What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-14 compared with 2024-11-21 · 119 added, 114 removed, 327 unchanged (42% of the section changed)

21 unchanged sentences

the timing and amount of capital expenditures and share repurchases;

the effects of worldwide economic and geopolitical conditions, including but not limited to hostilities in Israel and the surrounding regions, inflation, interest rate levels, trade regulations, growth rates and other conditions, on our operating and financial results and performance;

the effects of worldwide economic and geopolitical conditions, including but not limited to hostilities in Israel and the surrounding regions, inflation, interest rate levels, public or administration policies, trade regulations, growth rates and other conditions, on our operating and financial results and performance;

the manufacture, delivery and cost of certain of our products;

11 unchanged sentences

• Results of Operations.

A discussion of the nature and trends in our financial results and an analysis of our financial results comparing the three months ended October 31, 2024 to the three months ended October 31, 2023.

A discussion of the nature and trends in our financial results and an analysis of our financial results comparing the three and six months ended January 31, 2025 to the three and six months ended January 31, 2024.

• Liquidity and Capital Resources.

13 unchanged sentences

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

Prisma Access Browser extends SASE security and data protection to the endpoint, giving workers complete device freedom to access business applications securely using their browser.

Prisma Access Browser extends SASE security and data protection to the end user device, giving workers complete device freedom to access business applications securely using a secure browser.

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

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

Strata Cloud Manager, our network security management solution, can centrally manage our network security platform irrespective of form factor, location, or scale.

Strata Cloud Manager, our network security management solution, centrally manages our network security platform irrespective of form factor, location, or scale.

Strata Cloud Manager includes the Strata Copilot which provides a natural language interface to simplify and strengthen network security.

4 unchanged sentences

Security Operations:

• We deliver the next generation of security operations capabilities that unifies standalone Security Information and Event Management (“SIEM”) tools, endpoint security, security automation, and attack surface management (“ASM”) capabilities on our Cortex platform.

• We deliver the next generation of security operations capabilities that unifies standalone Security Information and Event Management (“SIEM”) tools, endpoint security, security automation, cloud detection and response (“CDR”), as well as attack surface management (“ASM”) capabilities on our Cortex platform.

These include Cortex XSIAM ® , for AI-driven security operations that replaces traditional SIEM tools, Cortex XDR ® for the prevention, detection, and response to complex cybersecurity attacks, Cortex XSOAR ® for security orchestration, automation, and response (“SOAR”), and Cortex Xpanse ® for ASM.

4 unchanged sentences

Additionally, Unit 42 offers managed detection and response (“MDR”) and managed threat hunting services.

For the first quarter of fiscal 2025 and 2024, total revenue was $2.1 billion and $1.9 billion, respectively, representing year-over-year growth of 13.9%.

For the second quarter of fiscal 2025 and 2024, total revenue was $2.3 billion and $2.0 billion, respectively, representing year-over-year growth of 14.3%.

Our growth reflects the increased adoption of our portfolio, which consists of product, subscriptions, and support.

We believe our portfolio will enable us to benefit from recurring revenues and new revenues as we continue to grow our end-customer base.

As of October 31, 2024, we had end-customers in over 180 countries.

As of January 31, 2025, we had end-customers in over 180 countries.

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

1 unchanged sentence

We primarily use a two-tiered, indirect fulfillment model whereby we sell our products, subscriptions, and support to our distributors, which, in turn, sell to our resellers, which then sell to our end-customers.

Our product revenue grew to $353.8 million, or 16.5% of total revenue, for the first quarter of fiscal 2025, representing year-over-year growth of 3.7%.

Our product revenue grew to $421.5 million, or 18.7% of total revenue, for the second quarter of fiscal 2025, representing year-over-year growth of 7.9%.

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

2 unchanged sentences

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

Our products are designed for different performance requirements throughout an organization, ranging from our PA-410, which is designed for small organizations and remote or branch offices, to our top-of-the-line PA-7500, which is designed for large-scale data centers and service provider use.

Our products are designed for different performance requirements throughout an organization, ranging from our PA-400 Series, which is designed for small organizations and remote or branch offices, to our top-of-the-line PA-7500, which is designed for large-scale data centers and service provider use.

The same firewall functionality that is delivered in our physical appliances is also available in our VM-Series virtual firewalls, which secure virtualized and cloud-based computing environments, and in our CN-Series container firewalls, which secure container environments and traffic.

