What changed in this filing

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Item 1A. Risk Factors

2022-05-20 compared with 2022-02-23 · 93 added, 88 removed, 729 unchanged (20% of the section changed)

15 unchanged sentences

• 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.

• A security breach or 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.

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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 continued through the second quarter of fiscal 2022 and may continue into future quarters.

Through our FLEXWORK program, our employees may choose to work from home or in the office for a set number of days per week.

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.

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As a result, our employee headcount has increased significantly, and we expect it to continue to grow over the next year.

For example, from the end of fiscal 2021 to the end of the second quarter of fiscal 2022, our headcount increased from 10,473 to 11,527 employees.

For example, from the end of fiscal 2021 to the end of the third quarter of fiscal 2022, our headcount increased from 10,473 to 11,870 employees.

In addition, as we have grown, our number of end-customers has also increased significantly, and we have increasingly managed more complex deployments of our products and subscriptions with larger end-customers.

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• changes in the mix of our products, subscriptions, and support, including changes in multi-year subscriptions and support;

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

• our ability to successfully and continuously expand our business domestically and internationally, particularly in the current global economic slowdown and the escalation of military conflicts such as Russia’s invasion of Ukraine;

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

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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 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;

• political, economic, and social instability caused by the United Kingdom’s exit from the European Union (“Brexit”), Russia’s invasion of Ukraine, 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 increased risk of inflation and global economic uncertainty due to the continuing effects of COVID-19.

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In addition, the instability in the global credit markets, shortages and delays related to the global supply chain challenges, 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.

Military actions or armed conflict, including Russia’s invasion of Ukraine and any related political or economic responses and counter-responses, and uncertainty about or changes in government and trade relationships, policies, and treaties could also adversely affect our business.

In response to Russia’s invasion of Ukraine, the United States, along with the European Union, has imposed restrictive sanctions on Russia, Russian entities, and Russian citizens (“Sanctions on Russia”).

We are subject to these governmental sanctions and export controls, which may subject us to liability if we are not in full compliance with applicable laws.

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, increased costs for the chips and components to manufacture our products, and increased price competition.

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

We experienced revenue growth rates of 30.6% and 23.6% in the six months ended January 31, 2022 and the six months ended January 31, 2021, respectively.

We experienced revenue growth rates of 30.1% and 23.5% in the nine months ended April 30, 2022 and the nine months ended April 30, 2021, respectively.

Our revenue for any prior quarterly or annual period should not be relied upon as an indication of our future revenue or revenue growth for any future period.

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Other than fiscal 2012, we have incurred losses in all fiscal years since our inception.

As a result, we had an accumulated deficit of $1.6 billion as of January 31, 2022.

As a result, we had an accumulated deficit of $1.7 billion as of April 30, 2022.

We anticipate that our operating expenses will continue to increase in the foreseeable future as we continue to grow our business.

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If we are unable to navigate these challenges as we encounter them, our business, financial condition, and operating results may suffer.

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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.

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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

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obligation to and may not renew their subscription and support contracts after the completion of their initial contract period.

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.

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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 industry.

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

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

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security offerings.

Further, many organizations have invested substantial personnel and financial resources to design and operate their networks and have established deep relationships with other providers of networking and security products.

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Conditions in our market could change rapidly and significantly as a result of technological advancements, partnering or acquisitions by our competitors, or continuing market consolidation.

New start-up companies that innovate and large competitors that

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are making significant investments in research and development may invent similar or superior products and technologies that compete with our products and subscriptions.

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.

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Increasingly, companies are subject to a wide variety of attacks on their networks on an ongoing basis.

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.

The incidence of cybersecurity breaches have increased.

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 supply chain attacks) and add to the risks to our internal networks, cloud-deployed enterprise and customer facing environments and the information they store and process.

Incidences of cyberattacks and other sources of cybersecurity breaches and incidents have increased and are likely to continue to increase.

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

We and our third-party service providers may face security threats and attacks from a variety of sources.

Our data, corporate systems, third-party systems and security measures may be breached due to the actions of outside parties, employee error, malfeasance, a combination of these, or otherwise, and, as a result, an unauthorized party may obtain access to our data.

Our data, corporate systems, third-party systems and security measures may be breached or otherwise compromised due to the actions of outside parties, employee error, malfeasance, a combination of these, or otherwise, and, as a result, an unauthorized party may obtain access to our or our third-party service providers’ systems, networks, and data.

Furthermore, as a well-known provider of security solutions, we may be a more attractive target for such attacks.

