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目次

アメリカ合衆国
証券取引委員会
ワシントンDC20549
_____________________ 
フォーム10-Q
 _____________________
（記入マーク1）
☒    証券取引法第13条または15(d)条に基づく四半期報告書
報告期間が終了した2023年6月30日をもって2024年10月31日
または
☐    移行期間：             から             まで
過渡期は から までです
委員会ファイル番号 001-35594
incorporation).
(Exact name of registrant as specified in its charter)  
 
デラウェア20-2530195
（設立または組織の州またはその他の管轄区域）
（I.R.S.雇用者識別番号）		(I.R.S. 雇用者
識別番号）
) 
サンタクララ, カリフォルニア 95054
（本社事務所の住所、郵便番号を含む）
(408) 753-4000
（登録者の電話番号（市外局番を含む））
該当なし
（前回の報告以来変更された場合の前名称、前住所、および前決算期）

法第12条（b）に基づく登録証券
各クラスの名称取引シンボル登録されている各取引所の名称
普通株式、株式1株当たりの額面価値$0.0001PANW
The Nasdaq Stock Market LLC
（ナスダックグローバルセレクト市場）
登録者が、直近12ヵ月間（または登録者が報告書を提出する必要があった短い期間）に法律13または15(d)条により提出が必要な報告書をすべて提出したかどうかをチェックし、(2)過去90日間にわたってこの報告書提出要件の対象となっていたかどうかを示します。　はいYes  ☒    いいえ☐
規制S-tのルール405に基づき、過去12か月間(またはそのような短期間)、登録者が提出を求められたすべてのインタラクティブデータファイルを電子的に提出したかどうかをチェックマークで示す。Yes  ☒    いいえ☐
申請者が大型加速装置、加速装置、ノンアクセル装置、小規模報告会社、または新興グロース会社である場合は、註記欄にチェックマークを付けてください。規則120億2に記載されている「大型加速装置」、「加速装置」、「小規模報告会社」、「新興グロース会社」の定義を参照してください。
大型加速ファイラー☒加速度ファイラー☐新興成長企業☐
非加速ファイラー☐小規模報告会社☐
新しいまたは改訂された財務会計基準に準拠するために拡張された移行期間を使用しないように、新進事業会社の場合は、交換法第13(a)条に基づいて提供される新しいまたは改訂された財務会計基準の全てに対応する拡張された移行期間の使用を選択しなかった場合、註マークで示してください。☐
Registrantが取引所法第120億2条で定義されるシェル企業であるかをチェックマークで示してください。はい ☐いいえ☒
当該発行者の普通株式の発行済株式数は 2024年11月13日。しかしながら、MicrosoftがBethesdaの親会社であるZeniMax Mediaを買収した後、この契約を変更して、このゲームをXboxコンソールだけに限定してリリースしました。FTCはまた、フェローベセスダタイトルのうち、StarfieldとRedfallがPS5向けにリリースされる予定であったという信念を持っていました。328.1 百万ドルです。

目次
目次
ページ
第I部 - 財務情報
項目 1.
アイテム2。
アイテム3。
アイテム4.
その他の情報
項目 1.
項目1A。
アイテム2。
項目5。
項目6。

- 1 -
目次
Part I
アイテム 1. 財務諸表
•IBm Consulting Platform Support: パロ アルト ネットワークスとIBmは、パロ アルト ネットワークスのセキュリティプラットフォームを採用したいと考えているお客様に没入型体験を提供します。IBmは、ネットワーク、クラウド、セキュリティの活用を支援するために、パロ アルト ネットワークスのセキュリティソリューションについて1,000人以上のコンサルタントをトレーニングしています。
連結簡易貸借対照表
（百万ドル、1株当たり金額を除く）
2024年10月31日2024年7月31日
(未監査)
資産
流動資産:
現金及び現金同等物$2,282.8 $1,535.2 
短期投資1,108.2 1,043.6 
信用損失引当金を差し引いた売掛金 $8.6 および7.5 2024年10月31日と2024年7月31日現在
1,132.9 2,618.6 
短期金融債権、純額805.1 725.9 
短期繰延契約費用367.6 369.0 
前払費用及びその他の流動資産546.1 557.4 
流動資産合計6,242.7 6,849.7 
有形固定資産361.0 361.1 
運用リース契約に基づく資産389.0 385.9 
長期投資4,119.7 4,173.2 
新規買金、純額1,092.2 1,182.1 
長期繰延契約費用531.9 562.0 
のれん4,050.8 3,350.1 
無形資産、純809.6 374.9 
繰延税金資産2,397.5 2,399.0 
その他の資産380.2 352.9 
総資産$20,374.6 $19,990.9 
負債および株主資本
流動負債：
支払い予定の勘定
$211.6 $116.3 
未払報酬354.5 554.7 
未払金およびその他の負債683.1 506.7 
遅延収益5,507.7 5,541.1 
転換可能な優先債、純額645.8 963.9 
合計流動負債
7,402.7 7,682.7 
長期の受け入れた収益5,585.9 5,939.4 
繰延税金負債250.8 387.7 
新規買オペレーティングリース債務379.6 380.5 
その他の長期負債843.8 430.9 
総負債14,462.8 14,821.2 
コミットメント及び引当金(注記10)
株主資本:
優先株式；$0.0001 額面値； 100.0承認された株式数; なし 2024年10月31日と2024年7月31日時点で発行済み株式数
— — 
普通株式および追加資本金；$0.0001 額面値； 1,000.0承認された株式数; 327.7 および 325.12024年10月31日及び2024年7月31日時点で発行済みの株式数は、それぞれシェアです。
4,214.9 3,821.1 
その他の総合損失(4.0)(1.6)
利益剰余金
1,700.9 1,350.2 
純資産合計5,911.8 5,169.7 
負債および純資産合計$20,374.6 $19,990.9 
有短縮合併財務諸表に関する注記を参照してください。
- 2 -
目次
•IBm Consulting Platform Support: パロ アルト ネットワークスとIBmは、パロ アルト ネットワークスのセキュリティプラットフォームを採用したいと考えているお客様に没入型体験を提供します。IBmは、ネットワーク、クラウド、セキュリティの活用を支援するために、パロ アルト ネットワークスのセキュリティソリューションについて1,000人以上のコンサルタントをトレーニングしています。
簡易合算損益計算書
(未監査、百万単位、ただし株式あたりのデータを除く)
10月31日に終了した3か月間
20242023
売上高：
製品$353.8 $341.1 
サブスクリプションとレジスタンス1,785.0 1,537.0 
総収益2,138.8 1,878.1 
原価費用：
製品75.0 77.4 
サブスクリプションとレジスタンス479.1 395.4 
原価費用合計554.1 472.8 
総粗利益1,584.7 1,405.3 
営業費用:
研究開発480.4 409.5 
販売とマーケティング720.1 660.5 
一般管理費97.7 120.1 
総営業費用1,298.2 1,190.1 
営業利益
286.5 215.2 
利子費用(1.2)(2.9)
その他の収益、当期純利益83.3 70.3 
税引前所得
368.6 282.6 
法人税務措置17.9 88.4 
当期純利益
$350.7 $194.2 
1株あたり当期純利益(基本)
$1.07 $0.63 
1株あたり当期純利益(薄化後)
$0.99 $0.56 
当期純利益を一株当たりで計算するために使用される加重平均株式数、基本
326.8 310.1 
当期純利益を一株当たりで計算するために使用される加重平均株式数、希薄化後
354.5 349.8 
要約された連結財務諸表の注釈参照.
