What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-09-03 compared with 2020-09-04 · 91 added, 93 removed, 425 unchanged (30% of the section changed)

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• Results of Operations.

A discussion of the nature and trends in our financial results and an analysis of our financial results comparing fiscal 2020 to 2019.

A discussion of the nature and trends in our financial results and an analysis of our financial results comparing fiscal 2021 to fiscal 2020.

For discussion and analysis related to our financial results comparing fiscal 2020 to 2019, refer to Part II, Item 7.

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A discussion of expected impacts of impending accounting changes on financial information to be reported in the future.

We empower enterprises, service providers, and government entities to secure all users, applications, data, networks and devices with comprehensive visibility and context continuously across all locations.

We deliver cybersecurity products covering a broad range of use cases, enabling our end-customers to secure their networks, remote workforce, access to the service edge, branch locations, public and private clouds, and to advance their Security Operations Centers (“SOC”).

We empower enterprises, service providers, and government entities to secure all users, applications, data, networks, clouds and devices with comprehensive visibility and context continuously across all locations.

We deliver cybersecurity products covering a broad range of use cases, enabling our end-customers to secure their networks, remote and hybrid workforces, branch locations, and public and private clouds, and to advance their Security Operations Centers (“SOC”).

We believe our portfolio offers advanced prevention and security, while reducing the total cost of ownership for organizations by improving operational efficiency and eliminating the need for siloed point products.

We do this with solutions focused on delivering value in three fundamental areas:

Secure the Enterprise:

• Secure the network through our ML-powered Next-Generation Firewalls, available in a number of form factors, including physical, virtual and containerized appliances, as well as a cloud-delivered service, with Panorama management available as an appliance or as a virtual machine for the public or private cloud.

This also includes security services such as Threat Prevention, WildFire, URL Filtering, DNS Security, IoT Security, GlobalProtect , SD-WAN and Data Loss Prevention that are delivered as S aaS subscriptions to our ML-powered Next-Generation Firewalls.

Secure the Cloud:

• Secure the cloud through our Prisma security offerings, such as Prisma Cloud, the industry’s most comprehensive Cloud Native Security Platform (“CNSP”), protecting applications, data and the entire cloud native technology stack, throughout the full development lifecycle and across multi- and hybrid- cloud environments, Prisma SaaS for protecting SaaS applications, Prisma Access, a comprehensive Secure Access Service Edge (“SASE”) offering, that, together with CloudGenix SD-WAN, securing SD-WAN to enable the cloud delivered branch, and VM-Series and CN-Series for in-line network security in multi- and hybrid- cloud environments.

CloudGenix SD-WAN autonomous networking and integrated security is available as a combination of physical, virtual and cloud-delivered appliances and services.

Secure the Future:

• Secure the future of security operations through our Cortex security offerings, which includes Cortex XDR for prevention, detection and response, Cortex XSOAR for security orchestration, automation and response (“SOAR”),

AutoFocus for threat intelligence, and Cortex Data Lake to collect and integrate security data for analytics.

We do this with solutions focused on delivering value in five fundamental areas:

Zero Trust Network Security:

• Enabling zero trust network security through our ML-Powered Next-Generation Firewalls, available in a number of form factors, including physical, virtual, and containerized appliances, as well as a cloud-delivered service.

This also includes our add-on Cloud-Delivered Security Services, such as Threat Prevention, WildFire, URL Filtering, Advanced URL Filtering, DNS Security, IoT Security, GlobalProtect, SD-WAN, Enterprise Data Loss Prevention (“Enterprise DLP”), SaaS Security API and SaaS Security Inline that secure content, applications, users, and devices across our ML-Powered Next-Generation Firewalls, Prisma, and Cortex product lines, to enable best-in-class security across a broad range of applications.

Panorama, our network security management solution, available as hardware or virtual machine, can centrally manage all of our firewalls irrespective of their form factor, location, or scale.

Cloud Security:

• Enabling cloud security through our Prisma security offerings.

Prisma Cloud, the industry’s most comprehensive Cloud Native Security Platform (“CNSP”), secures multi- and hybrid-cloud environments and cloud native applications, integrating security across the full deployment lifecycle.

