringent data protection requirements, provides for greater penalties for noncompliance than E.U.

laws that previously applied (up to the greater of €20 million or 4% of the total worldwide annual turnover), and confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations of the E.U.

GDPR requires, among other things, that personal data only be transferred outside of the E.U.

to the United States and other jurisdictions that the European Commission has not yet recognized as having “adequate” data protection laws (a “third country”), unless a data transfer mechanism under the E.U.

GDPR has been put in place.

Historically, we have relied on the E.U.-U.S.

and Swiss-U.S.

Privacy Shield programs, and the use of model contractual clauses approved by the E.U.

Commission, to legitimize these transfers.

Both the E.U.-U.S.

Privacy Shield and these model contractual clauses have been subject to legal challenge.

We are in the process of analyzing the recent “Schrems II” decision by the Court of Justice of the European Union and its impact on our data transfer mechanisms.

Commission, to legitimize these transfers (also referred to as standard contractual clauses or SCCs).

In July 2020, the Court of Justice of the European Union in its “Schrems II” decision invalidated the E.U.-U.S.

Privacy Shield for purposes of transfers to the U.S.

and imposed a requirement for companies to carry out an assessment of the laws and practices governing access to personal data in the third country to ensure an essentially equivalent level of data protection to that afforded in the E.U.

We are dealing with the recent “Schrems II” decision by the Court of Justice of the European Union and its impact on our data transfer mechanisms.

The effects of this decision are highly uncertain and difficult to predict.

Among other effects, we may experience additional costs associated with increased compliance burdens and new contract negotiations with third parties that aid in processing data on our behalf.

Among other effects, we may experience additional costs associated with increased compliance burdens, putting in place any additional data transfer mechanisms to ensure compliance with the E.U.

GDPR and the “Schrems II” decision and new contract negotiations with third parties that aid in processing data on our behalf.

We may experience reluctance or refusal by current or prospective European customers to use our products, and we may find it necessary or desirable to make further changes to our handling of personal data of residents of the European Economic Area (“EEA”).

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Any such enforcement actions could result in substantial costs and diversion of resources, distract management and technical personnel and negatively affect our business, operating results, and financial condition.

In the U.K., a Data Protection Act that substantially implements the GDPR also became law in May 2018.

It remains unclear, however, how this act and other U.K.

data protection laws or regulations will develop in the medium to longer term and how data transfers to and from the United Kingdom will be regulated after Brexit.

California recently enacted the California Consumer Privacy Act (“CCPA”), which requires, among other things, covered companies to provide new disclosures to California consumers, and afford such consumers new abilities to opt-out of certain sales of personal information, and also affords a private right of action to individuals affected by a data breach, if the breach was caused by a lack of reasonable security.

Following the withdrawal of the U.K.

from the E.U.

(i.e., Brexit), and the expiry of the Brexit transition period, which ended on December 31, 2020, the E.U.

GDPR has been implemented in the U.K.

(as the “U.K.

GDPR sits alongside the U.K.

Data Protection Act 2018, which implements certain derogations in the E.U.

GDPR into English law.

The requirements of the U.K.

GDPR , which are (at this time) largely aligned with those under the E.U.

GDPR , may lead to similar compliance and operational costs with potential fines of up to £17.5 million or 4% of total worldwide annual turnover.

In the United States, companies that do business in California are subject to the California Consumer Privacy Act (“CCPA”), which requires, among other things, covered companies to provide new disclosures to California consumers, afford such consumers certain rights regarding their personal information, and also affords a private right of action to individuals affected by a data breach, if the breach was caused by a lack of reasonable security.

The enforcement of the CCPA by the California Attorney General commenced on July 1, 2020.

The CCPA has been amended on multiple occasions and is the subject of proposed regulations of the California Attorney General that have yet to be finalized.

The CCPA has been amended on multiple occasions and the California Attorney General has issued initial and revised regulations that also govern the CCPA, which could be subject to additional modifications.

It remains unclear what, if any, additional modifications will be made to this legislation or how it will be interpreted and enforced.