Our subscription and support revenue grew to $1.8 billion, or 83.5% of total revenue, for the first quarter of fiscal 2025, representing year-over-year growth of 16.1%.

Our subscriptions provide our end-customers with near real-time access to the latest antivirus, intrusion prevention, web filtering, modern malware prevention, data loss prevention, and cloud access security broker and AI security capabilities across the network, endpoints, and the cloud.

Our subscription and support revenue grew to $1.8 billion, or 81.3% of total revenue, for the second quarter of fiscal 2025, representing year-over-year growth of 15.9%.

Our subscriptions provide our end-customers with near real-time access to the latest intrusion prevention, web security, modern malware prevention, data loss prevention, cloud access security broker and AI security capabilities across the network, endpoints, and the cloud.

Our subscriptions also include security operations, which enable customers to leverage the AI-driven Cortex platform for advanced capabilities such as security information and event management, next-generation antivirus, endpoint detection and response, extended detection and response, identity threat detection and response, cloud detection and response, SOAR, as well as ASM.

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We continue to invest in innovation as we evolve and further extend the capabilities of our portfolio, as we believe that innovation and timely development of new features and products are essential to meeting the needs of our end-customers and improving our competitive position.

For example, in August 2024, we launched Prisma Access Browser, our SASE-native enterprise browser that enables security teams to manage security policies across web applications and devices;

and in October 2024, we introduced new capabilities in our operational technology (“OT”) Security solution to protect OT remote operations, mitigate risk for critical OT assets and extend security into industrial environments.

Additionally, we continue to make strategic investments that fit well within our long-term strategy.

For example, in August 2024, we completed the acquisition of certain QRadar assets from International Business Machines Corporation (“IBM”), which we expect will help accelerate the growth of our Cortex business.

For example, in February 2025, we announced Cortex Cloud, the next version of Prisma Cloud, that brings together our CDR and CNAPP capabilities on the unified Cortex platform to provide centralized visibility, AI-driven insights, and end-to-end remediation across the cloud security ecosystem to stop attacks in real time.

We believe that the growth of our business and our short-term and long-term success are dependent upon many factors, including our ability to extend our technology leadership, grow our base of end-customers, expand deployment of our portfolio and support offerings within existing end-customers, focus on end-customer satisfaction, and address any product vulnerabilities.

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

Worsening economic conditions, including inflation, high interest rates, slow growth, fluctuations in foreign exchange rates, supply chain disruptions, impacts of trade regulations, and other conditions, may adversely affect our results of operations and financial performance.

The hostilities in Israel and the surrounding region have increased the levels of economic and political uncertainty.

Changes in legislation or regulations and actions by regulators, including changes in enforcement and administration policies, may have an impact on our results of operations and financial condition.

Further, worsening economic conditions, including inflation, high interest rates, slow growth, fluctuations in foreign exchange rates, supply chain disruptions, impacts of trade regulations, and other conditions, may adversely affect our results of operations and financial performance.

The hostilities in Israel and the surrounding region have continued to result in economic and political uncertainty.

While we have business operations in Israel, and intend to continue growing our presence in Israel, we currently do not expect significant business disruption.

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

October 31, 2024 July 31, 2024

January 31, 2025 July 31, 2024

(in billions)

2 unchanged sentences

$ 13.0 $ 12.7

Three Months Ended October 31,

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

2025 2024 2025 2024

(dollars in millions)

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GAAP, is provided below:

Three Months Ended October 31,

Six Months Ended January 31,

(in millions)

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The period-to-period comparison of results is not necessarily indicative of results for future periods.

Three Months Ended October 31,

Amount % of Revenue Amount % of Revenue

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

2025 2024 2025 2024

Amount % of Revenue Amount % of Revenue Amount % of Revenue Amount % of Revenue

(dollars in millions)

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Income before income taxes 324.8 14.4 % 135.5 6.9 % 693.4 15.8 % 418.1 10.9 %

Provision for income taxes 17.9 0.8 % 88.4 4.7 %

Provision for (benefit from) income taxes 57.5 2.6 % (1,611.4) (81.5) % 75.4 1.7 % (1,523.0) (39.5) %

Net income $ 267.3 11.8 % $ 1,746.9 88.4 % $ 618.0 14.1 % $ 1,941.1 50.4 %

(1) Includes share-based compensation as follows:

Three Months Ended October 31,

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

2025 2024 2025 2024

(in millions)

13 unchanged sentences

We recognize product revenue at the time of hardware shipment or delivery of software license.