VM-Series and CN-Series enforce in-line network security in multi- and hybrid-cloud environments.

Secure Access Service Edge:

• Prisma Access, the industry’s most complete cloud-delivered security platform, together with Prisma SD-WAN, SaaS Security API and SaaS Security Inline, provide a comprehensive Secure Access Service Edge (“SASE”) offering that is used to secure remote workforces and enable the cloud-delivered branch.

Security Analytics and Automation:

• Delivering the next generation of endpoint security, security analytics and security automation solutions through our Cortex portfolio.

These include our industry-leading extended detection and response platform Cortex XDR to prevent, detect, and respond to complex cybersecurity attacks, Cortex XSOAR for security orchestration, automation, and response (“SOAR”), Cortex Xpanse for attack surface management (“ASM”) and Cortex Data Lake allowing our customers to collect and analyze large amounts of context-rich data across endpoints, networks, and clouds.

These products are delivered as software or SaaS subscriptions.

Threat Intelligence and Security Consulting (Unit 42):

• Enabling security teams with up-to-date threat intelligence and deep cybersecurity expertise before, during and after attacks through our Unit 42 threat research and security consulting team.

Unit 42 offers incident response, risk management, board advisory and proactive cybersecurity assessment services.

For fiscal 2021 and 2020, total revenue was $4.3 billion and $3.4 billion, respectively, representing year-over-year growth of 24.9%.

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We maintain a field sales force that works closely with our channel partners in developing sales opportunities.

We use a two-tiered, indirect fulfillment model whereby we sell our products, subscriptions, and support to our distributors, which, in turn, sell to our resellers, which then sell to our end-customers.

Our product revenue was $1.1 billion or 31.2% of total revenue for fiscal 2020, representing a slight decrease year-over-year of 2.9%.

We primarily use a two-tiered, indirect fulfillment model whereby we sell our products, subscriptions, and support to our distributors, which, in turn, sell to our resellers, which then sell to our end-customers.

Our product revenue was $1.1 billion or 26.3% of total revenue for fiscal 2021, representing year-over-year growth of 5.3%.

Product revenue is generated from sales of our appliances, primarily our ML-Powered Next-Generation Firewall, which is available in a number of form factors, including as physical, virtual, and containerized appliances.

Our ML-powered Next-Generation Firewall incorporates our PAN-OS operating system, which provides a consistent set of capabilities across our entire product line.

Our ML-Powered Next-Generation Firewall incorporates our PAN-OS operating system, which provides a consistent set of capabilities across our entire network security product line.

Our products are designed for different performance requirements throughout an organization, ranging from our PA-410, which is designed for small organizations and remote or branch offices, to our top-of-the-line PA-7080, which is designed for large-scale data centers and service provider use.

The same firewall functionality that is delivered in our physical appliances is also available in our VM-Series virtual firewalls, which secure virtualized and cloud-based computing environments and in our CN-Series container firewalls, which secures container environments and traffic.

The same firewall functionality that is delivered in our physical appliances is also available in our VM-Series virtual firewalls, which secure virtualized and cloud-based computing environments, and in our CN-Series container firewalls, which secure container environments and traffic.

Our subscription and support revenue grew to $3.1 billion or 73.7% of total revenue for fiscal 2021, representing year-over-year growth of 33.8%.

Our subscriptions provide our end-customers with near real-time access to the latest antivirus, intrusion prevention, web filtering, and modern malware prevention capabilities across the network, endpoints, and the cloud.

When end-customers purchase our physical, virtual or container firewall appliances, they typically purchase support in order to receive ongoing security updates, upgrades, bug fixes, and repairs.

Our subscriptions provide our end-customers with near real-time access to the latest antivirus, intrusion prevention, web filtering, modern malware prevention, data loss prevention, and cloud access security broker capabilities across the network, endpoints, and the cloud.

When end-customers purchase our physical, virtual, or container firewall appliances, or certain cloud offerings, they typically purchase support in order to receive ongoing security updates, upgrades, bug fixes, and repairs.

In addition to the subscriptions purchased with these appliances, end-customers may also purchase other subscriptions on a per-user, per-endpoint, or capacity-based basis.

We also offer professional services, including incident response, risk management, and digital forensic services.