The effects of the CCPA potentially are significant, however, and may require us to modify our data processing practices and policies and to incur substantial costs and expenses for compliance.

Moreover, a new privacy law, the California Privacy Rights Act (“CPRA”) was recently certified by the California Secretary of State to appear on the ballot for the November 3, 2020 election.

If this initiative is approved by California voters, the CPRA would significantly modify the CCPA, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply.

Moreover, additional state-based privacy laws have been passed and will require potentially substantial efforts to obtain compliance.

This includes the California Privacy Rights Act (“CPRA”) which was approved by California voters, and significantly modifies the CCPA.

We may also from time to time be subject to, or face assertions that we are subject to, additional obligations relating to personal data by contract or due to assertions that self-regulatory obligations or industry standards apply to our practices.

Other states have also expanded their data protection laws.

Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination, and security of data.

Further, we may be or become subject to data localization laws mandating that data collected in a foreign country be processed and stored within that country.

Each of these privacy, security, and data protection laws and regulations, and any other such changes or new laws or regulations, could impose significant limitations, or require changes to our business model or practices or growth strategy, which may increase our compliance expenses and make our business more costly or less efficient to conduct.

Each of these privacy, security, and data protection laws and regulations, and any other such changes or new laws or regulations, could impose significant limitations,

or require changes to our business model or practices or growth strategy, which may increase our compliance expenses and make our business more costly or less efficient to conduct.

Our actual or perceived failure to comply with applicable laws and regulations or other obligations to which we are now or which we may be subject relating to personal data, or to protect personal data from unauthorized acquisition, use or other processing, could result in consequences such as enforcement actions and regulatory investigations against us, fines, public censure, claims for damages by end-customers and other affected individuals, damage to our reputation and loss of goodwill (both in relation to existing end-customers and prospective end-customers), any of which could have a material adverse effect on our operations, financial performance, and business.

Evolving and changing definitions of personal data and personal information, within the E.U., the United

States, and elsewhere, especially relating to classification of Internet Protocol (“IP”) addresses, machine identification, location data, and other information, may limit or inhibit our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing or uses of data, and may require significant expenditures and efforts in order to comply.

Evolving and changing definitions of personal data and personal information, within the E.U., the United States, and elsewhere, especially relating to classification of Internet Protocol (“IP”) addresses, machine identification, location data, and other information, may limit or inhibit our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing or uses of data, and may require significant expenditures and efforts in order to comply.

Even the perception of privacy, data protection or information security concerns, whether or not valid, may harm our reputation and inhibit adoption of our products and subscriptions by current and future end-customers.

Risks Related to Operations Outside the United States

We face risks associated with having operations and employees located in Israel.

As a result of various of our acquisitions, including Secdo, PureSec and Twistlock, we have offices and employees located in Israel.

Accordingly, political, economic, and military conditions in Israel directly affect our operations.

The future of peace efforts between Israel and its Arab neighbors remains uncertain.

There has been a significant increase in hostilities and political unrest between Hamas and Israel recently.

Current or future tensions and conflicts in the Middle East could adversely affect our business, operating results, financial condition and cash flows.

In addition, many of our employees in Israel are obligated to perform annual reserve duty in the Israeli military and are subject to being called for active duty under emergency circumstances.

We cannot predict the full impact of these conditions on us in the future, particularly if emergency circumstances or an escalation in the political situation occurs.

If many of our employees in Israel are called for active duty for a significant period of time, our operations and our business could be disrupted and may not be able to function at full capacity.

Any disruption in our operations in Israel could adversely affect our business.

We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.

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Any decreased use of our products or limitation on our ability to export to or sell our products in international markets would likely adversely affect our business, financial condition, and operating results.

Our failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products and subscriptions could reduce our ability to compete and could harm our business.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features to enhance our portfolio improve our operating infrastructure, or acquire complementary businesses and technologies.

Accordingly, we may need to engage in equity or debt financings to secure additional funds.

If we raise additional equity or equity-linked financing, our stockholders may experience significant dilution of their ownership interests and the market price of our common stock could decline.

