What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-09-01 compared with 2022-09-06 · 106 added, 151 removed, 338 unchanged (43% of the section changed)

6 unchanged sentences

• Key Financial Metrics.

A summary of our GAAP and non-GAAP key financial metrics, which management monitors to evaluate our performance.

A summary of our U.S.

GAAP and non-GAAP key financial metrics, which management monitors to evaluate our performance.

• Results of Operations.

4 unchanged sentences

An analysis of changes on our balance sheets and cash flows, and a discussion of our financial condition and our ability to meet cash needs.

• Contractual Obligations and Commitments.

An overview of our contractual obligations, contingent liabilities, commitments, and off-balance sheet arrangements outstanding as of July 31, 2022, including expected payment schedules.

• Critical Accounting Estimates.

A discussion of our accounting policies that require critical estimates, assumptions, and judgments.

• Recent Accounting Pronouncements.

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

We empower enterprises, organizations, service providers, and government entities to protect themselves against today’s most sophisticated cyber threats.

Our cybersecurity platforms and services help secure enterprise users, networks, clouds, and endpoints by delivering comprehensive cybersecurity backed by industry-leading artificial intelligence and automation.

We are a leading provider of zero trust solutions that start with the next-generation of zero trust network access to secure remote workforces and extend into securing all users, applications and infrastructure with zero trust principles.

We are a leading provider of zero trust solutions, starting with next-generation zero trust network access to secure today’s remote hybrid workforces and extending to securing all users, applications, and infrastructure with zero trust principles.

Our security solutions are designed to reduce customers’ total cost of ownership by improving operational efficiency and eliminating the need for siloed point products.

Our company focuses on delivering value in five fundamental areas:

Our company focuses on delivering value in four fundamental areas:

Network Security:

• Our network security platform, which includes 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, has been a leader in the industry for ten consecutive years.

Our network security platform also includes our Cloud-Delivered Security Services, such as Threat Prevention, Advanced Threat Prevention, WildFire ® , Advanced URL Filtering, DNS Security, IoT Security, GlobalProtect™, SD-WAN, Enterprise Data Loss Prevention (“Enterprise DLP”), SaaS Security API and SaaS Security Inline.

Through these add-on security services, our customers are able to secure their content, applications, users, and devices across our network security platform as well as the Prisma ® and Cortex ® product lines.

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

Secure Access Service Edge:

• Prisma Access is our next-generation Zero Trust Network Access (“ZTNA”) platform that provides secure network access for all employees with unified policy management and continuous threat inspection.

We have recently introduced ZTNA 2.0, which addresses major shortcomings in the first-generation ZTNA products in the industry (which we refer to as ZTNA 1.0).

Prisma Access delivers granular least-privileged access along with continuous trust verification and security inspection and protects security for all applications and data across the enterprise infrastructure.

Prisma Access, when combined with Prisma SD-WAN, provides a comprehensive single-vendor Secure Access Service Edge (“SASE”) offering that is used to secure remote workforces and enable the cloud-delivered branch.

• Our network security platform, designed to deliver complete zero trust solutions to our customers, includes our hardware and software ML-Powered Next-Generation Firewalls, as well as a cloud-delivered Secure Access Service Edge (“SASE”).

Prisma ® Access, our Security Services Edge (“SSE”) solution, when combined with Prisma SD-WAN, provides a comprehensive single-vendor SASE offering that is used to secure remote workforces and enable the cloud-delivered branch.

We have been recognized as a leader in network firewalls, SSE, and SD-WAN.

Our network security platform also includes our cloud-delivered security services, such as Advanced Threat Prevention, Advanced WildFire ® , Advanced URL Filtering, DNS Security, IoT/OT Security, GlobalProtect ® , Enterprise Data Loss Prevention (“Enterprise DLP”), Artificial Intelligence for Operations (“AIOps”), SaaS Security API, and SaaS Security Inline.

Through these add-on security services, our customers are able to secure their content, applications, users, and devices across their entire organization.

Panorama ® , our network security management solution, can centrally manage our network security platform irrespective of form factor, location, or scale.

Cloud Security:

• We enable cloud-native security through our Prisma Cloud platform.

As a comprehensive Cloud Native Application Protection Platform (“CNAPP”), Prisma Cloud secures hybrid and multi-cloud environments for applications, data, and the entire cloud native technology stack across the full development lifecycle;

As a comprehensive Cloud Native Application Protection Platform (“CNAPP”), Prisma Cloud secures multi- and hybrid-cloud environments for applications, data, and the entire cloud native technology stack across the full development lifecycle;

from code to runtime.

1 unchanged sentence

Security Operations:

• We deliver 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.

• We deliver the next generation of security automation, security analytics, endpoint security, and attack surface management solutions through our Cortex portfolio.

These include Cortex XSIAM, our AI security automation platform, Cortex XDR ® for the prevention, detection, and response to complex cybersecurity attacks on the endpoint, Cortex XSOAR ® for security orchestration, automation, and response (“SOAR”), and Cortex Xpanse TM for attack surface management (“ASM”).