A breach in our data security or an attack against our service availability, or that of our third-party service providers, could impact our networks or networks secured by our products and subscriptions, creating system disruptions or slowdowns and exploiting security vulnerabilities of our products, and the information stored on our networks or those of our third-party service providers could be accessed, publicly disclosed, altered, lost, or stolen, which could subject us to liability and cause us financial harm.

Although we have not yet experienced significant damages from unauthorized access by a third party of our internal network, any actual or perceived breach of network security in our systems or networks, or any other actual or perceived data security incident we or our third-party service providers suffer, could result in damage to our reputation, negative publicity, loss of channel partners, end-customers and sales, loss of competitive advantages over our competitors, increased costs to remedy any problems and otherwise respond to any incident, regulatory investigations and enforcement actions, costly litigation, and other liability.

In addition, we may incur significant costs and operational consequences of investigating, remediating, eliminating and putting in place additional tools and devices designed to prevent actual or perceived security breaches and other security incidents, as well as the costs to comply with any notification obligations resulting from any security incidents.

The conflict in Ukraine and associated activities in Ukraine and Russia may increase the risk of cyberattacks on various types of infrastructure and operations, and the United States government has warned companies to be prepared for a significant increase in Russian cyberattacks in response to the Sanctions on Russia.

A security breach or incident or an attack against our service availability suffered by us or our third-party service providers could impact our networks or networks secured by our products and subscriptions, creating system disruptions or slowdowns and exploiting security vulnerabilities of our products, and the information stored or otherwise processed on our networks or those of our third-party service providers could be accessed, publicly disclosed, altered, lost, stolen, rendered unavailable, or otherwise used or processed without authorization, which could subject us to liability and cause us financial harm.

Although we have not yet experienced significant damages from unauthorized access by a third party of our internal network, any actual or perceived breach of security in our systems or networks, or any other actual or perceived data security incident we or our third-party service providers suffer, could result in significant damage to our reputation, negative publicity, loss of channel partners, end-customers and sales, loss of competitive advantages over our competitors, increased costs to remedy any problems and otherwise respond to any incident, regulatory investigations and enforcement actions, demands, costly litigation, and other liability.

In addition, we may incur significant costs and operational consequences of investigating, remediating, eliminating and putting in place additional tools, devices, and other measures designed to prevent actual or perceived security breaches and other security incidents, as well as the costs to comply with any notification obligations resulting from any security incidents.

While we maintain cybersecurity insurance, our insurance may be insufficient to cover all liabilities incurred by these incidents, and any incidents may result in loss of, or increased costs of, our cybersecurity insurance.

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As a result of end-customer buying patterns and the efforts of our sales force and channel partners to meet or exceed their sales objectives, we have historically received a substantial portion of sales orders and generated a substantial portion of revenue during the last few weeks of each fiscal quarter.

If expected revenue at the end of any fiscal quarter is delayed for any reason, including the failure of anticipated purchase orders to materialize (particularly for large enterprise end-customers with lengthy sales cycles), our logistics partners’ inability to ship products prior to fiscal quarter-end to fulfill purchase orders received near the end of a fiscal quarter (including due to the effects of COVID-19), our failure to manage inventory to meet demand, any failure of our systems related to order review and processing, or any delays in shipments based on trade compliance requirements (including new compliance requirements imposed by new or renegotiated trade agreements), revenue could fall below our expectations and the estimates of analysts for that quarter, which could adversely impact our business and operating results and cause a decline in the market price of our common stock.

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our common stock.

Seasonality may cause fluctuations in our revenue.

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• our sales compensation plans, which are typically structured around annual quotas and commission rate accelerators, which potentially results in a positive impact on our revenue in our fourth fiscal quarter;

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• seasonal reductions in business activity during August in the United States, Europe and certain other regions, which potentially results in a negative impact on our first fiscal quarter revenue;

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• increased purchasing power and leverage held by large end-customers in negotiating contractual arrangements with us;

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• more stringent requirements in our worldwide support contracts, including stricter support response times and penalties for any failure to meet support requirements;

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

If we fail to realize an expected sale

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from a large end-customer in a particular quarter or at all, our business, operating results, and financial condition could be materially and adversely affected.

If we fail to realize an expected sale from a large end-customer in a particular quarter or at all, our business, operating results, and financial condition could be materially and adversely affected.

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.

Subscription and support revenue accounts for a significant portion of our revenue, comprising 76.5% of total revenue in the six months ended January 31, 2022 and 74.9% of total revenue in the six months ended January 31, 2021.

Subscription and support revenue accounts for a significant portion of our revenue, comprising 75.8% of total revenue in the nine months ended April 30, 2022 and 74.3% of total revenue in the nine months ended April 30, 2021.