For example, in June 2014, we issued our 2019 Notes (the “2019 Notes”), in July 2018, we issued our 2023 Notes (the “2023 Notes”) and in June 2020 we issued our 2025 Notes (the “2025 Notes”).

None of our 2019 Notes remained outstanding as of July 31, 2019.

However, any conversion of the outstanding 2023 Notes and 2025 Notes (the “2023 Notes” together with the “2025 Notes”, the “Notes”) into common stock will dilute the ownership interests of existing stockholders to the extent we deliver shares upon conversion of such Notes.

See the risk factor entitled “The issuance of additional stock in connection with financings, acquisitions, investments, our stock incentive plans, the conversion of our Notes or exercise of the related Warrants, or otherwise will dilute all other stockholders.” The holders of our Notes have priority over holders of our common stock, and if we engage in future debt financings, the holders of such additional debt would also have priority over the holders of our common stock.

Current and future indebtedness may also contain terms that, among other things, restrict our ability to incur additional indebtedness.

We may also be required to take other actions that would otherwise be in the interests of the debt holders and would require us to maintain specified liquidity or other ratios, any of which could harm our business, operating results, and financial condition.

We may not be able to obtain additional financing on terms favorable to us, if at all.

If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be adversely affected.

Tax, Accounting, Compliance and Regulatory Risks

We have a corporate structure aligned with the international nature of our business activities, and if we do not achieve increased tax benefits as a result of our corporate structure, our financial condition and operating results could be adversely affected.

We have reorganized our corporate structure and intercompany relationships to more closely align with the international nature of our business activities.

This corporate structure may allow us to reduce our overall effective tax rate through changes in how we use our intellectual property, international procurement, and sales operations.

This corporate structure may allow us to reduce our overall effective tax rate through changes in how we use

our intellectual property, international procurement, and sales operations.

This corporate structure may also allow us to obtain financial and operational efficiencies.

These efforts require us to incur expenses in the near term for which we may not realize related benefits.

If the structure is not accepted by the applicable tax authorities, if there are any changes in, or interpretations of, domestic and international tax laws that negatively impact the structure, or if we do not operate our business consistent with the structure and applicable tax provisions, we may fail to achieve the reduction in our overall effective tax rate and the other financial and operational

efficiencies that we anticipate as a result of the structure and our future financial condition and operating results may be negatively impacted.

In addition, we continue to evaluate our corporate structure in light of current and pending tax legislation, and any changes to our corporate structure may require us to incur additional expenses and may impact our overall effective tax rate.

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It is possible that tax authorities may disagree with certain positions we have taken, and any adverse outcome of such a review or audit could have a negative effect on our financial position and operating results.

Further, the determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are transactions where the ultimate tax determination is uncertain.

Further, the determination of our worldwide provision for or benefit from income taxes and other tax liabilities requires significant judgment by management, and there are transactions where the ultimate tax determination is uncertain.

Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially affect our financial results in the period or periods for which such determination is made.

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Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment Directive (“RoHS”) and the E.U.

Waste Electrical and Electronic Equipment Directive (“WEEE Directive”), as well as the implementing legislation of the E.U.

Waste Electrical and Electronic Equipment Directive (“WEEE Directive”), as well as the implementing

legislation of the E.U.

member states.

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To date, our expenditures for environmental compliance have not had a material impact on our operating results or cash flows, and although we cannot predict the future impact of such laws or regulations, they will likely result in additional costs and may increase penalties associated with violations or require us to change the content of our products or how they are manufactured, which could have a material adverse effect on our business, operating results, and financial condition.

Our business is subject to the risks of earthquakes, fire, power outages, floods, health risks and other catastrophic events, and to interruption by man-made problems such as terrorism.

Both our corporate headquarters and the location where our products are manufactured are located in the San Francisco Bay Area, a region known for seismic activity.

In addition, other natural disasters, such as fire or floods, a significant power outage, telecommunications failure, terrorism, an armed conflict, cyberattacks, epidemics and pandemics such as COVID-19, or other geo-political unrest could affect our supply chain, manufacturers, logistics providers, channel partners, or end-customers or the economy as a whole and such disruption could impact our shipments and sales.