These products are delivered as SaaS or software subscriptions.

Threat Intelligence and Security Consulting (Unit 42):

• We enable 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.

• Unit 42 brings together world-renowned threat researchers with an elite team of incident responders and security consultants to create an intelligence-driven, response-ready organization to help customers proactively manage cyber risk.

Our consultants serve as trusted advisors to our customers by assessing and testing their security controls against the right threats, transforming their security strategy with a threat-informed approach, and responding to security incidents on behalf of our clients.

For fiscal 2023 and 2022, total revenue was $6.9 billion and $5.5 billion, respectively, representing year-over-year growth of 25.3%.

2 unchanged sentences

As of July 31, 2023, we had end-customers in over 180 countries.

Our end-customers represent a broad range of industries, including education, energy, financial services, government entities, healthcare, Internet and media, manufacturing, public sector, and telecommunications, and include almost all of the Fortune 100 companies and a majority of the Global 2000 companies in the world.

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

1 unchanged sentence

Our product revenue grew to $1.6 billion or 22.9% of total revenue for fiscal 2023, representing year-over-year growth of 15.8%.

Product revenue is primarily 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.

Product revenue is derived from sales of our appliances, primarily our ML-Powered Next-Generation Firewall.

Product revenue also includes revenue derived from software licenses of Panorama, SD-WAN, and the VM-Series.

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 appliances and software licenses include a broad set of built-in networking and security features and functionalities.

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.

7 unchanged sentences

During fiscal 2023, we introduced several new offerings, including:

Prisma Cloud 3.0, Prisma Access 3.0, AIOps for NGFW, PAN-OS 10.2, and Cloud NGFW for AWS.

Cortex XSIAM 1.0, major updates to Prisma Cloud (including three new security modules), Prisma Access 4.0, PAN-OS 11.0, Cloud NGFW for AWS, and Cloud NGFW for Azure.

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

For example, in December 2022, we acquired Cider, which we expect will support our Prisma Cloud’s platform approach to securing the entire application security lifecycle from code to cloud.

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.

2 unchanged sentences

For additional information regarding the challenges and risks we face, see the “Risk Factors” section in Part I, Item 1A of this Annual Report on Form 10-K.

Impact of COVID-19 and Other Macroeconomic Factors on Our Business

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 significant global, social, and business disruption.

While we instituted a global work-from-home policy beginning in March 2020, which has been modified to provide employees with the choice to work in our offices for a set number of days per week or completely remotely, we did not experience significant disruption in our work operations during fiscal 2022.

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 working remotely.

COVID-19 has affected 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.

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 and its 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.

The global supply chain and the semiconductor industry are experiencing significant challenges.

We have seen supply chain challenges increase, including chip and component shortages, which have, in certain cases, caused delays for us in acquiring chips, components and inventory and have resulted in increased costs as compared to historic levels.

While we incurred increased costs and experienced increased lead time for certain product deliveries to our end-customers, we continue to work to minimize the effects from supply chain challenges.

In addition, our overall performance depends in part on worldwide economic and geopolitical conditions.

Worsening economic conditions, including inflation, higher interest rates, fluctuations in foreign exchange rates and other changes in economic conditions, may adversely affect our financial performance.

Impact of Macroeconomic Developments and Other Factors on Our Business

Our overall performance depends in part on worldwide economic and geopolitical conditions and their impact on customer behavior.

Worsening economic conditions, including inflation, higher interest rates, slower growth, fluctuations in foreign exchange rates, and other conditions, may adversely affect our results of operations and financial performance.

We continue to experience supply chain disruption and incur increased costs resulting from inflationary pressures.

We are monitoring the tensions between China and Taiwan, and between the U.S.

and China, which could have an adverse impact on our business or results of operations in future periods.

Key Financial Metrics

We monitor the key financial metrics set forth in the tables below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies.

We discuss revenue, gross margin, and the components of operating loss and margin below under “Results of Operations.”

We discuss revenue, gross margin, and the components of operating income (loss) and margin below under “Results of Operations.”

(in millions)

7 unchanged sentences

Gross margin 72.3 % 68.8 % 70.0 %

Operating loss $ (188.8) $ (304.1) $ (179.0)

Operating income (loss) $ 387.3 $ (188.8) $ (304.1)

Operating margin 5.6 % (3.4) % (7.1) %

9 unchanged sentences

We consider billings to be a key metric used by management to manage our business.

We believe billings provides investors with an important indicator of the health and visibility of our business because it includes subscription and support revenue, which is recognized ratably over the contractual service period, and product revenue, which is recognized at the time of shipment, provided that all other conditions for revenue recognition have been met.

We believe billings provides investors with an important indicator of the health and visibility of our business because it includes subscription and support revenue, which is recognized ratably over the contractual service period, and product revenue, which is recognized at the time of hardware shipment or delivery of software license, provided that all other conditions for revenue recognition have been met.