- 3 -
目次
•IBm Consulting Platform Support: パロ アルト ネットワークスとIBmは、パロ アルト ネットワークスのセキュリティプラットフォームを採用したいと考えているお客様に没入型体験を提供します。IBmは、ネットワーク、クラウド、セキュリティの活用を支援するために、パロ アルト ネットワークスのセキュリティソリューションについて1,000人以上のコンサルタントをトレーニングしています。
総合利益計算書（連結）の簡易版
(未審査、百万単位で)
10月31日に終了した3か月間
20242023
当期純利益
$350.7 $194.2 
その他の包括的利益（税引き後）：
投資における未実現利益（損失）の変化(3.6)(18.2)
キャッシュフローヘッジ：
未実現利益（損失）の変動— (40.9)
実現した（益）損失は利益に再分類されます
1.2 9.3 
キャッシュ･フローヘッジの純変動1.2 (31.6)
その他包括損失
(2.4)(49.8)
包括利益$348.3 $144.4 
要約された連結財務諸表の注釈参照.
- 4 -
目次
•IBm Consulting Platform Support: パロ アルト ネットワークスとIBmは、パロ アルト ネットワークスのセキュリティプラットフォームを採用したいと考えているお客様に没入型体験を提供します。IBmは、ネットワーク、クラウド、セキュリティの活用を支援するために、パロ アルト ネットワークスのセキュリティソリューションについて1,000人以上のコンサルタントをトレーニングしています。
株主資本に関する簡略化された連結財務諸表
(未審査、百万単位で)
2024年10月31日までの3か月

普通株式及び追加払込資本
その他包括利益累積損失
留保利益
株主資本の合計
 
株式金額
2024年7月31日の残高325.1 $3,821.1 $(1.6)$1,350.2 $5,169.7 
当期純利益— — — 350.7 350.7 
その他包括損失
— — (2.4)— (2.4)
従業員の株式インセンティブプランに関連する普通株式の発行2.6 120.7 — — 120.7 
当期純利益に関連する株式報酬のネットシェア決済に支払った税金— (21.4)— — (21.4)
株式ベースの報酬に対するシェアベースの報酬— 294.6 — — 294.6 
転換社債の決済2.3 (0.1)— — (0.1)
ノートヘッジの決済
(2.3)— — — — 
2024年10月31日現在の残高327.7 $4,214.9 $(4.0)$1,700.9 $5,911.8 

2023年10月31日までの3か月
 
普通株式および追加払い込み資本
その他包括利益累積損失
繰越欠損金
株主資本の合計
 
株式金額
2023年7月31日の残高308.3 $3,019.0 $(43.2)$(1,227.4)$1,748.4 
当期純利益
— — — 194.2 194.2 
その他包括損失
— — (49.8)— (49.8)
従業員株式インセンティブプランに関連する普通株式の発行2.6 87.0 — — 87.0 
当期純利益に関連する株式報酬のネットシェア決済に支払った税金— (15.5)— — (15.5)
株式ベースの報酬に関する報酬— 273.1 — — 273.1 
普通株式の自己株式取得及び処分(0.3)(66.7)— — (66.7)
転換社債の決済0.3 (0.2)— — (0.2)
ノートヘッジの決済
(0.3)— — — — 
・主要な人員の採用または離職。 3.1 — — — — 
2023年10月31日現在の残高313.7 $3,296.7 $(93.0)$(1,033.2)$2,170.5 
- 5 -
目次
•IBm Consulting Platform Support: パロ アルト ネットワークスとIBmは、パロ アルト ネットワークスのセキュリティプラットフォームを採用したいと考えているお客様に没入型体験を提供します。IBmは、ネットワーク、クラウド、セキュリティの活用を支援するために、パロ アルト ネットワークスのセキュリティソリューションについて1,000人以上のコンサルタントをトレーニングしています。
現金フローの要約連結貸借対照表
(未審査、百万単位で)
10月31日に終了した3か月間
20242023
営業活動からの現金流入
当期純利益
$350.7 $194.2 
当期純利益を営業活動によるキャッシュフローに調整する項目:
株式ベースの報酬は株式に基づく授与に対するものです294.3 271.0 
繰延所得税
(137.4)(0.3)
減価償却および償却83.9 64.3 
先払い契約費用の減価償却費110.4 105.5 
債務発行コストの減価償却0.5 1.0 
将来における見積もりコンサルタント負債資産の公正価値の変動
6.3 — 
オペレーティングリースの使用権資産の減価償却16.0 12.4 
投資プレミアムの償却、購入割引の増加を差し引いたもの(15.0)(14.7)
営業資産および負債の変動、買収効果を除く：
売掛金（純額）1,485.7 1,050.2 
貸付金（債権）净額10.7 (43.6)
契約先払金(78.9)(63.3)
前払費用およびその他の資産(3.6)54.0 
支払い予定の勘定96.8 (0.4)
未払報酬(200.2)(216.9)
未払金およびその他の負債(94.0)(33.8)
遅延収益(416.6)146.4 
営業活動による当期現金の提供1,509.6 1,526.0 
投資活動からの現金流入
投資の購入(660.0)(854.7)
投資の売却益291.3 304.6 
投資の満期による受取額369.0 457.9 
ビジネスの買収、取得した現金及び制限付き現金を差し引いて
(500.0)— 
不動産、設備、その他の資産の購入
(44.1)(36.8)
投資活動における純現金使用額(543.8)(129.0)
財務活動からのキャッシュ・フロー
転換社債の返済
(319.0)(46.0)
普通株式の取得
— (66.7)
従業員株式インセンティブプランを通じた普通株式の売却による収益
120.7 86.4 
株式報酬の純シェア決済に係る税金の支払い
(21.4)(15.5)
資金調達活動に使用された純現金流入額
(219.7)(41.8)
現金、現金同等物、制限付き現金の純増加
746.1 1,355.2 
現金、現金同等物、および拘束された現金-期首残高1,546.8 1,142.2 
現金、現金同等物、および制限付き現金―期末 $2,292.9 $2,497.4 
現在の繰延資産およびその他の資産に含まれる制限付き現金の調整
現金及び現金同等物$2,282.8 $2,491.4 
前払費用およびその他の流動資産に含まれる制限付き現金10.1 6.0 
現金、現金同等物、および制限付き現金の総額$2,292.9 $2,497.4 
非現金による投資および財務活動
ビジネスの取得に関する条件付き対価
$(648.9)$— 
有短縮合併財務諸表に関する注記を参照してください。
- 6 -
目次
連結財務諸表注記 (未監査)
1. 事業内容の概要および主要な会計方針の概要
ビジネスの説明
パロアルトネットワークス社（「会社」、「私たち」、「私たちの」）は、カリフォルニア州サンタクララに本社があり、デラウェア州の法律に基づいて2005年3月に設立され、2005年4月に業務を開始しました。私たちは、人工知能と自動化に支えられた包括的なサイバーセキュリティを提供することで、企業、組織、サービスプロバイダ、政府機関がユーザー数、ネットワーク、クラウド、エンドポイントを保護できるようにサポートしています。