Sales of new or renewal subscription and support contracts may decline and fluctuate as a result of a number of factors, including end-customers’ level of satisfaction with our products and subscriptions (including newly integrated products and services), the prices of our products and subscriptions, the prices of products and services offered by our competitors, and reductions in our end-customers’ spending levels.

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Because the techniques used by computer hackers to access or sabotage networks change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques and provide a solution in time to protect our end-customers’ networks.

In addition, due to the Russian invasion there could be a significant increase in Russian cyberattacks against our customers, resulting in an increased risk of a security breach of our end-customers’ systems.

Furthermore, as a well-known provider of security solutions, our networks, products, including cloud-based technology, and subscriptions could be targeted by attacks specifically designed to disrupt our business and harm our reputation.

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• delayed or lost revenue;

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• delay or failure to attain market acceptance;

• an increase in warranty claims compared with our historical experience, or an increased cost of servicing warranty claims, either of which would adversely affect our gross margins;

• litigation, regulatory inquiries, or investigations, each of which may be costly and harm our reputation.

• litigation, regulatory inquiries, investigations, or other proceedings, each of which may be costly and harm our reputation.

Further, our products and subscriptions may be misused by end-customers or third parties that obtain access to our products and subscriptions.

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The sale and support of our products and subscriptions also entails the risk of product liability claims.

Although we may be

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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.

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.

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For example, organizations are moving portions of their data to be managed by third parties, primarily infrastructure, platform and application service providers, and may rely on such providers’ internal security measures.

In 2019, we announced our new cloud security offerings, for securing access to the cloud (Prisma), and for securing the future of security operations (Cortex).

While we have historically been successful in developing, acquiring, and marketing new products and product enhancements that respond to technological change and evolving industry standards, we may not be able to continue to do so and there can be no assurance that our new or future offerings will be successful or will achieve widespread market acceptance.

While we have historically been successful in developing, acquiring, and

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marketing new products and product enhancements that respond to technological change and evolving industry standards, we may not be able to continue to do so and there can be no assurance that our new or future offerings will be successful or will achieve widespread market acceptance.

If we fail to accurately predict end-customers’ changing needs and emerging technological trends in the enterprise security industry, including in the areas of mobility, virtualization, cloud computing, and software defined networks (“SDN”), our business could be harmed.

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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

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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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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.

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

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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.

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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

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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

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

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

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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 has disrupted or delayed our scheduled product deliveries to our end-customers and could result in the loss of sales and end-customers.

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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.

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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.

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Additionally, our international sales and operations are subject to a number of risks, including the following:

• political, economic and social uncertainty around the world, health risks such as epidemics and pandemics like COVID-19, macroeconomic challenges in Europe, terrorist activities, and continued hostilities in the Middle East;

• greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods;

• the uncertainty of protection for intellectual property rights in some countries;

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• greater risk of unexpected changes in foreign and domestic regulatory practices, tariffs, and tax laws and treaties, including regulatory and trade policy changes adopted by the current administration or foreign countries in response to regulatory changes adopted by the current administration;

• greater risk of unexpected changes in foreign and domestic regulatory practices, tariffs, and tax laws and treaties, including regulatory and trade policy changes adopted by the current administration, such as the recently imposed Sanctions on Russia, or foreign countries in response to regulatory changes adopted by the current administration;

• risks associated with trade restrictions and foreign legal requirements, including the importation, certification, and localization of our products required in foreign countries;

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In addition, increased international sales in the future, including through our channel partners and other partnerships, may result in greater foreign currency denominated sales, increasing our foreign currency risk.

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Our operating expenses incurred outside the United States and denominated in foreign currencies are increasing and are subject to fluctuations due to changes in foreign currency exchange rates.

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We have entered into forward contracts in an effort to reduce our foreign currency exchange exposure related to our foreign currency denominated expenditures.

As of January 31, 2022, the total notional amount of our outstanding foreign currency forward contracts was $584.4 million.

As of April 30, 2022, the total notional amount of our outstanding foreign currency forward contracts was $886.7 million.

For more information on our hedging transactions, refer to Note 6.

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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

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and maintain reserves we believe are adequate to cover exposure for doubtful accounts to mitigate credit risks of these 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.

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A material portion of our sales is derived through our distributors.

For the six months ended January 31, 2022, three distributors individually represented 10% or more of our total revenue, and in the aggregate represented 54.4% of our total revenue.

As of January 31, 2022, four distrib utors individually represented 10% or more of our gross accounts receivable, and in the aggregate represented 53.9% of our gross accounts receivable.

For the nine months ended April 30, 2022, three distributors individually represented 10% or more of our total revenue, and in the aggregate represented 53.9% of our total revenue.

As of April 30, 2022, four distrib utors individually represented 10% or more of our gross accounts receivable, and in the aggregate represented 57.1% 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 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, subscriptions and support offerings to the U.S.

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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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If we or our channel partners do not effectively assist our end-customers in deploying our products and subscriptions, succeed in helping our end-customers quickly resolve post-deployment issues, or provide effective ongoing support, our ability to sell additional products and subscriptions to existing end-customers would be adversely affected and our reputation with potential end-customers could be damaged.

While we have been able to meet increased demand for support services in the six months ended January 31, 2022, failure to do so in the future could have a material adverse effect on our business.

While we have been able to meet increased demand for support services in the nine months ended April 30, 2022, failure to do so in the future could have a material adverse effect on our business.

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

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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.

It can take several

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months to recruit, hire, and train qualified technical support employees.

It can take several months to recruit, hire, and train qualified technical support employees.

We may not be able to hire such resources fast enough to keep up with unexpected demand, particularly if the sales of our products exceed our internal forecasts.

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Valid patents may not issue from our pending applications, and the claims eventually allowed on any patents may not be sufficiently broad to protect our technology or products and subscriptions.

We cannot be certain that we were the first to make the inventions claimed in our pending patent applications or that we were the first to file for patent protection, which could prevent our patent applications from issuing as patents or invalidate our patents following issuance.

We cannot be certain that we were the first to make the inventions claimed in our

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pending patent applications or that we were the first to file for patent protection, which could prevent our patent applications from issuing as patents or invalidate our patents following issuance.

Additionally, the process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.

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In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the United States, and many foreign countries do not enforce these laws as diligently as government agencies and private parties in the United States.

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time, we may need to take legal action to enforce our patents and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity.

From time to time, we may need to take legal action to enforce our patents and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity.

Such litigation could result in substantial costs and diversion of resources and could negatively affect our business, operating results, and financial condition.

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In addition, some licenses may be non-exclusive, and therefore our competitors may have access to the same technology licensed to us.

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Some of our agreements with our licensors may be terminated for convenience by them.

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A wide variety of provincial, state, national, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data.

These data protection and privacy-related laws and regulations

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are evolving and being tested in courts and may result in ever-increasing regulatory and public scrutiny, as well as escalating levels of enforcement and sanctions.

These data protection and privacy-related laws and regulations are evolving and being tested in courts and may result in ever-increasing regulatory and public scrutiny, as well as escalating levels of enforcement and sanctions.

Further, the interpretation and application of foreign laws and regulations in many cases is uncertain, and our legal and regulatory obligations in foreign jurisdictions are subject to frequent and unexpected changes, including the potential for various regulatory or other governmental bodies to enact new or additional laws or regulations, to issue rulings that invalidate prior laws or regulations, or to increase penalties significantly.

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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, 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”).

Further, in June 2021, the European Commission issued new standard contractual clauses that we will need to enter into with our customers, which will result in increased costs and resources to manage the process.

The regulatory environment applicable to the handling of EEA residents’ personal data, and our actions taken in response, may cause us to assume additional liabilities or incur additional costs and could result in our business, operating results and financial condition being harmed.

Additionally, we and our customers may face a risk of enforcement actions by data protection authorities in the EEA relating to personal data transfers to us and by us from the EEA.

Among other effects, we may experience additional costs associated with increased compliance burdens, putting in place any additional data transfer mechanisms 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 customers in the European Economic Area (“EEA”), Switzerland, and the U.K.

(collectively, “Europe”) 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 Europe.

Further, in June 2021, the European Commission issued new standard contractual clauses under the E.U.

GDPR, and the U.K.

adopted new standard contractual clauses that became effective in March 2022.

We will need to enter into both sets of these standard contractual clauses with our customers and other third parties, as applicable, which will result in additional contractual negotiations and increased costs and resources to manage the process.

The regulatory environment applicable to the handling of European residents’ personal data, and our actions taken in response, may cause us to assume additional liabilities or incur additional costs and could result in our business, operating results and financial condition being harmed.

Additionally, we and our customers may face risk of enforcement actions by data protection authorities in Europe relating to personal data transfers to us and by us from Europe.

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.

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

The CCPA has been amended on multiple occasions and the California Attorney General has issued initial and revised regulations that also govern the CCPA.

The CCPA has been amended on multiple occasions and the California Attorney General has issued initial and

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revised regulations that also govern the CCPA.