We consider billings to be a useful metric for management and investors, particularly if we continue to experience increased sales of subscriptions and strong renewal rates for subscription and support offerings, and as we monitor our near-term cash flows.

6 unchanged sentences

change in total deferred revenue, net of acquired deferred revenue

2,301.7 1,970.0 1,196.1

Billings $ 9,194.4 $ 7,471.5 $ 5,452.2

2 unchanged sentences

Our cash flow provided by operating activities is driven in large part by sales of our products and from up-front payments for subscription and support offerings.

Monitoring cash flow provided by operating activities enables us to analyze our financial performance without the non-cash effects of certain items such as depreciation, amortization, and share-based compensation costs, thereby allowing us to better understand and manage the cash needs of our business.

Monitoring cash flow provided by operating activities enables us to analyze our financial performance without the non-cash effects of certain items such as share-based compensation costs, depreciation and amortization, thereby allowing us to better understand and manage the cash needs of our business.

• Free Cash Flow (non-GAAP).

3 unchanged sentences

In addition, it is important to note that other companies, including companies in our industry, may not use free cash flow, may calculate free cash flow in a different manner than we do, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of free cash flow as a comparative measure.

A reconciliation of free cash flow to cash flow provided by operating activities, the most directly comparable financial measure calculated and presented in accordance with GAAP, is provided below:

A reconciliation of free cash flow to cash flow provided by operating activities, the most directly comparable financial measure calculated and presented in accordance with U.S.

GAAP, is provided below:

Year Ended July 31,

5 unchanged sentences

Free cash flow (non-GAAP) $ 2,631.2 $ 1,791.9 $ 1,387.0

Net cash provided by (used in) investing activities $ (933.4) $ (1,480.6) $ 288.0

Net cash provided by (used in) financing activities $ (806.6) $ (1,104.0) $ 673.0

Net cash used in investing activities $ (2,033.8) $ (933.4) $ (1,480.6)

Net cash used in financing activities $ (1,726.3) $ (806.6) $ (1,104.0)

Results of Operations

20 unchanged sentences

4,595.7 66.7 % 3,971.6 72.2 % 3,285.3 77.1 %

Operating loss (188.8) (3.4) % (304.1) (7.1) % (179.0) (5.3) %

Operating income (loss) 387.3 5.6 % (188.8) (3.4) % (304.1) (7.1) %

Interest expense (27.2) (0.4) % (27.4) (0.5) % (163.3) (3.8) %

Other income, net 206.2 3.0 % 9.0 0.1 % 2.4 — %

Loss before income taxes (207.2) (3.8) % (465.0) (10.9) % (231.8) (6.8) %

Income (loss) before income taxes 566.3 8.2 % (207.2) (3.8) % (465.0) (10.9) %

Provision for income taxes 126.6 1.8 % 59.8 1.1 % 33.9 0.8 %

Net loss $ (267.0) (4.9) % $ (498.9) (11.7) % $ (267.0) (7.8) %

______________

Net income (loss) $ 439.7 6.4 % $ (267.0) (4.9) % $ (498.9) (11.7) %

(1) Includes share-based compensation as follows:

3 unchanged sentences

Cost of product revenue $ 9.8 $ 9.3 $ 6.2

$ 9.3 $ 6.2 $ 5.7

Cost of subscription and support revenue 123.4 110.2 93.0

110.2 93.0 77.7

Research and development 488.4 471.1 428.9

471.1 428.9 274.6

Sales and marketing 335.3 304.7 269.9

304.7 269.9 214.5

General and administrative 130.4 118.1 128.9

118.1 128.9 92.0

Total share-based compensation $ 1,087.3 $ 1,013.4 $ 926.9

3 unchanged sentences

PRODUCT REVENUE

Product revenue is derived 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.

Product revenue also includes revenue derived from software licenses of Panorama.

Product revenue is derived from sales of our appliances, primarily our ML-Powered Next-Generation Firewall.

Product revenue also includes revenue derived from software licenses of Panorama, SD-WAN, and the VM-Series.

Our appliances and software licenses include a broad set of built-in networking and security features and functionalities.

5 unchanged sentences

Product $ 1,578.4 $ 1,363.1 $ 215.3 15.8 % $ 1,363.1 $ 1,120.3 $ 242.8 21.7 %

Product revenue increased for fiscal 2022 compared to fiscal 2021 primarily due to increased demand for our new generation of products, which includes customer transition from our legacy products.

Product revenue increased for fiscal 2023 compared to fiscal 2022 driven by increased demand for our new generation of hardware products, increased software revenue primarily due to a new go-to-market strategy for certain Network Security offerings and an increased demand for our VM-Series virtual firewalls, partially offset by decreased revenue from our prior generation of hardware products.

SUBSCRIPTION AND SUPPORT REVENUE

Subscription and support revenue is derived primarily from sales of our subscription and support offerings.

Our contractual subscription and support contracts are typically one to five years.