We continue to invest in innovation and acquire businesses as we evolve and further extend the capabilities of our portfolio, as we believe that innovation and timely development of new features and products is essential to meeting the needs of our end-customers and improving our competitive position.

During fiscal 2021, we introduced several new offerings, including:

PAN-OS 10.0 with over 70 new features;

our new ML-powered Next-Generation Firewalls;

and our Cortex XSOAR solution that redefines security orchestration and automation with integrated threat intelligence management.

Additionally, we acquired productive investments that fit well within our long-term strategy.

For example, in September 2019, we acquired Zingbox, which we believe will accelerate our delivery of IoT security through our Next-Generation Firewall and Cortex offerings;

in December 2019, we acquired Aporeto, which we believe will strengthen our cloud-native security platform capabilities delivered by Prisma Cloud;

and in April 2020, we acquired CloudGenix, which we believe will strengthen our SASE offering.

Cortex XDR 2.5, Next Generation SD-WAN, Prisma Cloud 2.0, Enterprise DLP, 5G Security, IoT Healthcare Security, Prisma Access 2.0 and Complete Zero Trust Network Security.

Additionally, we acquired productive investments that we believe fit well within our long-term strategy.

For example, in September 2020, we acquired Crypsis, which we expect will expand our incident response capabilities and strengthen our Cortex strategy;

in November 2020, we acquired Sinefa, which we expect will extend our Prisma Access offering;

in December 2020, we acquired Expanse, which we expect will enrich our Cortex offerings and provide organizations an integrated view of the enterprise to combine external, internal, and threat data;

and in March 2021, we acquired Bridgecrew, which we expect will expand our Prisma Cloud offering to deliver security across the full application lifecycle.

We believe that the growth of our business and our short-term and long-term success are dependent upon many factors, including our ability to extend our technology leadership, grow our base of end-customers, expand deployment of our portfolio and support offerings within existing end-customers, and focus on end-customer satisfaction.

To manage any future growth effectively, we must continue to improve and expand our information technology and financial infrastructure, our operating and administrative systems and controls, and our ability to manage headcount, capital, and processes in an efficient manner.

To manage any future growth effectively, we must continue to improve and expand our information technology and financial infrastructure, our operating and administrative

systems and controls, and our ability to manage headcount, capital, and processes in an efficient manner.

While these areas present significant opportunities for us, they also pose challenges and risks that we must successfully address in order to sustain the growth of our business and improve our operating results.

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Impact of COVID-19 on Our Business

We are actively monitoring, evaluating and responding to developments relating to COVID-19, which has and is expected to result in continued significant global social and business disruption.

As described in “Impacts of COVID-19 on our Business” included in Part I, Item 1 Business in this Annual Report, we have made some changes to our business that include instituting a global work-from-home policy beginning in Marc h 2020 that did not incur significant disruptions in our work operations during fiscal 2020.

We will continue to actively monitor the situation and will make further changes to our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, end-customers, partners, suppliers and stockholders.

Our focus remains on the safety of our employees, striving to protect the health and well-being of the communities in which we operate, and providing technology to our employees, end-customers and partners to help them do their best work while remote.

Although some end-customers adopted Prisma Access as their secure work-from-home solution for the longer term, COVID-19 may curtail our end-customers' spending and could lead them to delay or defer purchasing decisions, and lengthen sales cycles and payment terms, which could materially adversely impact our business, results of operations and overall financial performance.

We are actively monitoring, evaluating, and responding to developments relating to COVID-19, which has resulted in and is expected to continue to result in continued significant global, social, and business disruption.

As described in “Impacts of COVID-19 on our Business” included in Part I, Item 1 Business in this Annual Report, we have made some changes to our business including instituting a global work-from-home policy beginning in March 2020 and adopting our FLEXWORK initiative in fiscal 2021, which did not incur significant disruptions in our work operations during fiscal 2020 and fiscal 2021.

We will continue to actively monitor the situation, including progress made through vaccinations, and we will make further changes to our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, end-customers, partners, suppliers, and stockholders.

Our focus remains on the safety of our employees, and we strive to protect the health and well-being of the communities in which we operate, in part, by providing technology to our employees, end-customers, and partners to help them do their best work while remote.

