What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-09-01 compared with 2022-09-06 · 295 added, 352 removed, 990 unchanged (40% of the section changed)

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Consolidated Statements of Operations

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Stockholders’ Equity

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Notes to Consolidated Financial Statements

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Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of Palo Alto Networks, Inc.

(the Company) as of July 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended July 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of July 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended July 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at July 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2023, in conformity with U.S.

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The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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REVENUE RECOGNITION

Description of the Matter

of the Matter

As described in Note 1 to the consolidated financial statements, the Company’s contracts with customers sometimes contain multiple performance obligations, which are accounted for separately if they are distinct.

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For example, there were nonstandard terms and conditions that required judgment to determine the distinct performance obligations and the impact on the timing of revenue recognition.

How We Addressed the Matter in Our Audit

How We Addressed

the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s process and controls to identify and determine the distinct performance obligations and the timing of revenue recognition.

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September 1, 2023

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Report of Independent Registered Public Accounting Firm

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of July 31, 2023, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of July 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended July 31, 2022, and the related notes and our report dated September 6, 2022 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of July 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended July 31, 2023, and the related notes and our report dated September 1, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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September 1, 2023

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PALO ALTO NETWORKS, INC.

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2,463.2 2,142.5

Short-term financing receivables, net 388.8 111.3

Short-term deferred contract costs 339.2 317.7

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Long-term investments 3,047.9 1,051.9

Long-term financing receivables, net 653.3 192.1

Long-term deferred contract costs 547.1 550.1

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Total assets $ 14,501.1 $ 12,253.6

Liabilities, temporary equity and stockholders’ equity

Liabilities and stockholders’ equity

Current liabilities:

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Total current liabilities 7,737.5 8,306.3

Convertible senior notes, net — 1,668.1

Long-term deferred revenue 4,621.8 3,352.8

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Commitments and contingencies (Note 12)

Temporary equity — 129.1

Stockholders’ equity:

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Total stockholders’ equity 1,748.4 210.0

Total liabilities, temporary equity and stockholders’ equity $ 12,253.6 $ 10,241.6

Total liabilities and stockholders’ equity $ 14,501.1 $ 12,253.6

See notes to consolidated financial statements.

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PALO ALTO NETWORKS, INC.

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Total operating expenses 4,595.7 3,971.6 3,285.3

Operating loss

Operating income (loss)

387.3 ( 188.8 ) ( 304.1 )

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Other income, net 206.2 9.0 2.4

Loss before income taxes

Income (loss) before income taxes

566.3 ( 207.2 ) ( 465.0 )

Provision for income taxes 126.6 59.8 33.9

Net income (loss)

$ 439.7 $ ( 267.0 ) $ ( 498.9 )

Net loss per share, basic and diluted $ ( 2.71 ) $ ( 5.18 ) $ ( 2.76 )

Weighted-average shares used to compute net loss per share, basic and diluted 98.5 96.4 96.9

Net income (loss) per share, basic $ 1.45 $ ( 0.90 ) $ ( 1.73 )

Net income (loss) per share, diluted $ 1.28 $ ( 0.90 ) $ ( 1.73 )

Weighted-average shares used to compute net income (loss) per share, basic 303.2 295.6 289.1

Weighted-average shares used to compute net income (loss) per share, diluted 342.3 295.6 289.1

See notes to consolidated financial statements.

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PALO ALTO NETWORKS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

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2023 2022 2021

$ ( 267.0 ) $ ( 498.9 ) $ ( 267.0 )

Net income (loss) $ 439.7 $ ( 267.0 ) $ ( 498.9 )

Other comprehensive income (loss), net of tax:

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Other comprehensive income (loss) 12.4 ( 45.7 ) ( 20.4 )

( 45.7 ) ( 20.4 ) 14.2

Comprehensive loss

$ ( 312.7 ) $ ( 519.3 ) $ ( 252.8 )

Comprehensive income (loss) $ 452.1 $ ( 312.7 ) $ ( 519.3 )

See notes to consolidated financial statements.

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PALO ALTO NETWORKS, INC.

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(In millions)

Additional Paid-In Capital Accumulated

Comprehensive Income (Loss) Accumulated

Deficit Total

Stockholders’

Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity

Shares Amount

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Net loss — — — ( 498.9 ) ( 498.9 )

Other comprehensive income — — 14.2 — 14.2

Other comprehensive loss — — ( 20.4 ) — ( 20.4 )

Issuance of common stock in connection with employee equity incentive plans 11.1 104.0 — — 104.0

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Repurchase and retirement of common stock ( 12.0 ) ( 1,178.1 ) — — ( 1,178.1 )

Settlement of warrants 2.0 — — — —

Equity component of convertible senior notes, net — 398.7 — — 398.7

Issuance of warrants — 202.8 — — 202.8

Purchase of note hedges — ( 370.8 ) — — ( 370.8 )

Issuance of common and restricted common stock in connection with acquisitions 4.0 340.7 — — 340.7

Temporary equity reclassification — ( 129.1 ) — — ( 129.1 )

Balance as of July 31, 2021 291.9 2,311.2 ( 9.9 ) ( 1,666.8 ) 634.5

Cumulative-effect adjustment from adoption of new accounting pronouncement — ( 581.9 ) — 266.7 ( 315.2 )

Net loss — — — ( 267.0 ) ( 267.0 )

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Repurchase and retirement of common stock ( 5.4 ) ( 915.0 ) — — ( 915.0 )

Issuance of common and restricted common stock in connection with acquisitions 1.3 340.7 — — 340.7

Temporary equity reclassification — ( 129.1 ) — — ( 129.1 )

Balance as of July 31, 2022 298.8 1,932.7 ( 55.6 ) ( 1,667.1 ) 210.0

Cumulative-effect adjustment from adoption of new accounting pronouncement — ( 581.9 ) — 266.7 ( 315.2 )

Net loss — — — ( 267.0 ) ( 267.0 )

Other comprehensive loss — — ( 45.7 ) — ( 45.7 )

Net income — — — 439.7 439.7

Other comprehensive income — — 12.4 — 12.4

Issuance of common stock in connection with employee equity incentive plans 11.3 259.7 — — 259.7

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Repurchase and retirement of common stock ( 1.8 ) ( 250.0 ) — — ( 250.0 )

Settlement of convertible notes 11.4 — — — —

Settlement of note hedges ( 11.4 ) — — — —

Balance as of July 31, 2023 308.3 $ 3,019.0 $ ( 43.2 ) $ ( 1,227.4 ) $ 1,748.4

See notes to consolidated financial statements.

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PALO ALTO NETWORKS, INC.

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Cash flows from operating activities

Net loss $ ( 267.0 ) $ ( 498.9 ) $ ( 267.0 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Net income (loss) $ 439.7 $ ( 267.0 ) $ ( 498.9 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Share-based compensation for equity-based awards 1,074.5 1,011.1 894.5

Depreciation and amortization 282.2 282.6 260.4

Gain related to facility exit — — ( 3.1 )

Amortization of deferred contract costs 413.4 362.1 298.0

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Accounts receivable, net ( 320.3 ) ( 902.0 ) ( 172.4 )

Financing receivables, net ( 738.7 ) ( 30.1 ) ( 272.6 )

Deferred contract costs ( 431.9 ) ( 458.8 ) ( 440.8 )

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Purchases of property, equipment, and other assets ( 146.3 ) ( 192.8 ) ( 116.0 )

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

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

Year Ended July 31,

2023 2022 2021

Cash flows from financing activities

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Payments for debt issuance costs — — ( 0.2 )

Proceeds from borrowings on convertible senior notes, net — — 1,979.1

Proceeds from issuance of warrants — — 202.8

Purchase of note hedges — — ( 370.8 )

Repurchases of common stock ( 272.7 ) ( 892.3 ) ( 1,178.1 )

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Payments for taxes related to net share settlement of equity awards ( 20.4 ) ( 50.3 ) ( 28.8 )

Payment of deferred consideration related to prior year business acquisition — — ( 1.3 )

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

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

Net increase (decrease) in cash, cash equivalents, and restricted cash

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See notes to consolidated financial statements.

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Notes To Consolidated Financial Statements

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(the “Company,” “we,” “us,” or “our”), headquartered in Santa Clara, California, was incorporated in March 2005 under the laws of the State of Delaware and commenced operations in April 2005.

We empower enterprises, organizations, service providers, and government entities to secure their users, networks, clouds and endpoints by delivering comprehensive cybersecurity backed by artificial intelligence and automation.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with U.S.

generally accepted accounting principles (“GAAP”).

generally accepted accounting principles (“U.S.

The consolidated financial statements include all adjustments necessary for a fair presentation of our annual results.

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All significant intercompany balances and transactions have been eliminated in consolidation.

Reclassification

Certain prior period amounts in the consolidated financial statements and accompanying notes have been reclassified to conform to the current period presentation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes.

The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes.

We evaluate our estimates on an ongoing basis.

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Actual results could differ materially from those estimates due to risks and uncertainties, including uncertainty in the current economic environment.

Stock Split Effected in the Form of a Stock Dividend (“Stock Split”)

On September 13, 2022, we executed a three -for-one stock split of our common stock, effected in the form of a stock dividend.

The par value per share of our common stock remains unchanged at $ 0.0001 per share after the Stock Split.

All references made to share or per share amounts on the accompanying consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the effects of the Stock Split.