Our subscription and support contracts are typically one to five years.

We recognize revenue from subscriptions and support over time as the services are performed.

7 unchanged sentences

Total subscription and support

$ 5,314.3 $ 4,138.4 $ 1,175.9 28.4 % $ 4,138.4 $ 3,135.8 $ 1,002.6 32.0 %

Subscription and support revenue increased for fiscal 2023 compared to fiscal 2022 due to increased demand for our subscription and support offerings from our end-customers.

9 unchanged sentences

Total revenue $ 6,892.7 $ 5,501.5 $ 1,391.2 25.3 % $ 5,501.5 $ 4,256.1 $ 1,245.4 29.3 %

$ 5,501.5 $ 4,256.1 $ 1,245.4 29.3 % $ 4,256.1 $ 3,408.4 $ 847.7 24.9 %

With respect to geographic theaters, the Americas contributed the largest portion of the year-over-year increases in revenue for fiscal 2022 due to its larger and more established sales force compared to our other theaters.

Revenue from Europe, the Middle East, and Africa (“EMEA”) and Asia Pacific and Japan (“APAC”) increased year-over-year for fiscal 2022 due to increasing investment in global sales force in order to support our growth and innovation.

Revenue from the Americas, Europe, the Middle East, and Africa (“EMEA”) and Asia Pacific and Japan (“APAC”) increased year-over-year for fiscal 2023 as we continued to increase investment in our global sales force in order to support our growth and innovation.

Our three geographic theaters had similar year-over-year revenue growth rates for fiscal 2023, with the Americas contributing the highest increase in revenue due to its larger scale.

COST OF REVENUE

2 unchanged sentences

Cost of product revenue primarily includes costs paid to our manufacturing partners for procuring components and manufacturing our products.

Our cost of product revenue also includes personnel costs, which consist of salaries, benefits, bonuses, share-based compensation and travel and entertainment associated with our operations organization, amortization of intellectual property licenses, product testing costs, shipping and tariff costs, and shared costs.

Our cost of product revenue also includes personnel costs, which consist of salaries, benefits, bonuses, share-based compensation, and travel associated with our operations organization, amortization of intellectual property licenses, product testing costs, shipping and tariff costs, and shared costs.

Shared costs consist of certain facilities, depreciation, benefits, recruiting, and information technology costs that we allocate based on headcount.

We expect our cost of product revenue to fluctuate with our product revenue.

We expect our cost of product revenue to fluctuate with our revenue from hardware products.

Year Ended July 31, Year Ended July 31,

3 unchanged sentences

Cost of product revenue $ 418.3 $ 455.5 $ (37.2) (8.2) % $ 455.5 $ 308.5 $ 147.0 47.6 %

Number of employees at period end 149 127 22 17.3 % 127 117 10 8.5 %

Cost of product revenue increased for fiscal 2022 compared to fiscal 2021 primarily due to an increase in the volume of product sold.

The remaining increase in costs was primarily driven by supply chain challenges.

Cost of product revenue decreased for fiscal 2023 compared to fiscal 2022 due to a favorable hardware product mix.

COST OF SUBSCRIPTION AND SUPPORT REVENUE

6 unchanged sentences

Cost of subscription and support revenue $ 1,491.4 $ 1,263.2 $ 228.2 18.1 % $ 1,263.2 $ 966.4 $ 296.8 30.7 %

Number of employees at period end 2,515 2,108 407 19.3 % 2,108 1,402 706 50.4 %

Cost of subscription and support revenue increased for fiscal 2023 compared to fiscal 2022 primarily due to increased costs to support the growth of our subscription and support offerings.

P ersonnel costs grew $135.4 million to $547.8 million for fiscal 2022 compared to fiscal 2021 primarily due to headcount growth.

The remaining increase was p rimarily due to increased cloud hosting service costs to support our cloud-based subscription offerings, outside service costs for global customer support resulting from the expansions of our customer base and product portfolio, and shared costs.

Cloud hosting service costs, which support our cloud-based subscription offerings, increased $101.0 million for fiscal 2023 compared to fiscal 2022.

Personnel costs grew $97.0 million for fiscal 2023 compared to fiscal 2022 primarily due to headcount growth.

Gross margin has been and will continue to be affected by a variety of factors, including the introduction of new products, manufacturing 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.

9 unchanged sentences

Total gross profit $ 4,983.0 72.3 % $ 3,782.8 68.8 % $ 2,981.2 70.0 %

$ 3,782.8 68.8 % $ 2,981.2 70.0 % $ 2,408.9 70.7 %

Product gross margin decreased for fiscal 2022 compared to fiscal 2021 primarily due to higher costs related to our product offerings driven by supply chain challenges.

Subscription and support gross margin was relatively flat for fiscal 2022 compared to fiscal 2021.

Product gross margin increased for fiscal 2023 compared to fiscal 2022 primarily due to increased software revenue and a favorable hardware product mix.