Although some end-customers adopted Prisma Access as their secure work-from-home solution for the longer term, there continues to be uncertainty regarding the business outlook due to COVID-19, which may curtail our end-customers’ spending and could lead them to delay or defer purchasing decisions, and lengthen sales cycles and payment terms, which could materially adversely impact our business, results of operations, and overall financial performance.

Also, certain of our end-customers or partners may be or may become credit or cash constrained, making it difficult for them to fulfill their payment obligations to us.

The extent of the impact of COVID-19 on our operational and financial performance will depend on

developments, including the duration and spread of the virus, impact on our end-customers’ spending, volume of sales and length of our sales cycles, impact on our partners, suppliers and employees, actions that may be taken by governmental authorities and other factors identified in Part I, Item 1A "Risk Factors" in this Form 10-K.

The extent of the impact of COVID-19 on our operational and financial performance will depend on developments, including the duration and spread of the virus (including variants), impact on our end-customers’ spending, volume of sales and length of our sales cycles, impact on our partners, suppliers, and employees, actions that may be taken by governmental authorities, and other factors identified in Part I, Item 1A “Risk Factors” in this Form 10-K.

Given the dynamic nature of these circumstances, the full impact of COVID-19 on our ongoing business, results of operations, and overall financial performance cannot be reasonably estimated at this time.

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Total revenue 4,256.1 100.0 % 3,408.4 100.0 % 2,899.6 100.0 %

3,408.4 100.0 % 2,899.6 100.0 % 2,273.6 100.0 %

Cost of revenue:

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Total gross profit 2,981.2 70.0 % 2,408.9 70.7 % 2,091.2 72.1 %

2,408.9 70.7 % 2,091.2 72.1 % 1628.5 71.6 %

Operating expenses:

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Operating loss (304.1) (7.1) % (179.0) (5.3) % (54.1) (1.9) %

(179.0) (5.3) % (54.1) (1.9) % (104.2) (4.6) %

Interest expense (163.3) (3.8) % (88.7) (2.6) % (83.9) (2.9) %

(88.7) (2.6) % (83.9) (2.9) % (29.6) (1.3) %

Other income, net 2.4 0.0 % 35.9 1.1 % 63.4 2.2 %

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Product $ 1,120.3 $ 1,064.2 $ 56.1 5.3 % $ 1,064.2 $ 1,096.2 $ (32.0) (2.9) %

Product revenue decreased slightly for fiscal 2020 compared to fiscal 2019 primarily due to product mix and pricing, partially offset by an increase in product unit volume.

Product revenue increased for fiscal 2021 compared to fiscal 2020, largely driven by increases in software sales, reflecting increased demand for our products.

Subscription and Support Revenue

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Total subscription and support $ 3,135.8 $ 2,344.2 $ 791.6 33.8 % $ 2,344.2 $ 1,803.4 $ 540.8 30.0 %

Subscription and support revenue increased year-over-year for fiscal 2020 due to increased demand for our subscription and support offerings from both new and existing end-customers, reflecting increased adoption of our portfolio.

The mix between subscription revenue and support revenue will fluctuate over time, depending on the introduction of new subscription offerings, renewals of support services, and our ability to increase sales to new and existing end-customers.

The change in subscription and support revenue due to changes in pricing was not significant for fiscal 2020.

Subscription and support revenue increased year-over-year for fiscal 2021 due to increased demand for our subscription and support offerings from both new and existing end-customers.

The mix between subscription revenue and support revenue will vary over time, depending on the introduction of new subscription offerings, renewals of support services, and our ability to increase sales to new and existing end-customers.

Revenue by Geographic Theater

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With respect to geographic theaters, the Americas contributed the largest portion of the year-over-year increases in revenue for fiscal 2021 due to its larger and more established sales force compared to our other theaters.

Revenue from both Europe, the Middle East, and Africa (“EMEA”) and Asia Pacific and Japan (“APAC”) increased year-over-year for fiscal 2020 due to our increasing investment in global sales force to maintain our growth and innovation.

