What changed in this filing

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Item 1. Financial Statements

2024-11-21 compared with 2024-05-21 · 192 added, 254 removed, 501 unchanged (47% of the section changed)

3 unchanged sentences

(in millions, except per share data)

April 30, 2024 July 31, 2023

October 31, 2024 July 31, 2024

Current assets:

1 unchanged sentence

Short-term investments 1,108.2 1,043.6

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

Accounts receivable, net of allowance for credit losses of $ 8.6 and $ 7.5 as of October 31, 2024 and July 31, 2024, respectively

1,132.9 2,618.6

33 unchanged sentences

100.0 shares authorized;

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

none issued and outstanding as of October 31, 2024 and July 31, 2024

Common stock and additional paid-in capital;

1 unchanged sentence

1,000.0 shares authorized;

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

327.7 and 325.1 shares issued and outstanding as of October 31, 2024 and July 31, 2024, respectively

4,214.9 3,821.1

Accumulated other comprehensive loss ( 4.0 ) ( 1.6 )

Retained earnings (accumulated deficit) 992.5 ( 1,227.4 )

Retained earnings

1,700.9 1,350.2

Total stockholders’ equity 5,911.8 5,169.7

4 unchanged sentences

(Unaudited, in millions, except per share data)

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

2024 2023 2024 2023

Three Months Ended October 31,

Product $ 353.8 $ 341.1

12 unchanged sentences

Operating income

176.7 78.7 445.5 133.8

Interest expense ( 1.2 ) ( 2.9 )

1 unchanged sentence

Income before income taxes

251.2 131.0 669.3 249.8

Provision for (benefit from) income taxes ( 27.6 ) 23.2 ( 1,550.6 ) 37.8

Provision for income taxes 17.9 88.4

$ 350.7 $ 194.2

4 unchanged sentences

Weighted-average shares used to compute net income per share, basic

322.9 303.9 317.5 302.0

Weighted-average shares used to compute net income per share, diluted

354.6 344.7 354.0 338.1

See notes to condensed consolidated financial statements .

2 unchanged sentences

(Unaudited, in millions)

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

2024 2023 2024 2023

Three Months Ended October 31,

$ 350.7 $ 194.2

4 unchanged sentences

Net realized (gains) losses reclassified into earnings

5.5 6.3 13.6 24.5

Net change on cash flow hedges 1.2 ( 31.6 )

Other comprehensive income (loss)

Other comprehensive loss

( 2.4 ) ( 49.8 )

4 unchanged sentences

(Unaudited, in millions)

Three Months Ended April 30, 2024

Three Months Ended October 31, 2024

Common Stock and Additional Paid-In Capital

3 unchanged sentences

Shares Amount

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

Balance as of July 31, 2024 325.1 $ 3,821.1 $ ( 1.6 ) $ 1,350.2 $ 5,169.7

Net income — — — 350.7 350.7

4 unchanged sentences

Share-based compensation for equity-based awards — 294.6 — — 294.6

Repurchase and retirement of common stock

( 1.7 ) ( 500.0 ) — — ( 500.0 )

Settlement of convertible notes 2.3 ( 0.1 ) — — ( 0.1 )

1 unchanged sentence

( 2.3 ) — — — —

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

Three Months Ended April 30, 2023

Balance as of October 31, 2024 327.7 $ 4,214.9 $ ( 4.0 ) $ 1,700.9 $ 5,911.8

Three Months Ended October 31, 2023

Common Stock and Additional Paid-In Capital

3 unchanged sentences

Shares Amount

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

— — — 107.8 107.8

Other comprehensive loss

— — ( 9.6 ) — ( 9.6 )

Issuance of common stock in connection with employee equity incentive plans 3.2 130.7 — — 130.7

Taxes paid related to net share settlement of equity awards — ( 2.1 ) — — ( 2.1 )

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

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

Accumulated Other Comprehensive Loss

Retained Earnings (Accumulated Deficit)

Total Stockholders’ Equity

Shares Amount

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

Net income — — — 2,219.9 2,219.9

— — — 194.2 194.2

Other comprehensive loss

8 unchanged sentences

Settlement of warrants 3.1 — — — —

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

Accumulated Other Comprehensive Loss

Accumulated Deficit

Total Stockholders’ Equity

Shares Amount

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

Net income — — — 212.0 212.0

Other comprehensive income

— — 34.9 — 34.9

Issuance of common stock in connection with employee equity incentive plans 8.6 199.7 — — 199.7

Taxes paid related to net share settlement of equity awards — ( 17.5 ) — — ( 17.5 )

Share-based compensation for equity-based awards — 843.3 — — 843.3

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

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.

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

PALO ALTO NETWORKS, INC.

1 unchanged sentence

(Unaudited, in millions)

Nine Months Ended April 30,

Three Months Ended October 31,

Cash flows from operating activities

7 unchanged sentences

Amortization of debt issuance costs 0.5 1.0

Change in fair value of contingent consideration liability

Reduction of operating lease right-of-use assets 16.0 12.4

15 unchanged sentences

Business acquisitions, net of cash and restricted cash acquired

( 610.6 ) ( 204.5 )

Purchases of property, equipment, and other assets

3 unchanged sentences

Repayments of convertible senior notes

Repurchases of common stock

( 319.0 ) ( 46.0 )

Repurchases of common stock

Proceeds from sales of shares through employee equity incentive plans

3 unchanged sentences

( 219.7 ) ( 41.8 )

Net increase (decrease) in cash, cash equivalents, and restricted cash 239.7 ( 124.5 )

Net increase in cash, cash equivalents, and restricted cash

746.1 1,355.2

Cash, cash equivalents, and restricted cash - beginning of period 1,546.8 1,142.2

5 unchanged sentences

Non-cash investing and financing activities

Equity consideration for business acquisitions $ ( 27.4 ) $ ( 0.3 )

Contingent consideration for a business acquisition

$ ( 648.9 ) $ —

See notes to condensed consolidated financial statements.

4 unchanged sentences

(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 enabled by artificial intelligence and automation.

Basis of Presentation and Principles of Consolidation

6 unchanged sentences

Our condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended July 31, 2024.

Reclassification

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

Use of Estimates

1 unchanged sentence

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

We evaluate our estimates on an ongoing basis.

Management estimates include, but are not limited to, the standalone selling price for our products and services, share-based compensation, fair value of assets acquired and liabilities assumed in business combinations, fair value of contingent consideration liability, the assessment of recoverability of our intangibles and goodwill, valuation allowance against deferred tax assets, manufacturing partner and supplier liabilities, deferred contract cost benefit period, and loss contingencies.

We base our estimates on assumptions, both historical and forward looking, that we believe are reasonable.

1 unchanged sentence

Summary of Significant Accounting Policies

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.

There have been no material changes to our significant accounting policies as of and for the three months ended October 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, 2024, except for the update to the disclosure of our accounting policies as described below resulting from our recent acquisition of certain QRadar assets from International Business Machines Corporation (“IBM”).

Refer to Note 7.

Acquisition for additional information.

Business Combinations

We include the results of operations of the businesses that we acquire as of the respective dates of acquisition.

We allocate the fair value of the purchase price of our acquisitions to the assets acquired and liabilities assumed, including contingent consideration, generally based on their estimated fair values.

The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill.

Additional information 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 acquisition date, which may result in changes to the amounts and allocations recorded.

Contingent consideration obligations incurred in connection with a business combination are recorded at fair value on the acquisition date and remeasured at each subsequent reporting period until the related contingencies have been resolved, with the change in fair value recognized in general and administrative expense on our condensed consolidated statements of operations.

Payments not made soon after the acquisition date to settle a contingent consideration liability are classified as cash flows from financing activities up to the amount of the contingent consideration liability recognized at the acquisition date.

Recently Issued Accounting Pronouncements

1 unchanged sentence

In November 2023, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses.

The standard is effective for our annual periods beginning in fiscal 2025 and interim periods beginning in the first quarter of fiscal 2026, and requires retrospective application for all prior periods presented in the financial statements.

The standard is effective for our annual period in fiscal 2025 and interim periods beginning in the first quarter of fiscal 2026, and requires retrospective application for all prior periods presented in the financial statements.

Early adoption is permitted.

2 unchanged sentences

In December 2023, the FASB issued authoritative guidance that requires consistent categories and greater disaggregation of information in the effective tax rate reconciliation and additional disclosures of income taxes paid by jurisdiction.

The standard is effective for our annual periods beginning in fiscal 2026 and could be applied either prospectively or retrospectively.

The standard is effective for our annual period in fiscal 2026 and could be applied either prospectively or retrospectively.

Early adoption is permitted.

2 unchanged sentences

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

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

2024 2023 2024 2023

Three Months Ended October 31,

United States $ 1,344.1 $ 1,204.3

5 unchanged sentences

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

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

2024 2023 2024 2023

Three Months Ended October 31,

Product $ 353.8 $ 341.1

5 unchanged sentences

Deferred Revenue

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.

During the three months ended October 31, 2024 and 2023, we recognized approximately $ 1.6 billion and $ 1.4 billion of revenue pertaining to amounts that were deferred as of July 31, 2024 and 2023, respectively.

Remaining Performance Obligations

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.

Remaining performance obligations were $ 12.6 billion as of October 31, 2024, of which we expect to recognize as revenue approximately $ 5.9 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 April 30, 2024 and July 31, 2023 (in millions):

April 30, 2024 July 31, 2023

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

October 31, 2024 July 31, 2024

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

2 unchanged sentences

Commercial paper — 228.7 — 228.7 — 299.6 — 299.6

Corporate debt securities — 34.2 — 34.2 — 18.2 — 18.2

government and agency securities — 74.8 — 74.8 — 149.6 — 149.6

Total cash equivalents 1,105.3 337.7 — 1,443.0 494.0 467.4 — 961.4

April 30, 2024 July 31, 2023

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

Short-term investments:

19 unchanged sentences

Total assets measured at fair value $ 1,105.3 $ 5,570.9 $ — $ 6,676.2 $ 494.0 $ 5,688.4 $ — $ 6,182.4

October 31, 2024 July 31, 2024

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

Accrued and other liabilities:

Foreign currency forward contracts $ — $ 11.8 $ — $ 11.8 $ — $ 15.3 $ — $ 15.3

Contingent consideration

— — 238.5 238.5 — — — —

Total accrued and other liabilities — 11.8 238.5 250.3 — 15.3 — 15.3

1 unchanged sentence

Foreign currency forward contracts — — — — — 0.9 — 0.9

Contingent consideration

— — 416.7 416.7 — — — —

Total other long-term liabilities — — 416.7 416.7 — 0.9 — 0.9

Total liabilities measured at fair value $ — $ 11.8 $ 655.2 $ 667.0 $ — $ 16.2 $ — $ 16.2

The fair value of contingent consideration liability is estimated using a discounted cash flow valuation technique.

We consider the fair value of our contingent consideration liability to be a Level 3 measurement as we use unobservable inputs in determining discounted cash flows to estimate the fair value.

The significant unobservable inputs include an estimate of future cash payments related to customers entering into qualified new transactions as well as a risk-adjusted discount rate used to present value the expected cash flows.

A significant change in any of these assumptions could have a material impact to the fair value of our contingent consideration liability.

The following table presents a reconciliation of our contingent consideration liability (in millions):

Three Months Ended October 31, 2024

Contingent consideration liability at the beginning of the period

Initial valuation on the acquisition date

Change in fair value

Contingent consideration liability at the end of the period

The total estimated fair value of our financing receivables approximates their carrying amounts as of October 31, 2024 and July 31, 2024.

We consider the fair value of our financing receivables to be a Level 3 measurement as we use unobservable inputs in determining discounted cash flows to estimate the fair value.

Refer to Note 9.

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

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

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 April 30, 2024 and July 31, 2023 (in millions):

April 30, 2024

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

October 31, 2024

Amortized Cost

3 unchanged sentences

Commercial paper $ 228.7 $ — $ — $ 228.7

Corporate debt securities 34.2 — — 34.2

government and agency securities 74.8 — — 74.8

Total available-for-sale cash equivalents $ 337.7 $ — $ — $ 337.7

12 unchanged sentences

Commercial paper $ 299.6 $ — $ — $ 299.6

Corporate debt securities 18.2 — — 18.2

government and agency securities 149.6 — — 149.6

Total available-for-sale cash equivalents $ 467.4 $ — $ — $ 467.4

6 unchanged sentences

Total available-for-sale investments $ 5,188.9 $ 35.4 $ ( 7.5 ) $ 5,216.8

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.

As of October 31, 2024, the gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months were $ 7.3 million, which were related to $ 1.2 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 $ 1.3 million, which were related to $ 372.5 million of available-for-sale debt securities.

As of July 31, 2024 the gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months were $ 1.5 million, which were related to $ 949.4 million 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 $ 6.0 million, which were related to $ 915.3 million of available-for-sale debt securities.

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 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):

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

The following table summarizes the amortized cost and fair value of our available-for-sale debt securities as of October 31, 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 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.

As of October 31, 2024 and July 31, 2024, the carrying values of our marketable equity securities were $ 1.1 billion and $ 494.0 million, respectively.

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

Financing Receivables

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

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

October 31, 2024 July 31, 2024

Short-term financing receivables, gross $ 911.6 $ 830.2

8 unchanged sentences

Long-term financing receivables, net $ 1,092.2 $ 1,182.1

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.

The following table presents amortized cost basis of our financing receivables categorized by internal risk rating and year of origination (in millions):

Internal Risk Rating (1)

October 31, 2024 July 31, 2024

Fiscal Year of Origination

2025 2024 2023 2022 2021 Total 2024 2023 2022 2021 Total

$ 7.4 $ 916.1 $ 387.5 $ 9.9 $ 26.7 $ 1,347.6 $ 885.9 $ 477.3 $ 14.7 $ 44.4 $ 1,422.3

43.7 330.1 152.3 3.1 1.1 530.3 272.2 172.0 21.1 1.1 466.4

0.1 2.2 22.9 0.3 9.3 34.8 3.2 25.0 0.3 9.1 37.6

Amortized cost basis of financing receivables

$ 51.2 $ 1,248.4 $ 562.7 $ 13.3 $ 37.1 $ 1,912.7 $ 1,161.3 $ 674.3 $ 36.1 $ 54.6 $ 1,926.3

(1) Internal risk ratings are categorized as 1 through 10, with the lowest rating representing the highest quality.

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

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

Derivative Instruments

We are exposed to foreign currency exchange risk.

Our revenue is transacted in U.S.

Our revenue is primarily 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.

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 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.

As of October 31, 2024 and July 31, 2024, the total notional amount of our outstanding foreign currency forward contracts designated as cash flow hedges was $ 656.6 million and $ 804.8 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 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.

Dig Security Solutions Ltd.

On December 5, 2023, we completed our acquisition of Dig Security Solutions Ltd.

(“Dig”), a privately-held cyber security company.

We expect the acquisition will enhance our Prisma Cloud capabilities with a data security posture management solution that is intended to provide customers with visibility into, and secure data stored across, their multi-cloud environments.

The total purchase consideration for the acquisition of Dig was $ 255.4 million, which consisted of the following (in millions):

Fair value of replacement awards 7.8

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

As of October 31, 2024, unrealized gains and losses in accumulated other comprehensive income (“AOCI”) related to our cash flow hedges were a $ 7.5 million net loss, of which $ 5.8 million in losses are expected to be recognized into earnings within the next 12 months.

As of July 31, 2024, unrealized gains and losses in AOCI related to our cash flow hedges were a $ 10.6 million net loss.

As of October 31, 2024 and July 31, 2024, the notional amount of our outstanding foreign currency forward contracts not designated as hedging instruments was $ 483.8 million and $ 375.6 million, respectively.

IBM QRadar Assets

On August 31, 2024, we completed the acquisition of certain IBM QRadar assets, including certain intellectual property rights, customer relationships, and software as a service customer contracts.

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

The total purchase consideration for the acquisition was $ 1.1 billion, which consisted of the following (in millions):

Fair value of contingent consideration liability 648.9

Return of purchase consideration ( 6.3 )

Total $ 1,142.6

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 $ 72.0 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.

As part of the acquisition, we agreed to make post-closing payments to IBM contingent upon customers entering into qualified new transactions through June 30, 2028.

We also expect to receive a return of purchase consideration of $ 6.3 million due to timing of transition of certain underlying customer contracts.

In addition, we have entered into a transition services arrangement with IBM, under which IBM will perform certain services supporting the acquired assets and customers for a limited period of time.

Payments related to the contingent consideration liability are expected to begin in the fiscal quarter ending April 2025 and continue through the fiscal quarter ending October 2028.

The estimated range of undiscounted contingent consideration is between $ 0.5 billion and $ 0.9 billion.

Refer to Note 3.

Fair Value Measurements, for more information on the fair value of our contingent consideration liability.

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):

1 unchanged sentence

Identified intangible assets 476.0

Cash and restricted cash 22.1

Net liabilities assumed ( 34.1 )

Total $ 1,142.6

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

The goodwill is not expected to be deducible for income tax purposes.

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

Goodwill generated from this business combination is primarily attributable to the expected post-acquisition synergies from increased market penetration to support the growth of our Cortex business.

The goodwill is deductible for U.S.

income tax purposes.

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

Fair Value Estimated Useful Life

Customer relationships $ 464.0 12 years

Developed technology 12.0 2 years

Talon Cyber Security Ltd.

On December 28, 2023, we completed our acquisition of Talon Cyber Security Ltd.

(“Talon”), a privately-held cyber security company.

We expect the acquisition will support Prisma SASE’s approach to provide secure access to business applications for unmanaged and personal devices with an enterprise browser.

The total purchase consideration for the acquisition of Talon was $ 458.6 million, which consisted of the following (in millions):

Fair value of replacement awards 19.6

Total $ 476.0

As part of the acquisition, we issued replacement equity awards, which included 0.3 million shares of our restricted common stock.

The total fair value of the replacement equity awards was $ 109.6 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.

Goodwill $ 253.7

Identified intangible assets 131.4

Cash and restricted cash 53.9

Net assets acquired 19.6

Total $ 458.6

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

The goodwill is not expected to be deductible for income tax purposes.

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

Fair Value Estimated Useful Life

Developed technology $ 131.4 5 years

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

Additional information related to the acquisition existing as of the acquisition date may become known during the remainder of the measurement period, not to exceed 12 months from the acquisition date, which may result in changes to the amounts and allocations recorded.

Goodwill and Intangible Assets

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

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

Balance as of July 31, 2024 $ 3,350.1

Goodwill acquired 700.7

Balance as of April 30, 2024 $ 3,372.7

Balance as of October 31, 2024 $ 4,050.8

Purchased Intangible Assets

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

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

October 31, 2024 July 31, 2024

Gross Carrying Amount

10 unchanged sentences

Other 0.9 ( 0.7 ) 0.2 0.9 ( 0.6 ) 0.3

Total intangible assets subject to amortization 1,013.9 ( 606.0 ) 407.9 830.8 ( 519.3 ) 311.5

Intangible assets not subject to amortization:

In-process research and development — — — 3.9 — 3.9

Total purchased intangible assets $ 1,491.1 $ ( 681.5 ) $ 809.6 $ 1,015.1 $ ( 640.2 ) $ 374.9

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):

We recognized amortization expense of $ 41.3 million and $ 24.9 million for the three months ended October 31, 2024 and 2023, respectively.

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

Fiscal years ending July 31,

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Convertible Senior Notes

In July 2018, we issued $ 1.7 billion aggregate principal amount of 0.75 % Convertible Senior Notes due 2023 (the “2023 Notes”) and in June 2020, we issued $ 2.0 billion aggregate principal amount of 0.375 % Convertible Senior Notes due 2025 (the “2025 Notes,” and together with the 2023 Notes, the “Notes”).

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

In June 2020, we issued $ 2.0 billion aggregate principal amount of 0.375 % Convertible Senior Notes due 2025 (the “2025 Notes”).

The 2025 Notes bear interest at a fixed rate of 0.375 % per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020.

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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.

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.

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

During the three months ended October 31, 2024 and 2023, holders of the 2025 Notes converted $ 319.0 million and $ 46.0 million, respectively, in aggregate principal amount of the 2025 Notes, which we repaid in cash.

We also issued 2.3 million and 0.3 million shares of our common stock to the holders of the 2025 Notes during the three months ended October 31, 2024 and 2023, 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 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.

Subsequent Events for additional information regarding conversion of the 2025 Notes after October 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 October 31, 2024 and as a result, holders may convert their 2025 Notes during the fiscal quarter ending January 31, 2025.

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

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

April 30, 2024 July 31, 2023

October 31, 2024 July 31, 2024

Principal $ 646.6 $ 965.6

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Net carrying amount $ 645.8 $ 963.9

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 total estimated fair value of the 2025 Notes was $ 2.3 billion as of October 31, 2024 and $ 3.2 billion as of July 31, 2024.

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 April 30, 2024 and July 31, 2023 to be a Level 2 measurement.

We consider the fair value of the 2025 Notes as of October 31, 2024 and July 31, 2024 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 2025 Notes (dollars in millions):

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

2024 2023 2024 2023

2023 Notes 2025 Notes Total 2023 Notes 2025 Notes Total 2023 Notes 2025 Notes Total 2023 Notes 2025 Notes Total

Three Months Ended October 31,

Contractual interest expense $ 0.7 $ 1.9

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Effective interest rate 0.6 % 0.6 %

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 Note 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.

Upon the settlement of the 2023 Notes, we exercised the corresponding portion of our 2023 Note Hedges during the year ended July 31, 2023 and received shares of our common stock that fully offset the shares issued in excess of the principal amount of the converted 2023 Notes.

The 2023 Note Hedges expired upon maturity of the 2023 Notes.

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

The 2025 Note Hedges cover up to 20.1 million shares of our common stock at a strike price per share that corresponds to the initial conversion price of the 2025 Notes, which are also subject to adjustment, and are exercisable upon conversion of the 2025 Notes.

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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.

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.

As a result of the conversions of the 2025 Notes settled during the three months ended October 31, 2024 and 2023, we exercised the corresponding portion of our 2025 Note Hedges and received 2.3 million and 0.3 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 0.75 % convertible senior notes due 2023 issued in July 2018, 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 over 60 scheduled trading days beginning October 2023 and September 2025, respectively.

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2023 Warrants (1)

19.1 $ 139.27 $ 145.4

2025 Warrants 20.1 $ 136.16 $ 202.8

(1) The 2023 Warrants were net settled during the 60 scheduled trading days from October to December 2023.

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.

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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 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.

During the three months ended October 31, 2023, we net settled a portion of the 2023 Warrants with 3.1 million shares of our common stock with a fair value of $ 763.5 million.

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.

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

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

Commitments and Contingencies

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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 April 30, 2024 (in millions):

The following table presents details of the aggregate future non-cancelable purchase commitments under these agreements as of October 31, 2024 (in millions):

Fiscal years ending July 31,

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Additionally, we have a $ 137.2 million minimum purchase commitment with a cloud service provider through September 2027 with no specified annual commitments.

In October 2023, we established a multi-currency notional cash pool for a certain number of our entities with a third-party bank.

As part of the notional cash pool agreement, the bank extends overdraft credit to our participating entities as needed, provided that the overall notionally pooled balance of all accounts in the pool at the end of each day is positive.

In the unlikely event of a default, any overdraft balances incurred would be guaranteed by our collective entities participating in the pool.

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.

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Patent and Trademark Office (“PTO”).

The case went to jury trial on January 22, 2024, on four patents, with three stayed pending review in the PTO.

The case went to jury trial on January 22, 2024, on four patents.

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

After post-trial motions, a judgment was issued on October 3, 2024 affirming infringement on three patents, reversing infringement on the fourth patent, and subsequently, reducing the damages amount to $ 113.6 million.

We posted a surety bond that was agreed upon by the parties and approved by the court.

This bond prevents execution of the judgment while appeals are pending.

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 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.

As of July 31, 2024, we accrued $ 184.4 million for the verdict amount and estimated interest.

As of October 31, 2024, we reassessed our loss accrual and reduced the amount to $ 141.4 million based on the judgment and estimated interest, which is recorded in other long-term liabilities on our condensed consolidated balance sheets.

The corresponding amount released was $ 43.0 million for the three months ended October 31, 2024, which is included in general and administrative expense on our condensed consolidated statements of operations.

Palo Alto Networks

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

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.

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 seeking a ruling that we are not infringing various Taasera patents.

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.

Lionra Technologies v.

Palo Alto Networks

On August 29, 2022, Lionra Technologies filed a lawsuit against us in the United States District Court for the Eastern District of Texas.

The lawsuit alleges that our products infringe multiple Lionra patents.

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

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

Patent and Trademark Office.

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.

A trial date is set for June 9, 2025.

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

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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, August 2021, August 2022, and November 2023, our board of directors authorized additional $ 700.0 million, $ 676.1 million, $ 915.0 million, and $ 316.7 million increases to this share repurchase program, respectively, bringing the total authorization under this share repurchase program to $ 3.6 billion (our “current authorization”).

In December 2020, August 2021, August 2022, November 2023, and August 2024, our board of directors authorized additional $ 700.0 million, $ 676.1 million, $ 915.0 million, $ 316.7 million and $ 500.0 million increases to this share repurchase program, respectively, bringing the total authorization under this share repurchase program to $ 4.1 billion (our “current authorization”).

The expiration date of our current authorization was extended to December 31, 2025, and our repurchase program may be suspended or discontinued at any time.

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

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

2024 2023 2024 2023

Number of shares repurchased 1.7 — 2.0 1.8

Weighted average price per share (1)

$ 293.91 $ — $ 284.00 $ 138.65

Aggregate purchase price (1)

$ 500.0 $ — $ 566.7 $ 250.0

(1) Includes transaction costs

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.

We did not repurchase shares of our common stock during the three months ended October 31, 2024.

During the three months ended October 31, 2023, we repurchased and retired 0.3 million shares of our common stock under our current repurchase authorization for an aggregate purchase price of $ 66.7 million, including transaction costs, at an average price of $ 226.67 .

As of October 31, 2024, $ 1.0 billion 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.

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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 nine months ended April 30, 2024 (in millions, except per share amounts):

RSUs Outstanding PSUs Outstanding

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

Unvested RSUs

Unvested PSUs

Number of Shares

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0.4 $ 351.52 1.6 $ 404.69

Vested ( 4.6 ) $ 131.05 ( 1.5 ) $ 116.51

( 1.3 ) $ 163.72 ( 0.6 ) $ 129.35

Forfeited ( 0.3 ) $ 197.36 ( 1.5 ) $ 181.44

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

Balance—October 31, 2024 7.8 $ 221.08 $ 2,813.8 4.5 $ 272.87 $ 1,633.6

(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 time-based vesting for PSUs.

Our RSUs generally vest over a period of three to four years from the date of grant.

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

During the three months ended October 31, 2024, we granted 1.6 million shares of PSUs that 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 performance conditions are based on an average of next-generation security annualized recurring revenue and non-GAAP net income per diluted share.

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 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.

As of October 31, 2024, we have approved 1.3 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 nine months ended April 30, 2024:

Nine Months Ended April 30, 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 three months ended October 31, 2024:

Three Months Ended October 31,

Volatility 44.1 % - 47.6 %

40.8 % - 43.4 %

Expected term (in years) 1.0 - 2.9

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Risk-free interest rate 3.7 % - 4.5 %

4.9 % - 5.3 %

Grant-date fair value per share $ 529.01 - $ 611.65

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

As of October 31, 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 nine months ended April 30, 2024 (in millions, except per share amounts):

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

Number of Shares

4 unchanged sentences

Exercised ( 0.6 ) $ 65.63

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

Balance—October 31, 2024 4.2 $ 65.29 1.0 $ 1,251.3

Exercisable—October 31, 2024 4.2 $ 65.29 1.0 $ 1,251.3

Share-Based Compensation

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

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

2024 2023 2024 2023

Three Months Ended October 31,

Cost of product revenue $ 1.3 $ 2.4

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Total share-based compensation $ 294.3 $ 271.0

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

As of October 31, 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 2.5 years.

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.

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.

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.

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.

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 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.

For the three months ended October 31, 2024 and 2023, our provision for income taxes reflected effective tax rates of 4.9 % and 31.3 %, respectively.

Our income taxes for the three months ended October 31, 2024 and 2023 were primarily due to U.S.

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

Our effective tax rates differed from the U.S.

statutory tax rate primarily due to an increase in current taxes driven by capitalization of research and development expenditures with no offsetting deferred benefit as a result of our valuation allowance.

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 nine months ended April 30, 2023.

Our effective tax rate for the three months ended October 31, 2024 differed from the U.S.

statutory tax rate primarily due to excess tax benefits from share-based compensation.

Our effective tax rate for the three months ended October 31, 2023 differed from the U.S.

statutory tax rate primarily due to changes in our valuation allowance and excess tax benefits from share-based compensation.

Net Income Per Share

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Diluted net income per share is computed by dividing net income 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.

We compute the dilutive effect of shares issuable upon conversion of our convertible senior notes using the if-converted method, and the dilutive effect of 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 per share of common stock (in millions, except per share data):

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

2024 2023 2024 2023

Three Months Ended October 31,

$ 350.7 $ 194.2

Weighted-average shares used to compute net income per share, basic

322.9 303.9 317.5 302.0

Weighted-average effect of potentially dilutive securities:

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Weighted-average shares used to compute net income per share, diluted

354.6 344.7 354.0 338.1

Net income per share, basic

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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 April 30, Nine Months Ended April 30,

2024 2023 2024 2023

Three Months Ended October 31,

Employee equity incentive plans 1.6 2.6

1 unchanged sentence

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

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

2024 2023 2024 2023

Three Months Ended October 31,

Interest income $ 85.7 $ 71.2

Foreign currency exchange gains (losses), net ( 7.5 ) 5.1

( 5.8 ) ( 3.6 ) ( 5.9 ) ( 9.3 )

Total other income, net $ 83.3 $ 70.3

Subsequent Event

Subsequent Events

2025 Notes Conversion

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.

Subsequent to October 31, 2024, $ 106.0 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 January 31, 2025.

On November 19, 2024, our board of directors approved a two -for-one stock split (the “stock split”) of our outstanding shares of common stock.

The stock split is to be effected through an amendment to our restated certificate of incorporation, which will also effect a proportionate increase in the number of authorized shares of our common stock from 1.0 billion to 2.0 billion.

As a result of the stock split, each stockholder of record as of the close of trading on December 12, 2024 (the “record date”), will receive, after the close of trading on December 13, 2024, one additional share for every share held on the record date.

Trading is expected to begin on a split-adjusted basis on December 16, 2024.

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