Subscription and support gross margin increased for fiscal 2023 compared to fiscal 2022, primarily due to our growth in subscription and support revenue, which outpaced the subscription and support costs.

OPERATING EXPENSES

14 unchanged sentences

Research and development $ 1,604.0 $ 1,417.7 $ 186.3 13.1 % $ 1,417.7 $ 1,140.4 $ 277.3 24.3 %

Number of employees at period end 3,268 2,595 673 25.9 % 2,595 1,821 774 42.5 %

Research and development expense increased for fiscal 2022 compared to fiscal 2021 primarily due to an increase in personnel costs, which grew $193.5 million to $1.1 billion, primarily due to headcount growth.

The increase in research and development expense was further driven by increased shared costs and third-party product development costs.

Research and development expense increased for fiscal 2023 compared to fiscal 2022 primarily due to increased personnel costs, which grew $154.2 million, largely due to headcount growth.

SALES AND MARKETING

8 unchanged sentences

Sales and marketing $ 2,544.0 $ 2,148.9 $ 395.1 18.4 % $ 2,148.9 $ 1,753.8 $ 395.1 22.5 %

Number of employees at period end 5,167 4,493 674 15.0 % 4,493 3,800 693 18.2 %

Sales and marketing expense increased for fiscal 2022 compared to fiscal 2021 primarily due to an increase in personnel costs, which grew $291.8 million to $1.6 billion, primarily due to headcount growth and increased travel and entertainment expenses.

The increase in sales and marketing expense was further driven by an increase in costs associated with marketing activities.

Sales and marketing expense increased for fiscal 2023 compared to fiscal 2022 primarily due to increased personnel costs, which grew $290.7 million, largely due to headcount growth and increased travel and entertainment expenses.

The increase in sales and marketing expense was further driven by increased costs associated with sales and marketing events and go-to-market initiatives.

GENERAL AND ADMINISTRATIVE

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

We expect general and administrative expense to increase in absolute dollars as we increase the size of our general and administrative organizations and incur additional costs to support our business growth, although our general and administrative expense may fluctuate as a percentage of total revenue.

We expect general and administrative expense to increase in absolute dollars over time as we increase the size of our general and administrative organizations and incur additional costs to support our business growth, although our general and administrative expense may fluctuate as a percentage of total revenue.

Year Ended July 31, Year Ended July 31,

3 unchanged sentences

General and administrative $ 447.7 $ 405.0 $ 42.7 10.5 % $ 405.0 $ 391.1 $ 13.9 3.6 %

Number of employees at period end 1,462 1,150 312 27.1 % 1,150 874 276 31.6 %

General and administrative expenses increased for fiscal 2022 compared to fiscal 2021 primarily due to personnel costs, which grew $24.6 million to $268.6 million, partially offset by a decrease in acquisition-related costs.

The increase in personnel costs was primarily due to headcount growth, partially offset by lower share-based compensation related to accelerated vesting of equity awards in connection with acquisitions.

General and administrative expenses increased for fiscal 2023 compared to fiscal 2022 primarily due to increased personnel costs, which grew $23.2 million, largely due to share-based compensation related to our recent acquisitions and headcount growth.

The increase in general and administrative expense was further driven by slightly higher reserves due to increased receivables as a result of our business growth.

INTEREST EXPENSE

5 unchanged sentences

Interest expense $ 27.2 $ 27.4 $ (0.2) (0.7) % $ 27.4 $ 163.3 $ (135.9) (83.2) %

Interest expense decreased for fiscal 2022 compared to fiscal 2021 primarily because we no longer recognize interest expense for amortization of the debt discount as a result of the adoption of new debt guidance.

Refer to Note 1.

Description of Business and Summary of Significant Accounting Policies and Note 10.

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

Interest expense remained relatively flat for fiscal 2023 compared to fiscal 2022.

OTHER INCOME, NET

5 unchanged sentences

Other income, net $ 206.2 $ 9.0 $ 197.2 2,191.1 % $ 9.0 $ 2.4 $ 6.6 275.0 %

Other income, net increased for fiscal 2022 compared to fiscal 2021 primarily due to increased foreign currency exchange gains and higher interest income earned on our cash, cash equivalent, and investment balances as a result of higher interest rates for fiscal 2022 compared to fiscal 2021, partially offset by increased losses related to non-designated derivative instruments.

Other income, net increased for fiscal 2023 compared to fiscal 2022 primarily due to higher interest income as a result of higher interest rates and higher average cash, cash equivalent, and investments balances for fiscal 2023 compared to fiscal 2022.

PROVISION FOR INCOME TAXES

Provision for income taxes consists primarily of income taxes in foreign jurisdictions in which we conduct business and withholding taxes.

Provision for income taxes consists primarily of U.S.

taxes driven by capitalization of research and development expenditures, foreign income taxes, and withholding taxes.

We maintain a full valuation allowance for domestic and certain foreign deferred tax assets, including net operating loss carryforwards and certain domestic tax credits.

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

We regularly evaluate the need for a valuation allowance.

Due to recent profitability, a reversal of our valuation allowance in certain jurisdictions in the foreseeable future is reasonably possible.

Year Ended July 31, Year Ended July 31,

4 unchanged sentences

Effective tax rate 22.4 % (28.9) % (28.9) % (7.3) %

We recorded an income tax provision for fiscal 2022.

The provision for income taxes for fiscal 2022 was primarily due to income taxes in profitable foreign jurisdictions and withholding taxes.

Our provision for income taxes increased for fiscal 2022 compared to fiscal 2021, primarily due to foreign income and withholding taxes.

Our provision for income taxes for fiscal 2023 was primarily due to U.S.

federal and state income taxes, withholding taxes, and foreign income taxes.

Our effective tax rate varied for fiscal 2023 compared to fiscal 2022, primarily due to our profitability in fiscal 2023 and an increase in U.S.

taxes driven by capitalization of research and development expenditures with no offsetting deferred benefit due to our valuation allowance.

This increase was offset by releases of uncertain tax positions during fiscal 2023 resulting from tax settlements.

Refer to Note 15.

8 unchanged sentences

Total cash, cash equivalents, and investments $ 5,437.9 $ 4,686.4

______________

(1) Current liabilities included net carrying amounts of convertible senior notes of $2.0 billion and $3.7 billion as of July 31, 2023 and 2022, respectively.

4 unchanged sentences

investment in foreign subsidiaries.

However, there could be local withholding taxes payable due to various foreign countries if certain lower tier earnings are distributed.

However, there could be local withholding taxes due to various foreign countries if certain lower tier earnings are distributed.

Withholding taxes that would be payable upon remittance of these lower tier earnings are not expected to be material.

In July 2018, we issued the 2023 Notes with an aggregate principal amount of $1.7 billion.

The 2023 Notes were converted prior to or settled on the maturity date of July 1, 2023.

During fiscal 2023, we repaid in cash $1.7 billion in aggregate principal amount of the 2023 Notes and issued 11.4 million shares of common stock to the holders for the conversion value in excess of the principal amount of the 2023 Notes converted, which were fully offset by shares we received from our exercise of the associated note hedges.

In June 2020, we issued the 2025 Notes with an aggregate principal amount of $2.0 billion.

The 2023 Notes mature on July 1, 2023 and the 2025 Notes mature on June 1, 2025;

however, under certain circumstances, holders may surrender their Notes of a series for conversion prior to the applicable maturity date.

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.

The sale price condition for the Notes was met during the fiscal quarter ended July 31, 2022, and as a result, holders may convert their Notes at any time during the fiscal quarter ending October 31, 2022.

If all of the holders of the Notes converted their Notes during this period, we would be obligated to settle the $3.7 billion principal amount of the Notes in cash.

We believe that our cash provided by operating activities, our existing cash, cash equivalents and investments, and existing sources of and access to financing will be sufficient to meet our anticipated cash needs should the holders choose to convert their Notes during the fiscal quarter ending October 31, 2022 or hold the 2023 Notes until maturity on July 1, 2023.

The 2025 Notes mature on June 1, 2025;

however, under certain circumstances, holders may surrender their 2025 Notes for conversion prior to the applicable maturity date.

Upon conversion of the 2025 Notes, we will pay cash equal to the aggregate principal amount of the 2025 Notes 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 2025 Notes being converted.

The sale price condition for the 2025 Notes was met during the fiscal quarter ended July 31, 2023, and as a result, holders may convert their 2025 Notes during the fiscal quarter ending October 31, 2023.

If all of the holders convert their 2025 Notes during this period, we would be obligated to settle the $2.0 billion principal amount of the 2025 Notes in cash.

We believe that our cash provided by operating activities, our existing cash, cash equivalents and investments, and existing sources of and access to financing will be sufficient to meet our anticipated cash needs should the holders choose to convert their 2025 Notes during the fiscal quarter ending October 31, 2023 or hold the 2025 Notes until maturity on June 1, 2025.

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

1 unchanged sentence

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

In September 2018, we entered into a credit agreement (the “Credit Agreement”) that provides for a $400.0 million unsecured revolving credit facility (the “Credit Facility”), with an option to increase the amount of the Credit Facility by up to an additional $350.0 million, subject to certain condition s.

In April 2023, we entered into a new credit agreement (the “2023 Credit Agreement”) that provides for a $400.0 million unsecured revolving credit facility (the “2023 Credit Facility”), with an option to increase the amount of the 2023 Credit Facility by up to an additional $350.0 million, subject to certain conditions.

The interest rates and commitment fees are also subject to upward and downward adjustments based on our progress towards the achievement of certain sustainability goals related to greenhouse gas emissions.

As of July 31, 2023, there were no amounts outstanding, and we were in compliance with all covenants under the 2023 Credit Agreement.

3 unchanged sentences

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

In December 2020 and August 2021, our board of directors authorized additional $700.0 million and $676.1 million increases, respectively, bringing the total authorization under this share repurchase program to $2.4 billion.