Concentrations

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Our accounts receivable are primarily derived from our distributors in various geographical locations.

Our financing receivables are with qualified end-customers.

Our financing receivables are with qualified end-customers and channel partners.

We perform ongoing credit evaluations and generally do not require collateral on accounts receivable or financing receivables.

As of July 31, 2022, three distributors individually represented 10% or more of our gross accounts receivable, and in the aggregate represented 47.7 % of our gross accounts receivable.

As of July 31, 2022, two end-customers represented 10% or more of our gross financing receivables, and in aggregate represented 33.7 % of our gross financing receivables.

As of July 31, 2023, two distributors individually represented 10% or more of our gross accounts receivable, and in the aggregate represented 37.6 % of our gross accounts receivable.

As of July 31, 2023, no end-customers or channel partners represented 10% or more of our gross financing receivables.

For fiscal 2023, three distributors represented 10% or more of our total revenue, representing 25.0 %, 12.8 %, and 11.9 %, respectively.

No single end-customer accounted for more than 10% of our total revenue in fiscal 2023, 2022, or 2021.

We rely on an electronics manufacturing services provider (“EMS provider”) to assemble most of our products and sole source component suppliers for a certain number of our components.

Comprehensive Loss

Comprehensive loss is comprised of net loss and other comprehensive income (loss).

We rely on an electronics manufacturing services provider (“EMS provider”) to assemble most of our products and sole source component suppliers for certain components.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss).

Our other comprehensive income (loss) includes unrealized gains and losses on available-for-sale investments and unrealized gains and losses on cash flow hedges.

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Foreign Currency Transactions

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Our marketable debt securities are classified as available-for-sale.

Debt securities in an unrealized loss position are written down to its fair value with the corresponding charge recorded in other income, net in our consolidated statements of operations, if it is more likely than not that we will be required to sell the impaired security before recovery of its amortized cost basis, or we have the intention to sell the security.

Debt securities in an unrealized loss position are written down to its fair value with the corresponding charge recorded in other income, net on our consolidated statements of operations, if it is more likely than not that we will be required to sell the impaired security before recovery of its amortized cost basis, or we have the intention to sell the security.

If neither of these conditions are met, we determine whether a credit loss exists by comparing the present value of the expected cash flows of the security with its amortized cost basis.

An allowance for credit losses is recorded in other income, net in our consolidated statements of operations for an amount not to exceed the unrealized loss.

An allowance for credit losses is recorded in other income, net on our consolidated statements of operations for an amount not to exceed the unrealized loss.

Unrealized losses that are not credit-related are included in accumulated other comprehensive income (loss) (“AOCI”) in stockholders’ equity.

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The allowance for credit losses is based on our assessment of collectability.

Management regularly reviews the adequacy of the allowance for credit losses on a collective basis by considering the age of each outstanding invoice, each customer’s expected ability to pay and collection history, current market conditions, and reasonable and supportable forecasts of future economic conditions.

Management regularly reviews the adequacy of the allowance for credit losses on a collective basis by considering the age of each outstanding invoice, each customer’s expected ability to pay and collection history, current market conditions, and, where appropriate, reasonable and supportable forecasts of future economic conditions.

Accounts receivable deemed uncollectible are charged against the allowance for credit losses.

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Financing Receivables

We provide financing arrangements for certain qualified end-user customers to purchase our products and services.

We provide financing arrangements for certain qualified end-customers and channel partners to purchase our products and services.

Payment terms on these financing arrangements are up to five years .

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The financing receivables are derecognized upon transfer as these sales qualify as true sales.

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We evaluate the allowance for credit losses by assessing the risks and losses inherent in our financing receivables on either an individual or a collective basis.

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Financing receivables deemed uncollectible are charged against the allowance for credit losses.

Short-term financing receivables are included in prepaid expenses and other current assets, and long-term financing receivables are included in other assets on our consolidated balance sheets.

We are exposed to foreign currency exchange risk.

Substantially all of our revenue is transacted in U.S.

Our revenue is transacted in U.S.

dollars, however, a portion of our operating expenditures are incurred outside of the United States and are denominated in foreign currencies, making them subject to fluctuations in foreign currency exchange rates.

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Our derivative financial instruments are recorded at fair value, on a gross basis, as either assets or liabilities on our consolidated balance sheets.

Gains or losses related to our cash flow hedges are recorded as a component of AOCI on our consolidated balance sheets and are reclassified into the financial statement line item associated with the underlying hedged transaction in our consolidated statements of operations when the underlying hedged transaction is recognized in earnings.

Gains or losses related to non-designated derivative instruments are recognized in other income, net in our consolidated statements of operations for each period until the instrument matures, is terminated, is re-designated as a qualified cash flow hedge, or is sold.

Derivatives designated as cash flow hedges are classified in our consolidated statements of cash flows in the same manner as the underlying hedged transaction, primarily within cash flows from operating activities.

Gains or losses related to our cash flow hedges are recorded as a component of AOCI on our consolidated balance sheets and are reclassified into the financial statement line item associated with the underlying hedged transaction on our consolidated statements of operations when the underlying hedged transaction is recognized in earnings.

Gains or losses related to non-designated derivative instruments are recognized in other income, net on our consolidated statements of operations for each period until the instrument matures, is terminated, is re-designated as a qualified cash flow hedge, or is sold.

Derivatives designated as cash flow hedges are classified on our consolidated statements of cash flows in the same manner as the underlying hedged transaction, primarily within cash flows from operating activities.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three to ten years .

Leasehold improvements are depreciated over the shorter of the estimated useful lives of the improvements or the remaining lease term.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

Land is not depreciated.

The estimated useful lives of our depreciable assets are as follows:

Asset category Useful life

Computers, equipment, and software

Demonstration units

Furniture and fixtures

Leasehold improvements

Lesser of 10 years or remaining lease term

Business Combinations

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Purchased intangible assets with finite lives are carried at cost, less accumulated amortization.

Amortization is computed over the estimated useful lives of the respective assets.

Amortization is computed using the straight-line method over the estimated useful lives of the respective assets.

Acquisition-related in-process research and development represents the fair value of incomplete research and development projects that have not reached technological feasibility as of the date of acquisition.

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If the total of the future undiscounted cash flows is less than the carrying amount of an asset or asset group, we record an impairment loss for the amount by which the carrying amount exceeds the fair value of the asset or asset group.

We did no t recognize any impairment losses on our goodwill, intangible assets, or other long-lived assets during the years ended July 31, 2022, 2021, and 2020.

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We did not recognize any impairment losses on our goodwill, intangible assets, or other long-lived assets during the years ended July 31, 2023, 2022, and 2021.

Manufacturing Partner and Supplier Liabilities

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Revenues are reported net of sales taxes.

Shipping charges billed to our customers are included in revenues and related costs are included in cost of revenue.

Shipping charges billed to our customers are included in revenue and related costs are included in cost of revenue.

Product Revenue

Product revenue is derived primarily from sales of our appliances.

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

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.

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

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Contracts with Multiple Performance Obligations

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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.

If a contract contains a single performance obligation, no allocation is required.

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

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 (reseller, distributor, 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).

Deferred Revenue

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Sales commissions paid for initial contracts are generally not commensurate with the commissions paid for renewal contracts, given the substantive difference in commission rates in proportion to their respective contract values.

Sales commissions for initial contracts that are not commensurate 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.

Sales commissions for initial contracts that are not commensurate are amortized over a benefit period of five years .

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

Sales commissions for initial contracts that are commensurate and sales commissions for renewal contracts are amortized over the related contractual period.

We classify deferred contract costs as short-term or long-term based on when we expect to recognize the expense.

The amortization of deferred contract costs is included in sales and marketing expense in our consolidated statements of operations.

The amortization of deferred contract costs is included in sales and marketing expense on our consolidated statements of operations.

Deferred contract costs are periodically reviewed for impairment.

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Software Development Costs

Internally developed software includes security software developed to meet our internal needs to provide cloud-based subscription offerings to our end-customers and business software that we customize to meet our specific operational needs.

These capitalized costs consist of internal compensation related costs and external direct costs incurred during the application development stage and will be amortized over a useful life of three to five years .

As of July 31, 2022 and 2021, we capitalized as other assets on our consolidated balance sheets $ 130.9 million and $ 114.8 million in costs, respectively, net of accumulated amortization, for security software developed to meet our internal needs to provide our cloud-based subscription offerings.

We recognized amortization expense of $ 62.4 million, $ 47.8 million, and $ 31.3 million related to these capitalized costs as cost of subscription and support revenue in our consolidated statements of operations during the years ended July 31, 2022, 2021, and 2020, respectively.

Internally developed software includes security software developed to deliver our cloud-based subscription offerings to our end-customers.

These capitalized costs consist of internal compensation-related costs and external direct costs incurred during the application development stage and will be amortized over a useful life of three years .

As of July 31, 2023 and 2022, we capitalized as other assets on our consolidated balance sheets $ 132.1 million and $ 130.9 million in costs, respectively, net of accumulated amortization, for security software developed to deliver our cloud-based subscription offerings.

We recognized amortization expense of $ 79.5 million, $ 62.4 million, and $ 47.8 million related to these capitalized costs as cost of subscription and support revenue on our consolidated statements of operations during the years ended July 31, 2023, 2022, and 2021, respectively.