These risks may be further increased if the disaster recovery plans for us and our suppliers prove to be inadequate.

To the extent that any of the above should result in delays or cancellations of customer orders, the loss of customers, or the delay in the manufacture, deployment, or shipment of our products, our business, financial condition, and operating results would be adversely affected.

Risks Related to Our Notes

We may not have the ability to raise the funds necessary to settle conversions of our Notes, repurchase our Notes upon a fundamental change, or repay our Notes in cash at their maturity, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of our Notes.

We will need to make cash payments (1) if holders of our Notes require us to repurchase all or a portion of their Notes upon the occurrence of a fundamental change (e.g.

a change of control of Palo Alto Networks, Inc.) before the maturity date, (2) upon conversion of our Notes, (3) to repay our Notes in cash at their maturity, unless earlier converted or repurchased.

In July 2018 we issued our 2023 Notes (the “2023 Notes”) and in June 2020 we issued our 2025 Notes (the “2025 Notes,” together with the “2023 Notes,” the “Notes”).

We will need to make cash payments (1) if holders of our Notes require us to repurchase all or a portion of their Notes upon the occurrence of a fundamental change (e.g., a change of control of Palo Alto Networks, Inc.) before the maturity date, (2) upon conversion of our Notes, (3) to repay our Notes in cash at their maturity, unless earlier converted or repurchased.

However, we may not have enough available cash or be able to obtain financing at the time we are required to make payments.

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Our actual operating results may differ significantly from our guidance.

From time to time, we have released, and may continue to release, guidance in our quarterly earnings releases, quarterly earnings conference calls, or otherwise, regarding our future performance that represents our management’s estimates as of the date of

This guidance, which includes forward-looking statements, has been and will be based on projections prepared by our management.

These projections are not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public Accountants, and neither our registered public accountants nor any other independent expert or outside party compiles or examines the projections.

compiles or examines the projections.

Accordingly, no such person expresses any opinion or any other form of assurance with respect to the projections.

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In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company.

Securities litigation could result in substantial costs and divert our management’s attention and resources from our business.

Securities litigation could result in

substantial costs and divert our management’s attention and resources from our business.

This could have a material adverse effect on our business, operating results, and financial condition.

The convertible note hedge and warrant transactions may affect the value of our common stock.

In connection with the sale of our 2019 Notes, 2023 Notes and 2025 Notes, we entered into convertible note hedge transactions (the “Note Hedges”) with certain counterparties.

In connection with the sale of our 2023 Notes and 2025 Notes, we entered into convertible note hedge transactions (the “Note Hedges”) with certain counterparties.

In connection with each such sale of the Notes, we also entered into warrant transactions with the counterparties pursuant to which we sold warrants (the “Warrants”) for the purchase of our common stock.

The Note Hedges for our 2019 Notes have expired.

The Note Hedges for our 2023 Notes and 2025 Notes are expected generally to reduce the potential dilution to our common stock upon any conversion of our Notes and/or offset any cash payments we are required to make in excess of the principal amount of any such converted Notes.

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Our amended and restated certificate of incorporation authorizes us to issue up to 1.0 billion shares of common stock and up to 100.0 million shares of preferred stock with such rights and preferences as may be determined by our board of directors.

Subject to compliance with applicable rules and regulations, we may issue shares of common stock or securities convertible into shares of our common stock from time to time in connection with a financing, acquisition, investment, our stock incentive plans, the conversion of our Notes, the settlement of our Warrants related to each such series of Notes, or otherwise.

Any such issuance could result in substantial dilution to our existing stockholders and cause the market price of our common stock to decline.

We cannot guarantee that our share repurchase program will be fully consummated, or that it will enhance shareholder value, and share repurchases could affect the price of our common stock.

In February 2019, our board of directors authorized a $1.0 billion share repurchase program which will be funded from available working capital.

The repurchase authorization will expire on December 31, 2020.

In February 2020, our board of directors approved the repurchase of $1.0 billion of our common stock through an accelerated share repurchase (“ASR”) transaction, which was completed in fiscal 2020.

This ASR transaction is in addition to our share repurchase program.