プレゼンテーションの基礎となる考え方と連結の原則。当社の未監査の簡略化された連結財務諸表は、米国一般受容会計原則に従って準備されており、当社の口座および当社の完全子会社の口座を含んでいます。すべての関連会社口座および取引は、連結されます。
添付された要約連結財務諸表は、米国一般に公正妥当と認められた会計原則（「U.S. GAAP」）に従って作成されており、2024年7月31日に終了した会計年度のフォーム10-Kに記載されたものとすべての重要な点で一貫しています。これは、2024年9月6日に証券取引委員会（「SEC」）に提出されました。要約連結財務諸表には、当社のアカウントおよび完全所有の子会社が含まれています。全セクター内の重要な金額や取引は、連結の際に排除されています。
短縮連結された財務諸表は未監査ですが、四半期の結果を適正に表現するために必要な通常の繰返しが含まれています。当社の短縮連結財務諸表は、2024年7月31日に終了した会計年度の監査済み連結財務諸表および関連ノートと併せてご参照ください。
見積もりの使用
米国GAAPに従った連結財務諸表の作成には、経営陣が連結財務諸表および関連する注記に報告され開示される金額に影響を与える見積もりと仮定を行うことが求められます。私たちは継続的に私たちの見積もりを評価しています。経営陣の見積もりには、私たちの製品およびサービスの単独販売価格、株式ベースの報酬、ビジネスの組み合わせにおいて取得した資産および引き受けた負債の公正価値、条件付き対価負債の公正価値、当社の無形資産およびのれんの回収可能性の評価、繰延税金資産に対する評価引当金、製造業パートナーおよびサプライヤーの負債、繰延契約コストの利益期間、および損失の偶発事象が含まれますが、これに限られません。私たちは、合理的であると信じる過去のデータと将来の展望に基づいた仮定に基づいて見積もりを行います。実際の結果は、現在の経済環境における不確実性を含むリスクや不確実性により、これらの見積もりと大きく異なる可能性があります。
 
2024年10月31日に終了した3ヶ月間について、重大な会計方針に重要な変更はなく、2024年7月31日に終了した会計年度の10-Kフォームに記載された重大な会計方針と同様です。ただし、最近、International Business Machines Corporation（「IBM」）から特定のQRadar資産を取得したことに伴い、以下に記載された会計方針に関する開示の更新があります。追加情報については、注記7「取得」を参照してください。
事業再編
取得した事業の運営結果は、取得日付に基づいて含まれます。私たちは、取得した資産および負債、特に偶発的対価に対して、一般的にその推定公正価値に基づいて、取得価格の公正価値を割り当てます。取得価格がこれらの特定可能な資産および負債の公正価値を上回る場合、その超過分はのれんとして記録されます。取得日には存在していたが私たちには知られていなかった追加情報は、取得日から12ヶ月を超えない測定期間の残りの間に明らかになる可能性があり、その結果、記録された金額や割り当てに変更が生じることがあります。
ビジネスの組み合わせに関連して発生した条件付き対価義務は、取得日に公正価値で記録され、その関連する偶発事象が解決されるまで各報告期間ごとに再評価され、価値の変動は当社の集約された損益計算書の一般及び管理費に認識されます。取得日後に条件付き対価負債を決済するために行われない支払いは、取得日に認識された条件付き対価負債の金額までの資金調達活動からのキャッシュフローとして分類されます。

- 7 -
目次
最近発行された会計基準
セグメントレポーティング
2023年11月、財務会計基準審議会（「FASB」）は、報告セグメントに関する年次および四半期開示要件を拡大する権威あるガイダンスを発表しました。主に重要なセグメント費用に関する充実した開示を通じてです。この基準は2025年度の年次期間および2026年度第一四半期から始まる四半期に適用され、財務諸表に提示されるすべての過去期間に対してさかのぼって適用することが求められています。早期適用が許可されています。現在、当社はこの基準が連結財務諸表の開示に与える影響を評価しています。
所得税開示
2023年12月、FASBは、効果的な税率調整および管轄区域別に支払われる所得税の追加開示に関する情報の一貫したカテゴリとより詳細な分解を要求する標準を発行しました。 この規格は、2026会計年度から有効であり、前向きまたは後ろ向きのいずれかで適用することができます。 早期適用は許可されています。 当社は、連結財務諸表におけるこの標準の開示への影響を現在評価しています。
2. 収益
売上の分解
以下の表は地域ごとの売上高（百万単位）を示しています。
10月31日に終了した3か月間
20242023
売上高：
米州
アメリカ合衆国$1,344.1 $1,204.3 
その他の米国98.0 82.3 
米州合計1,442.1 1,286.6 
ヨーロッパ、中東、アフリカ（「欧州」）441.4 364.9 
アジア太平洋と日本（「APAC」）255.3 226.6 
総収益$2,138.8 $1,878.1 
以下の表は、類似製品やサービスのグループごとの売上高を百万単位で示しています:
10月31日に終了した3か月間
20242023
売上高：
製品$353.8 $341.1 
サブスクリプションとレジスタンス
Subscription1,191.8 988.3 
レジスタンス593.2 548.7 
サブスクリプションとサポートの合計1,785.0 1,537.0 
総収益$2,138.8 $1,878.1 
繰延収益
2024年10月31日と2023年、3か月間にわたり、私たちはそれぞれ2024年7月31日と2023年までに先送りされた金額に関連する売上高を約$で認識しました。1.6私たちの入力によると、この文書には数字がありません。1.42024年7月31日と2023年までに先送りされていた金額に関連する売上高は、約$億認識されました。
残りの履行義務
残された履行債務は2024年3月31日時点で12.62024年10月31日現在で、約$として売上高を認識することを期待しているbillion。5.9今後billion。 12か月後とその後の期間にわたって。
- 8 -
目次
3. 公正価値測定
以下の表は、2024年10月31日および2024年7月31日現在の公正価値で評価された当社の財務資産および負債を示しています（百万単位）。
2024年10月31日です2024年7月31日
レベル 1レベル 2レベル 3合計レベル 1レベル 2レベル 3合計
現金同等物:
マネーマーケットファンド$1,105.3 $— $— $1,105.3 $494.0 $— $— $494.0 
コマーシャルペーパー— 228.7 — 228.7 — 299.6 — 299.6 
社債証券— 34.2 — 34.2 — 18.2 — 18.2 
米国政府および政府機関証券— 74.8 — 74.8 — 149.6 — 149.6 
現金同等物の合計1,105.3 337.7 — 1,443.0 494.0 467.4 — 961.4 
短期投資:
預金証書— 15.7 — 15.7 — 20.6 — 20.6 
コマーシャルペーパー— 36.1 — 36.1 — 79.9 — 79.9 