The costs to develop software that is marketed externally have not been capitalized as we believe our current software development process is essentially completed concurrent with the establishment of technological feasibility.

As such, all related software development costs are expensed as incurred and included in research and development expense in our consolidated statements of operations.

As such, all related software development costs are expensed as incurred and included in research and development expense on our consolidated statements of operations.

Share-Based Compensation

Compensation expense related to share-based transactions is measured and recognized in the consolidated financial statements based on fair value on the grant date.

We recognize share-based compensation expense for awards with only service conditions on a straight-line basis over the requisite service period of the related award.

We recognize share-based compensation expense for awards with market conditions and awards with performance conditions on a straight-line basis over the requisite service period for each separately vesting portion of the award and, for awards with performance conditions, when it is probable that the performance condition will be achieved.

Compensation expense related to share-based transactions is measured at fair value on the grant date.

We recognize share-based compensation expense for awards with only service conditions on a straight-line basis over the requisite service period.

We recognize share-based compensation expense for awards with performance conditions when it is probable that the performance condition will be achieved.

We account for forfeitures of all share-based payment awards when they occur.

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We determine if an arrangement is a lease at inception.

We evaluate the classification of leases at commencement and, as necessary, at modification.

Operating leases related balances are included in operating lease right-of-use assets, accrued and other liabilities, and long-term operating lease liabilities on our consolidated balance sheets.

Operating lease related balances are included in operating lease right-of-use assets, accrued and other liabilities, and long-term operating lease liabilities on our consolidated balance sheets.

We did not have any material finance leases in any of the periods presented.

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Our lease terms may include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

We generally use the base, non-cancelable lease term when determining the lease assets and liabilities.

We generally use the base, non-cancelable lease term when determining the lease right-of-use assets and lease liabilities.

Operating lease cost is recognized on a straight-line basis over the lease term.

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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.

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An estimated loss contingency is accrued 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.

Recently Adopted Accounting Pronouncements

Acquired Contract Assets and Contract Liabilities

In October 2021, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that requires companies to apply revenue guidance to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination on the acquisition date, instead of measuring them at fair value.

We early adopted this guidance in our first quarter of fiscal 2022 on a prospective basis.

The adoption of this standard did not have a material impact on our consolidated financial statements.

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Debt with Conversion Options

In August 2020, the FASB issued authoritative guidance that simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments.

The standard reduces the number of models used to account for convertible instruments and simplifies the classification of debt on the balance sheet.

We adopted this standard in our first quarter of fiscal 2022 using the modified-retrospective approach, under which financial results reported in periods prior to fiscal 2022 were not adjusted.

The adoption of this standard resulted in an increase to convertible senior notes, net of $ 444.3 million, a decrease to accumulated deficit of $ 266.7 million, and a decrease to additional paid-in capital and temporary equity of $ 711.0 million upon adoption.

Disaggregation of Revenue

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Remaining Performance Obligations

Revenue expected to be recognized from remaining performance obligations was $ 8.2 billion as of July 31, 2022, of which we expect to recognize approximately $ 4.1 billion over the next 12 months and the remainder thereafter.

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Remaining performance obligations were $ 10.6 billion as of July 31, 2023, of which we expect to recognize as revenue approximately $ 5.1 billion over the next 12 months and the remainder thereafter.

Fair Value Measurements

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government and agency securities — — — — — 17.4 — 17.4

Asset-backed securities — 4.2 — 4.2 — — — —

Total short-term investments — 1,254.7 — 1,254.7 — 1,516.0 — 1,516.0

Long-term investments:

Certificates of deposit — — — — — 5.0 — 5.0

Corporate debt securities — 2,484.3 — 2,484.3 — 761.2 — 761.2

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Total assets measured at fair value $ 476.1 $ 4,474.8 $ — $ 4,950.9 $ 1,205.2 $ 2,830.0 $ — $ 4,035.2

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July 31, 2023 July 31, 2022

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Cash equivalents:

Certificates of deposit $ 155.3 $ — $ — $ 155.3

Commercial paper $ 151.4 $ — $ — $ 151.4

Corporate debt securities 19.5 — — 19.5

government and agency securities 10.0 — — 10.0

government and agency securities 5.0 0.1 — 5.1

Total available-for-sale cash equivalents $ 151.4 $ — $ — $ 151.4

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Total available-for-sale investments $ 4,339.1 $ 1.5 $ ( 38.0 ) $ 4,302.6

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July 31, 2022

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Certificates of deposit $ 155.3 $ — $ — $ 155.3

Commercial paper 69.1 — — 69.1

Corporate debt securities 19.5 — — 19.5

government and agency securities 10.0 — — 10.0

government and agency securities 5.0 0.1 — 5.1

Total available-for-sale cash equivalents $ 258.9 $ 0.1 $ — $ 259.0

Certificates of deposit $ 116.5 $ — $ ( 0.1 ) $ 116.4

Commercial paper 79.1 — ( 0.1 ) 79.0

Corporate debt securities 1,276.8 1.3 ( 11.9 ) 1,266.2

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government and agency securities 17.6 — ( 0.2 ) 17.4

Asset-backed securities 173.4 0.2 ( 1.1 ) 172.5

Total available-for-sale investments $ 2,591.5 $ 1.6 $ ( 25.2 ) $ 2,567.9

As of July 31, 2023, the gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months were $ 30.7 million, which were related to $ 3.4 billion of available-for-sale debt securities, and the gross unrealized losses that have been in a continuous unrealized loss position for more than 12 months were $ 7.3 million, which were related to $ 481.8 million of available-for-sale debt securities.

As of July 31, 2022 the gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months were $ 24.8 million, which were related to $ 2.0 billion of available-for-sale debt securities, and the gross unrealized losses that have been in a continuous unrealized loss position for more than 12 months were not material.

The gross unrealized losses on our available-for-sale debt securities as of July 31, 2021 were not material.

Unrealized losses related to our available-for-sale debt securities are due to interest rate fluctuations as opposed to credit quality.

Unrealized losses related to our available-for-sale debt securities are primarily due to interest rate fluctuations as opposed to credit quality.

We do not intend to sell any of the securities in an unrealized loss position and it is not likely that we would be required to sell these securities before recovery of their amortized cost basis, which may be at maturity.

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Due between one and three years 2,478.8 2,456.0

Due between three to five years 91.5 91.2

Due between five to ten years 4.3 4.3

Due between three and five years 523.4 518.8

Due between five and ten years 52.5 52.3

Due after ten years 21.0 20.8

Total $ 4,490.5 $ 4,454.0

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Marketable equity securities consist of money market funds and are included in cash and cash equivalents on our consolidated balance sheets.

As of July 31, 2022 and 2021, the carrying value of our marketable equity securities were $ 1.2 billion and $ 124.2 million, respectively.

As of July 31, 2023 and 2022, the carrying value of our marketable equity securities were $ 476.1 million and $ 1.2 billion, respectively.

There were no unrealized gains or losses recognized for these securities during the years ended July 31, 2023, 2022, and 2021.

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$ 435.1 $ 115.0

Unearned income

( 42.9 ) ( 2.4 )

Allowance for credit losses

( 3.4 ) ( 1.3 )

Short-term financing receivables, net

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$ 698.6 $ 196.1

Unearned income

( 39.2 ) ( 1.5 )

Allowance for credit losses

( 6.1 ) ( 2.5 )

Long-term financing receivables, net

$ 653.3 $ 192.1

Our financing receivables portfolio primarily consists of high-quality investment-grade receivables as of July 31, 2023 and 2022.

There was no significant activity in allowance for credit losses during the years ended July 31, 2023 and 2022.

Past due amounts on financing receivables were not material as of July 31, 2023 and 2022.

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Derivative Instruments

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Fair Value Measurements for the fair value of our derivative instruments as reported on our consolidated balance sheets as of July 31, 2023.

As of July 31, 2022, unrealized losses in AOCI related to our cash flow hedges were $ 24.8 million, of which $ 22.0 million of losses are expected to be recognized into earnings within the next 12 months.

As of July 31, 2021, unrealized gains and losses in AOCI related to our cash flow hedges were not material.

As of July 31, 2023, unrealized gains and losses in AOCI related to our cash flow hedges were a $ 0.7 million net gain, of which $ 2.7 million in gains are expected to be recognized into earnings within the next 12 months.

As of July 31, 2022, unrealized gains and losses in AOCI related to our cash flow hedges were a $ 24.8 million net loss.

Cider Security Ltd.

On December 20, 2022, we completed our acquisition of Cider Security Ltd.

(“Cider”), a privately-held cloud security company.

We expect the acquisition will support Prisma Cloud’s platform approach to securing the entire application security lifecycle from code to cloud.

The total purchase consideration for the acquisition of Cider was $ 198.3 million, which consisted of the following (in millions):

Fair value of replacement awards 0.3

Total $ 198.3

As part of the acquisition, we issued replacement equity awards, which included 0.2 million shares of our restricted common stock.

The total fair value of the replacement equity awards was $ 48.6 million, of which the portion attributable to services performed prior to the acquisition date was allocated to purchase consideration.

The remaining fair value was allocated to future services and will be expensed over the remaining service periods as share-based compensation.