Revenue from both Europe, the Middle East, and Africa (“EMEA”) and Asia Pacific and Japan (“APAC”) increased year-over-year for fiscal 2021 due to our increasing investment in global sales force in order to support our growth and innovation.

Cost of Revenue

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Number of employees at period end 127 117 10 8.5 % 117 102 15 14.7 %

117 102 15 14.7 % 102 97 5 5.2 %

Cost of product revenue decreased for fiscal 2020 compared to fiscal 2019 primarily due to a decrease in product revenue, reductions in cost of materials and lower amortization of intellectual property licenses.

Cost of product revenue increased for fiscal 2021 compared to fiscal 2020 primarily due to an increase in the volume of product sold, partially offset by product mix.

The remaining increase was largely due to increased overhead costs to support the growth of our product revenue.

Cost of Subscription and Support Revenue

Cost of subscription and support revenue includes personnel costs for our global customer support and technical operations organizations, customer support and repair costs, third-party professional services costs, data center and cloud hosting costs, amortization of acquired intangible assets and capitalized software development costs, and allocated costs.

Cost of subscription and support revenue includes personnel costs for our global customer support and technical operations organizations, customer support and repair costs, third-party professional services costs, data center and cloud hosting service costs, amortization of acquired intangible assets and capitalized software development costs, and allocated costs.

We expect our cost of subscription and support revenue to increase as our installed end-customer base grows and adoption of our cloud-based subscription offerings increases.

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Cost of subscription and support revenue increased for fiscal 2021 compared to fiscal 2020 primarily due to increased costs to support the growth of our subscription and support offerings.

Cl oud hosting costs to support the adoption of our cloud-based subscription offerings increased $82.4 million for fiscal 2020 compared to fiscal 2019, and personnel costs grew $60.8 million to $315.3 million for fiscal 2020 compared to fiscal 2019 due to headcount growth.

The remaining increase was primarily due to an increase in amortization of purchased intangible assets as a result of our recent acquisitions .

Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including the introduction of new products, manufacturing costs, tariff costs, the average sales price of our products, cloud hosting costs, personnel costs, the mix of products sold, and the mix of revenue between product and subscription and support offerings.

P ersonnel costs grew $97.1 million to $412.4 million for fiscal 2021 compared to fiscal 2020 primarily due to headcount growth.

Cl oud hosting service costs, which support the adoption of our cloud-based subscription offerings incr eased $45.6 million for fiscal 2021 compared to fiscal 2020.

The remaining increase was primarily due to increased outside service costs for global customer support resulting from the expansions of our customer base and product portfolio, as well as the amortization of intangible assets from our recent acquisitions.

Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including the introduction of new products, manufacturing costs, tariff costs, the average sales price of our products, cloud hosting service costs, personnel costs, the mix of products sold, and the mix of revenue between product and subscription and support offerings.

For sales of our products, our higher-end firewall products generally have higher gross margins than our lower-end firewall products within each product series.

We expect our gross margins to fluctuate over time depending on the factors described above.

We expect our gross margins to vary over time depending on the factors described above.

Year Ended July 31,

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$ 2,981.2 70.0 % $ 2,408.9 70.7 % $ 2,091.2 72.1 %

Product gross margin increased for fiscal 2020 compared to fiscal 2019 primarily due to reductions in cost of materials.

Subscription and support gross margin decreased for fiscal 2020 compared to fiscal 2019, primarily due to an increase in costs to support the adoption of our cloud-based subscription offerings and higher amortization of purchased intangible assets as a result of our recent acquisitions, partially offset by increased leverage of our global customer support organization.

Product gross margin was relatively flat for fiscal 2021 compared to fiscal 2020.

Subscription and support gross margin decreased for fiscal 2021 compared to fiscal 2020, primarily due to increased costs to fulfill professional services arrangements.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing, and general and administrative expense.

Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses.

Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, share-based compensation, travel and entertainment, and with regard to sales and marketing expense, sales commissions.

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We expect operating expenses generally to increase in absolute dollars and decrease over the long term as a percentage of revenue as we continue to scale our business.

In response to COVID-19, we instituted a global work-from-home policy and limited employee travel beginning in March 2020.

In response to COVID-19, we instituted a global work-from-home policy, which has been modified to provide employees with the choice to work in certain of our offices when and as they feel comfortable, and limited employee travel beginning in March 2020.