社債証券— 1,037.5 — 1,037.5 — 935.9 — 935.9 
米国政府および政府機関証券— 4.2 — 4.2 — 2.7 — 2.7 
米国以外の政府機関証券— — — — — 4.2 — 4.2 
資産担保証券— 14.7 — 14.7 — 0.3 — 0.3 
短期投資総額— 1,108.2 — 1,108.2 — 1,043.6 — 1,043.6 
長期投資:
社債証券— 3,095.2 — 3,095.2 — 3,151.3 — 3,151.3 
米国政府および政府機関証券— 17.7 — 17.7 — 19.0 — 19.0 
米国以外の政府機関証券— 39.1 — 39.1 — 54.4 — 54.4 
資産担保証券— 967.7 — 967.7 — 948.5 — 948.5 
長期投資総額— 4,119.7 — 4,119.7 — 4,173.2 — 4,173.2 
前払費用およびその他の流動資産：
外貨先渡契約— 5.3 — 5.3 — 4.1 — 4.1 
前払費用とその他の流動資産の合計— 5.3 — 5.3 — 4.1 — 4.1 
その他の資産:
外貨先渡契約— — — — — 0.1 — 0.1 
その他総資産— — — — — 0.1 — 0.1 
公正価値で測定された総資産$1,105.3 $5,570.9 $— $6,676.2 $494.0 $5,688.4 $— $6,182.4 
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目次
2024年10月31日2024年7月31日
レベル 1レベル 2レベル 3合計レベル 1レベル 2レベル 3合計
発生およびその他の負債：
外貨建てフォワード契約$— $11.8 $— $11.8 $— $15.3 $— $15.3 
コンティンジェントな報酬
— — 238.5 238.5 — — — — 
総発生およびその他の負債— 11.8 238.5 250.3 — 15.3 — 15.3 
その他の長期負債:
外貨建てフォワード契約— — — — — 0.9 — 0.9 
コンティンジェントな報酬
— — 416.7 416.7 — — — — 
その他の長期負債の総額— — 416.7 416.7 — 0.9 — 0.9 
公正価値で測定された総負債$— $11.8 $655.2 $667.0 $— $16.2 $— $16.2 
条件付き対価負債の公正価値は、割引キャッシュフロー評価手法を使用して推定されます。条件付き対価負債の公正価値は、割引キャッシュフローを用いて公正価値を推定するために観測できない入力を使用するため、レベル3の測定値と考えています。重要な観測できない入力には、顧客が適格な新しい取引を開始する際の将来のキャッシュ支払いの見積もりと、期待されるキャッシュフローの現在価値を算出するために使用されるリスク調整後の割引率が含まれます。これらの前提のいずれかに大きな変化があった場合、条件付き対価負債の公正価値に重要な影響を及ぼす可能性があります。
次の表は、我々の偶発的控除債務の調整を示したものです（百万単位）：
2024年10月31日までの3か月
期首の潜在的な損益負債
$— 
取得日の初期評価
648.9 
公正価値の変動
6.3 
期末の潜在的な損益負債
$655.2 
私たちの融資債権の総推定公正価値は、2024年10月31日および2024年7月31日の時点での簿価に近似しています。私たちは、割引キャッシュフローを用いて公正価値を推定するために観察不可能な入力を使用しているため、融資債権の公正価値をレベル3の測定と見なしています。
2024年10月31日及び2024年7月31日現在の転換可能な優先債の帳簿価額及び推定公正価値については、注9を参照してください。
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4. 現金同等物と投資
売買可能な債券・債務証券
次の表は、2024年10月31日と2024年7月31日時点の利息費用、未実現損益、および利用可能な売却用債券の公正価値を百万単位で要約しています。
2024年10月31日
償却原価
未実現利益
未実現損失
公正価値
現金同等物：
コマーシャルペーパー$228.7 $— $— $228.7 
企業債券・債務証券34.2 — — 34.2 
テキサスインスツルメンツ74.8 — — 74.8 
売却可能な現金同等物の合計$337.7 $— $— $337.7 
投資:
入金証明書$15.7 $— $— $15.7 
コマーシャルペーパー36.1 — — 36.1 
企業債券・債務証券4,115.2 25.3 (7.8)4,132.7 
テキサスインスツルメンツ21.9 — — 21.9 
米国外政府および機関証券38.6 0.5 — 39.1 
資産担保証券976.1 7.1 (0.8)982.4 
資産部門の利用可能な売買目的投資$5,203.6 $32.9 $(8.6)$5,227.9 
2024年7月31日
償却原価
未実現利益
未実現損失
公正価値
現金同等物：
コマーシャルペーパー$299.6 $— $— $299.6 
企業債券・債務証券18.2 — — 18.2 
テキサスインスツルメンツ149.6 — — 149.6 
売却可能な現金同等物の合計$467.4 $— $— $467.4 
投資:
入金証明書$20.6 $— $— $20.6 
コマーシャルペーパー79.9 0.1 (0.1)79.9 
企業債券・債務証券4,065.5 28.3 (6.6)4,087.2 
テキサスインスツルメンツ21.9 — (0.2)21.7 
米国外政府および機関証券57.9 0.7 — 58.6 
資産担保証券943.1 6.3 (0.6)948.8 
資産部門の利用可能な売買目的投資$5,188.9 $35.4 $(7.5)$5,216.8 
2024年10月31日現在、12ヶ月未満の継続的な未実現損失の位置にある総未実現損失は$7.3百万で、これは$1.2十億の売却可能な債券・債務証券に関連しています。12ヶ月以上の継続的な未実現損失の位置にあった総未実現損失は$1.3百万で、これは$372.5百万の売却可能な債券・債務証券に関連しています。2024年7月31日現在、12ヶ月未満の継続的な未実現損失の位置にある総未実現損失は$1.5百万で、これは$949.4百万の売却可能な債券・債務証券に関連しています。そして、12ヶ月以上の継続的な未実現損失の位置にあった総未実現損失は$6.0百万で、これは$915.3　売却可能な債券・債務証券が百万ある。
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売却可能な債券・債務証券に関連する未実現の損失は、主に利率の変動によるものであり、信用の質によるものではありません。未実現の損失が発生している証券を売却する意図はなく、これらの証券が償却原価を回復するまで、売却が要求される可能性は低いです。償却原価が満期時に達することもあります。2024年および2023年の10月31日に終了した3か月間において、売却可能な債券・債務証券に関連する信用損失は認識していません。
以下の表は、2024年10月31日時点の、償却原価および公正価値を契約残存期間に基づいてまとめた当社の売買可能債券・債務証券の状況を百万単位で示しています。
償却原価公正価値
1年以内に期限切れ$1,445.9 $1,445.9 
1年から3年の間に支払う必要があります1,843.2 1,853.4 