We have accounted for this transaction as a business combination and allocated the purchase consideration to assets acquired and liabilities assumed based on preliminary estimated fair values, as presented in the following table (in millions):

Goodwill $ 164.6

Identified intangible assets 27.8

Net liabilities assumed ( 6.5 )

Total $ 198.3

Goodwill generated from this business combination is primarily attributable to the assembled workforce and expected post-acquisition synergies from integrating Cider technology into our platforms.

The goodwill is expected to be deductible for U.S.

income tax purposes.

The following table presents the identified intangible asset acquired (in millions, except years):

Fair Value Estimated Useful Life

Developed technology

$ 27.8 5 years

Other acquisition

In April 2023, we completed an acquisition for total purchase consideration of $ 18.9 million in cash.

We have accounted for this transaction as a business combination and recorded goodwill of $ 14.5 million.

The goodwill is not deductible for income tax purposes.

During the year ended July 31, 2022, we completed acquisitions for a combined total purchase consideration of $ 40.1 million, which was primarily cash.

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The remaining fair value was allocated to future services and will be expensed over the remaining service periods as share-based compensation.

We have accounted for this transaction as a business combination and allocated the purchase consideration to assets acquired and liabilities assumed based on estimated fair values, as presented in the following table (in millions):

Goodwill $ 129.6

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The goodwill is not deductible for income tax purposes.

The following table presents details of the identified intangible asset acquired (in millions, except years):

The following table presents the identified intangible asset acquired (in millions, except years):

Fair Value Estimated Useful Life

Developed technology

$ 21.6 6 years

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Developed technology $ 21.6 6 years

On December 15, 2020, we completed our acquisition of Expanse Inc.

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The remaining fair value was allocated to future services and will be expensed over the remaining service periods as share-based compensation.

Goodwill $ 598.2

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Fair Value Estimated Useful Life

Developed technology

$ 123.4 6 years

Developed technology $ 123.4 6 years

Customer relationships 36.9 10 years

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The remaining fair value was allocated to future services and will be expensed over the remaining service periods as share-based compensation.

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Goodwill $ 13.7

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Fair Value Estimated Useful Life

Developed technology

$ 18.6 6 years

Developed technology $ 18.6 6 years

Customer relationships 1.8 8 years

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The remaining fair value was allocated to future services and will be expensed over the remaining service periods as share-based compensation.

Goodwill $ 157.6

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Fair Value Estimated Useful Life

Developed technology

$ 6.9 3 years

Customer relationships 47.5 7 years

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CloudGenix Inc.

On April 21, 2020, we completed our acquisition of CloudGenix, Inc.

(“CloudGenix”), a privately-held company .

We believe the acquisition will strengthen our secure access service edge (“SASE”) offering.

The tota l purchase consideration for the acquisition of CloudGenix was $ 402.7 million, which consisted of the following (in millions):

Fair value of replacement awards 6.6

Total $ 402.7

As part of the acquisition, we issued $ 30.3 million of replacement awards, of w hich the portion attributable to services performed prior to the acquisition date was allocated to purchase consideration.

The remaining fair value was allocated to future services and will be expensed over the remaining service periods as share-based compensation.

We have accounted for this transaction as a business combination and allocated the purchase consid eration to assets acquired and liabilities assumed based on estimated fair values, as presented in the following table (in millions):

Goodwill $ 301.2

Identified intangible assets 109.9

Net liabilities assumed ( 16.7 )

Total $ 402.7

Goodwill generated from this business combination is primarily attributable to the assembled workforce and expected post-acquisition synergies from integrating CloudGenix technology into our portfolio.

The goodwill is not deductible for income tax purposes.

The following table presents details of the identified intangible assets acquired (in millions, except years):

Fair Value Estimated Useful Life

Developed technology $ 6.9 3 years

Customer relationships 47.5 7 years

Total $ 109.9

Aporeto, Inc.

On December 23, 2019, we completed our acquisition of Aporeto, Inc.

(“Aporeto”), a privately-held machine identity-based microsegmentation company.

We believe the acquisition will strengthen our cloud-native security platform capabilities delivered by Prisma Cloud.

The total purchase consideration for the acquisition of Aporeto was $ 144.1 million, which consisted of the following (in millions):

Fair value of replacement awards 4.3

Total $ 144.1

As part of the acquisition, we issued $ 16.4 million of replacement awards, of which the portion attributable to services performed prior to the acquisition date was allocated to purchase consideration.

The remaining fair value was allocated to future services and will be expensed over the remaining service periods as share-based compensation.

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Goodwill $ 111.3

Identified intangible assets 23.8

Net liabilities assumed ( 1.5 )

Total $ 144.1

Goodwill generated from this business combination is primarily attributable to the assembled workforce and expected post-acquisition synergies from integrating Aporeto’s technology into our platform.

The goodwill is not deductible for income tax purposes.

The following table presents details of the identified intangible assets acquired (in millions, except years):

Fair Value Estimated Useful Life

Developed technology $ 20.5 7 years

Customer relationships 3.3 4 years

Zingbox, Inc.

On September 20, 2019, we completed our acquisition of Zingbox, Inc.

(“Zingbox”), a privately-held Internet of Things (“IoT”) security company.

We believe the acquisition will accelerate our delivery of IoT security through our ML-Powered Next-Generation Firewall and Cortex offerings.

The total purchase consideration for the acquisition of Zingbox was $ 66.4 million in cash.

As part of the acquisition, we issued replacement equity awards with a total fair value of $ 5.7 million, which will be expensed over the remaining service periods as share-based compensation.

Goodwill $ 48.1

Identified intangible assets 20.4

Net liabilities assumed ( 2.1 )

Goodwill generated from this business combination is primarily attributable to the assembled workforce and expected post-acquisition synergies from integrating Zingbox’s technology into our portfolio.

The goodwill is not deductible for income tax purposes.

The following table presents details of the identified intangible assets acquired (in millions, except years):

Fair Value Estimated Useful Life

Developed technology $ 18.6 5 years

Customer relationships 1.8 8 years

Additional Acquisition-Related Information

Pro forma results of operations have not been presented because the effects of the acquisitions were not material to our consolidated statements of operations.

Additional information related to our acquisitions completed in fiscal 2022, such as that related to income tax and other contingencies, existing as of the acquisition date but unknown to us may become known during the remainder of the measurement period, not to exceed 12 months from the respective acquisition date, which may result in changes to the amounts and allocations recorded.

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Additional information related to our acquisitions completed in fiscal 2023, such as that related to income tax and other contingencies, existing as of the acquisition date may become known during the remainder of the measurement period, not to exceed 12 months from the respective acquisition date, which may result in changes to the amounts and allocations recorded.

Goodwill and Intangible Assets

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Total property and equipment, net $ 354.5 $ 357.8

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During the year ended July 31, 2022, we purchased 4.6 acres of land adjacent to our headquarters in Santa Clara, California, along with the associated buildings, for $ 39.5 million to accommodate future expansion of our headquarters.

This amount was recorded in property and equipment, net on our consolidated balance sheet as of July 31, 2022.

We recognized depreciation expense of $ 95.9 million, $ 92.8 million, and $ 94.2 million related to property and equipment during the years ended July 31, 2023, 2022, and 2021, respectively.

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The Notes of each series are unsecured, unsubordinated obligations and the applicable Indenture governing each series of Notes does not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by us or any of our subsidiaries.

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

We cannot redeem the 2023 Notes prior to maturity.

The 2023 Notes were converted prior to or settled on the maturity date of July 1, 2023 in accordance with their terms.

The 2025 Notes mature on June 1, 2025.

We may redeem for cash all or any portion of the 2025 Notes, at our option, on or after June 5, 2023 and prior to the 31st scheduled trading day immediately preceding the maturity date if the last reported sale price of our common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending on and including the trading day preceding the date on which we provide notice of redemption.

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Conversion Rate per $1,000 Principal Initial Conversion Price Convertible Date Initial Number of Shares

2023 Notes 3.7545 $ 266.35 April 1, 2023 6.4

2023 Notes (1)

11.2635 $ 88.78 April 1, 2023 19.1

2025 Notes 10.0806 $ 99.20 March 1, 2025 20.1

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

Holders of the Notes may surrender their Notes for conversion at their option at any time prior to the close of business on the business day immediately preceding their respective convertible dates only under the following circumstances:

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Additionally, upon the occurrence of a corporate event that constitutes a “fundamental change” under the applicable Indenture, holders of the Notes of such series may require us to repurchase for cash all or a portion of the Notes of such series at a repurchase price equal to 100 % of the principal amount of the Notes of such series plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

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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.

Holders of the 2023 Notes were able to early convert their 2023 Notes in fiscal 2023 up to April 1, 2023 as the sales price condition had been met.

Conversion requests for the 2023 Notes received on or after April 1, 2023 were settled upon maturity of the 2023 Notes.

Holders of the 2025 Notes were able to early convert their 2025 Notes in fiscal 2023 as the sales price condition was met.

During the year ended July 31, 2023, we repaid in cash $ 1.7 billion in aggregate principal amount of the Notes and issued 11.4 million shares of common stock to the holders of the Notes for the conversion value in excess of the principal amount.

These shares were fully offset by shares we received from the corresponding exercise of the associated note hedges.

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.

The net carrying amount of the 2025 Notes was classified as a current liability on our consolidated balance sheet as of July 31, 2023.

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

Accordingly, the net carrying amount of the 2023 Notes was classified as a current liability and the portion of the equity component representing the conversion option was classified as temporary equity on our consolidated balance sheet as of July 31, 2021.

The sale price condition for the 2025 Notes was not met during the fiscal quarter ended July 31, 2021.

Since the 2025 Notes were not convertible during the fiscal quarter ended October 31, 2021, the associated net carrying amount was classified as a long-term liability and the equity component was included in additional paid-in capital on our consolidated balance sheet as of July 31, 2021.

The following table sets forth the components of the Notes (in millions):

July 31, 2022 (1)

July 31, 2021

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

The net carrying amount of the Notes was classified as a current liability on our consolidated balance sheet as of July 31, 2022.

The following table sets forth the net carrying amount of our Notes (in millions):

July 31, 2023 July 31, 2022

2023 Notes 2025 Notes Total 2023 Notes 2025 Notes Total

Liability component:

Principal $ — $ 1,999.3 $ 1,999.3 $ 1,691.9 $ 1,999.4 $ 3,691.3

debt discount and debt issuance costs, net of amortization ( 2.6 ) ( 11.9 ) ( 14.5 ) ( 134.1 ) ( 331.9 ) ( 466.0 )

debt issuance costs, net of amortization — ( 7.8 ) ( 7.8 ) ( 2.6 ) ( 11.9 ) ( 14.5 )

Net carrying amount $ — $ 1,991.5 $ 1,991.5 $ 1,689.3 $ 1,987.5 $ 3,676.8

Equity component (including amounts classified as temporary equity) $ — $ — $ — $ 315.0 $ 403.0 $ 718.0

______________

(1) As described in Note 1.

Description of Business and Summary of Significant Accounting Policies, we adopted new debt guidance effective August 1, 2021, using a modified retrospective method, under which financial results reported in prior periods were not adjusted.

Upon adoption, our convertible senior notes are accounted for entirely as a liability and measured at their amortized cost.

Transaction costs related to the issuance of the notes are netted with the liability and are amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the term of the notes.

The total estimated fair value of the 2023 Notes and 2025 Notes were $ 3.2 billion and $ 3.5 billion at July 31, 2022, respectively and $ 2.6 billion and $ 2.9 billion at July 31, 2021, respectively.

The total estimated fair value of the 2025 Notes was $ 5.0 billion at July 31, 2023.

The total estimated fair value of the 2023 Notes and 2025 Notes were $ 3.2 billion and $ 3.5 billion at July 31, 2022, respectively.

The fair value was determined based on the closing trading price per $100 of the applicable series of the Notes as of the last day of trading for the period.

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Effective interest rate of the liability component 0.9 % 0.6 % 0.9 % 0.6 % 5.2 % 5.4 %

______________

(1) Upon adoption of the new debt guidance on August 1, 2021, the conversion option is no longer separately accounted for as debt discount.

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To minimize the impact of potential economic dilution upon conversion of our convertible senior notes, we entered into separate convertible note hedge transactions (the “2023 Note Hedges,” with respect to the 2023 Notes, the “2025 Note Hedges,” with respect to the 2025 Notes, and the 2023 Notes Hedges together with 2025 Note Hedges, the “Note Hedges”) with respect to our common stock concurrent with the issuance of each series of the Notes.

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The following table presents details of our Note Hedges (in millions):

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2025 Note Hedges 20.1 $ 370.8

(1) The 2023 Note Hedges were settled as a result of the conversions of the 2023 Notes prior to or on July 1, 2023.

The Note Hedges cover shares of our common stock at a strike price per share that corresponds to the initial applicable conversion price of the applicable series of the Notes, which are also subject to adjustment, and are exercisable upon conversion of the applicable series of the Notes.

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The aggregate amounts paid for the Note Hedges are included in additional paid-in capital on our consolidated balance sheets.

As a result of the conversions of the 2023 Notes settled during the year ended July 31, 2023, we exercised the corresponding portion of our 2023 Note Hedges and received 11.4 million shares of our common stock during the period.

As of July 31, 2023, none of our 2023 Note Hedges were outstanding.

Separately, but concurrently with the issuance of each series of our convertible senior notes, we entered into transactions whereby we sold warrants (the “2023 Warrants,” with respect to the 2023 Notes, the “2025 Warrants,” with respect to the 2025 Notes, and the 2023 Warrants together with the 2025 Warrants, the “Warrants”) to acquire shares of our common stock, subject to anti-dilution adjustments.

The 2023 Warrants and 2025 Warrants are exercisable beginning October 2023 and September 2025, respectively.

The 2023 Warrants and 2025 Warrants are exercisable over 60 scheduled trading days beginning October 2023 and September 2025, respectively.

The following table presents details of our Warrants (in millions, except per share data):

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2025 Warrants 20.1 $ 136.16 $ 202.8

The shares issuable under the Warrants will be included in the calculation of diluted earnings per share when the average market value per share of our common stock for the reporting period exceeds the applicable strike price for such series of Warrants.

The shares issuable under the Warrants are included in the calculation of diluted earnings per share when the average market value per share of our common stock for the reporting period exceeds the applicable strike price for such series of Warrants.

The Warrants are separate transactions and are not part of either series of Notes or Note Hedges and are not remeasured through earnings each reporting period.

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On September 4, 2018, we entered into a credit agreement (the “2018 Credit Agreement”) with certain institutional lenders that provides for a $ 400.0 million unsecured revolving credit facility (the “2018 Credit Facility”), with an option to increase the amount of the 2018 Credit Facility by up to an additional $ 350.0 million, subject to certain conditions.

The Credit Facility matures on the earlier of (i) September 4, 2023 and (ii) the date that is 91 days prior to the stated maturity of our 2023 Notes if (a) any of the 2023 Notes are still outstanding and (b) our unrestricted cash and cash equivalents are less than the then outstanding principal amount of our 2023 Notes plus $ 400.0 million.

The borrowings under the Credit Facility currently bear interest, at our option, at a base rate plus a spread of 0.00 % to 0.75 %, or an adjusted LIBO Rate plus a spread of 1.00 % to 1.75 %, in each case with such spread being determined based on our leverage ratio.

The 2018 Credit Facility expired in April 2023.

On April 13, 2023, we entered into a new credit agreement (the “2023 Credit Agreement”) with certain institutional lenders that provides for a $ 400.0 million unsecured revolving credit facility (the “2023 Credit Facility”), with an option to increase the amount by up to an additional $ 350.0 million, subject to certain conditions.

The 2023 Credit Facility matures on April 13, 2028.

The borrowings under the 2023 Credit Facility bear interest, at our option, at a base rate plus a spread of 0.000 % to 0.375 %, or an adjusted term Secured Overnight Financing Rate (“SOFR”) plus a spread of 1.000 % to 1.375 %, in each case with such spread being determined based on our leverage ratio.

We are obligated to pay an ongoing commitment fee on undrawn amounts at a rate of 0.090 % to 0.150 %, depending on our leverage ratio.

In March 2021, the ICE Benchmark Administration, the administrator of LIBO Rate, announced that it will cease publication of LIBO Rate by June 2023.

Under the terms of our Credit Facility, in the event of the discontinuance of the LIBO Rate, a mutually agreed-upon alternative benchmark rate will be established to replace the LIBO Rate, which may include the Secured Overnight Financing Rate (“SOFR”).

We do not anticipate that the discontinuance of the LIBO Rate will materially impact our liquidity or financial position.

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.

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We have entered into various non-cancelable operating leases primarily for our facilities with original lease periods expiring through the year ending July 31, 2032, with the most significant leases relating to corporate headquarters in Santa Clara.

We have entered into various non-cancelable operating leases primarily for our facilities with original lease periods expiring through the year ending July 31, 2033, with the most significant leases relating to our corporate headquarters in Santa Clara.

In May 2015 and October 2015, we entered into a total of three lease agreements for approximately 941,000 square feet of corporate office space in Santa Clara, California, which serves as our current corporate headquarters.

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Rental payments under the three lease agreements are approximately $ 412.0 million over the lease term.

In September 2012, we entered into two lease agreements for a total of approximately 300,000 square feet of space in Santa Clara, California, which served as our previous corporate headquarters through August 2017, when we relocated to our current corporate campus.

In December 2019, we terminated these leases prior to their expiration date.

The early termination fee is $ 25.0 million, payable in equal quarterly installments from April 2020 through July 2023.

Upon termination, we recorded a decrease of $ 13.6 million in operating lease liabilities based on the payment schedule of the early termination fee discounted by the incremental borrowing rate for the remaining payment term.

We also decreased right-of-use assets by $ 8.7 million upon surrendering possession of the properties.

As a result, during the year ended July 31, 2020, we recorded a gain of $ 3.1 million net of other related fees of $ 1.8 million in general and administrative expense in our consolidated statements of operations.

During the years ended July 31, 2023, 2022, and 2021, our net cost for operating leases was $ 91.3 million, $ 89.7 million, and $ 75.2 million, respectively, primarily consisting of operating lease costs of $ 64.2 million, $ 67.6 million, and $ 59.3 million, respectively.

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Long-term operating lease liabilities $ 279.2

________________________

(1) Current portion of operating lease liabilities is included in accrued and other liabilities on our consolidated balance sheet.

As of July 31, 2022, we have additional non-cancelable operating leases for office space that had been signed but had not yet commenced with total future minimum lease payments of $ 26.0 million.

These leases will commence in fiscal 2023, with lease terms ranging from three to ten years .

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As of July 31, 2023, we had additional non-cancelable operating leases for office space that had been signed but had not yet commenced with total future minimum lease payments of $ 72.1 million.

These leases are expected to commence on or after fiscal 2024, with lease terms ranging from two to twelve years .

Commitments and Contingencies

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In order to reduce manufacturing lead times and plan for adequate supply, we enter into agreements with manufacturing partners and component suppliers to procure inventory based on our demand forecasts.

The following table presents details of the aggregate future minimum or fixed purchase commitments under these arrangements excluding obligations under contracts that we can cancel without a significant penalty as of July 31, 2022 (in millions):

Fiscal years ending July 31,

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In January 2020, we executed a Mutual Covenant Not to Sue and Release Agreement for $ 50.0 million to extend an existing covenant not to sue for seven years .

As the primary benefit of the arrangement was attributable to future use, the amount was recorded in other assets on our consolidated balance sheets and is amortized to cost of product revenue in our consolidated statements of operations over the estimated period of benefit of seven years .

We are subject to legal proceedings, claims, and litigation arising in the ordinary course of business, including intellectual property litigation.

Such matters are subject to many uncertainties and outcomes are not predictable with assurance.

As the primary benefit of the arrangement was attributable to future use, the amount was recorded in other assets on our consolidated balance sheets and is amortized to cost of product revenue on our consolidated statements of operations over the estimated period of benefit of seven years .

We are subject to legal proceedings, claims, tax matters, and litigation arising in the ordinary course of business, including, for instance, intellectual property and patent litigation.

We accrue for contingencies when we believe that a loss is probable and that we can reasonably estimate the amount of any such loss.

To the extent there is a reasonable possibility that a loss exceeding amounts already recognized may be incurred and the amount of such additional loss would be material, we will either disclose the estimated additional loss or state that such an estimate cannot be made.

As of July 31, 2022, we have not recorded any significant accruals for loss contingencies associated with such legal proceedings, determined that an unfavorable outcome is probable or reasonably possible, or determined that the amount or range of any possible loss is reasonably estimable.

As of July 31, 2023, we have not recorded any significant accruals for loss contingencies associated with such matters.

Legal matters could include speculative, substantial or indeterminate monetary amounts.

Significant judgment is required to determine both the likelihood of there being a loss and the estimated amount of a loss related to such matters, and we may be unable to estimate the reasonably possible loss or range of loss.

The outcomes of outstanding legal matters are inherently unpredictable, and could, either individually or in aggregate, have a material adverse effect on us and our results of operations.

To the extent there is a reasonable possibility that a loss exceeding amounts already recognized may be incurred, we will either disclose the estimated additional loss or state that such an estimate cannot be made.

The following matters arose in the ordinary course of business.

Centripetal Networks, Inc.

Palo Alto Networks

On March 12, 2021, Centripetal Networks, Inc., filed a lawsuit against us in the United States District Court for the Eastern District of Virginia.

The lawsuit alleges that our products infringe multiple Centripetal patents.

We successfully challenged certain of these patents, which were found unpatentable by the U.S.

Patent and Trademark Office.

The complaint requests injunctive relief, monetary damages, and attorneys fees.

In addition, Centripetal filed infringement contentions on certain of their patents in the European Patent Office in Germany, to which we filed invalidity challenges.

Those matters are still pending.

The court has set a trial date of January 22, 2024 on the remaining patents.

We are unable, at this time, to reasonably estimate a possible loss or potential range of loss, if any.

Palo Alto Networks

On November 4, 2014, Finjan, Inc., filed a lawsuit against us in the United States District Court for the Northern District of California.

The lawsuit alleges that our products infringe multiple Finjan patents.

The complaint requests injunctive relief, monetary damages, and attorneys fees.

The court has set a trial date of April 8, 2024.

We are unable, at this time, to reasonably estimate a possible loss or potential range of loss, if any.

Palo Alto Networks

On March 22, 2022, we filed a declaratory judgment action in the United States District Court for the Southern District of New York (“S.D.N.Y”) seeking a ruling that we are not infringing various Taasera patents.

Taasera challenged jurisdiction in S.D.N.Y, which issue is currently on appeal with the Federal Circuit.

Pursuant to an order of the Judicial Panel on Multidistrict Litigation, this matter has been consolidated in the United States District Court for the Eastern District of Texas with several other patent infringement matters brought by Taasera.

The court has set April 1, 2024 as the date for the start of consecutive trials of these consolidated matters.

The complaint requests injunctive relief, monetary damages, and attorneys fees.

We are unable, at this time, to reasonably estimate a possible loss or potential range of loss, if any.

Indemnification

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To date, we have not recorded any accruals for loss contingencies associated with indemnification claims or determined that an unfavorable outcome is probable or reasonably possible.

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Stockholders’ Equity

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

In December 2020 and August 2021, our board of directors authorized additional $ 700.0 million and $ 676.1 million in cre ases to this share repurchase program, respectively, bringing the total authorization under this share repurchase program to $ 2.4 billion (our “current authorization”).

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 (our “current authorization”).

The expiration date of our current authorization was extended to December 31, 2023, and our repurchase program may be suspended or discontinued at any time.

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$ 250.0 $ 915.0 $ 1,178.1

______________

(1) Includes transaction costs

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The total price of the shares repurchased and related transaction costs are reflected as a reduction to common stock and additional paid-in capital on our consolidated balance sheets.

Accelerated Stock Repurchase

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 with a financial institution.

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

During the fiscal year ended July 31, 2020, we completed the ASR transaction with an aggregate of 5.2 million shares of our common stock repurchased and retired.

The total price of the ASR transaction is reflected as a reduction to common stock and additional paid-in capital on our consolidated balance sheet.

Equity Award Plans

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Until vested, RSUs do not have the voting and dividend participation rights of common stock and the shares underlying the awards are not considered issued and outstanding.

Our options expire no more than ten years after the date of grant.

We grant PSUs to certain employees, which vest over a period of one to four years from the date of grant.

The actual number of PSUs earned and eligible to vest is determined based on the level of achievement against revenue growth, pre-established billings and operating margin goals, or pre-defined individual performance targets for the fiscal year, and market conditions, if applicable.

During the year ended July 31, 2022, we granted 0.1 million shares of PSUs, which contain service, performance and market conditions.

The performance condition is based on revenue growth, whereas the market condition measures our total shareholder return (“TSR”) relative to the TSR of the companies listed in the Standard & Poor’s 500 index.

In addition to this grant, we have also approved the future grant of 0.1 million shares of PSUs with similar terms, which will be considered granted at the time their related vesting conditions are established in the next two years .

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We have also granted PSOs with both a market condition and a service condition to certain executives.

Our PSUs generally vest over a period of one to four years from the date of grant.

The number of PSUs eligible to vest is determined based on the level of achievement against certain performance conditions, market conditions, and a combination thereof.

During the year ended July 31, 2023, we granted 0.9 million shares of PSUs with both service and market conditions.

The market conditions are satisfied when the price of our common stock is equal to or exceeds stock price targets of $ 233.33 , $ 266.67 , $ 300.00 , and $ 333.33 based on the average closing price for 30 consecutive trading days during the three - or four -year period following the date of grant.

To the extent the market conditions have been met, one-fourth of the awards will vest on each anniversary date of the grant date, subject to continued service.

During the year ended July 31, 2023, the first stock price target for these PSU awards was met, and the related shares will vest when the underlying service conditions are satisfied.

During the year ended July 31, 2023, we granted 0.8 million shares of PSUs, which contain service and market conditions.

The service conditions are satisfied after a period of five years .

The market condition is measured based on our TSR relative to the TSR of the companies listed in the Standard & Poor’s 500 index.

During the years ended July 31, 2023 and 2022, we granted 1.6 million and 0.6 million shares of PSUs, respectively, which contain service, performance and market conditions.

The service conditions are satisfied after a period of one to three years .

The performance conditions are based on revenue growth or billing growth.

The market condition is measured based on our total shareholder return (“TSR”) relative to the TSR of the companies listed in the Standard & Poor’s 500 index.

As of July 31, 2023, we have approved 2.3 million shares of PSUs, which will be granted upon the performance condition being established during the next two years .

We have also granted PSOs with both service and market conditions.

The market condition for PSOs granted in the fiscal years 2018 and 2019 requires the price of our common stock to equal or exceed $ 99.25 , $ 132.33 , $ 165.42 , and $ 198.50 based on the average closing price for 30 consecutive trading days during the four -, five -, six -, and seven-and-a-half-year periods following the date of grant in fiscal year 2018 and 2019, respectively.

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All of the PSOs granted in the fiscal year 2021 were forfeited in the same fiscal year and are no longer outstanding.

To the extent that the market condition has been met, one-fourth of the PSOs will vest on each anniversary date of the grant date for such PSOs, subject to continued service.

All outstanding PSOs may be exercised prior to vesting (“early exercise”).

Shares of common stock issued upon early exercise of the PSOs will be restricted and, at our option, subject to repurchase if the option holder ceases to be a service provider.

To the extent that the market conditions are met, one-fourth of the PSOs vest on each anniversary date of the grant date for such PSOs, subject to continued service.

The maximum contractual term of our outstanding PSOs is seven and a half years from the date of grant, depending on vesting period.

As of July 31, 2022, all stock price targets for our outstanding PSOs have been satisfied.

As of July 31, 2023, all of our outstanding PSOs have been fully vested.

We net-share settle equity awards held by certain employees by withholding shares upon vesting to satisfy tax withholding obligations.

The shares withheld to satisfy employee tax withholding obligations are returned to our 2021 Plan and will be available for future issuance.

Payments for employees’ tax obligations to the tax authorities are recognized as a reduction to additional paid-in capital and reflected as financing activities in our consolidated statements of cash flows.

Payments for employees’ tax obligations to the tax authorities are recognized as a reduction to additional paid-in capital and reflected as financing activities on our consolidated statements of cash flows.

A total of 35.6 million shares of our common stock are reserved for issuance pursuant to our equity incentive plans as of July 31, 2023.

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Acquisitions for more information on our acquisitions and the related equity awards assumed.

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Stock Option Activities

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Balance—July 31, 2020 0.4 $ 6.53 1.5 $ 34.2 8.3 $ 64.71 5.2 $ 170.9

Granted — $ — 0.5 $ 101.43

Exercised ( 0.2 ) $ 4.27 — $ —

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Balance—July 31, 2021 0.2 $ 8.74 0.8 $ 27.4 8.3 $ 64.71 4.2 $ 566.8

Granted — $ — 0.2 $ 304.29

Exercised ( 0.2 ) $ 6.24 — $ —

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Exercised 0.0 $ 18.45 ( 1.6 ) $ 63.39

Forfeited — $ — ( 0.1 ) $ 184.24

Balance—July 31, 2023 — $ — 0.0 $ — 6.4 $ 65.20 2.2 $ 1,184.6

Exercisable—July 31, 2023 — $ — 0.0 $ — 6.4 $ 65.20 2.2 $ 1,184.6

The weighted-average grant-date fair value of PSOs granted during the year ended July 31, 2021 was $ 82.12 per share.

The intrinsic value of options exercised during the years ended July 31, 2023, 2022, and 2021 was $ 237.7 million, $ 29.2 million, and $ 22.2 million, respectively.

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RSU and PSU Activities

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RSUs Outstanding PSUs Outstanding

Shares Weighted-

Grant-Date Fair Value Per Share Aggregate

Shares Weighted-

Grant-Date Fair Value Per Share Aggregate

Number of Shares Weighted-Average Grant-Date Fair Value Per Share Aggregate Intrinsic Value Number of Shares Weighted-Average Grant-Date Fair Value Per Share Aggregate Intrinsic Value

Balance—July 31, 2020 19.8 $ 67.75 $ 1,688.1 1.7 $ 77.14 $ 147.2

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( 8.8 ) $ 66.97 ( 0.2 ) $ 65.20

( 1.0 ) $ 188.18 0.0 $ 175.88

Forfeited ( 2.6 ) $ 75.60 ( 0.2 ) $ 78.65

Balance—July 31, 2021 20.7 $ 85.85 $ 2,760.2 3.8 $ 97.64 $ 498.4

Granted (1)(2)

5.9 $ 164.85 0.8 $ 117.05

( 9.0 ) $ 85.69 ( 1.1 ) $ 83.47

( 0.9 ) $ 226.79 0.0 $ 235.98

Forfeited ( 2.8 ) $ 95.50 ( 0.4 ) $ 107.31

Balance—July 31, 2022 14.8 $ 115.51 $ 2,456.9 3.1 $ 106.38 $ 513.7

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( 7.0 ) $ 110.93 ( 1.3 ) $ 112.72

( 0.9 ) $ 286.49 ( 0.2 ) $ 321.92

Forfeited ( 1.5 ) $ 128.05 ( 0.4 ) $ 136.95

Balance—July 31, 2023 12.1 $ 142.61 $ 3,013.0 5.0 $ 128.64 $ 1,242.3

______________

(1) For PSUs, shares granted represent the aggregate maximum number of shares that may be earned and issued with respect to these awards over their full terms.

(2) Includes 0.4 million RSUs assumed in connection with the acquisitions of Crypsis, Sinefa, Expanse and Bridgecrew, with weighted-average grant-date fair value of $ 241.43 , $ 297.17 , $ 317.45 and $ 354.66 , respectively, for the year ended July 31, 2021, and 0.1 million RSUs assumed in connection with the acquisitions of Zingbox, Aporeto and CloudGenix, with weighted-average grant-date fair value of $ 208.25 , $ 231.30 and $ 181.48 , respectively, for the year ended July 31, 2020.

(2) Includes 1.2 million RSUs assumed in connection with the acquisitions of Crypsis, Sinefa, Expanse and Bridgecrew, with weighted-average grant-date fair values of $ 80.48 , $ 99.06 , $ 105.82 and $ 118.22 , respectively, for the year ended July 31, 2021.

(3) Includes time-based vesting for PSUs.

The aggregate fair value, as of the respective vesting dates, of RSUs vested during the years ended July 31, 2022, 2021, and 2020 was $ 1.6 billion, $ 986.4 million, and $ 615.7 million, respectively.

The aggregate fair value, as of the respective vesting dates, of PSUs vested during the year ended July 31, 2022, 2021, and 2020 was $ 184.0 million, $ 20.8 million and $ 11.9 million, respectively.

The aggregate fair value, as of the respective vesting dates, of RSUs vested during the years ended July 31, 2023, 2022, and 2021 was $ 1.3 billion, $ 1.6 billion, and $ 986.4 million, respectively.

The aggregate fair value, as of the respective vesting dates, of PSUs vested during the years ended July 31, 2023, 2022, and 2021 was $ 218.9 million, $ 184.0 million, and $ 20.8 million, respectively.

Shares Available for Grant

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Balance—July 31, 2022 13.9

Cancelled upon effectiveness of the 2021 Plan

Authorized 6.0

RSUs and PSUs granted ( 9.4 )

PSOs, RSUs, and PSUs forfeited 1.2

RSUs and PSUs forfeited 1.8

Shares withheld for taxes 0.1

Balance—July 31, 2023 12.4

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Share-Based Compensation

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The fair value of RSUs and PSUs not subject to market conditions is based on the closing market price of our common stock on the date of grant.

The fair value of the PSUs subject to the market condition is estimated on the grant date using a Monte Carlo simulation model.

No such PSUs were granted during the years ended July 31, 2021 or 2020.

The following table summarizes the assumptions used and the resulting grant-date fair value of our PSUs subject to the market condition granted during the year ended July 31, 2022:

The fair value of the PSUs subject to market conditions is estimated on the grant date using a Monte Carlo simulation model.

No such PSUs were granted during the year ended July 31, 2021.

The following table summarizes the assumptions used and the resulting grant-date fair value of our PSUs subject to market conditions granted during the years ended July 31, 2023 and 2022:

Year Ended July 31,

Volatility 38.3 % - 44.8 %

36.0 % - 41.1 %

Expected term (in years) 1.0 - 5.0

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Risk-free interest rate 3.2 % - 4.1 %

0.2 % - 2.0 %

Grant-date fair value per share $ 91.77 - $ 280.41

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Treasury zero-coupon issues with maturities that approximate the expected term.

The fair value of PSOs is estimated on the grant date using a Monte Carlo simulation model, which predicts settlement of the options midway between the vesting term and the contractual term.

No PSOs were granted during the years ended July 31, 2022 or 2020.

The fair value of PSOs is estimated on the grant date using a Monte Carlo simulation model, which predicts settlement of the PSOs midway between the vesting term and the contractual term.

No PSOs were granted during the years ended July 31, 2023 and 2022.

The following table summarizes the assumptions used and the resulting grant-date fair values of our PSOs granted during the year ended July 31, 2021:

Year Ended July 31, 2021

Volatility 35.9 %

Dividend yield — %

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2023 2022 2021

33.6 % - 39.4 %

Volatility 38.6 % - 44.7 %

33.6 % - 39.4 %

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0.1 % - 1.4 %

0.9 % - 1.9 %

Grant-date fair value per share $ 48.78 - $ 74.06

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Treasury zero-coupon issues with maturities that approximate the expected term.

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The following table summarizes share-based compensation included in costs and expenses (in millions):

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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

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Total $ 126.6 $ 59.8 $ 33.9

For the year ended July 31, 2023, our provision for income taxes increased compared to the year ended July 31, 2022, primarily due to our profitability in fiscal 2023 and an increase in U.S.

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

For the year ended July 31, 2022, our provision for income taxes increased compared to the year ended July 31, 2021, primarily due to foreign income and withholding taxes.

For the year ended July 31, 2021, our provision for income taxes decreased slightly compared to the year ended July 31, 2020, primarily due to tax benefits from changes in our valuation allowances.

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The following table presents the items accounting for the difference between income taxes computed at the federal statutory income tax rate and our provision for income taxes:

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Total 22.4 % ( 28.9 ) % ( 7.3 ) %

In fiscal 2020, we transferred certain intellectual property rights to a wholly owned United Kingdom subsidiary, primarily to align our legal structure to our evolving operations.

The tax benefit from an increase in the tax basis of intellectual property rights resulted in an increase in effects of non-U.S.

operations and was fully offset by a full valuation.

The following table presents the components of our deferred tax assets and liabilities as of July 31, 2023 and 2022 (in millions):

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Accruals and reserves $ 88.5 $ 141.1

Operating lease liabilities 94.1 86.0

Deferred revenue 708.1 475.5

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Tax credits 338.9 317.4

Capitalized research expenditures 354.8 —

Share-based compensation 66.0 59.2

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Deferred tax liabilities:

Operating lease right-of-use assets ( 73.5 ) ( 61.0 )

Deferred contract costs ( 186.7 ) ( 183.6 )

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Total deferred tax liabilities ( 318.4 ) ( 272.4 )

Net deferred tax assets $ 11.2 $ 9.1

Net deferred tax assets (liabilities) $ ( 5.4 ) $ 11.2

A valuation allowance is provided when it is more likely than not that the deferred tax asset will not be realized.

Realization of deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which are uncertain.

At such time, if it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be adjusted.

We regularly evaluate the need for a valuation allowance.

We evaluate and weigh all available positive and negative evidence such as historic results, future reversals of existing deferred tax liabilities, projected future taxable income, as well as prudent and feasible tax-planning strategies.

The assessment requires significant judgment and is performed in each of the applicable jurisdictions.

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

As of July 31, 2023, we have provided a valuation allowance for our federal, state, United Kingdom, and certain other foreign deferred tax assets that we believe will, more likely than not, be unrealizable.

The net valuation allowance increased by $ 0.5 billion from the year ended July 31, 2021 to the year ended July 31, 2022, primarily due to an increase in our NOL carryforwards and deferred revenue as a result of current year operations.

As of July 31, 2022, we had federal, state, and foreign NOL carryforwards of approximately $ 2.0 billion, $ 1.0 billion, and $ 1.8 billion, respectively, as reported on our tax returns, available to reduce future taxable income, if any.

If not utilized, our federal and state NOL carryforwards will expire in various amounts at various dates beginning in the years ending July 31, 2033 and July 31, 2023, respectively.

Our foreign NOL will carry forward indefinitely.

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The net valuation allowance increased by $ 172.6 million from the year ended July 31, 2022 to the year ended July 31, 2023, primarily due to capitalization of research and development expenditures and deferred revenue, partially offset by net operating losses and intangible assets.

As of July 31, 2023, we had federal, state, and foreign net operating loss carryforwards of approximately $ 66.2 million, $ 447.8 million, and $ 2.0 billion, respectively, as reported on our tax returns, available to reduce future taxable income, if any.

If not utilized, our federal and state net operating loss carryforwards will expire in various amounts at various dates beginning in the years ending July 31, 2034 and July 31, 2026, respectively.

Our foreign net operating loss will carry forward indefinitely.

As of July 31, 2023, we had federal and state research and development tax credit carryforwards of approximately $ 323.9 million and $ 249.3 million, respectively, as reported on our tax returns.

If not utilized, the federal credit carryforwards will expire in various amounts at various dates beginning in the year ending July 31, 2028.

The state credit will carry forward indefinitely.

The state credit carryforwards have no expiration.

As of July 31, 2023, we had foreign tax credit carryforwards of $ 10.6 million as reported on our tax returns.

If not utilized, the foreign tax credit carryforwards will expire in various amounts at various dates beginning in the year ending July 31, 2024.

Utilization of the NOL carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions.

The annual limitation may result in the expiration of NOLs and credits before utilization.

Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions.

The annual limitation may result in the expiration of net operating losses and credits before utilization.

As of July 31, 2023, we had $ 360.0 million of unrecognized tax benefits, $ 70.4 million of which would affect income tax expense if recognized, after consideration of our valuation allowance in the United States and other assets.

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We file federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations.

Generally, all years remain subject to adjustment due to our NOL and credit carryforwards.

Generally, all years remain subject to adjustment due to our net operating loss and credit carryforwards.

We currently have ongoing tax audits in various jurisdictions and at various times.

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We recognize both interest and penalties associated with uncertain tax positions as a component of income tax expense.

During the years ended July 31, 2022, 2021, and 2020, we recognized income tax expense related to interest and penalties of $ 5.2 million, $ 3.5 million, and $ 1.6 million, respectively.

During the year ended July 31, 2023, we recognized a net income tax benefit related to interest and penalties of $ 4.8 million.

During the years ended July 31, 2022 and 2021, we recognized income tax expense related to interest and penalties of $ 5.2 million and $ 3.5 million, respectively.

We had accrued interest and penalties on our consolidated balance sheets related to unrecognized tax benefits of $ 5.1 million and $ 20.9 million as of July 31, 2023 and 2022, respectively.

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Additions for tax positions taken in the current year 66.9 45.0 22.5

Reduction relating to audit settlement ( 28.9 ) — —

Unrecognized tax benefits at the end of the period $ 360.0 $ 414.0 $ 372.9

During the year ended July 31, 2022 and 2021, our additions for tax positions taken in the given year were primarily attributable to uncertain tax positions related to tax credits.

During the year ended July 31, 2020, our additions for tax positions taken in the given year were primarily attributable to intercompany transactions.

During the year ended July 31, 2023, our reductions in uncertain tax positions primarily related to settlements with non-U.S.

tax authorities and remeasurement of certain unrecognized tax benefits.

As a result of our settlement agreements with non-U.S.

tax authorities, we paid a total of $ 39.8 million, including interest and penalties.

Our additions for tax positions taken in the years ended July 31, 2023, 2022 and 2021 were primarily attributable to uncertain tax positions related to tax credits.

As of July 31, 2023, we had no unremitted earnings when evaluating our outside basis difference relating to our U.S.

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 material.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss by basic weighted-average shares outstanding during the period.

Diluted net loss per share is computed by dividing net loss by diluted weighted-average shares outstanding, including potentially dilutive securities.

The following table presents the computation of basic and diluted net loss per share of common stock (in millions, except per share data):

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by basic weighted-average shares outstanding during the period.

Diluted net income (loss) per share is computed by dividing net income (loss) by diluted weighted-average shares outstanding during the period giving effect to all potentially dilutive securities to the extent they are dilutive.

Potentially dilutive securities include shares issuable upon conversion of our convertible senior notes using the if-converted method, warrants related to the issuance of convertible senior notes, and equity awards under our employee equity incentive plans using the treasury stock method.

The following table presents the computation of basic and diluted net income (loss) per share of common stock (in millions, except per share data):

Year Ended July 31,

2023 2022 2021

Net loss $ ( 267.0 ) $ ( 498.9 ) $ ( 267.0 )

Weighted-average shares used to compute net loss per share, basic and diluted

98.5 96.4 96.9

Net loss per share, basic and diluted $ ( 2.71 ) $ ( 5.18 ) $ ( 2.76 )

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The following securities were excluded from the computation of diluted net loss per share of common stock for the periods presented as their effect would have been antidilutive (in millions):

Net income (loss) $ 439.7 $ ( 267.0 ) $ ( 498.9 )

Weighted-average shares used to compute net income (loss) per share, basic 303.2 295.6 289.1

Weighted-average effect of potentially dilutive securities:

Convertible senior notes 17.9 — —

Warrants related to the issuance of convertible senior notes 9.3 — —

Employee equity incentive plans 11.9 — —

Weighted-average shares used to compute net income (loss) per share, diluted 342.3 295.6 289.1

Net income (loss) per share, basic $ 1.45 $ ( 0.90 ) $ ( 1.73 )

Net income (loss) per share, diluted $ 1.28 $ ( 0.90 ) $ ( 1.73 )

The following securities were excluded from the computation of diluted net income (loss) per share of common stock for the periods presented as their effect would have been antidilutive (in millions):

Year Ended July 31,

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Warrants related to the issuance of convertible senior notes — 39.2 39.2

RSUs and PSUs 5.9 8.2 7.2

Options to purchase common stock, including PSOs 2.7 2.9 2.9

RSAs and PSAs 0.1 0.3 0.1

ESPP shares 0.2 0.3 0.3

Employee equity incentive plans 3.9 26.8 34.9

Total 3.9 105.2 113.3

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Foreign currency exchange gains (losses), net ( 7.9 ) 1.8 ( 5.4 )

Other ( 8.4 ) ( 0.7 ) 1.2

Other, net ( 10.3 ) ( 8.4 ) ( 0.7 )

Total other income, net $ 206.2 $ 9.0 $ 2.4

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Revenue for revenue by geographic theater and revenue for groups of similar products and services for the years ended July 31, 2023, 2022, and 2021.

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Subsequent Events

Share Repurchase

On August 19, 2022, our board of directors authorized a $ 915.0 million increase to our share repurchase program under the current authorization, bringing the total remaining authorization for future share repurchases to $ 1.0 billion.

Repurchases may be made at management’s discretion from time to time on the open market, through privately negotiated transactions, transactions structured through investment banking institutions, block purchase techniques, 10b5-1 trading plans, or a combination of the foregoing.

The repurchase authorization will expire on December 31, 2023, and may be suspended or discontinued at any time without prior notice.

Stock Split Effected in the Form of a Stock Dividend (“Stock Split”)

On August 22, 2022, we announced that our board of directors had approved a three -for-one stock split of our outstanding shares of common stock to be effected in the form of a stock dividend.

Each stockholder of record at the close of business on September 6, 2022 (the “record date”), will receive, after the close of business on September 13, 2022, two additional shares for every share held on the record date, and trading will begin on a split-adjusted basis on September 14, 2022.

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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

1 unchanged sentence

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 8. Financial Statements and Supplementary Data