As of July 31, 2021, we had $323.9 million available under our share repurchase program.

On August 17, 2021, our board of directors authorized another $676.1 million increase to this share repurchase program, bringing the total authorization to $2.4 billion, with $1.0 billion remaining, and extended the expiration date to December 31, 2022.

Such share repurchase program may be suspended or discontinued by the Company at any time without prior notice.

Although our board of directors has authorized a share repurchase program, we are not obligated to repurchase any specific dollar amount or to acquire any specific number of shares under the program.

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The capital markets for public offerings and acquisitions are dynamic and the likelihood of liquidity events for the companies we have invested in, and intend to invest in, could significantly change.

Further, valuations of privately-held companies are inherently complex due to the lack of readily available market data and as such, the basis for these valuations is subject to the timing and accuracy of the data received

from these companies.

If we determine that any of our investments in such companies have experienced a decline in value, we may be required to record an impairment, which could be material and negatively impact our financial results.

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As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.

The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain qualified board members.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the New York Stock Exchange (“NYSE”), and other applicable securities rules and regulations.

Compliance with these rules and regulations have increased our legal and financial compliance costs, made some activities more difficult, time-consuming or costly, and increased demand on our systems and resources.

Among other things, the Exchange Act requires that we file annual, quarterly, and current reports with respect to our business and operating results.

In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting.

In order to meet the requirements of this standard, significant resources and management oversight may be required.

As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results.

Although we have already hired additional employees to comply with these requirements, we may need to hire even more employees in the future, which will increase our costs and expenses.

In addition, changing laws, regulations, and standards related to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time-consuming.

These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies.

This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expense and a diversion of management’s time and attention from revenue-generating activities to compliance activities.

If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

We are obligated to maintain proper and effective internal control over financial reporting.

We may not complete our analysis of our internal control over financial reporting in a timely manner, or this internal control may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.

While we were able to determine in our management’s report for fiscal 2020 that our internal control over financial reporting is effective, as well as provide an unqualified attestation report from our independent registered public accounting firm to that effect, we may not be able to complete our evaluation, testing, and any required remediation in a timely fashion, may be unable to assert that our internal controls are effective, or our independent registered public accounting firm may not be able to formally attest to the effectiveness of our internal control over financial reporting in the future.

In the event that our chief executive officer, chief financial officer, or independent registered public accounting firm determines in the future that our internal control over financial reporting is not effective as defined under Section 404, we could be subject to one or more investigations or enforcement actions by state or federal regulatory agencies, stockholder lawsuits or other adverse actions requiring us to incur defense costs, pay fines, settlements or judgments and causing investor perceptions to be adversely affected and potentially resulting in a decline in the market price of our stock.

Our charter documents and Delaware law, as well as certain provisions contained in the indentures governing our Notes, could discourage takeover attempts and lead to management entrenchment, which could also reduce the market price of our common stock.

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Any of these provisions could, under certain circumstances, depress the market price of our common stock.

General Risk Factors

Our business is subject to the risks of earthquakes, fire, power outages, floods, health risks and other catastrophic events, and to interruption by man-made problems such as terrorism.

Both our corporate headquarters and the location where our products are manufactured are located in the San Francisco Bay Area, a region known for seismic activity.

These risks may be further increased if the disaster recovery plans for us and our suppliers prove to be inadequate.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features to enhance our portfolio, improve our operating infrastructure, or acquire complementary businesses and technologies.

Accordingly, we may need to engage in equity or debt financings to secure

additional funds.

If we raise additional equity or equity-linked financing, our stockholders may experience significant dilution of their ownership interests and the market price of our common stock could decline.

Any conversion of the outstanding Notes into common stock will dilute the ownership interests of existing stockholders to the extent we deliver shares upon conversion of such Notes.

See the risk factor entitled “ The issuance of additional stock in connection with financings, acquisitions, investments, our stock incentive plans, the conversion of our Notes or exercise of the related Warrants, or otherwise will dilute all other stockholders .” The holders of our Notes have priority over holders of our common stock, and if we engage in future debt financings, the holders of such additional debt would also have priority over the holders of our common stock.