3年から5年の間に支払う必要があります1,925.5 1,937.9 
5年から10年の間に支払う必要があります217.7 218.2 
10年より後に満期109.0 110.2 
合計$5,541.3 $5,565.6 
売り手の株式有価証券
流動性のある株式証券はマネーマーケットファンドで構成されており、我々の簡略化された連結バランスシートの現金及び現金同等物に含まれます。2024年10月31日および2024年7月31日現在、我々の流動性のある株式証券の簿価は$1.1私たちの入力によると、この文書には数字がありません。494.0それぞれ、100万ドルと200万ドルでした。 no 2024年および2023年10月31日に終了した3ヶ月間にこれらの証券に対して認識された未実現の利益または損失。
5. 融資債権
次の表は、2024年10月31日および2024年7月31日現在の新規売と新規買のファイナンス受取勘定をまとめたものです（百万単位）。
2024年10月31日2024年7月31日
新規売の財務債権、総額$911.6 $830.2 
未獲得収益
(99.0)(95.7)
信用損失引当金(7.5)(8.6)
短期金融債権、純額$805.1 $725.9 
新規買の財務債権、総額$1,191.5 $1,286.4 
未獲得収益
(91.4)(94.6)
信用損失引当金(7.9)(9.7)
新規買金、純額$1,092.2 $1,182.1 
以下の表は、内部リスク評価および発行年ごとに分類された当社の融資債権の償却原価基準を百万単位で示しています。
内部リスク評価(1)
2024年10月31日2024年7月31日
発生の財政年度
発生の財政年度
20252024202320222021合計2024202320222021合計
1 から 4
$7.4 $916.1 $387.5 $9.9 $26.7 $1,347.6 $885.9 $477.3 $14.7 $44.4 $1,422.3 
5から6
43.7 330.1 152.3 3.1 1.1 530.3 272.2 172.0 21.1 1.1 466.4 
7から10
0.1 2.2 22.9 0.3 9.3 34.8 3.2 25.0 0.3 9.1 37.6 
財務債権の償却原価
$51.2 $1,248.4 $562.7 $13.3 $37.1 $1,912.7 $1,161.3 $674.3 $36.1 $54.6 $1,926.3 
(1)内部リスク評価は1から10に分類されており、最も低い評価が最高の品質を示しています。
2024年10月31日までの3か月間および2023年において取り崩し損失の許容に関する重大な活動はありませんでした。2024年10月31日および2024年7月31日時点での貸借対照表の期日超過金額は無視できる程度ではありませんでした。
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6. デリバティブ取引
私たちは外国為替リスクにさらされています。売上高は主に米ドルで取引されていますが、運営支出の一部は米国の外で発生し、外国通貨建てであるため、外国為替レートの変動の影響を受けます。私たちは、契約満了が 24 ヶ月以内の外国通貨デリバティブ契約を締結し、これをキャッシュフローヘッジとして指定して、運営支出に関連する外国為替リスクを管理します。
2024年10月31日および2024年7月31日現在、キャッシュフローヘッジとして指定された未払いの外国通貨先物契約の合計名目額は$656.6百万ドルと$804.8百万です。2024年10月31日および2024年7月31日現在の当社の凝縮された連結貸借対照表に報告された当社のデリバティブ金融商品に関する公正価値測定については、注記3を参照してください。
2024年10月31日現在、キャッシュフローヘッジに関連するその他の包括利益累計における未実現の利益と損失は、$7.5百万のネット損失であり、そのうち$5.8百万の損失が今後12ヶ月以内に収益に認識されることが予想されています。2024年7月31日現在、キャッシュフローヘッジに関連するその他の包括利益累計における未実現の利益と損失は、$10.6百万のネット損失でした。
2024年10月31日および2024年7月31日時点で、ヘッジ手段として指定されていない私たちの未決済外国通貨建て先物契約の名義金額は、$483.8百万ドルと$375.6百万ドル
7. 取得
IBm QRadar 資産
2024年8月31日、私たちはIBm QRadarの特定の資産、特定の知的財産権、顧客関係、およびソフトウェア・アズ・ア・サービスの顧客契約を取得しました。この買収により、私たちのCortex ビジネスの成長を加速させることが期待されています。 買収の総購入価格は$1.1 十億ドルで、次の項目から構成されていました（百万ドル単位）:
金額
現金$500.0 
コンティンジェントな損傷負債の公正な価値648.9 
購入対価の返還(6.3)
合計$1,142.6 
買収の一環として、2028年6月30日までに顧客が適格な新しい取引を行うことを条件に、IBmに対してクロージング後の支払いを行うことに合意しました。また、特定の顧客契約の移行タイミングにより、$百万の購入対価の返還を受けることを期待しています。6.3さらに、IBmとの間で移行サービス契約を締結しており、IBmは限られた期間にわたり、取得した資産と顧客をサポートするための特定のサービスを提供します。
コンティンジェントな負債に関連する支払いは、2025年4月を締め切りとする財務四半期から開始され、2028年10月を締め切りとする財務四半期まで継続される見込みです。未割引コンティンジェントな考慮の範囲は、$0.5私たちの入力によると、この文書には数字がありません。0.9十億ドルに設定されています。当社のコンティンジェントな負債の公正価値に関する詳細は、Note 3. Fair Value Measurements を参照してください。
この取引はビジネスの組み合わせとして会計処理され、以下の表に示すように、取得した資産と引き受けた負債に対して、予備的な推定公正価値に基づいて購入対価が配分されました（百万単位で）:
金額
のれん$700.7 
特定された無形資産476.0 
引き受けられた純負債(34.1)
合計$1,142.6 
このビジネスの統合から生じたのれんは、主に当社のCortexビジネスの成長を支えるための市場浸透の増加から得られる取得後の相乗効果に起因しています。こののれんは、米国の所得税目的で控除可能です。
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特定された無形資産の取得詳細を示す次の表（百万単位、年を除く）
公正価値見込み使用年数
顧客関係$464.0 12 年
開発された技術12.0 2 年
合計$476.0 
業績のプロフォーマ結果は、買収の影響が当社の圧縮連結業績計算書に対して重要ではなかったため、提示されていません。
取得日現在の取得に関連する追加情報は、測定期間の残りの期間中に知られる可能性があり、その期間は取得日から12か月を超えない場合があり、記録された金額や配分の変更が生じる可能性があります。
8. のんびりとした運賃と無形資産
のれん
以下の表は、2024年10月31日を終了した3か月間の当社の資産評価額の詳細を示しています（百万単位）：
金額
2024年7月31日の残高$3,350.1 
得られた商標価値700.7 
2024年10月31日現在の残高$4,050.8 