Three Months Ended October 31,

2024 2023 Change

Amount Amount Amount %

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

2025 2024 Change 2025 2024 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

Product $ 421.5 $ 390.7 $ 30.8 7.9 % $ 775.3 $ 731.8 $ 43.5 5.9 %

The change in product revenue for the three months ended October 31, 2024 compared to the same period in 2023 represented a modest increase in product sales.

Product revenue increased for the three and six months ended January 31, 2025 compared to the same periods in 2024 driven by increased demand for our new generation of hardware products and accessories, and an increase in price of and allocation to on-premise software licenses due to enhanced features and capabilities during the fiscal quarter ended January 31, 2025.

The increase in product revenue for the six months ended January 31, 2025 was partially offset by decreased demand for our prior generation of hardware products.

SUBSCRIPTION AND SUPPORT REVENUE

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As a percentage of total revenue, we expect our subscription and support revenue to vary from quarter to quarter and increase over the long term as we introduce new subscriptions, renew existing subscription and support contracts, and expand our installed end-customer base.

Three Months Ended October 31,

2024 2023 Change

Amount Amount Amount %

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

2025 2024 Change 2025 2024 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

2 unchanged sentences

Total subscription and support $ 1,835.9 $ 1,584.4 $ 251.5 15.9 % $ 3,620.9 $ 3,121.4 $ 499.5 16.0 %

Subscription and support revenue increased for the three months ended October 31, 2024 compared to the same period in 2023 primarily due to increased demand for our subscription and support offerings from our end-customers.

Subscription and support revenue increased for the three and six months ended January 31, 2025 compared to the same periods in 2024 primarily due to increased demand for our subscription and support offerings from our end-customers.

The mix between subscription revenue and support revenue will fluctuate over time, depending on the introduction of new subscription offerings, renewals of support services, and our ability to increase sales to new and existing end-customers.

REVENUE BY GEOGRAPHIC THEATER

Three Months Ended October 31,

2024 2023 Change

Amount Amount Amount %

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

2025 2024 Change 2025 2024 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

Americas $ 1,502.4 $ 1,334.2 $ 168.2 12.6 % $ 2,944.5 $ 2,620.8 $ 323.7 12.4 %

EMEA 441.4 364.9 76.5 21.0 %

APAC 255.3 226.6 28.7 12.7 %

Europe, the Middle East, and Africa (“EMEA”) 480.0 406.8 73.2 18.0 % 921.4 771.7 149.7 19.4 %

Asia Pacific and Japan (“APAC”) 275.0 234.1 40.9 17.5 % 530.3 460.7 69.6 15.1 %

Total revenue $ 2,257.4 $ 1,975.1 $ 282.3 14.3 % $ 4,396.2 $ 3,853.2 $ 543.0 14.1 %

Revenue from the Americas, Europe, the Middle East, and Africa (“EMEA”), and Asia Pacific and Japan (“APAC”), increased for the three months ended October 31, 2024 compared to the same period in 2023 as we continued to increase investment in our global sales force in order to support our growth and innovation, with the Americas contributing the highest increase in revenue due to its larger scale.

Revenue from the Americas, EMEA, and APAC increased for the three and six months ended January 31, 2025 compared to the same periods in 2024 as we continued to increase investment in our global sales force in order to support our growth and innovation, with the Americas contributing the highest increase in revenue due to its larger scale.

COST OF REVENUE

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

Three Months Ended October 31,

2024 2023 Change

Amount Amount Amount %

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

2025 2024 Change 2025 2024 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

Cost of product revenue $ 101.3 $ 88.2 $ 13.1 14.9 % $ 176.3 $ 165.6 $ 10.7 6.5 %

Cost of product revenue was relatively flat for the three months ended October 31, 2024 compared to the same period in 2023.

Cost of product revenue increased for the three and six months ended January 31, 2025 compared to the same periods in 2024 primarily due to an increase in inventory reserves.

The increase in cost of product revenue for the three months ended January 31, 2025 was further driven by increased demand for our new generation hardware products.

COST OF SUBSCRIPTION AND SUPPORT REVENUE

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We expect our cost of subscription and support revenue to increase as our installed end-customer base grows and adoption of our cloud-based subscription offerings increases.