In December 2020, August 2021, and August 2022, our board of directors authorized additional $700.0 million, $676.1 million, and $915.0 million increases to this share repurchase program, respectively, bringing the total authorization under this share repurchase program to $3.3 billion.

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

1 unchanged sentence

As of July 31, 2023, $750.0 million remained available for future share repurchases under this repurchase program.

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 current authorization.

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.

11 unchanged sentences

Net cash provided by operating activities $ 2,777.5 $ 1,984.7 $ 1,503.0

Net cash provided by (used in) investing activities (933.4) (1,480.6) 288.0

Net cash provided by (used in) financing activities (806.6) (1,104.0) 673.0

Net cash used in investing activities (2,033.8) (933.4) (1,480.6)

Net cash used in financing activities (1,726.3) (806.6) (1,104.0)

Net increase (decrease) in cash, cash equivalents, and restricted cash $ (982.6) $ 244.7 $ (1,081.6)

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.

Cash from operations could be affected by various risks and uncertainties 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 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 repayment obligations associated with our Notes, the continuing market acceptance of our products and subscription and support offerings and macroeconomic events such as COVID-19.

In addition, from time to time, we may incur additional tax liability in connection with certain corporate structuring decisions.

3 unchanged sentences

OPERATING ACTIVITIES

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

Our largest source of cash provided by our operations is receipts from our product revenue and subscription and support revenue.

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

Our largest source of cash provided by our operations is receipts from our billings.

Cash provided by operating activities during fiscal 2023 was $2.8 billion, an increase of $792.8 million compared to fiscal 2022.

The increase was primarily due to growth of our business as reflected by increases in billings and collections during fiscal 2022, partially offset by higher cash expenditure to support our business growth.

The increase was primarily due to growth of our business as reflected by increases in collections during fiscal 2023, partially offset by higher cash expenditure to support our business growth.

INVESTING ACTIVITIES

1 unchanged sentence

We expect to continue such activities as our business grows.

Cash used in investing activities during fiscal 2022 was $933.4 million, a decrease of $547.2 million compared to fiscal 2021.

The decrease was primarily due to a decrease in net cash payments for business acquisitions, partially offset by an increase in net investment purchases, sales and maturities during fiscal 2022.

Cash used in investing activities during fiscal 2023 was $2.0 billion, an increase of $1.1 billion compared to fiscal 2022.

The increase was primarily due to an increase in purchases of investments and an increase in net cash payments for business acquisitions, partially offset by an increase in proceeds from sales and maturities of investments during fiscal 2023.

FINANCING ACTIVITIES

Our financing activities have consisted of cash used to repurchase shares of our common stock, proceeds from sales of shares through employee equity incentive plans, 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 2022 was $806.6 million, a decrease of $297.4 million compared to fiscal 2021.

The decrease was primarily due to a decrease in repurchases of our common stock during fiscal 2022 .

Cash used in financing activities during fiscal 2023 was $1.7 billion, an increase of $919.7 million compared to fiscal 2022.

The increase was primarily due to repayments of our 2023 Notes upon maturity, partially offset by a decrease in repurchases of our common stock during fiscal 2023.

Critical Accounting Estimates

Our consolidated financial statements have been prepared in accordance with GAAP.

Our consolidated financial statements have been prepared in accordance with U.S.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures.

7 unchanged sentences

The majority of our contracts with our customers include various combinations of our products and subscriptions and support.

Our appliances and software licenses have significant standalone functionalities and capabilities and, accordingly, are distinct from our subscriptions and support services, as the customer can benefit from the product without these services and such services are separately identifiable within the contract.

Our appliances and software licenses have significant standalone functionalities and capabilities.

Accordingly, these appliances and software licenses are distinct from our subscriptions and support services as the customer can benefit from the product without these services and such services are separately identifiable within the contract.

We account for multiple agreements with a single customer as a single contract if the contractual terms and/or substance of those agreements indicate that they may be so closely related that they are, in effect, parts of a single contract.

The amount we are due in exchange for delivering on the contract is allocated to each performance obligation based on its relative standalone selling price.

The amount of consideration we expect to receive in exchange for delivering on the contract is allocated to each performance obligation based on its relative standalone selling price.

We establish standalone selling price using the prices charged for a deliverable when sold separately.

If not observable through past transactions, we estimate the standalone selling price based on our pricing model and our go-to-market strategy, which include factors such as type of sales channel (channel partner or end-customer), the geographies in which our offerings were sold (domestic or international) and offering type (products, subscriptions, or support).

If the standalone selling price is not observable through past transactions, we estimate the standalone selling price based on our pricing model and our go-to-market strategy, which include factors such as type of sales channel (channel partner or end-customer), the geographies in which our offerings were sold (domestic or international), and offering type (products, subscriptions, or support).

As our business offerings evolve over time, we may be required to modify our estimated standalone selling prices, and as a result the timing and classification of our revenue could be affected.