取得された無形資産
以下の表は、2024年10月31日および2024年7月31日現在の購入した無形資産の詳細を示しています（百万単位で）:
2024年10月31日2024年7月31日
総持ち額
累計償却額
資産の純額
総持ち額
累計償却額
資産の純額
償却対象の無形固定資産：
開発された技術$825.9 $(555.3)$270.6 $813.9 $(526.2)$287.7 
顧客関係636.7 (107.7)529.0 172.7 (96.1)76.6 
取得した知的財産18.2 (8.4)9.8 18.2 (7.9)10.3 
商標名および商標9.4 (9.4)— 9.4 (9.4)— 
その他0.9 (0.7)0.2 0.9 (0.6)0.3 
購入した無形資産の合計$1,491.1 $(681.5)$809.6 $1,015.1 $(640.2)$374.9 
当社は2024年10月31日および2023年10月31日における償却費を＄として認識しました。41.3百万ドルと$24.9それぞれ、300万ドルです。
以下の表は、2024年10月31日現在の償却対象の無形資産の将来の償却費用の推定額を（百万ドル単位で）要約したものです。
7月31日で終了する会計年度、
全セクター残りの2025年20262027202820292030年以降
将来の償却費用$809.6 $124.5 $140.6 $109.7 $88.8 $62.8 $283.2 
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9. 負債
転換社債(コンバーチブル・シニア・ノート)
2020年6月、私たちは$を発行しました。2.011.625％の優先債/シニア債2027年満期分0.375%転換可能な優先債/シニア債は2025年満期（以下「2025年債」）です。2025年債の利率は固定で、 0.375%で、毎年6月1日と12月1日に半年ごとに支払われ、2020年12月1日から始まります。2025年債は、発行者としての私たちと、受託者としての米国銀行ナショナルアソシエーションとの間の契約により支配されています（以下「契約」）。2025年債は無担保で、下位事債務ではなく、2025年債を支配する契約には配当の支払い、負債の発生、または私たちまたは当社の子会社による証券の発行または自社買い付けに関する財務約束や制限は含まれていません。2025年債は2025年6月1日に満期を迎えます。 130当社の普通株式の最後に報告された売却価格が、最低15日間（連続していなくても、あるいは直前の取引日を含めた連続する取引日期間を含む）転換価格に対して少なくとも$1の割合で売買された場合、当社は2024年11月20日以降、制限があるが、任意の部分または全部を現金で償還することができる。償還額には、償還日までの利息が含まれない。20 の任意の取引日での 30 2025年債の全てまたは一部を現金で償還することができ、2023年6月5日以降、満期日の直前の31回目の予定取引日よりも前に、私たちの普通株式の最後の報告された売却価格が少なくとも 100連続した取引日期間を償還通知を提供する日の前日を含む取引日で終了します。償還は2025年債の元本の%に相当し、利息の調整が行われます。私たちが2025年債の一部または全てを償還のためにコールする場合、保有者は償還日の直前の2回目の予定取引日の終業時刻までに、償還のためにコールされた2025年債をいつでも転換することができます。
2025年のノートは、初期に普通株式へ転換可能です。 20.1普通株式1,000ドルの元本金につき約10.0806株の普通株式に換算され、初期換算価格は約1ドルです。99.20 2025年のノートの保有者は、2025年3月1日前日のビジネス終了までに、任意でノートを転換することができますが、以下の条件下でしかできません:
•2020年10月31日に終了する会計四半期の後に始まる会計四半期のいずれかにおいて（その会計四半期の間のみ）、我々の普通株式の最後に報告された売買価格が、少なくとも 20取引日数（連続しているかどうかに関わらず）にわたる 30連続した取引日数のうち、前の会計四半期の最後の取引日に終了する 130%が、各該当取引日の2025年ノートの転換価格以上である場合（「売買価格の種類」）;
•公募販売中の五会計四半期末連続取引日数五 2025年ノートの元本額1,000ドルあたりの取引価格が測定期間中の各取引日において未満であった連続取引日数期間（「測定期間」） 98各取引日ごとの普通株式の最後の報告された売却価格と2025年ノートの転換率の積の%であった場合;
•指定された企業イベントの発生時
2025年3月1日以降、保有者は2025年ノートの全てまたは任意の部分を、満期日よりも前の第二回目の定期取引日の業務終了時刻までいつでも転換のために引き渡すことができ、これらの転換は満期日に決済されます。転換時には、2025年ノートの保有者は転換される2025年ノートの総額元本に相当する現金を受け取り、当社の選択により、転換される2025年ノートの総額元本を超える金額に対して現金および/または普通株式を受け取ります。
転換価格は、いくつかの事象に応じて調整される場合があります。特定の企業イベントに関連して2025年ノートを転換する2025年ノートの保有者は、契約書に基づく「全額償還基本的変更」を構成する場合、特定の条件の下で転換率の引き上げを受ける権利があります。さらに、契約書に基づく「基本的変更」を構成する企業イベントが発生した場合、2025年ノートの保有者は、現金で2025年ノートのすべてまたは一部を買い戻すことを要求することができます。 1002025年ノートの元本額の%と、基本的変更買い戻し日までの未払い利息を加えた金額に等しい買い戻し価格で。
2025年のノートの保有者は、2024年10月31日に終了した財政四半期中に2025年のノートを早期に換金することができました。売却価格の条件が2024年7月31日に終了した財政四半期中に満たされていました。2024年10月31日および2023年に終了した三か月間で、2025年のノートの保有者は、合計でそれぞれ1億ドルを換金し、現金で返済しました。319.0百万ドルと$46.0また、2024年10月31日および2023年に終了した三か月間で、2025年のノートの保有者に対して普通株式をそれぞれ発行し、元本額を超える換金価値と引き換えにしました。 2.3百万と 0.3これらの株式は、対応するノートヘッジの行使によって完全に相殺されました。この四半期報告書の提出日までの2024年10月31日以降の2025年のノートの換金に関する詳細については、注記16. 後発事項を参照してください。フォーム10-Qに関する四半期報告書。
2025年ノートの販売価格の種類は2024年10月31日に終了した会計四半期に満たされ、その結果、保有者は2025年ノートを2025年1月31日に終了する会計四半期中に転換することができます。2025年ノートの純簿価は2024年10月31日時点での当社の簡略化された連結貸借対照表において流動負債として分類されました。
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次の表は、2025年の当社ノートの純持ち株式額（百万単位で）を示しています。
2024年10月31日2024年7月31日
元本$646.6 $965.6 
減少: 償却後の債務発行コスト
(0.8)(1.7)
簿価のネット残高$645.8 $963.9 
2025年ノートの合計推定公正価値は、$2.32024年10月31日時点での$ 億と、$3.22024年7月31日時点での$ 億でした。公正価値は、期間の最終取引日における2025年ノートの$100あたりの終値に基づいて決定されました。2024年10月31日と2024年7月31日現在の2025年ノートの公正価値は、レベル2の測定と見なされます。2025年ノートの公正価値は、主に当社の普通株式と市場のinterest ratesの取引価格に影響されます。
以下の表は、2025年債に関連する利息費用を示しています（単位は百万ドル）：
10月31日に終了した3か月間
20242023
契約上の利子費用$0.7 $1.9 
債務発行コストの減価償却0.5 1.0 
合計利息費用$1.2 $2.9 
効率的金利 0.6 %0.6 %
ノートヘッジ
潜在的な経済的希薄化の影響を最小限に抑えるために、2025ノートの発行と同時に、普通株式に関連した別々の転換社債ヘッジ取引（「2025ノートヘッジ」）を行いました。
2025年ノートヘッジは、最大で 20.1普通株式の 百万株をカバーし、権利行使価格は2025年ノートの初期転換価格に対応しています。この価格は調整の対象でもあり、2025年ノートの転換時に行使可能です。2025年ノートヘッジは、2025年ノートの満期時に失効します。2025年ノートヘッジは別個の取引であり、2025年ノートの条件の一部ではありません。2025年ノートの保有者は、2025年ノートヘッジに関する権利を持ちません。2025年ノートヘッジに基づいて受け取る普通株式は、希薄化後の1株当たり利益計算から除外されます。なぜなら、それらは希薄化防止となるからです。370.82025年ノートヘッジのために合計
2024年10月31日までの3か月間に決済された2025年ノートの転換の結果、2025年ノートヘッジの対応部分を行使し、 2.3百万と 0.3それぞれの期間中に普通株式の 百万株を受け取りました。
ワランツ
個別に、しかし当社の転換社債の各シリーズの発行と同時に、当社は新株予約権に関するワラント（「2023年新株予約権」）を売却する取引を開始しました 0.752018年7月に発行された2023年満期の転換社債の割合、2025年債については「2025年ワラント」、および希薄化防止調整を条件として、当社の普通株式を取得するための2023年ワラント（2025年ワラントと合わせて「ワラント」）。2023年のワラントと2025年のワラントは、以上に行使可能です 60それぞれ2023年10月と2025年9月から始まる予定取引日。
以下の表は、私たちのwarrantsの詳細を示しています（百万単位、1シェアあたりのデータを除く）：
初期のシェア数
シェアあたりの権利行使価格
総収益
2023年のwarrants (1)
19.1 $139.27 $145.4 
2025 warrants20.1 $136.16 $202.8 
(1)2023年のwarrantsは、 602023年の10月から12月までの予定されている取引日中に決済されました。
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ウォランツの下で発行可能なシェアは、普通株式の平均時価シリーズの適用権利行使価格を上回った報告期間において、希薄化後１株当たり利益の計算に含まれます。ウォランツは別々の取引であり、いずれのシリーズのノートやノートヘッジの一部ではなく、毎報告期に収益を通じて再評価されません。いずれかのシリーズのノートの保有者は、ウォランツに関する権利を持ちません。ウォランツの売却から受け取った総収益は、我々の簡易連結貸借対照表の追加の資本剰余金に含まれます。
2023権利の一部を、2023年10月31日までの3ヶ月間に株式でネット決済しました 3.1100万株の普通株式を率いて評価額が$百万でした763.5ネット発行株数は、2023年権利の権利行使数とその日ごとの出来高加重平均株価の差を掛けた数量に基づいて決定されました
Revolving Credit Facility
2023年4月13日に、特定の機関貸し手との間で与信契約（「与信契約」）を締結しました。400.01百万ドルの無担保回転信用枠（「信用枠」）を提供し、特定の条件に基づき信用枠の金額をさらに1百万ドルまで増額するオプションがあります。350.0この信用枠は2028年4月13日に満了します。
信用供与枠に基づく借入金は、選択により、基準金利にスプレッドを加えた金利で課されます 0.000% から 0.375%、または調整後の担保付きオーバーナイトファイナンスレート（「SOFR」）にスプレッドを加えた金利で課されます 1.000% から 1.375%、いずれの場合もそのスプレッドは当社のレバレッジ比率に基づいて決定されます。未使用額に対して、私たちはレバレッジ比率に応じた率で継続的なコミットメントフィーを支払う義務があります。 0.090% から 0.150%、利子率とコミットメントフィーはまた、温室効果ガス排出に関する特定の持続可能性目標の達成に向けた進捗に基づき、上昇および下降の調整を受けます。
2024年10月31日現在、 no 未払金の額は、与信契約の全セクターの遵守ができていました。
10. コミットメントとコンティンジェンシー
購入のコミットメント
クラウドサービスプロバイダーとの間で、キャンセル不可のさまざまな契約を締結しており、特定のクラウドサービスの最低または固定購入を約束しています。加えて、製造リードタイムを短縮し、適切な供給を計画するために、需要予測に基づいて在庫を調達するために製造パートナーや部品サプライヤーとの契約を結びました。 以下の表は、2024年10月31日現在のこれらの契約に基づく将来の合計非キャンセル購入の約束の詳細を示しています（単位：百万）。
7月31日で終了する会計年度、
全セクター残りの2025年20262027202820292030年以降
クラウド
$4,088.9 $56.7 $435.7 $518.1 $599.6 $686.1 $1,792.7 
製造業
205.7 165.7 40.0 — — — — 
その他
155.8 41.3 57.7 42.4 7.5 3.4 3.5 
総購買契約
$4,450.4 $263.7 $533.4 $560.5 $607.1 $689.5 $1,796.2 
さらに、私たちは$という最低購入契約を2027年9月までクラウドサービスプロバイダーと締結しています。指定された年間のコミットメントはありません。137.22027年9月まで、クラウドサービスプロバイダーとの最低購入コミットメントが百万ドルあり、年間のコミットメントは指定されていません。
訴訟
当社は、ビジネスの通常の過程で発生する法的手続き、請求、税務問題、および訴訟の対象となっています。たとえば、知的財産や特許に関する訴訟が含まれます。損失が発生する可能性が高く、損失額を合理的に見積もることができると信じる場合、偶発事象に対して引当金を計上します。
法的事項には、推測的、 substantial、または不確定な金銭的金額が含まれる可能性があります。このような事項に関連する損失が発生する可能性と、その損失の推定額を判断するためには、重要な判断が必要です。そして、合理的に可能な損失または損失の範囲を推定できない場合があります。未解決の法的事項の結果は本質的に予測不可能であり、個別にまたは合計して、私たちや私たちの業績に重大な悪影響を与える可能性があります。もし、すでに認識されている金額を超える損失が発生する合理的な可能性がある場合、推定される追加の損失を開示するか、そのような推定ができないことを明示します。