Further, we have canceled in-person events and either replaced them with virtual events or postponed them to future periods.

Although we did not conduct any employee layoffs related to COVID-19, we slowed hiring in our third and fourth quarter of fiscal 2020.

As of July 31, 2021, we expect to recognize approximately $2.0 billion of share-based compensation expense over a weighted-average period of approximately 2.6 years, excluding additional share-based compensation expense related to any future grants of share-based awards.

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Number of employees at period end 2,595 1,821 774 42.5 % 1,821 1,507 314 20.8 %

1,821 1,507 314 20.8 % 1,507 947 560 59.1 %

Research and development expense increased for fiscal 2021 compared to fiscal 2020 due to an increase in personnel costs, which grew $321.2 million to $911.0 million for fiscal 2021 compared to fiscal 2020.

The increase in personnel costs was primarily due to headcount growth.

The remaining increase was primarily driven by an increase in allocated costs.

Sales and Marketing

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Sales and marketing expense also includes costs for market development programs, promotional and other marketing costs, professional services, and allocated costs.

We continue to thoughtfully invest in headcount and have substantially grown our sales presence internationally.

We expect sales and marketing expense to continue to increase in absolute dollars as we increase the size of our sales and marketing organizations to increase touch points with end-customers and to expand our international presence, although our sales and marketing expense may fluctuate as a percentage of total revenue.

We continue to thoughtfully invest in headcount and have substantially grown our international sales presence.

We expect sales and marketing expense to continue to increase in absolute dollars as we increase the size of our sales and marketing organizations to increase touch points with end-customers and to expand our global presence, although our sales and marketing expense may fluctuate as a percentage of total revenue.

Year Ended July 31, Year Ended July 31,

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Number of employees at period end 4,493 3,800 693 18.2 % 3,800 3,382 418 12.4 %

3,800 3,382 418 12.4 % 3,382 2,704 678 25.1 %

Sales and marketing expense increased for fiscal 2021 compared to fiscal 2020 primarily due to an increase in personnel costs, which grew $186.9 million to $1.3 billion for fiscal 2021 compared to fiscal 2020.

The increase in personnel costs was largely due to headcount growth.

The increase in personnel costs was partially offset by savings related to decreased travel as a response to COVID-19.

The remaining increase was driven by an increase in costs associated with marketing-related activities, including costs to cancel in-person events, replace them with virtual events or postpone them to future periods due to COVID-19, and costs related to go-to-market initiatives.

The increase in personnel costs was largely due to headcount growth, partially offset by decreased travel expenses due to COVID-19.

In addition, expenses increased as a result of go-to-market initiatives, including advertising, which were partially offset by a decrease in trade shows and convention expenses as in-person events were replaced with virtual events due to COVID-19.

General and Administrative

General and administrative expense consists primarily of personnel costs for our executive, finance, human resources, legal, and information technology organizations, and professional services costs, which consist primarily of legal, auditing, accounting, and other consulting costs.

consulting costs.

General and administrative expense also includes certain non-recurring general expenses and impairment losses.

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Number of employees at period end 1,150 874 276 31.6 % 874 804 70 8.7 %

874 804 70 8.7 % 804 668 136 20.4 %

General and administrative expenses increased for fiscal 2020 compared to fiscal 2019 primarily due to personnel costs, which grew $21.3 million to $195.1 million for fiscal 2020 compared to fiscal 2019, due primarily to headcount growth, and partially offset by a decrease in stock based compensation expense related to accelerated vesting of certain equity awards in connection with business acquisitions.

The remaining increase in general and administrative expense was primarily due to increases in other costs to support our business growth, partially offset by a net decrease in facility exit related charges.

General and administrative expenses increased for fiscal 2021 compared to fiscal 2020 primarily due to personnel costs, which grew $48.9 million to $244.0 million for fiscal 2021 compared to fiscal 2020, due primarily to an increase in share-based compensation expense related to accelerated vesting of certain equity awards in connection with our acquisitions and headcount growth.

Other increases included increased professional services expense to support our business growth.