It remains unclear how this legislation 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, additional state-based privacy laws have been passed and will require potentially substantial efforts to obtain compliance.

Moreover, additional state 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.

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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

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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.

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Changes in our products or changes in export and import regulations may create delays in the introduction of our products into international markets, prevent our end-customers with international operations from deploying our products globally or, in some cases, prevent or delay the export or import of our products to certain countries, governments, or persons altogether.

Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential end-customers with international operations.

Any change in export or import regulations, economic sanctions, such as the Sanctions on Russia, or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons, or technologies

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targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential end-customers with international operations.

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.

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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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We may have exposure to greater than anticipated tax liabilities.

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Failure to comply with governmental laws and regulations could harm our business.

Our business is subject to regulation by various federal, state, local, and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws, consumer protection laws, privacy and data-protection laws, anti-bribery laws (including the U.S.

Our business is subject to regulation by various federal, state, local, and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws, consumer protection laws, privacy, data security, and data-protection laws, anti-bribery laws (including the U.S.

Foreign Corrupt Practices Act and the U.K.

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If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation resulting from any alleged noncompliance, our business, operating results, and financial condition could be materially adversely affected.

In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees.

In addition, responding to any action will likely result in a significant diversion of

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management’s attention and resources and an increase in professional fees.

Enforcement actions, litigation, and sanctions could harm our business, operating results, and financial condition.

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This reengineering and component substitution could result in additional costs to us or disrupt our operations or logistics.

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The WEEE Directive requires electronic goods producers to be responsible for the collection, recycling, and treatment of such products.

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

Effective February 1, 2022 through April 30, 2022, all of the 2023 Notes and 2025 Notes are convertible.

Effective May 1, 2022 through July 31, 2022, all of the 2023 Notes and 2025 Notes are convertible.

If all of the Noteholders decided to convert their notes, we would be obligated to pay $3.7 billion to the Noteholders.

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We are not restricted under the terms of the indenture governing our Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that are not limited by the terms of such indenture governing our Notes that could have the effect of diminishing our ability to make payments on our Notes when due.

While the terms of any future indebtedness we may incur could restrict our ability to incur additional indebtedness, any such restrictions will indirectly benefit holders of our Notes only to the extent any such indebtedness or credit facility is not repaid or does not mature while our Notes are outstanding.

While the terms of any future indebtedness we may incur could restrict our ability to incur additional

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indebtedness, any such restrictions will indirectly benefit holders of our Notes only to the extent any such indebtedness or credit facility is not repaid or does not mature while our Notes are outstanding.

Risks Related to Our Common Stock

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The rapidly evolving market in which we operate may make it difficult to evaluate our current business and our future prospects, including our ability to plan for and model future growth.

We intend to state possible outcomes as high and low ranges

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which are intended to provide a sensitivity analysis as variables are changed.

We intend to state possible outcomes as high and low ranges which are intended to provide a sensitivity analysis as variables are changed.

However, actual results will vary from our guidance and the variations may be material.

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The market price of our common stock has been volatile since our initial public offering (“IPO”) in July 2012.

The reported high and low sales prices of our common stock during the last 12 months have ranged from $311.56 to $572.67, as measured through February 14, 2022.

The reported high and low sales prices of our common stock during the last 12 months have ranged from $322.23 to $640.90, as measured through May 12, 2022.

The market price of our common stock may fluctuate widely in response to various factors, some of which are beyond our control.

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• sales or repurchases of large blocks of our common stock or substantial future sales by our directors, executive officers, employees and significant stockholders;

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• sales of our common stock by investors who view our Notes as a more attractive means of equity participation in us;

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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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The Warrants could separately have a dilutive effect to the extent that the market price per share of our common stock exceeds the applicable strike price of the Warrants unless, subject to certain conditions, we elect to cash settle such Warrants.

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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.

As of January 31, 2022, we had $450.0 million available under our share repurchase program, which will expire on December 31, 2022.

As of April 30, 2022, we had $450.0 million available under our share repurchase program, which will expire on December 31, 2022.

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

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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.

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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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• specify that special meetings of our stockholders may be called only by the chairman of our board of directors, our president, our secretary, or a majority vote of our board of directors;

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incorporation relating to the issuance of preferred stock and management of our business or our amended and restated bylaws;

• require the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the issuance of preferred stock and management of our business or our amended and restated bylaws;

• authorize our board of directors to amend our bylaws by majority vote;

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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.

Current and future indebtedness may also contain terms that,

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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.

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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.

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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-Q

Item 1A. Risk Factors