Three Months Ended October 31,

2024 2023 Change

Amount Amount Amount %

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

2025 2024 Change 2025 2024 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

Cost of subscription and support revenue $ 497.9 $ 410.9 $ 87.0 21.2 % $ 977.0 $ 806.3 $ 170.7 21.2 %

Cost of subscription and support revenue increased for the three months ended October 31, 2024 compared to the same period in 2023 primarily due to increased costs to support the growth of our subscription and support offerings.

Cloud hosting service costs, which support our cloud-based subscription offerings, increased $39.8 million for the three months ended October 31, 2024 compared to the same period in 2023.

Personnel costs grew $11.3 million for the three months ended October 31, 2024 compared to the same period in 2023, primarily due to headcount growth.

The increase in cost of subscription and support revenue was further driven by increased professional services expense.

Cost of subscription and support revenue increased for the three and six months ended January 31, 2025 compared to the same periods in 2024 primarily due to increased costs to support the growth of our subscription and support offerings.

Cloud hosting service costs, which support our cloud-based subscription offerings, increased $45.9 million and $85.7 million for the three and six months ended January 31, 2025, respectively, compared to the same periods in 2024.

Personnel costs grew $14.5 million and $25.8 million for the three and six months ended January 31, 2025, respectively, compared to the same periods in 2024, primarily due to headcount growth.

The increase in cost of subscription and support revenue in both periods was further driven by increased professional services expense.

Gross margin has been and will continue to be affected by a variety of factors, including the introduction of new products, manufacturing costs, the average sales price of our products, cloud hosting service costs, personnel costs, the mix of products sold, and the mix of revenue between product and subscription and support offerings.

1 unchanged sentence

We expect our gross margins to vary over time depending on the factors described above.

Three Months Ended October 31,

Amount Gross Margin Amount Gross Margin

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

2025 2024 2025 2024

Amount Gross Margin Amount Gross Margin Amount Gross Margin Amount Gross Margin

(dollars in millions)

2 unchanged sentences

Total gross profit $ 1,658.2 73.5 % $ 1,476.0 74.7 % $ 3,242.9 73.8 % $ 2,881.3 74.8 %

Product gross margin increased for the three months ended October 31, 2024 compared to the same period in 2023 primarily due to favorable hardware product mix and lower other product costs.

Subscription and support gross margin decreased for the three months ended October 31, 2024 compared to the same period in 2023 primarily due to an increase in costs related to our cloud-based offerings.

Product gross margin decreased for the three months ended January 31, 2025 compared to the same period in 2024 primarily due to an increase in inventory reserves.

Product gross margin was relatively flat for the six months ended January 31, 2025 compared to the same period in 2024.

Subscription and support gross margin decreased for the three and six months ended January 31, 2025 compared to the same periods in 2024 primarily due to an increase in costs related to our cloud-based offerings.

OPERATING EXPENSES

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We expect operating expenses generally to increase in absolute dollars and to decrease over the long term as a percentage of revenue as we continue to scale our business.

As of October 31, 2024, we expect to recognize approximately $2.2 billion of share-based compensation expense over a weighted-average period of approximately 2.5 years, excluding additional share-based compensation expense related to any future grants of share-based awards.

As of January 31, 2025, we expect to recognize approximately $2.5 billion of share-based compensation expense over a weighted-average period of approximately 2.6 years, excluding additional share-based compensation expense related to any future grants of share-based awards.

Share-based compensation expense is generally recognized on a straight-line basis over the requisite service periods of the awards.

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We expect research and development expense to increase in absolute dollars as we continue to invest in our future products and services, although our research and development expense may fluctuate as a percentage of total revenue.

Three Months Ended October 31,

2024 2023 Change

Amount Amount Amount %

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

2025 2024 Change 2025 2024 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

Research and development $ 505.7 $ 447.9 $ 57.8 12.9 % $ 986.1 $ 857.4 $ 128.7 15.0 %

Research and development expense increased for the three months ended October 31, 2024 compared to the same period in 2023 primarily due to increased personnel costs, which grew $49.0 million, largely due to headcount growth.

The remaining increase in research and development expense was further driven by increased shared costs.

Research and development expense increased for the three and six months ended January 31, 2025 compared to the same periods in 2024 primarily due to increased personnel costs, which grew $38.1 million and $87.1 million for the three and six months ended January 31, 2025, respectively, compared to the same periods in 2024, largely due to headcount growth.

The increase in research and development expense in both periods was further driven by increased shared costs.