Interest Expense

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Interest expense $ 163.3 $ 88.7 $ 74.6 84.1 % $ 88.7 $ 83.9 $ 4.8 5.7 %

Interest expense increased for fiscal 2020 compared to fiscal 2019 due to the issuance of our 2025 Notes during fiscal 2020, partially offset by a decrease due to conversions of our 2019 Notes before and upon maturity in July 2019.

Interest expense increased for fiscal 2021 compared to fiscal 2020 due to the issuance of our 2025 Notes in the fourth quarter of fiscal 2020.

Refer to Note 10.

Debt in Part II, Item 8 of this Annual Report on Form 10-K for more information on our series of Notes.

Debt in Part II, Item 8 of this Annual Report on Form 10-K for more information on our series of convertible senior notes.

Other Income, Net

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Other income, net $ 2.4 $ 35.9 $ (33.5) (93.3) % $ 35.9 $ 63.4 $ (27.5) (43.4) %

Other income, net decreased for fiscal 2020 compared to fiscal 2019 primarily driven by lower interest income earned on our investments.

Other income, net decreased for fiscal 2021 compared to fiscal 2020 primarily due to lower interest income earned on our cash, cash equivalent, and investment balances as a result of lower interest rates for fiscal 2021 compared to fiscal 2020.

Provision for Income Taxes

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In recent years, we reorganized our corporate structure and intercompany relationships to more closely align with the international nature of our business activities.

Our corporate structure has caused, and may

continue to cause, disproportionate relationships between our overall effective tax rate and other jurisdictional measures.

To the extent we revisit our corporate structure, it may have an impact on our tax provision.

Our corporate structure has caused, and may continue to cause, disproportionate relationships between our overall effective tax rate and other jurisdictional measures.

To the extent

we revisit our corporate structure, it may have an impact on our tax provision.

Year Ended July 31, Year Ended July 31,

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We recorded an income tax provision for fiscal 2021.

The provision for income taxes for fiscal 2020 was primarily due to income taxes in profitable foreign jurisdictions and foreign withholding taxes.

Our provision for income taxes increased for fiscal 2020 compared to fiscal 2019, due to an increase in foreign income as a result of increased business operations and withholding taxes from an increase in billings in the relevant jurisdictions.

We also had a change in our valuation allowance related to acquisitions completed during fiscal 2019.

The provision for income taxes for fiscal 2021 was primarily due to income taxes in profitable foreign jurisdictions and withholding taxes.

Our provision for income taxes slightly decreased for fiscal 2021 compared to fiscal 2020, primarily due to changes in our valuation allowances.

Refer to Note 15.

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Upon conversion of the Notes of a series, we will pay cash equal to the aggregate principal amount of the Notes of such series to be converted, and, at our election, will pay or deliver cash and/or shares of our common stock for the amount of our conversion obligation in excess of the aggregate principal amount of the Notes of such series being converted.

As of July 31, 2020, all of our 2023 Notes and 2025 Notes remained outstanding.

The sale price condition was met for the 2023 Notes during the fiscal quarter ended July 31, 2021, and as a result, holders may convert their 2023 Notes at any time during the fiscal quarter ending October 31, 2021.

We believe that our cash provided by operating activities, together with our existing cash, cash equivalents and investments will be sufficient to meet our anticipated cash needs should the holders choose to convert their 2023 Notes during the fiscal quarter ending October 31, 2021.

As of July 31, 2021, substantially all of our 2023 Notes and 2025 Notes remained outstanding.

Refer to Note 10.

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Debt in Part II, Item 8 of this Annual Report on Form 10-K for more information on the Credit Agreement.

In February 2019, our board of directors authorized a $1.0 billion share repurchase program.

In February 2019, our board of directors authorized a $1.0 billion share repurchase program, and, in December 2020, our board of directors authorized a $700.0 million increase to our share repurchase program, bringing the total authorization to $1.7 billion (our “current authorization”).

As of July 31, 2021, $323.9 million remained available for future share repurchases under this current authorization.

On August 17, 2021, our board of directors authorized another $676.1 million increase to our current authorization, bringing the total remaining authorization for future share repurchases to $1.0 billion.

Repurchases will be funded from available working capital and may be made at management’s discretion from time to time.

