What changed in this filing

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Item 1. Financial Statements

2024-05-21 compared with 2024-02-21 · 119 added, 138 removed, 636 unchanged (29% of the section changed)

3 unchanged sentences

(in millions, except per share data)

January 31, 2024 July 31, 2023

April 30, 2024 July 31, 2023

Current assets:

1 unchanged sentence

Short-term investments 1,516.7 1,254.7

Accounts receivable, net of allowance for credit losses of $ 6.5 and $ 7.8 as of January 31, 2024 and July 31, 2023, respectively

Accounts receivable, net of allowance for credit losses of $ 8.2 and $ 7.8 as of April 30, 2024 and July 31, 2023, respectively

1,715.4 2,463.2

33 unchanged sentences

100.0 shares authorized;

none issued and outstanding as of January 31, 2024 and July 31, 2023

none issued and outstanding as of April 30, 2024 and July 31, 2023

Common stock and additional paid-in capital;

1 unchanged sentence

1,000.0 shares authorized;

322.7 and 308.3 shares issued and outstanding as of January 31, 2024 and July 31, 2023, respectively

323.4 and 308.3 shares issued and outstanding as of April 30, 2024 and July 31, 2023, respectively

3,530.7 3,019.0

4 unchanged sentences

See notes to condensed consolidated financial statements.

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PALO ALTO NETWORKS, INC.

1 unchanged sentence

(Unaudited, in millions, except per share data)

Three Months Ended January 31, Six Months Ended January 31,

Three Months Ended April 30, Nine Months Ended April 30,

2024 2023 2024 2023

29 unchanged sentences

See notes to condensed consolidated financial statements .

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PALO ALTO NETWORKS, INC.

1 unchanged sentence

(Unaudited, in millions)

Three Months Ended January 31, Six Months Ended January 31,

Three Months Ended April 30, Nine Months Ended April 30,

2024 2023 2024 2023

7 unchanged sentences

Net change on cash flow hedges ( 9.6 ) ( 11.4 ) ( 14.8 ) 27.4

Other comprehensive income

Other comprehensive income (loss)

( 48.9 ) ( 9.6 ) ( 12.2 ) 34.9

1 unchanged sentence

See notes to condensed consolidated financial statements .

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PALO ALTO NETWORKS, INC.

1 unchanged sentence

(Unaudited, in millions)

Three Months Ended January 31, 2024

Three Months Ended April 30, 2024

Common Stock and Additional Paid-In Capital

Accumulated Other Comprehensive Loss

Retained Earnings (Accumulated Deficit)

Retained Earnings

Total Stockholders’ Equity

Shares Amount

Balance as of October 31, 2023 313.7 $ 3,296.7 $ ( 93.0 ) $ ( 1,033.2 ) $ 2,170.5

Balance as of January 31, 2024 322.7 $ 3,650.0 $ ( 6.5 ) $ 713.7 $ 4,357.2

Net income — — — 278.8 278.8

Other comprehensive income

Other comprehensive loss

— — ( 48.9 ) — ( 48.9 )

2 unchanged sentences

Share-based compensation for equity-based awards — 270.0 — — 270.0

Repurchase and retirement of common stock

( 1.7 ) ( 500.0 ) — — ( 500.0 )

Settlement of convertible notes 4.6 ( 1.7 ) — — ( 1.7 )

1 unchanged sentence

( 4.6 ) — — — —

Settlement of warrants 5.9 — — — —

Balance as of January 31, 2024 322.7 $ 3,650.0 $ ( 6.5 ) $ 713.7 $ 4,357.2

Three Months Ended January 31, 2023

Balance as of April 30, 2024 323.4 $ 3,530.7 $ ( 55.4 ) $ 992.5 $ 4,467.8

Three Months Ended April 30, 2023

Common Stock and Additional Paid-In Capital

3 unchanged sentences

Shares Amount

Balance as of October 31, 2022 302.3 $ 2,266.2 $ ( 111.1 ) $ ( 1,647.1 ) $ 508.0

Balance as of January 31, 2023 302.4 $ 2,303.0 $ ( 11.1 ) $ ( 1,562.9 ) $ 729.0

— — — 107.8 107.8

Other comprehensive income

Other comprehensive loss

— — ( 9.6 ) — ( 9.6 )

2 unchanged sentences

Share-based compensation for equity-based awards — 276.6 — — 276.6

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

Balance as of January 31, 2023 302.4 $ 2,303.0 $ ( 11.1 ) $ ( 1,562.9 ) $ 729.0

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Six Months Ended January 31, 2024

Balance as of April 30, 2023 305.6 $ 2,708.2 $ ( 20.7 ) $ ( 1,455.1 ) $ 1,232.4

Nine Months Ended April 30, 2024

Common Stock and Additional Paid-In Capital

5 unchanged sentences

Net income — — — 2,219.9 2,219.9

Other comprehensive income — — 36.7 — 36.7

Other comprehensive loss

— — ( 12.2 ) — ( 12.2 )

Issuance of common stock in connection with employee equity incentive plans 8.1 258.1 — — 258.1

6 unchanged sentences

Settlement of warrants 9.0 — — — —

Balance as of January 31, 2024 322.7 $ 3,650.0 $ ( 6.5 ) $ 713.7 $ 4,357.2

Six Months Ended January 31, 2023

Balance as of April 30, 2024 323.4 $ 3,530.7 $ ( 55.4 ) $ 992.5 $ 4,467.8

Nine Months Ended April 30, 2023

Common Stock and Additional Paid-In Capital

11 unchanged sentences

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

Balance as of January 31, 2023 302.4 $ 2,303.0 $ ( 11.1 ) $ ( 1,562.9 ) $ 729.0

Balance as of April 30, 2023 305.6 $ 2,708.2 $ ( 20.7 ) $ ( 1,455.1 ) $ 1,232.4

See notes to condensed consolidated financial statements.

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PALO ALTO NETWORKS, INC.

1 unchanged sentence

(Unaudited, in millions)

Six Months Ended January 31,

Nine Months Ended April 30,

Cash flows from operating activities

43 unchanged sentences

Restricted cash included in prepaid expenses and other current assets 8.2 7.4

Restricted cash included in other assets 0.5 —

Total cash, cash equivalents, and restricted cash $ 1,381.9 $ 2,000.3

2 unchanged sentences

See notes to condensed consolidated financial statements.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

20 unchanged sentences

Summary of Significant Accounting Policies

There have been no material changes to our significant accounting policies as of and for the six months ended January 31, 2024, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended July 31, 2023.

There have been no material changes to our significant accounting policies as of and for the nine months ended April 30, 2024, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended July 31, 2023.

Recently Issued Accounting Pronouncements

9 unchanged sentences

We are currently evaluating the impact of this standard on our disclosures in the consolidated financial statements.

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Disaggregation of Revenue

The following table presents revenue by geographic theater (in millions):

Three Months Ended January 31, Six Months Ended January 31,

Three Months Ended April 30, Nine Months Ended April 30,

2024 2023 2024 2023

6 unchanged sentences

The following table presents revenue for groups of similar products and services (in millions):

Three Months Ended January 31, Six Months Ended January 31,

Three Months Ended April 30, Nine Months Ended April 30,

2024 2023 2024 2023

6 unchanged sentences

Deferred Revenue

During the six months ended January 31, 2024 and 2023, we recognized approximately $ 2.7 billion and $ 2.1 billion of revenue pertaining to amounts that were deferred as of July 31, 2023 and 2022, respectively.

During the nine months ended April 30, 2024 and 2023, we recognized approximately $ 3.7 billion and $ 2.9 billion of revenue pertaining to amounts that were deferred as of July 31, 2023 and 2022, respectively.

Remaining Performance Obligations

Remaining performance obligations were $ 10.8 billion as of January 31, 2024, of which we expect to recognize as revenue approximately $ 5.2 billion over the next 12 months and the remainder thereafter.

Remaining performance obligations were $ 11.3 billion as of April 30, 2024, of which we expect to recognize as revenue approximately $ 5.4 billion over the next 12 months and the remainder thereafter.

Fair Value Measurements

The following table presents our financial assets and liabilities measured at fair value on a recurring basis as of January 31, 2024 and July 31, 2023 (in millions):

January 31, 2024 July 31, 2023

The following table presents our financial assets and liabilities measured at fair value on a recurring basis as of April 30, 2024 and July 31, 2023 (in millions):

April 30, 2024 July 31, 2023

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

1 unchanged sentence

Money market funds $ 763.9 $ — $ — $ 763.9 $ 476.1 $ — $ — $ 476.1

Certificates of deposit — 11.0 — 11.0 — — — —

Commercial paper — 2.5 — 2.5 — 151.4 — 151.4

Corporate debt securities — 8.1 — 8.1 — — — —

government and agency securities — 10.0 — 10.0 — — — —

Total cash equivalents 763.9 2.5 — 766.4 476.1 151.4 — 627.5

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January 31, 2024 July 31, 2023

April 30, 2024 July 31, 2023

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

28 unchanged sentences

Refer to Note 9.

Debt for the carrying amount and estimated fair value of our convertible senior notes as of January 31, 2024 and July 31, 2023.

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Debt for the carrying amount and estimated fair value of our convertible senior notes as of April 30, 2024 and July 31, 2023.

Cash Equivalents and Investments

Available-for-sale Debt Securities

The following tables summarize the amortized cost, unrealized gains and losses, and fair value of our available-for-sale debt securities as of January 31, 2024 and July 31, 2023 (in millions):

January 31, 2024

The following tables summarize the amortized cost, unrealized gains and losses, and fair value of our available-for-sale debt securities as of April 30, 2024 and July 31, 2023 (in millions):

April 30, 2024

Amortized Cost

2 unchanged sentences

Cash equivalents:

Certificates of deposit $ 11.0 $ — $ — $ 11.0

Commercial paper $ 2.5 $ — $ — $ 2.5

Corporate debt securities 8.1 — — 8.1

government and agency securities 10.0 — — 10.0

Total available-for-sale cash equivalents $ 2.5 $ — $ — $ 2.5

20 unchanged sentences

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

As of January 31, 2024, the gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months were $ 5.1 million, which were related to $ 1.5 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 $ 6.2 million, which were related to $ 752.8 million of available-for-sale debt securities.

As of April 30, 2024, the gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months were $ 30.3 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 $ 6.4 million, which were related to $ 722.1 million of available-for-sale debt securities.

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.

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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.

We did not recognize any credit losses related to our available-for-sale debt securities during the three and six months ended January 31, 2024 and 2023.

The following table summarizes the amortized cost and fair value of our available-for-sale debt securities as of January 31, 2024, by contractual years-to-maturity (in millions):

We did not recognize any credit losses related to our available-for-sale debt securities during the three and nine months ended April 30, 2024 and 2023.

The following table summarizes the amortized cost and fair value of our available-for-sale debt securities as of April 30, 2024, by contractual years-to-maturity (in millions):

Amortized Cost Fair Value

7 unchanged sentences

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

As of January 31, 2024 and July 31, 2023, the carrying values of our marketable equity securities were $ 859.3 million and $ 476.1 million, respectively.

There were no unrealized gains or losses recognized for these securities during the three and six months ended January 31, 2024 and 2023.

As of April 30, 2024 and July 31, 2023, the carrying values of our marketable equity securities were $ 763.9 million and $ 476.1 million, respectively.

There were no unrealized gains or losses recognized for these securities during the three and nine months ended April 30, 2024 and 2023.

Financing Receivables

The following table summarizes our short-term and long-term financing receivables as of January 31, 2024 and July 31, 2023 (in millions):

January 31, 2024 July 31, 2023

The following table summarizes our short-term and long-term financing receivables as of April 30, 2024 and July 31, 2023 (in millions):

April 30, 2024 July 31, 2023

Short-term financing receivables, gross $ 649.5 $ 435.1

8 unchanged sentences

Long-term financing receivables, net $ 882.5 $ 653.3

Our financing receivables portfolio primarily consisted of high-quality investment-grade receivables as of January 31, 2024 and July 31, 2023.

There was no significant activity in allowance for credit losses during the three and six months ended January 31, 2024 and 2023.

Past due amounts on financing receivables were not material as of January 31, 2024 and July 31, 2023.

Our financing receivables portfolio primarily consisted of high-quality investment-grade receivables as of April 30, 2024 and July 31, 2023.

There was no significant activity in allowance for credit losses during the three and nine months ended April 30, 2024 and 2023.

Past due amounts on financing receivables were not material as of April 30, 2024 and July 31, 2023.

Derivative Instruments

3 unchanged sentences

We enter into foreign currency derivative contracts with maturities of 24 months or less, which we designate as cash flow hedges, to manage the foreign currency exchange risk associated with our operating expenditures.

As of January 31, 2024 and July 31, 2023, the total notional amount of our outstanding foreign currency forward contracts was $ 1.2 billion and $ 957.5 million, respectively.

As of April 30, 2024 and July 31, 2023, the total notional amount of our outstanding foreign currency forward contracts was $ 1.3 billion and $ 957.5 million, respectively.

Refer to Note 3.

Fair Value Measurements for the fair value of our derivative instruments as reported on our condensed consolidated balance sheets as of January 31, 2024 and July 31, 2023.

As of January 31, 2024, unrealized gains and losses in accumulated other comprehensive income (“AOCI”) related to our cash flow hedges were a $ 6.2 million net loss, of which $ 5.4 million in losses are expected to be recognized into earnings within the next 12 months.

Fair Value Measurements for the fair value of our derivative instruments as reported on our condensed consolidated balance sheets as of April 30, 2024 and July 31, 2023.

As of April 30, 2024, unrealized gains and losses in accumulated other comprehensive income (“AOCI”) related to our cash flow hedges were a $ 19.1 million net loss, of which $ 13.7 million in losses are expected to be recognized into earnings within the next 12 months.

As of July 31, 2023, unrealized gains and losses in AOCI related to our cash flow hedges were a $ 0.7 million net gain.

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Dig Security Solutions Ltd.

29 unchanged sentences

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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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):

10 unchanged sentences

Goodwill and Intangible Assets

The following table presents details of our goodwill during the six months ended January 31, 2024 (in millions):

The following table presents details of our goodwill during the nine months ended April 30, 2024 (in millions):

Balance as of July 31, 2023 $ 2,926.8

Goodwill acquired 445.9

Balance as of January 31, 2024 $ 3,372.7

Balance as of April 30, 2024 $ 3,372.7

Purchased Intangible Assets

The following table presents details of our purchased intangible assets as of January 31, 2024 and July 31, 2023 (in millions):

January 31, 2024 July 31, 2023

The following table presents details of our purchased intangible assets as of April 30, 2024 and July 31, 2023 (in millions):

April 30, 2024 July 31, 2023

Gross Carrying Amount

14 unchanged sentences

Total purchased intangible assets $ 1,013.9 $ ( 606.0 ) $ 407.9 $ 834.7 $ ( 519.3 ) $ 315.4

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We recognized amortization expense of $ 28.4 million and $ 53.3 million for the three and six months ended January 31, 2024, respectively, and $ 24.8 million and $ 53.9 million for the three and six months ended January 31, 2023, respectively.

The following table summarizes estimated future amortization expense of our intangible assets subject to amortization as of January 31, 2024 (in millions):

We recognized amortization expense of $ 33.4 million and $ 86.7 million for the three and nine months ended April 30, 2024, respectively, and $ 25.8 million and $ 79.7 million for the three and nine months ended April 30, 2023, respectively.

The following table summarizes estimated future amortization expense of our intangible assets subject to amortization as of April 30, 2024 (in millions):

Fiscal years ending July 31,

22 unchanged sentences

Additionally, upon the occurrence of a corporate event that constitutes a “fundamental change” under the Indenture, holders of the 2025 Notes may require us to repurchase for cash all or a portion of the 2025 Notes at a repurchase price equal to 100 % of the principal amount of the 2025 Notes plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

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Holders of the 2025 Notes were able to early convert their 2025 Notes during the fiscal quarter ended January 31, 2024 as the sales price condition had been met during the fiscal quarter ended October 31, 2023.

During the three and six months ended January 31, 2024, holders of the 2025 Notes converted $ 126.3 million and $ 172.3 million, respectively, in aggregate principal amount of the 2025 Notes, which we repaid in cash.

We also issued 0.8 million and 1.1 million shares of our common stock to the holders of the 2025 Notes during the three and six months ended January 31, 2024, respectively, 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.

Holders of the 2025 Notes were able to early convert their 2025 Notes during the fiscal quarter ended April 30, 2024 as the sales price condition had been met during the fiscal quarter ended January 31, 2024.

During the three and nine months ended April 30, 2024, holders of the 2025 Notes converted $ 661.8 million and $ 834.1 million, respectively, in aggregate principal amount of the 2025 Notes, which we repaid in cash.

We also issued 4.6 million and 5.7 million shares of our common stock to the holders of the 2025 Notes during the three and nine months ended April 30, 2024, respectively, 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 note hedges.

Refer to Note 16.

Subsequent Event for additional information regarding conversion of the 2025 Notes after January 31, 2024 through the filing date of this Quarterly Report on Form 10-Q.

The sale price condition for the 2025 Notes was met during the fiscal quarter ended January 31, 2024 and as a result, holders may convert their 2025 Notes during the fiscal quarter ending April 30, 2024.

The net carrying amount of the 2025 Notes was classified as a current liability on our condensed consolidated balance sheet as of January 31, 2024.

Subsequent Event for additional information regarding conversion of the 2025 Notes after April 30, 2024 through the filing date of this Quarterly Report on Form 10-Q.

The sale price condition for the 2025 Notes was met during the fiscal quarter ended April 30, 2024 and as a result, holders may convert their 2025 Notes during the fiscal quarter ending July 31, 2024.

The net carrying amount of the 2025 Notes was classified as a current liability on our condensed consolidated balance sheet as of April 30, 2024.

The following table sets forth the net carrying amount of our 2025 Notes (in millions):

January 31, 2024 July 31, 2023

April 30, 2024 July 31, 2023

Principal $ 1,165.2 $ 1,999.3

2 unchanged sentences

Net carrying amount $ 1,162.5 $ 1,991.5

The total estimated fair value of the 2025 Notes was $ 6.2 billion as of January 31, 2024 and $ 5.0 billion as of July 31, 2023.

The total estimated fair value of the 2025 Notes was $ 3.4 billion as of April 30, 2024 and $ 5.0 billion as of July 31, 2023.

The fair value was determined based on the closing trading price per $100 of the 2025 Notes as of the last day of trading for the period.

We consider the fair value of the 2025 Notes as of January 31, 2024 and July 31, 2023 to be a Level 2 measurement.

We consider the fair value of the 2025 Notes as of April 30, 2024 and July 31, 2023 to be a Level 2 measurement.

The fair value of the 2025 Notes is primarily affected by the trading price of our common stock and market interest rates.

The following table sets forth interest expense recognized related to the Notes (dollars in millions):

Three Months Ended January 31, Six Months Ended January 31,

Three Months Ended April 30, Nine Months Ended April 30,

2024 2023 2024 2023

13 unchanged sentences

We paid an aggregate amount of $ 370.8 million for the 2025 Note Hedges, which is included in additional paid-in capital on our condensed consolidated balance sheets.

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As a result of the conversions of the 2025 Notes settled during the three and six months ended January 31, 2024, we exercised the corresponding portion of our 2025 Note Hedges and received 0.8 million and 1.1 million shares of our common stock during the respective period.

As a result of the conversions of the 2025 Notes settled during the three and nine months ended April 30, 2024, we exercised the corresponding portion of our 2025 Note Hedges and received 4.6 million and 5.7 million shares of our common stock during the respective periods.

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.

10 unchanged sentences

The aggregate proceeds received from the sale of the Warrants are included in additional paid-in capital on our condensed consolidated balance sheets.

During the six months ended January 31, 2024, we net settled all of the 2023 Warrants with 9.0 million shares of our common stock with a fair value of $ 2.4 billion, of which 5.9 million shares of our common stock with a fair value of $ 1.7 billion were net settled during the three months ended January 31, 2024.

During the nine months ended April 30, 2024, we net settled all of the 2023 Warrants with 9.0 million shares of our common stock with a fair value of $ 2.4 billion.

The number of net shares issued was determined based on the number of 2023 Warrants exercised multiplied by the difference between the strike price of the 2023 Warrants and their daily volume-weighted-average stock price.

5 unchanged sentences

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 January 31, 2024, there were no amounts outstanding and we were in compliance with all covenants under the Credit Agreement.

As of April 30, 2024, there were no amounts outstanding and we were in compliance with all covenants under the Credit Agreement.

Commitments and Contingencies

2 unchanged sentences

In addition, in order to reduce manufacturing lead times and plan for adequate supply, we have entered 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 non-cancelable purchase commitments under these agreements as of January 31, 2024 (in millions):

The following table presents details of the aggregate future non-cancelable purchase commitments under these agreements as of April 30, 2024 (in millions):

Fiscal years ending July 31,

6 unchanged sentences

$ 4,597.5 $ 55.8 $ 383.2 $ 634.3 $ 524.4 $ 592.3 $ 2,407.5

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Additionally, we have a $ 146.7 million minimum purchase commitment with a cloud service provider through September 2027 with no specified annual commitments.

17 unchanged sentences

On January 31, 2024, the jury returned a verdict of non-willful infringement with a lump sum amount of $ 151.5 million, plus statutory interest.

We are advancing post-trial motions that aim to eliminate patents and patent claims from the scope of the final judgment and corresponding damages.

The trial judge will decide these motions before entering final judgment, after which there will likely be an appeal by one or both parties to the action.

We respectfully disagree with the verdict and believe that it is contrary to both the law and the extensive evidence presented at trial, which is why we are seeking relief from the court.

We have filed motions to overturn the verdict and seek a new trial, which is pending before the court.

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.

As of January 31, 2024, we accrued $ 176.8 million for the verdict amount and estimated interest.

The accrual was recorded in other long-term liabilities on our condensed consolidated balance sheets with the corresponding charge included in general and administrative expense on our condensed consolidated statements of operations for the three and six months ended January 31, 2024.

As of April 30, 2024, we accrued $ 180.5 million for the verdict amount and estimated interest, which is recorded in other long-term liabilities on our condensed consolidated balance sheets.

The corresponding charge was $ 3.7 million and $ 180.5 million for the three and nine months ended April 30, 2024, respectively, which is included in general and administrative expense on our condensed consolidated statements of operations.

Palo Alto Networks

2 unchanged sentences

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

The trial is set for October 21, 2024.

On March 11, 2024, the case was reassigned to a new judge and the October 21, 2024 trial date was vacated.

A new trial date has not yet been set.

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

1 unchanged sentence

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

The parties have now resolved all pending matters between them as of December 2023.

The parties have resolved all pending matters between them as of December 2023.

The amounts paid by us to resolve these matters were not material.

4 unchanged sentences

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

The patents at issue are currently under review before the U.S.

The patents at issue are currently under review by the U.S.

Patent and Trademark Office.

Trial is set for May 20, 2024.

The May 20, 2024 trial date was vacated.

A new trial date has not yet been set, but may be rescheduled to take place in the fourth quarter of fiscal 2024.

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

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Stockholders’ Equity

5 unchanged sentences

The following table summarizes the share repurchase activity under our share repurchase program (in millions, except per share amounts):

Three Months Ended January 31, Six Months Ended January 31,

Three Months Ended April 30, Nine Months Ended April 30,

2024 2023 2024 2023

5 unchanged sentences

(1) Includes transaction costs

In addition to the share repurchase activity summarized in the table above, during the six months ended January 31, 2023, we paid $ 22.7 million related to share repurchases of our common stock that were not settled as of July 31, 2022.

As of January 31, 2024, $ 1.0 billion remained available for future share repurchases under our current repurchase authorization.

In addition to the share repurchase activity summarized in the table above, during the nine months ended April 30, 2023, we paid $ 22.7 million related to share repurchases of our common stock that were not settled as of July 31, 2022.

As of April 30, 2024, $ 500.0 million remained available for future share repurchases under our current repurchase authorization.

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 condensed consolidated balance sheets.

1 unchanged sentence

Restricted Stock Unit (“RSU”) and Performance-Based Stock Unit (“PSU”) Activities

The following table summarizes the RSU and PSU activity under our stock plans during the six months ended January 31, 2024 (in millions, except per share amounts):

The following table summarizes the RSU and PSU activity under our stock plans during the nine months ended April 30, 2024 (in millions, except per share amounts):

RSUs Outstanding PSUs Outstanding

9 unchanged sentences

Forfeited ( 1.0 ) $ 161.26 ( 0.5 ) $ 135.54

Balance—January 31, 2024 11.7 $ 179.68 $ 3,973.8 5.9 $ 146.39 $ 1,982.8

Balance—April 30, 2024 10.3 $ 194.03 $ 2,979.7 5.2 $ 154.42 $ 1,497.3

(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.

3 unchanged sentences

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.

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During the six months ended January 31, 2024, we granted 2.1 million shares of PSUs that contain service, performance, and market conditions, of which 0.1 million shares were granted during the three months ended January 31, 2024.

During the nine months ended April 30, 2024, we granted 2.1 million shares of PSUs that contain service, performance, and market conditions.

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

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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 January 31, 2024, we have approved 2.7 million shares of PSUs, which will be granted upon the performance condition being established during the next two fiscal years.

As of April 30, 2024, we have approved 2.7 million shares of PSUs, which will be granted upon the performance condition being established during the next two fiscal years.

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

The following table summarizes the assumptions used and the resulting grant-date fair value of our PSUs subject to market conditions granted during the three and six months ended January 31, 2024:

Three Months Ended January 31, 2024 Six Months Ended January 31, 2024

The following table summarizes the assumptions used and the resulting grant-date fair value of our PSUs subject to market conditions granted during the nine months ended April 30, 2024:

Nine Months Ended April 30, 2024

Volatility 40.8 % - 43.4 %

40.8 % - 43.4 %

Expected term (in years) 0.9 - 2.9

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Risk-free interest rate 4.4 % - 5.3 %

4.5 % - 5.3 %

Grant-date fair value per share $ 346.92 - $ 621.21

$ 346.92 - $ 394.63

Performance Stock Option (“PSO”) Activities

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The market conditions were achieved when certain stock price targets were met.

As of January 31, 2024, all of our outstanding PSOs have been fully vested.

As of April 30, 2024, all of our outstanding PSOs have been fully vested.

The maximum contractual term of our outstanding PSOs is seven and a half years from the date of grant in fiscal year 2018 and 2019.

The following table summarizes the PSO activity under our stock plans during the six months ended January 31, 2024 (in millions, except per share amounts):

The following table summarizes the PSO activity under our stock plans during the nine months ended April 30, 2024 (in millions, except per share amounts):

Number of Shares

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Exercised ( 1.2 ) $ 64.85

Balance—January 31, 2024 5.4 $ 65.25 1.7 $ 1,482.7

Exercisable—January 31, 2024 5.4 $ 65.25 1.7 $ 1,482.7

Balance—April 30, 2024 5.2 $ 65.29 1.5 $ 1,168.4

Exercisable—April 30, 2024 5.2 $ 65.29 1.5 $ 1,168.4

Share-Based Compensation

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

Three Months Ended January 31, Six Months Ended January 31,

Three Months Ended April 30, Nine Months Ended April 30,

2024 2023 2024 2023

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Total share-based compensation $ 263.5 $ 277.2 $ 809.8 $ 833.1

As of January 31, 2024, total compensation cost related to unvested share-based awards not yet recognized was $ 2.3 billion.

As of April 30, 2024, total compensation cost related to unvested share-based awards not yet recognized was $ 2.2 billion.

This cost is expected to be amortized over a weighted-average period of approximately 2.7 years.

For the three and six months ended January 31, 2024, our benefit from income taxes reflected an effective tax rate of negative 1,189.2 % and negative 364.3 %, respectively.

Our effective tax rates for the three and six months ended January 31, 2024 differed from the U.S.

For the three and nine months ended April 30, 2024, our benefit from income taxes reflected an effective tax rate of negative 11.0 % and negative 231.7 %, respectively.

Our effective tax rates for the three months ended April 30, 2024 differed from the U.S.

statutory tax rate primarily due to excess tax benefits from share-based compensation and the release of our valuation allowance.

Our effective tax rates for the nine months ended April 30, 2024 differed from the U.S.

statutory tax rate primarily due to the release of our valuation allowance.

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We regularly assess the need for a valuation allowance on our deferred tax assets.

In making this assessment, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely than not that some or all the deferred tax assets will not be realized.

As of January 31, 2024, based on our analysis of all positive and negative evidence, we concluded it is more likely than not that our U.S.

Based on our analysis of all positive and negative evidence during the fiscal quarter ended January 31, 2024, we concluded it is more likely than not that our U.S.

federal, U.S.

states other than California, and United Kingdom deferred tax assets will be realizable based on our recent profitability and continued forecasted income.

In making these judgments, we considered our recent and expected ongoing profitability, which supports our conclusion of the realization of the deferred tax assets.

We continue to maintain a valuation allowance for our California deferred tax assets due to the uncertainty regarding realizability of these deferred tax assets as they have not met the “more likely than not” realization criterion.

As a result of the valuation allowance release, we recognized a deferred tax benefit of $ 3.2 billion for the U.S.

We expect future research and development tax credit generation in California to exceed our ability to use the existing tax credits.

As a result of the valuation allowance release, during the three and nine months ended April 30, 2024, we recognized a deferred tax benefit of $ 40.0 million and $ 3.3 billion, respectively, for the U.S.

federal, U.S.

states other than California, and United Kingdom deferred tax assets.

In addition, we recognized a deferred tax expense of $ 1.7 billion for the U.S.

federal indirect tax effect of foreign deferred taxes.

Accordingly, during the three and six months ended January 31, 2024, we recognized a net tax benefit of $ 1.5 billion relating to our valuation allowance release.

federal and state deferred tax assets largely consist of capitalized research expenditures and accelerated recognition of deferred revenue for tax purposes.

tax carryforwards (including net operating losses and tax credits) are expected to be fully utilized to the extent allowable by law.

Our United Kingdom deferred tax assets largely consist of basis differences in intangible assets and related net operating losses expected to be utilized in the future.

In addition, during the three and nine months ended April 30, 2024, we recognized a deferred tax expense of $ 7.4 million and $ 1.7 billion, respectively, for the U.S.

federal indirect effect of foreign deferred taxes consistent with our policy to record deferred tax assets for basis differences relating to our global intangible low-taxed income.

Accordingly, during the three and nine months ended April 30, 2024, we recognized a net tax benefit of $ 32.6 million and $ 1.6 billion, respectively, relating to our valuation allowance release.

We will continue to monitor the need for a valuation allowance on our deferred tax assets.

For the three and six months ended January 31, 2023, our provision for income taxes reflected an effective tax rate of 0.2 % and 12.3 %, respectively.

Our income taxes for the three and six months ended January 31, 2023 were primarily due to U.S.

For the three and nine months ended April 30, 2023, our provision for income taxes reflected an effective tax rate of 17.7 % and 15.1 %, respectively.

Our income taxes for the three and nine months ended April 30, 2023 were primarily due to U.S.

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

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This increase was offset by a tax benefit from a release of tax reserves related to uncertain tax positions resulting from an agreement with a non-U.S.

tax authority to pay $ 28.9 million to settle a tax audit during the three months ended January 31, 2023.

tax authority to pay $ 28.9 million to settle a tax audit during the nine months ended April 30, 2023.

Net Income Per Share

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

Three Months Ended January 31, Six Months Ended January 31,

Three Months Ended April 30, Nine Months Ended April 30,

2024 2023 2024 2023

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The following securities were excluded from the computation of diluted net income per share of common stock as their effect would have been antidilutive or issuance of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the applicable period (in millions):

Three Months Ended January 31, Six Months Ended January 31,

Three Months Ended April 30, Nine Months Ended April 30,

2024 2023 2024 2023

Employee equity incentive plans 2.4 3.2 2.4 5.0

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Other Income, Net

The following table sets forth the components of other income, net (in millions):

Three Months Ended January 31, Six Months Ended January 31,

Three Months Ended April 30, Nine Months Ended April 30,

2024 2023 2024 2023

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2025 Notes Conversion

Subsequent to January 31, 2024, $ 581.0 million in aggregate principal amount of the 2025 Notes was converted or had been submitted by the holders for conversion and will settle during the fiscal quarter ending April 30, 2024.

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Subsequent to April 30, 2024, $ 123.2 million in aggregate principal amount of the 2025 Notes was converted or had been submitted by the holders for conversion and will settle during the fiscal quarter ending July 31, 2024.

On May 15, 2024, we entered into a definitive agreement with International Business Machines Corporation to acquire certain QRadar assets including intellectual property, customer relationships, and customer contracts.

We agreed to pay $ 500.0 million in cash upon closing, and may make additional post-closing payments contingent upon the migration of QRadar on-premise customers to Cortex XSIAM through December 31, 2027.

We expect the acquisition will help accelerate the growth of our Cortex XSIAM platform.

The proposed acquisition is expected to close during our first quarter of fiscal 2025, subject to the satisfaction of regulatory approvals and other customary closing conditions.

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

What changed 10-Q

Item 1. Financial Statements