What changed in this filing

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Item 1. Financial Statements

2025-02-14 compared with 2024-11-21 · 174 added, 96 removed, 597 unchanged (31% of the section changed)

3 unchanged sentences

(in millions, except per share data)

October 31, 2024 July 31, 2024

January 31, 2025 July 31, 2024

Current assets:

1 unchanged sentence

Short-term investments 1,006.6 1,043.6

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

Accounts receivable, net of allowance for credit losses of $ 8.5 and $ 7.5 as of January 31, 2025 and July 31, 2024, respectively

1,495.5 2,618.6

33 unchanged sentences

100.0 shares authorized;

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

none issued and outstanding as of January 31, 2025 and July 31, 2024

Common stock and additional paid-in capital;

1 unchanged sentence

2,000.0 shares authorized;

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

660.4 and 650.2 shares issued and outstanding as of January 31, 2025 and July 31, 2024, respectively

4,421.0 3,821.1

8 unchanged sentences

(Unaudited, in millions, except per share data)

Three Months Ended October 31,

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

2025 2024 2025 2024

Product $ 421.5 $ 390.7 $ 775.3 $ 731.8

12 unchanged sentences

Operating income

240.4 53.6 526.9 268.8

Interest expense ( 0.9 ) ( 2.8 ) ( 2.1 ) ( 5.7 )

1 unchanged sentence

Income before income taxes

Provision for income taxes 17.9 88.4

324.8 135.5 693.4 418.1

Provision for (benefit from) income taxes

57.5 ( 1,611.4 ) 75.4 ( 1,523.0 )

$ 267.3 $ 1,746.9 $ 618.0 $ 1,941.1

Net income per share, basic

3 unchanged sentences

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

659.3 639.3 656.5 629.7

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

709.0 715.0 709.1 707.3

See notes to condensed consolidated financial statements .

2 unchanged sentences

(Unaudited, in millions)

Three Months Ended October 31,

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

2025 2024 2025 2024

$ 267.3 $ 1,746.9 $ 618.0 $ 1,941.1

Other comprehensive income, net of tax:

3 unchanged sentences

Net realized (gains) losses reclassified into earnings

4.3 ( 1.2 ) 5.5 8.1

Net change on cash flow hedges ( 5.5 ) 26.4 ( 4.3 ) ( 5.2 )

Other comprehensive loss

Other comprehensive income (loss)

( 9.9 ) 86.5 ( 12.3 ) 36.7

4 unchanged sentences

(Unaudited, in millions)

Three Months Ended October 31, 2024

Three Months Ended January 31, 2025

Common Stock and Additional Paid-In Capital

3 unchanged sentences

Shares Amount

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

Balance as of October 31, 2024 655.4 $ 4,214.9 $ ( 4.0 ) $ 1,700.9 $ 5,911.8

Net income — — — 267.3 267.3

7 unchanged sentences

( 1.7 ) — — — —

Balance as of January 31, 2025 660.4 $ 4,421.0 $ ( 13.9 ) $ 1,968.2 $ 6,375.3

Three Months Ended January 31, 2024

Common Stock and Additional Paid-In Capital

Accumulated Other Comprehensive Loss

Retained Earnings (Accumulated Deficit)

Total Stockholders’ Equity

Shares Amount

Balance as of October 31, 2023 627.5 $ 3,296.7 $ ( 93.0 ) $ ( 1,033.2 ) $ 2,170.5

Three Months Ended October 31, 2023

— — — 1,746.9 1,746.9

Other comprehensive income

— — 86.5 — 86.5

Issuance of common stock in connection with employee equity incentive plans 6.0 55.3 — — 55.3

Taxes paid related to net share settlement of equity awards — ( 3.8 ) — — ( 3.8 )

Share-based compensation for equity-based awards — 302.1 — — 302.1

Settlement of convertible notes 1.7 ( 0.3 ) — — ( 0.3 )

Settlement of note hedges

( 1.7 ) — — — —

Settlement of warrants 11.9 — — — —

Balance as of January 31, 2024 645.4 $ 3,650.0 $ ( 6.5 ) $ 713.7 $ 4,357.2

Six Months Ended January 31, 2025

Common Stock and Additional Paid-In Capital

Accumulated Other Comprehensive Loss

Accumulated Deficit

Retained Earnings

Total Stockholders’ Equity

1 unchanged sentence

Balance as of July 31, 2024 650.2 $ 3,821.1 $ ( 1.6 ) $ 1,350.2 $ 5,169.7

— — — 194.2 194.2

Net income — — — 618.0 618.0

Other comprehensive loss

3 unchanged sentences

Share-based compensation for equity-based awards — 619.4 — — 619.4

Settlement of convertible notes 6.2 ( 0.1 ) — — ( 0.1 )

Settlement of note hedges

( 6.2 ) — — — —

Balance as of January 31, 2025 660.4 $ 4,421.0 $ ( 13.9 ) $ 1,968.2 $ 6,375.3

Six Months Ended January 31, 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 616.7 $ 3,019.0 $ ( 43.2 ) $ ( 1,227.4 ) $ 1,748.4

Net income — — — 1,941.1 1,941.1

Other comprehensive income

— — 36.7 — 36.7

Issuance of common stock in connection with employee equity incentive plans 11.3 142.3 — — 142.3

Taxes paid related to net share settlement of equity awards — ( 19.3 ) — — ( 19.3 )

Share-based compensation for equity-based awards — 575.2 — — 575.2

Repurchase and retirement of common stock ( 0.6 ) ( 66.7 ) — — ( 66.7 )

3 unchanged sentences

Settlement of warrants

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 645.4 $ 3,650.0 $ ( 6.5 ) $ 713.7 $ 4,357.2

See notes to condensed consolidated financial statements.

PALO ALTO NETWORKS, INC.

1 unchanged sentence

(Unaudited, in millions)

Three Months Ended October 31,

Six Months Ended January 31,

Cash flows from operating activities

25 unchanged sentences

Business acquisitions, net of cash and restricted cash acquired

( 499.5 ) ( 610.6 )

Purchases of property, equipment, and other assets

11 unchanged sentences

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

3 unchanged sentences

Restricted cash included in prepaid expenses and other current assets 10.5 6.3

Restricted cash included in other assets — 0.5

Total cash, cash equivalents, and restricted cash $ 2,236.8 $ 1,789.3

Non-cash investing and financing activities

Equity consideration for business acquisitions $ — $ ( 27.4 )

Contingent consideration for a business acquisition

22 unchanged sentences

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

On December 12, 2024, we effected a two -for-one stock split of our outstanding shares of common stock through an amendment to our restated certificate of incorporation (“Stock Split”), which also effected a proportionate increase in the number of authorized shares of our common stock from 1.0 billion to 2.0 billion.

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

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

Summary of Significant Accounting Policies

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”).

There have been no material changes to our significant accounting policies as of and for the six months ended January 31, 2025, 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 acquisition of certain QRadar assets from International Business Machines Corporation (“IBM”).

Refer to Note 7.

18 unchanged sentences

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

Expense Disaggregation Disclosures

In November 2024, the FASB issued authoritative guidance that expands annual and interim disclosure of specified information about certain costs and expenses in the notes to financial statements.

The standard is effective for our annual period in fiscal 2028 and interim periods beginning in the first quarter of fiscal 2029, and could be applied either prospectively or retrospectively.

Early adoption is permitted.

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

Disaggregation of Revenue

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

Three Months Ended October 31,

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

2025 2024 2025 2024

United States $ 1,400.5 $ 1,248.2 $ 2,744.6 $ 2,452.5

5 unchanged sentences

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

Three Months Ended October 31,

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

2025 2024 2025 2024

Product $ 421.5 $ 390.7 $ 775.3 $ 731.8

5 unchanged sentences

Deferred Revenue

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.

During the six months ended January 31, 2025 and 2024, we recognized approximately $ 3.1 billion and $ 2.7 billion of revenue pertaining to amounts that were deferred as of July 31, 2024 and 2023, respectively.

Remaining Performance Obligations

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.

Remaining performance obligations were $ 13.0 billion as of January 31, 2025, of which we expect to recognize as revenue approximately $ 6.1 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 October 31, 2024 and July 31, 2024 (in millions):

October 31, 2024 July 31, 2024

The following table presents our financial assets and liabilities measured at fair value on a recurring basis as of January 31, 2025 and July 31, 2024 (in millions):

January 31, 2025 July 31, 2024

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

13 unchanged sentences

Total short-term investments — 1,006.6 — 1,006.6 — 1,043.6 — 1,043.6

January 31, 2025 July 31, 2024

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

Long-term investments:

11 unchanged sentences

Total assets measured at fair value $ 1,291.9 $ 5,879.5 $ — $ 7,171.4 $ 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:

14 unchanged sentences

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

Three Months Ended October 31, 2024

Three Months Ended January 31, 2025 Six Months Ended January 31, 2025

Contingent consideration liability at the beginning of the period

2 unchanged sentences

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.

$ 664.9 $ 664.9

The total estimated fair value of our financing receivables approximates their carrying amounts as of January 31, 2025 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 October 31, 2024 and July 31, 2024.

Debt for the carrying amount and estimated fair value of our convertible senior notes as of January 31, 2025 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 October 31, 2024 and July 31, 2024 (in millions):

October 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 January 31, 2025 and July 31, 2024 (in millions):

January 31, 2025

Amortized Cost

29 unchanged sentences

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

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 January 31, 2025, the gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months were $ 8.9 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 $ 0.4 million, which were related to $ 215.4 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.

1 unchanged sentence

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 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):

We did not recognize any credit losses related to our available-for-sale debt securities during the three and six months ended January 31, 2025 and 2024.

The following table summarizes the amortized cost and fair value of our available-for-sale debt securities as of January 31, 2025, 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 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.

As of January 31, 2025 and July 31, 2024, the carrying values of our marketable equity securities were $ 1.3 billion and $ 494.0 million, respectively.

There were no unrealized gains or losses recognized for these securities during the three and six months ended January 31, 2025 and 2024.

Financing Receivables

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

The following table summarizes our short-term and long-term financing receivables as of January 31, 2025 and July 31, 2024 (in millions):

January 31, 2025 July 31, 2024

Short-term financing receivables, gross $ 859.7 $ 830.2

10 unchanged sentences

Internal Risk Rating (1)

October 31, 2024 July 31, 2024

January 31, 2025 July 31, 2024

Fiscal Year of Origination

7 unchanged sentences

(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.

There was no significant activity in allowance for credit losses during the three and six months ended January 31, 2025 and 2024.

Past due amounts on financing receivables were not material as of January 31, 2025 and July 31, 2024.

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 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.

As of January 31, 2025 and July 31, 2024, the total notional amount of our outstanding foreign currency forward contracts designated as cash flow hedges was $ 1.0 billion 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 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.

Fair Value Measurements for the fair value of our derivative instruments as reported on our condensed consolidated balance sheets as of January 31, 2025 and July 31, 2024.

As of January 31, 2025, unrealized gains and losses in accumulated other comprehensive income (“AOCI”) related to our cash flow hedges were a $ 16.0 million net loss, of which $ 14.1 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.

As of January 31, 2025 and July 31, 2024, the notional amount of our outstanding foreign currency forward contracts not designated as hedging instruments was $ 567.2 million and $ 375.6 million, respectively.

IBM QRadar Assets

6 unchanged sentences

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.

We also expect to receive a return of purchase consideration of $ 6.3 million due to timing of transition of certain underlying customer contracts, of which $ 0.5 million was received during the three and six months ended January 31, 2025.

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.

19 unchanged sentences

Goodwill and Intangible Assets

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

The following table presents details of our goodwill during the six months ended January 31, 2025 (in millions):

Balance as of July 31, 2024 $ 3,350.1

Goodwill acquired 700.7

Balance as of October 31, 2024 $ 4,050.8

Balance as of January 31, 2025 $ 4,050.8

Purchased Intangible Assets

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

The following table presents details of our purchased intangible assets as of January 31, 2025 and July 31, 2024 (in millions):

January 31, 2025 July 31, 2024

Gross Carrying Amount

11 unchanged sentences

Total purchased intangible assets $ 1,497.2 $ ( 725.8 ) $ 771.4 $ 1,015.1 $ ( 640.2 ) $ 374.9

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):

We recognized amortization expense of $ 44.3 million and $ 85.6 million for the three and six months ended January 31, 2025, respectively, and $ 28.4 million and $ 53.3 million for the three and six months ended January 31, 2024, respectively.

The following table summarizes estimated future amortization expense of our intangible assets subject to amortization as of January 31, 2025 (in millions):

Fiscal years ending July 31,

21 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.

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.

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

During the three and six months ended January 31, 2025, holders of the 2025 Notes converted $ 112.4 million and $ 431.4 million, respectively, in aggregate principal amount of the 2025 Notes, which we repaid in cash.

We also issued 1.7 million and 6.2 million shares of our common stock to the holders of the 2025 Notes during the three and six months ended January 31, 2025, respectively, for the conversion value in excess of the principal amount.

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 1.7 million and 2.2 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 note hedges.

Refer to Note 16.

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.

Subsequent Events for additional information regarding conversion of the 2025 Notes after January 31, 2025 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, 2025 and, as a result, holders may convert their 2025 Notes during the fiscal quarter ending April 30, 2025 at any time prior to the close of business on the business day immediately preceding March 1, 2025 for settlement prior to the maturity date.

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

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

October 31, 2024 July 31, 2024

January 31, 2025 July 31, 2024

Principal $ 534.2 $ 965.6

2 unchanged sentences

Net carrying amount $ 533.8 $ 963.9

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 total estimated fair value of the 2025 Notes was $ 2.0 billion as of January 31, 2025 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 October 31, 2024 and July 31, 2024 to be a Level 2 measurement.

We consider the fair value of the 2025 Notes as of January 31, 2025 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 October 31,

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

2025 2024 2025 2024

Contractual interest expense $ 0.6 $ 1.7 $ 1.3 $ 3.6

9 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.

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.

As a result of the conversions of the 2025 Notes settled during the three and six months ended January 31, 2025, we exercised the corresponding portion of our 2025 Note Hedges and received 1.7 million and 6.2 million shares of our common stock during the respective periods.

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 1.7 million and 2.2 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.

12 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 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.

During the six months ended January 31, 2024, we net settled all of the 2023 Warrants with 18.0 million shares of our common stock with a fair value of $ 2.4 billion, of which 11.9 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.

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

As of January 31, 2025, 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 October 31, 2024 (in millions):

The following table presents details of the aggregate future non-cancelable purchase commitments under these agreements as of January 31, 2025 (in millions):

Fiscal years ending July 31,

28 unchanged sentences

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.

As of January 31, 2025, we accrued $ 142.8 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 was a charge of $ 1.4 million for the three months ended January 31, 2025, and a release of $ 41.6 million for the six months ended January 31, 2025, which is included in general and administrative expense on our condensed consolidated statements of operations.

Palo Alto Networks

10 unchanged sentences

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.

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.

We did no t repurchase shares of our common stock during the three and six months ended January 31, 2025.

During the six months ended January 31, 2024, we repurchased and retired 0.6 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 $ 113.34 per share.

As of January 31, 2025, $ 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 three months ended October 31, 2024 (in millions, except per share amounts):

The following table summarizes the RSU and PSU activity under our stock plans during the six months ended January 31, 2025 (in millions, except per share amounts):

Unvested RSUs

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Forfeited ( 1.1 ) $ 106.64 ( 3.2 ) $ 91.47

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

Balance—January 31, 2025 16.3 $ 130.05 $ 3,000.4 9.5 $ 140.37 $ 1,758.0

(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.

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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 three months ended October 31, 2024, we granted 1.6 million shares of PSUs that contain service, performance, and market conditions.

During the six months ended January 31, 2025, we granted 3.4 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, 2025.

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 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.

As of January 31, 2025, 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 months ended October 31, 2024:

Three Months Ended October 31,

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, 2025 and 2024:

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

2025 2024 2025 2024

Volatility 43.5 % - 43.9 %

43.5 % - 47.6 %

40.8 % - 43.4 %

Expected term (in years) 1.7 - 2.7

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3.7 % - 4.5 %

4.5 % - 5.3 %

Grant-date fair value per share $ 287.98 - $ 291.91

$ 264.51 - $ 305.83

$ 173.46 - $ 197.32

Performance Stock Option (“PSO”) Activities

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

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

As of January 31, 2025, 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 three months ended October 31, 2024 (in millions, except per share amounts):

The following table summarizes the PSO activity under our stock plans during the six months ended January 31, 2025 (in millions, except per share amounts):

Number of Shares

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Exercised ( 5.3 ) $ 32.49

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

Balance—January 31, 2025 4.3 $ 32.87 0.8 $ 654.1

Exercisable—January 31, 2025 4.3 $ 32.87 0.8 $ 654.1

Share-Based Compensation

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

Three Months Ended October 31,

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

2025 2024 2025 2024

Cost of product revenue $ 1.3 $ 2.3 $ 2.6 $ 4.7

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Total share-based compensation $ 320.5 $ 275.3 $ 614.8 $ 546.3

As of October 31, 2024, total compensation cost related to unvested share-based awards not yet recognized was $ 2.2 billion.

As of January 31, 2025, total compensation cost related to unvested share-based awards not yet recognized was $ 2.5 billion.

This cost is expected to be amortized over a weighted-average period of approximately 2.6 years.

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

For the three and six months ended January 31, 2025, our provision for income taxes reflected effective tax rates of 17.7 % and 10.9 %, respectively.

Our income taxes for the three and six months ended January 31, 2025 were primarily due to U.S.

and foreign income taxes.

Our effective tax rate for the three and six months ended January 31, 2025 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.

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 rate for the three and six months ended January 31, 2024 differed from the U.S.

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

federal, U.S.

states other than California, and United Kingdom (“U.K.”) deferred tax assets.

As a result of the valuation allowance release, during the three and six months ended January 31, 2024, we recognized a deferred tax benefit of $ 3.2 billion for the U.S.

federal, U.S.

states other than California, and U.K.

deferred tax assets.

In addition, during the three and six months ended January 31, 2024, we recognized a deferred tax expense of $ 1.7 billion for the U.S.

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

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.

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 October 31,

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

2025 2024 2025 2024

$ 267.3 $ 1,746.9 $ 618.0 $ 1,941.1

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

659.3 639.3 656.5 629.7

Weighted-average effect of potentially dilutive securities:

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

709.0 715.0 709.1 707.3

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 October 31,

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

2025 2024 2025 2024

Employee equity incentive plans 6.3 4.7 4.8 4.9

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

Three Months Ended October 31,

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

2025 2024 2025 2024

Interest income $ 86.9 $ 85.3 $ 172.6 $ 156.5

Foreign currency exchange gains (losses), net 2.4 ( 6.5 ) ( 5.1 ) ( 1.4 )

( 4.0 ) 5.9 1.1 ( 0.1 )

Total other income, net $ 85.3 $ 84.7 $ 168.6 $ 155.0

1 unchanged sentence

2025 Notes Conversion

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.

Subsequent to January 31, 2025, $ 100.4 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, 2025.

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