This repurchase program will expire on December 31, 2020 and may be suspended or discontinued at any time.

As of July 31, 2020, $801.9 million remained available for future share repurchases under the repurchase authorization.

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 in addition to our $1.0 billion share repurchase program that our board of directors authorized in February 2019.

The expiration date of our current authorization was extended to December 31, 2022, and this program may be suspended or discontinued at any time.

During fiscal 2020, we completed the ASR transaction with an aggregate of 5.2 million shares of our common stock repurchased and retired.

Refer to Note 13.

Stockholders’ Equity in Part II, Item 8 of this Annual Report on Form 10-K for information on the repurchase programs.

Stockholders’ Equity in Part II, Item 8 of this Annual Report on Form 10-K for information on these repurchase programs.

The following table summarizes our cash flows for the years ended July 31, 2021, 2020, and 2019:

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Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the effects of COVID-19 and other risks detailed in Part I, Item 1A “Risk Factors” in this Form 10-K.

We believe that our cash flow from operations with existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for the foreseeable future.

We believe that our cash flow from operations with existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months and thereafter for the foreseeable future.

Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products and subscription and support offerings, the costs to acquire or invest in complementary businesses and technologies, the costs to ensure access to adequate manufacturing capacity, the investments in our infrastructure to support the adoption of our cloud-based subscription offerings, the investments in our new corporate headquarters, the continuing market acceptance of our products and subscription and support offerings and macroeconomic events such as COVID-19.

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Our operating activities have consisted of net losses adjusted for certain non-cash items and changes in assets and liabilities.

Cash provided by operating activities during fiscal 2020 was $1.0 billion , a slight decrease of $19.9 million compared to fiscal 2019.

The decrease was primarily due to higher cash expenditure during fiscal 2020.

The decrease was partially offset by growth of our business, as reflected by an increase in billings during fiscal 2020, and repayments of the 2019 Notes attributable to the debt discount during fiscal 2019.

Cash provided by operating activities during fiscal 2021 was $1.5 billion , an increase of $467.3 million compared to fiscal 2020.

The increase was primarily due to growth of our business as reflected by an increase in billings, and an increase in collections during fiscal 2021, partially offset by higher cash expenditure to support our business growth.

Investing Activities

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We expect to continue such activities as our business grows.

Cash provided by investing activities during fiscal 2020 was $288.0 million, a change of $2.1 billion compared to fiscal 2019.

The change was primarily due to lower purchases of investments, a decrease in net cash payments for business acquisitions and higher proceeds from maturities and sales of investments during fiscal 2020.

Cash used in investing activities during fiscal 2021 was $1.5 billion, a net change of $1.8 billion compared to cash provided by investing activities of $288.0 million in fiscal 2020.

The change was primarily due to a decrease in proceeds from maturities and sales of investments and higher purchases of investments during fiscal 2021.

Financing Activities

Our financing activities have consisted of net proceeds from the issuance of the 2025 Notes and related transactions, repayments of the 2019 Notes, proceeds from sales of shares through employee equity incentive plans, cash used to repurchase shares of our common stock, and payments for tax withholding obligations of certain employees related to the net share settlement of equity awards.

Cash provided by financing activities during fiscal 2020 was $673.0 million, an increase of $1.4 billion compared to fiscal 2019.

The change was primarily due to net proceeds of $1.8 billion from the issuance of our 2025 Notes, issuance of warrants, and purchase of note hedges, partially offset by an increase in repurchases of our common stock during fiscal 2020.

Our financing activities have consisted of proceeds from sales of shares through employee equity incentive plans, cash used to repurchase shares of our common stock, and payments for tax withholding obligations of certain employees related to the net share settlement of equity awards.

Cash used in financing activities during fiscal 2021 was $1.1 billion, a net change of $1.8 billion compared to cash provided by financing activities of 673.0 million in fiscal 2020.

The change was primarily due to net proceeds of $1.8 billion from the issuance of our 2025 Notes, issuance of warrants, and purchase of note hedges during fiscal 2020 .

Contractual Obligations and Commitments

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Payments Due by Period

Total Less Than 1

Year 1-3 Years 3-5 Years More Than 5

Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years

(in millions)

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis