What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-21 compared with 2025-02-14 · 94 added, 82 removed, 364 unchanged (33% of the section changed)

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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, public or administration policies, 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, trade policy, growth rates and other conditions, on our operating and financial results and performance;

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

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• Results of Operations.

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.

A discussion of the nature and trends in our financial results and an analysis of our financial results comparing the three and nine months ended April 30, 2025 to the three and nine months ended April 30, 2024.

• Liquidity and Capital Resources.

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Network Security:

• Our network security platform, designed to deliver complete zero trust solutions to our customers, includes our hardware and software ML-Powered Next-Generation Firewalls, AI Runtime Security, as well as a cloud-delivered Secure Access Service Edge (“SASE”).

• Our network security platform, designed to deliver complete zero trust solutions to our customers, includes our hardware and software ML-Powered Next-Generation Firewalls, Prisma AIRS TM , as well as a cloud-delivered Secure Access Service Edge (“SASE”).

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.

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

Prisma AIRS is a comprehensive AI security platform that protects customers’ AI ecosystem—AI apps, agents, models, and data—and aims to make it secure at every step.

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.

Cloud Security:

• We deliver scalable and comprehensive security across the cloud application development lifecycle through our Code to Cloud TM platform, Prisma Cloud.

As a comprehensive Cloud Native Application Protection Platform (“CNAPP”), Prisma Cloud secures multi- and hybrid-cloud environments for applications, data, generative AI (“GenAI”) ecosystem, and the entire cloud native technology stack across the full development lifecycle, from code to cloud.

We also offer our VM-Series and CN-Series virtual firewalls for inline network security on multi- and hybrid-cloud environments.

Strata Cloud Manager includes Strata Copilot, which offers a natural language interface to simplify and strengthen network security, and Autonomous Digital Experience Monitoring.

Security Operations and Cloud Security:

Our AI-driven Cortex platform transforms end-to-end security operations with unified data, AI, and automation for more secure, faster, and cost effective outcomes.

We have merged our industry-leading Security Operations and Cloud Security capabilities on a single comprehensive platform to provide centralized visibility, proactive protection, real-time prevention, AI-driven insights, and automated remediation across enterprise and cloud.

• 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, 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.

These include Cortex XSIAM ® , for AI-driven security operations replacing 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.

These products are delivered as SaaS or software subscriptions.

• Cloud Security.

We deliver comprehensive security across the cloud application development lifecycle through Cortex Cloud, the next generation of Prisma Cloud, delivered as a scalable SaaS offering.

As a comprehensive Cloud Native Application Protection Platform (“CNAPP”) merged with CDR, Cortex Cloud secures multi- and hybrid-cloud environments for applications, data, generative AI (“GenAI”) ecosystem, and the cloud native technology stack across the full development lifecycle, from code to cloud to security operations.

As part of the Cortex platform, customers can expand from Cortex Cloud to our security operations offerings available on a single user experience and unified agent.

We also offer our VM-Series and CN-Series virtual firewalls for inline network security on multi- and hybrid-cloud environments.

Threat Intelligence and Advisory Services (Unit 42):

• Unit 42 ® brings together world-renowned threat researchers with an elite team of incident responders and security consultants to create an intelligence-driven, response-ready organization to help customers manage cyber risk.

Our consultants serve as trusted advisors to our customers by assessing and testing their security controls against the right threats, transforming their security strategy with a threat-informed approach, and responding to security incidents on behalf of our clients.

• Unit 42 ® brings together world-renowned expertise across threat research, incident response, and security consulting to deliver intelligence-driven, response-ready outcomes that help customers reduce cyber risk.

Our elite consultants serve as trusted advisors to our customers by assessing and testing their security controls against sophisticated threats, transforming their security strategy with a threat-informed approach, and responding to security incidents on behalf of our clients.

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

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%.

For the third quarter of fiscal 2025 and 2024, total revenue was $2.3 billion and $2.0 billion, respectively, representing year-over-year growth of 15.3%.

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

As of April 30, 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.

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

Our product revenue grew to $452.7 million, or 19.8% of total revenue, for the third quarter of fiscal 2025, representing year-over-year growth of 15.8%.

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

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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 81.3% of total revenue, for the second quarter of fiscal 2025, representing year-over-year growth of 15.9%.

Our subscription and support revenue grew to $1.8 billion, or 80.2% of total revenue, for the third quarter of fiscal 2025, representing year-over-year growth of 15.2%.

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.

Additionally, we offer MDR for Cortex subscriptions, powered by Unit 42’s elite expertise.

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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 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.

For example, in April 2025, we introduced several new offerings, including:

Prisma AIRS, new SASE innovations such as Prisma Access Browser 2.0, and Cortex XSIAM 3.0.

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

For example, in April 2025, we entered into a definitive agreement to acquire Protect AI, Inc., a privately-held cyber security company (“Protect AI”), and we expect the acquisition will enhance the capabilities of our AI security platform.

The acquisition of Protect AI is expected to close by the first quarter of fiscal 2026, subject to the satisfaction of closing conditions, including regulatory clearance.

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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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.

Significant changes in U.S.

or global trade policy, including further expansion of U.S.

export/imports controls and tariffs, as well as retaliatory actions by other countries, may materially and adversely affect our business.

Further, worsening economic conditions, including inflation, high interest rates, slow growth, fluctuations in foreign exchange rates, supply chain disruptions, impacts of trade regulations or international trade disputes, 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.

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

January 31, 2025 July 31, 2024

April 30, 2025 July 31, 2024

(in billions)

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$ 13.5 $ 12.7

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

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

2025 2024 2025 2024

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Our NGS ARR represents the annualized allocated revenue of all active contracts as of the final day of the reporting period for Prisma and Cortex offerings inclusive of the VM-Series and related services, and certain cloud-delivered security services.

Beginning the first quarter of fiscal 2025, NGS ARR includes revenue attributable to QRadar SaaS contracts.

Beginning in the first quarter of fiscal 2025, NGS ARR includes revenue attributable to QRadar SaaS contracts.

NGS ARR is an operating metric that we use to assess the strength and trajectory of our business.

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GAAP, is provided below:

Six Months Ended January 31,

Nine Months Ended April 30,

(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 January 31, Six Months Ended January 31,

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

2025 2024 2025 2024

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(1) Includes share-based compensation as follows:

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

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

2025 2024 2025 2024

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

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

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

2025 2024 Change 2025 2024 Change

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Product $ 452.7 $ 391.0 $ 61.7 15.8 % $ 1,228.0 $ 1,122.8 $ 105.2 9.4 %

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.

Product revenue increased for the three and nine months ended April 30, 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 beginning in the second quarter of fiscal 2025, 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 January 31, Six Months Ended January 31,

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

2025 2024 Change 2025 2024 Change

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Total subscription and support $ 1,836.3 $ 1,593.8 $ 242.5 15.2 % $ 5,457.2 $ 4,715.2 $ 742.0 15.7 %

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.

Subscription and support revenue increased for the three and nine months ended April 30, 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 January 31, Six Months Ended January 31,

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

2025 2024 Change 2025 2024 Change

5 unchanged sentences

Total revenue $ 2,289.0 $ 1,984.8 $ 304.2 15.3 % $ 6,685.2 $ 5,838.0 $ 847.2 14.5 %

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.

Revenue from the Americas, EMEA, and APAC increased for the three and nine months ended April 30, 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 January 31, Six Months Ended January 31,

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

2025 2024 Change 2025 2024 Change

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Cost of product revenue $ 100.7 $ 77.9 $ 22.8 29.3 % $ 277.0 $ 243.5 $ 33.5 13.8 %

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 product revenue increased for the three and nine months ended April 30, 2025 compared to the same periods in 2024 primarily due to increased demand for our new generation hardware products and an increase in inventory reserves.

The increase in cost of product revenue for the nine months ended April 30, 2025 was partially offset by increasing benefits from manufacturing in a foreign trade zone established in July 2024.

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 January 31, Six Months Ended January 31,

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

2025 2024 Change 2025 2024 Change

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Cost of subscription and support revenue $ 518.6 $ 435.7 $ 82.9 19.0 % $ 1,495.6 $ 1,242.0 $ 253.6 20.4 %

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.

Cost of subscription and support revenue increased for the three and nine months ended April 30, 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 $55.7 million and $141.4 million for the three and nine months ended April 30, 2025, respectively, compared to the same periods in 2024.

Personnel costs grew $14.0 million and $39.8 million for the three and nine months ended April 30, 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.

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

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

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

2025 2024 2025 2024

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Total gross profit $ 1,669.7 72.9 % $ 1,471.2 74.1 % $ 4,912.6 73.5 % $ 4,352.5 74.6 %

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.

Product gross margin decreased for the three and nine months ended April 30, 2025 compared to the same periods in 2024 primarily due to an increase in inventory reserves.

The decrease in product gross margin for the nine months ended April 30, 2025 was partially offset by increasing benefits from manufacturing in a foreign trade zone established in July 2024.

Subscription and support gross margin decreased for the three and nine months ended April 30, 2025 compared to the same periods in 2024 primarily due to an increase in costs related to our cloud-based offerings, partially offset by increased leverage of our global customer service organization.

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 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.

As of April 30, 2025, we expect to recognize approximately $2.4 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.

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 January 31, Six Months Ended January 31,

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

2025 2024 Change 2025 2024 Change

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Research and development $ 494.5 $ 457.2 $ 37.3 8.2 % $ 1,480.6 $ 1,314.6 $ 166.0 12.6 %

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.

Research and development expense increased for the three and nine months ended April 30, 2025 compared to the same periods in 2024 primarily due to increased personnel costs, which grew $22.1 million and $109.2 million for the three and nine months ended April 30, 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.

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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 January 31, Six Months Ended January 31,

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

2025 2024 Change 2025 2024 Change

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Sales and marketing $ 792.5 $ 718.7 $ 73.8 10.3 % $ 2,270.9 $ 2,052.2 $ 218.7 10.7 %

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.

Sales and marketing expense increased for the three and nine months ended April 30, 2025 compared to the same periods in 2024 primarily due to increased personnel costs, which grew $60.6 million and $183.3 million for the three and nine months ended April 30, 2025, respectively, compared to the same periods in 2024, largely due to headcount growth.

GENERAL AND ADMINISTRATIVE

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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 January 31, Six Months Ended January 31,

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

2025 2024 Change 2025 2024 Change

2 unchanged sentences

General and administrative $ 163.9 $ 118.6 $ 45.3 38.2 % $ 415.4 $ 540.2 $ (124.8) (23.1) %

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.

General and administrative expense increased for the three months ended April 30, 2025 compared to the same period in 2024 primarily due to increased personnel costs, which grew $44.8 million, largely due to increased share-based compensation.

General and administrative expense decreased for the nine months ended April 30, 2025 compared to the same period 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 for the nine months ended April 30, 2025 was partially offset by increased personnel costs, which grew $92.6 million, 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 January 31, Six Months Ended January 31,

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

2025 2024 Change 2025 2024 Change

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Interest expense $ 0.7 $ 2.3 $ (1.6) (69.6) % $ 2.8 $ 8.0 $ (5.2) (65.0) %

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.

Interest expense decreased for the three and nine months ended April 30, 2025 compared to the same periods in 2024 primarily due to early conversions of our 2025 Notes.

Refer to Note 9.

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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 January 31, Six Months Ended January 31,

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

2025 2024 Change 2025 2024 Change

2 unchanged sentences

Other income, net $ 92.4 $ 76.8 $ 15.6 20.3 % $ 261.0 $ 231.8 $ 29.2 12.6 %

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.

Other income, net increased for the three and nine months ended April 30, 2025 compared to the same periods in 2024 primarily due to higher interest income as a result of higher average cash, cash equivalent, and investment balances for the three and nine months ended April 30, 2025 compared to the same periods in 2024.

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 and nine months ended April 30, 2025 compared to the same periods in 2024.

PROVISION FOR (BENEFIT FROM) INCOME TAXES

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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.

Our effective tax rates during the three and nine months ended April 30, 2025 were 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.

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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 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.

Based on our analysis of all positive and negative evidence during the fiscal quarter ended April 30, 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 January 31, Six Months Ended January 31,

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

2025 2024 Change 2025 2024 Change

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Effective tax rate 15.6 % (11.0) % 12.3 % (231.7) %

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

Our provision for income taxes for the three and nine months ended April 30, 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.

Our effective tax rate increased for the three and nine months ended April 30, 2025 compared to the same periods in 2024 primarily due to the release of our valuation allowance on U.S.

federal, U.S.

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Liquidity and Capital Resources

January 31, 2025 July 31, 2024

April 30, 2025 July 31, 2024

(in millions)

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Total cash, cash equivalents, and investments $ 8,452.5 $ 6,752.0

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.

As of April 30, 2025, our total cash, cash equivalents, and investments of $8.5 billion were held for general corporate purposes.

As of April 30, 2025, we had no unremitted earnings when evaluating our outside basis difference relating to our U.S.

investment in foreign subsidiaries.

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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 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 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.

During the three and nine months ended April 30, 2025, we repaid in cash $150.9 million and $582.3 million, respectively, in aggregate principal amount of the 2025 Notes and issued 2.2 million and 8.4 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.

All of the outstanding 2025 Notes will mature on June 1, 2025 and, at that time, we will become obligated to pay the remaining principal amount of the 2025 Notes of $383.3 million in cash, and deliver 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.

As of April 30, 2025, $383.3 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 January 31, 2025, there were no amounts outstanding, and we were in compliance with all covenants under the Credit Agreement.

As of April 30, 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 January 31, 2025, $1.0 billion remained available for future share repurchases under this repurchase program.

As of April 30, 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 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.

As of April 30, 2025, we have total operating lease obligations of $422.8 million recorded on our condensed consolidated balance sheet.

As of April 30, 2025, our commitments to purchase products, components, cloud and other services totaled $4.3 billion.

Refer to Note 10.

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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.

As of April 30, 2025, we have total contingent consideration obligations of $669.2 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 six months ended January 31, 2025 and 2024:

Six Months Ended January 31,

The following table summarizes our cash flows for the nine months ended April 30, 2025 and 2024:

Nine Months Ended April 30,

(in millions)

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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.

Net cash provided by operating activities can be impacted by factors such as timing of payments and collections, vendor payment terms, and timing and amount of tax payments.

Cash provided by operating activities during the nine months ended April 30, 2025 was $2.7 billion, a slight decrease of $49.7 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 nine months ended April 30, 2025.

Cash provided by operating activities during the nine months ended April 30, 2025 also includes proceeds from the sale of $30.4 million of our financing receivables based upon our financing credit risk management policy.

INVESTING ACTIVITIES

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We expect to continue such activities as our business grows.

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.

Cash used in investing activities during the nine months ended April 30, 2025 was $1.4 billion, an increase of $100.8 million compared to the same period in 2024.

The increase was primarily due to higher purchases of investments, partially offset by higher proceeds from sales and maturities of investments and a decrease in net cash payments for business acquisitions during the nine months ended April 30, 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 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.

Cash used in financing activities during the nine months ended April 30, 2025 was $404.8 million, a decrease of $759.0 million compared to the same period in 2024.

The decrease was primarily due to a decrease in cash used to repurchase our common stock which did not recur during the nine months ended April 30, 2025 and a decrease in cash used for repayments of the early conversion of our 2025 Notes during the period.

Critical Accounting Estimates

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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