SALES AND MARKETING

3 unchanged sentences

We expect sales and marketing expense to continue to increase in absolute dollars as we increase the size of our sales and marketing organizations to grow our customer base, increase touch points with end-customers, and expand our global presence, although our sales and marketing expense may fluctuate as a percentage of total revenue.

Three Months Ended October 31,

2024 2023 Change

Amount Amount Amount %

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

2025 2024 Change 2025 2024 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

Sales and marketing $ 758.3 $ 673.0 $ 85.3 12.7 % $ 1,478.4 $ 1,333.5 $ 144.9 10.9 %

Sales and marketing expense increased for the three months ended October 31, 2024 compared to the same period in 2023 primarily due to increased personnel costs, which grew $57.6 million, largely due to headcount growth.

Sales and marketing expense increased for the three and six months ended January 31, 2025 compared to the same periods in 2024 primarily due to increased personnel costs, which grew $65.1 million and $122.7 million for the three and six months ended January 31, 2025, respectively, compared to the same periods in 2024, largely due to headcount growth.

GENERAL AND ADMINISTRATIVE

2 unchanged sentences

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

Three Months Ended October 31,

2024 2023 Change

Amount Amount Amount %

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

2025 2024 Change 2025 2024 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

General and administrative $ 153.8 $ 301.5 $ (147.7) (49.0) % $ 251.5 $ 421.6 $ (170.1) (40.3) %

General and administrative expense decreased for the three months ended October 31, 2024 compared to the same period in 2023 primarily due to a release of previously accrued litigation-related charge of $43.0 million and decreased professional services expense during the three months ended October 31, 2024, partially offset by increased personnel costs, which grew $15.1 million, largely due to increased share-based compensation, and increased acquisition-related costs, including change in fair value of contingent consideration liability.

General and administrative expense decreased for the three and six months ended January 31, 2025 compared to the same periods in 2024 primarily due to a litigation-related accrual of $176.8 million during the three months ended January 31, 2024 and a partial release of $43.0 million during the three months ended October 31, 2024.

The decrease in general and administrative expense in both periods was partially offset by increased personnel costs, which grew $32.7 million and $47.8 million for the three and six months ended January 31, 2025, respectively, compared to the same periods in 2024, largely due to increased share-based compensation.

INTEREST EXPENSE

Interest expense primarily consists of interest expense related to our 0.375% Convertible Senior Notes due 2025 (the “2025 Notes”).

Three Months Ended October 31,

2024 2023 Change

Amount Amount Amount %

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

2025 2024 Change 2025 2024 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

Interest expense $ 0.9 $ 2.8 $ (1.9) (67.9) % $ 2.1 $ 5.7 $ (3.6) (63.2) %

Interest expense decreased for the three months ended October 31, 2024 compared to the same period in 2023 primarily due to early conversions of our 2025 Notes.

Interest expense decreased for the three and six months ended January 31, 2025 compared to the same periods in 2024 primarily due to early conversions of our 2025 Notes.

Refer to Note 9.

2 unchanged sentences

Other income, net includes interest income earned on our cash, cash equivalents, and investments, and gains and losses from foreign currency remeasurement and foreign currency transactions.

Three Months Ended October 31,

2024 2023 Change

Amount Amount Amount %

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

2025 2024 Change 2025 2024 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

Other income, net $ 85.3 $ 84.7 $ 0.6 0.7 % $ 168.6 $ 155.0 $ 13.6 8.8 %

Other income, net increased for the three months ended October 31, 2024 compared to the same period in 2023 primarily due to higher interest income as a result of higher average cash, cash equivalent, and investment balances for the three months ended October 31, 2024 compared to the same period in 2023.

The increase was further driven by increased gains from our non-designated derivative instruments and investments, partially offset by increased foreign currency exchange losses for the three months ended October 31, 2024 compared to the same period in 2023.

PROVISION FOR INCOME TAXES

Provision for income taxes consists primarily of U.S.

taxes, foreign income taxes, and withholding taxes.

Our provision for income taxes during the fiscal quarter ended October 31, 2024 was offset primarily by excess tax benefits from share-based compensation.

Other income, net was flat for the three months ended January 31, 2025 compared to the same period in 2024.

Other income, net increased for the six months ended January 31, 2025 compared to the same period in 2024 primarily due to higher interest income as a result of higher average cash, cash equivalent, and investment balances for the six months ended January 31, 2025 compared to the same period in 2024.

PROVISION FOR (BENEFIT FROM) INCOME TAXES

Provision for (benefit from) income taxes consists primarily of U.S.

and foreign income taxes.

Our effective tax rate during the three and six months ended January 31, 2025 was lower than our statutory tax rate primarily due to excess tax benefits from share-based compensation.

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

1 unchanged sentence

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

Based on our analysis of all positive and negative evidence during the fiscal quarter ended October 31, 2024, 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.

Based on our analysis of all positive and negative evidence during the fiscal quarter ended January 31, 2025, 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.

Three Months Ended October 31,

2024 2023 Change

Amount Amount Amount %

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

2025 2024 Change 2025 2024 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

Provision for income taxes $ 17.9 $ 88.4 $ (70.5) (79.8) %

Provision for (benefit from) income taxes $ 57.5 $ (1,611.4) $ 1,668.9 (103.6) % $ 75.4 $ (1,523.0) $ 1,598.4 (105.0) %

Effective tax rate 17.7 % (1,189.2) % 10.9 % (364.3) %

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

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

Our effective tax rate decreased for the three months ended October 31, 2024 compared to the same period in 2023 primarily due to deferred tax benefits.

During the three months ended October 31, 2023, our deferred tax benefits were significantly limited due to our valuation allowance on U.S.

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

and foreign income taxes.

Our effective tax rate increased for the three and six months ended January 31, 2025 compared to the same periods in 2024 primarily due to the release of our valuation allowance on U.S.

federal, U.S.

states other than California, and United Kingdom deferred tax assets which was subsequently released in the second quarter of fiscal 2024.

states other than California, and United Kingdom deferred tax assets in the second quarter of fiscal 2024.

Refer to Note 13.

1 unchanged sentence

Liquidity and Capital Resources

October 31, 2024 July 31, 2024

January 31, 2025 July 31, 2024

(in millions)

5 unchanged sentences

Total cash, cash equivalents, and investments $ 7,792.7 $ 6,752.0

As of October 31, 2024, our total cash, cash equivalents, and investments of $7.5 billion were held for general corporate purposes.

As of October 31, 2024, we had no unremitted earnings when evaluating our outside basis difference relating to our U.S.

As of January 31, 2025, our total cash, cash equivalents, and investments of $7.8 billion were held for general corporate purposes.

As of January 31, 2025, we had no unremitted earnings when evaluating our outside basis difference relating to our U.S.

investment in foreign subsidiaries.

6 unchanged sentences

Upon conversion of the 2025 Notes, we will pay cash equal to the aggregate principal amount of the 2025 Notes to be converted, and, at our election, we will pay or deliver cash and/or shares of our common stock for the amount of our conversion obligation in excess of the aggregate principal amount of the 2025 Notes being converted.

During the three months ended October 31, 2024, we repaid in cash $319.0 million in aggregate principal amount of the 2025 Notes and issued 2.3 million shares of common stock to the holders for the conversion value in excess of the principal amount of the 2025 Notes converted, which were fully offset by shares we received from our exercise of the associated note hedges.

Subsequent to October 31, 2024, through the filing date of this Quarterly Report on Form 10-Q, $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.

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.

During the three and six months ended January 31, 2025, we repaid in cash $112.4 million and $431.4 million, respectively, in aggregate principal amount of the 2025 Notes and issued 1.7 million and 6.2 million shares of common stock to the holders, respectively, for the conversion value in excess of the principal amount of the 2025 Notes converted, which were fully offset by shares we received from our exercise of the associated note hedges.

Subsequent to January 31, 2025, through the filing date of this Quarterly Report on Form 10-Q, $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.

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.

If all of the holders convert their 2025 Notes during this period, we would be obligated to settle the $534.2 million principal amount of the 2025 Notes in cash.

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

As of October 31, 2024, $646.6 million of our 2025 Notes remained outstanding.

We believe that our cash provided by operating activities, our existing cash, cash equivalents, and investments, and existing sources of and access to financing will be sufficient to meet our anticipated cash needs should the holders choose to convert their 2025 Notes during the fiscal quarter ending April 30, 2025 or hold the 2025 Notes until maturity on June 1, 2025.

As of January 31, 2025, $534.2 million of our 2025 Notes remained outstanding.

Refer to Note 9.

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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 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.

Refer to Note 9.

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

As of October 31, 2024, $1.0 billion remained available for future share repurchases under this repurchase program.

As of January 31, 2025, $1.0 billion remained available for future share repurchases under this repurchase program.

The repurchase authorization will expire on December 31, 2025, and may be suspended or discontinued at any time without prior notice.

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We have entered into various non-cancelable operating leases, primarily for our offices and data centers, with lease terms expiring through fiscal 2036.

As of October 31, 2024, we have total operating lease obligations of $452.5 million recorded on our condensed consolidated balance sheet.

As of October 31, 2024, our commitments to purchase products, components, cloud and other services totaled $4.6 billion.

As of January 31, 2025, we have total operating lease obligations of $436.6 million recorded on our condensed consolidated balance sheet.

As of January 31, 2025, our commitments to purchase products, components, cloud and other services totaled $4.4 billion.

Refer to Note 10.

Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on these commitments.

Our acquisition of certain IBM QRadar assets on August 31, 2024 included contingent consideration that requires potential future payments through the fiscal quarter ending October 2028.

As of October 31, 2024, we have total contingent consideration obligations of $655.2 million recorded on our condensed consolidated balance sheet.

Our acquisition of certain QRadar assets from International Business Machines Corporation (“IBM”) on August 31, 2024 included contingent consideration that requires potential future payments through the fiscal quarter ending October 2028.

As of January 31, 2025, we have total contingent consideration obligations of $664.9 million recorded on our condensed consolidated balance sheet.

Refer to Note 3.

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Acquisition in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on these contingent consideration obligations.

The following table summarizes our cash flows for the three months ended October 31, 2024 and 2023:

Three Months Ended October 31,

The following table summarizes our cash flows for the six months ended January 31, 2025 and 2024:

Six Months Ended January 31,

(in millions)

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

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

Cash provided by operating activities during the three months ended October 31, 2024 was $1.5 billion, a slight decrease of $16.4 million compared to the same period in 2023.

The decrease was primarily due to timing of payments and collections during the three months ended October 31, 2024.

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

Cash provided by operating activities during the six months ended January 31, 2025 was $2.1 billion, a decrease of $149.5 million compared to the same period in 2024.

The decrease was primarily due to higher payments of cash expenditure to support our business growth, partially offset by an increase in receipts from our customers during the six months ended January 31, 2025.

INVESTING ACTIVITIES

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We expect to continue such activities as our business grows.

Cash used in investing activities during the three months ended October 31, 2024 was $543.8 million, an increase of $414.8 million compared to the same period in 2023.

The increase was primarily due to an increase in cash payments for a business acquisition and a decrease in proceeds from sales and maturities of investments, partially offset by a decrease in purchases of investments during the three months ended October 31, 2024.

Cash used in investing activities during the six months ended January 31, 2025 was $924.6 million, a decrease of $529.9 million compared to the same period in 2024.

The decrease was primarily due to lower purchases of investments, higher proceeds from sales and maturities of investments, and a decrease in net cash payments for business acquisitions during the six months ended January 31, 2025.

FINANCING ACTIVITIES

Our financing activities have consisted of repayments of our convertible senior notes, cash used to repurchase shares of our common stock, proceeds from sales of shares through employee equity incentive plans, and payments for tax withholding obligations of certain employees related to the net share settlement of equity awards.

Cash used in financing activities during the three months ended October 31, 2024 was $219.7 million, an increase of $177.9 million compared to the same period in 2023.

The increase was primarily due to an increase in cash used for early repayments of our 2025 Notes, partially offset by a decrease in cash used to repurchase our common stock which did not recur during the three months ended October 31, 2024.

Cash used in financing activities during the six months ended January 31, 2025 was $451.9 million, an increase of $337.5 million compared to the same period in 2024.

The increase was primarily due to an increase in cash used for repayments of the early conversion of our 2025 Notes and an increase in payments for tax withholding related to the net share settlement of employee equity awards, partially offset by a decrease in cash used to repurchase our common stock which did not recur during the six months ended January 31, 2025.

Critical Accounting Estimates

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We believe the critical accounting estimates discussed under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended July 31, 2024 reflect our more significant estimates, assumptions, and judgments that have the most significant impact on our condensed consolidated financial statements.

There have been no significant changes to our critical accounting estimates as filed in such report, except for the update as described below resulting from our recent acquisition of certain IBM QRadar assets.

There have been no significant changes to our critical accounting estimates as filed in such report, except for the update as described below resulting from our acquisition of certain IBM QRadar assets.

BUSINESS COMBINATIONS

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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 2. Management’s Discussion and Analysis