Deferred Contract Costs

We defer contract costs that are recoverable and incremental to obtaining customer sales contracts.

Contract costs, which primarily consist of sales commissions, are amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates.

Sales commissions for initial contracts that are not commensurate with renewal commissions are amortized over a benefit period of five years, consistent with the revenue recognition pattern of the performance obligations in the related contracts including expected renewals.

The benefit period is determined by taking into consideration contract length, technology life, and other quantitative and qualitative factors.

The expected renewals are estimated based on historical renewal trends.

Sales commissions for initial contracts that are commensurate and sales commissions for renewal contracts are amortized over the related contractual period in proportion to the revenue recognized.

We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements or tax returns.

In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards.

Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

In addition, deferred tax assets are recorded for all future benefits including, but not limited to, net operating losses, research and development credit carryforwards, and basis differences relating to our global intangible low-taxed income.

Valuation allowances are provided when necessary to reduce deferred tax assets to the amount more likely than not to be realized.

Significant judgment is required in determining any valuation allowance recorded against deferred tax assets.

13 unchanged sentences

Actual component usage and product demand may be materially different from our forecast and could be caused by factors outside of our control, which could have an adverse impact on our results of operations.

To date, we have not accrued significant costs associated with this exposure.

Through July 31, 2023, we have not accrued significant costs associated with this exposure.

LOSS CONTINGENCIES

1 unchanged sentence

We accrue for loss contingencies when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated.

If we determine that a loss is possible and the range of the loss can be reasonably determined, then we disclose the range of the possible loss.

If we determine that a loss is reasonably possible, then we disclose the possible loss or range of the possible loss or state that such an estimate cannot be made.

We regularly evaluate current information available to us to determine whether an accrual is required, an accrual should be adjusted, or a range of possible loss should be disclosed.

2 unchanged sentences

The actual liability in any such matters may be materially different from our estimates, which could result in the need to adjust our liability and record additional expenses.

Goodwill, Intangibles, and Other Long-Lived Assets

We make significant estimates, assumptions, and judgments when valuing goodwill and other purchased intangible assets in connection with the initial purchase price allocation of an acquired entity, as well as when evaluating impairment of goodwill and other purchased intangible assets on an ongoing basis.

These estimates are based upon a number of factors, including historical experience, market conditions, and information obtained from the management of the acquired company.

Critical estimates in valuing certain intangible assets include, but are not limited to, cash flows that an asset is expected to generate in the future, discount rates, the time and expense that would be necessary to recreate the assets, and the profit margin a market participant would receive.

The amounts and useful lives assigned to identified intangible assets impact the amount and timing of future amortization expense.

We evaluate goodwill for impairment on an annual basis in our fourth fiscal quarter or more frequently if we believe impairment indicators exist.

We have elected to first assess qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount, including goodwill.

The qualitative assessment includes our evaluation of relevant events and circumstances affecting our single reporting unit, including macroeconomic, industry, and market conditions, our overall financial performance, and trends in the market price of our common stock.

If qualitative factors indicate that it is more likely than not that our reporting unit’s fair value is less than its carrying amount, then we will perform the quantitative impairment test by comparing our reporting unit’s carrying amount, including goodwill, to its fair value.

If the carrying amount of our reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess but limited to the total amount of goodwill.

To date, the results of our qualitative assessment have indicated that the quantitative goodwill impairment test is not necessary.

We evaluate purchased intangible assets and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

Such events or changes in circumstances include, but are not limited to, a significant decrease in the fair value of the underlying asset or asset group, a significant decrease in the benefits realized from the acquired assets, difficulty and delays in integrating the business, or a significant change in the operations of the acquired assets or use of an asset or asset group.

A long-lived asset is considered impaired if its carrying amount exceeds the estimated future undiscounted cash flows the asset or asset group is expected to generate.

Critical estimates in determining whether a long-lived asset is considered impaired include the amount and timing of future cash flows that the asset or asset group is expected to generate.

If a long-lived asset is considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the asset exceeds the fair value of the asset or asset group, which is estimated using a present value technique.

Critical estimates in determining the fair value of an asset or asset group and the amount of impairment to recognize include, but are not limited to, the amount and timing of future cash flows that the asset or asset group is expected to generate and the discount rate.

Determining the fair value of an asset or asset group is highly judgmental in nature and involves the use of significant estimates and assumptions for market participants.

We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain.

Actual future results may differ from those estimates.

Recent Accounting Pronouncements

Refer to “Recently Issued Accounting Pronouncements” in Note 1.

Description of Business and Summary of Significant Accounting Policies in Part II, Item 8 of this Annual Report on Form 10-K for a description of recent accounting pronouncements and our expectation of their impact, if any, on our results of operations and financial condition.

Refer to the “Litigation” subheading in Note 12.

Commitments and Contingencies in Part II, Item 8 of this Annual Report on Form 10-K for more information regarding our litigation.

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