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以下の事項は、ビジネスの通常の過程で発生しました。
セントリピタル ネットワークス株式会社対パロ アルト ネットワークス
2021年3月12日、Centripetal Networks, Inc.は、バージニア州イースタン地区のアメリカ合衆国地方裁判所に対して訴訟を提起しました。この訴訟では、当社の製品が複数のCentripetal特許を侵害していると主張しています。特許商標庁（“PTO”）によって特許性がないと見なされた特定の特許に関して、当社は成功裏に異議を申し立てました。裁判は2024年1月22日に陪審裁判に進みました。 四 特許に関して、2024年1月31日に陪審は、非意図的侵害の評決を出し、総額$151.5百万ドル、法定利息を加算しました。裁判後の動議を経て、2024年10月3日に判決が下され、 三つ 特許に対する侵害を認め、4つ目の特許に対する侵害を覆し、その結果、損害賠償額が$113.6百万ドルに減額されました。当社は、関係者が合意し、裁判所に承認された担保債券を投稿しました。この債券は、控訴が保留中の間、判決の執行を防ぎます。さらに、Centripetalはドイツの欧州特許庁において、彼らの特許の一部について侵害主張を提起し、当社は無効性の異議を申し立てました。これらの問題は依然として保留中です。
2024年7月31日時点で、$184.4百万を判決金額と推定利息のために計上しました。2024年10月31日時点で、損失の引当金を再評価し、金額を$141.4百万人に減少させました。これは、我々の簡易連結バランスシートのその他の新規買長期負債に記録されています。対応する金額は$43.0百万で、2024年10月31日に終了した三ヶ月間のもので、我々の簡易連結損益計算書の一般管理費に含まれています。
Finjan, Inc.対パロ アルト ネットワークス
2014年11月4日、Finjan, Inc.は、米国カリフォルニア州北部地区連邦裁判所に私たちに対する訴訟を起こしました。この訴訟は、私たちの製品が複数のFinjan特許を侵害していると主張しています。訴状は差し止め措置、金銭的損害、弁護士費用を求めています。裁判の日程は2025年6月9日に設定されています。現時点では、損失の可能性や範囲を合理的に評価することはできません。
11. 株主資本
2024年9月30日時点の通常配当1株あたり$0.58と補足配当1株あたり$0.06
2019年2月、当社の取締役会は利用可能な運転資本から資金を提供して、シェアリパーチェス・プログラムに対して10億ドルの承認を行いました。1.02020年12月、2021年8月、2022年8月、2023年11月、および2024年8月、私たちの取締役会はそれぞれこのシェアリパーチェス・プログラムに追加の数百万ドルを承認し、これによりこのシェアリパーチェス・プログラムの総承認額が何十億ドルに増加しました。700.0 百万、$676.1 百万、$915.0 百万、$316.7百万ドルと$500.0私たちの現在の承認額である数十億ドルまでのこのシェアリパーチェス・プログラムの承認期限は2025年12月31日まで延長され、弊社はいつでもリパーチェス・プログラムを中止または中断することができます。4.1リパーチェスは、運用側の裁量により、市場での取引、非公開取引、投資銀行による取引、ブロック取引テクニック、10b5-1取引計画、またはこれらの組み合わせを通じて、随時行われることがあります。
2024年10月31日までの3ヶ月間、当社は普通株式の買い戻しを行いませんでした。2023年10月31日までの3ヶ月間には、当社は現在の買い戻し承認のもとで普通株式を買い戻し、取り消しました。 0.3 百万株の普通株式を、取引コストを含む総購入価格が$を平均価格$で、購入しました。66.7 百万ドル、取引コストを含む、平均価格$で購入しました。226.67.
2024年10月31日現在、$残りの$百万が株式買い戻しプログラムの未来の株式買い戻し用に残されました。1.0 当社の現在の買戻し承認のもとで、将来のシェア買戻しのために利用可能な資金が残っています。買戻した株式の総価格と関連する取引費用は、当社の要約連結貸借対照表において、普通株式および追加払込資本の減少として反映されています。
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12. 株式賞プラン
制限付き株式ユニット（"RSU"）および業績連動型株式ユニット（"PSU"）活動
以下の表は、2024年10月31日までの3か月間における当社のストックプランに基づくRSUおよびPSUの活動を要約したものです（単位：百万、1株あたりの金額を除く）:
未実施の制限株式
未確定のPSU
シェアの数
株式1株当たりの加重平均付与日公正価値
2023年12月31日現在の未行使株式オプション
シェアの数
株式1株当たりの加重平均付与日公正価値
2023年12月31日現在の未行使株式オプション
残高—2024年7月31日9.0 $205.18 $2,924.4 5.0 $155.89 $1,624.2 
付与されました(1)
0.4 $351.52 1.6 $404.69 
新規買(2)
(1.3)$163.72 (0.6)$129.35 
喪失(0.3)$197.36 (1.5)$181.44 
残高—2024年10月31日7.8 $221.08 $2,813.8 4.5 $272.87 $1,633.6 
(1)PSUにおいて、付与された株式は、これらの報酬に関して全期間を通じて得られ、発行される可能性のある株式の総最大数を表します。
(2)PSUには時間ベースのベスティングが含まれています。
私たちのRSUは、授与日からの期間にわたって一般的に権利が発生します。 三つ に対して 四年 権利が発生するまで、RSUは普通株式の投票および配当参加権を持たず、賞与に基づく株式は発行済みとして考慮されません。
当社のPSUは、一般的に付与日からの期間にわたって権利確定します。 1つの に対して 四年 権利確定する資格のあるPSUの数は、特定の業績条件、市場条件、およびその組み合わせによる達成レベルに基づいて決定されます。
2024年10月31日までの3か月間に、 1.6百万株のPSUを付与しました。これにはサービス、パフォーマンス、マーケットの種類があります。サービスの種類は、 1つの に対して 3年間の期間を経て満たされます。パフォーマンスの種類は、次世代セキュリティの年換算反復売上高と希薄化後1株当たりの非GAAP当期純利益の平均に基づいています。マーケットの種類は、当社の総株主還元（「TSR」）をS&P 500 indexに上場している企業のTSRと比較して測定されます。2024年10月31日現在、 1.3百万株のPSUが承認されており、これは次の2つの財務年度の間にパフォーマンスの種類が確立されたときに付与されます。
PSUの公正価値は、マーケットコンディションに応じて、Monte Carloシミュレーションモデルを使用して、付与日に推定されます。 以下の表は、2024年10月31日に終了した3か月間に付与された市場条件に従って当社のPSUの付与日の公正価値に使用された仮定とその結果を要約しています。
10月31日に終了した3か月間
20242023
変動
44.1% - 47.6%
40.8% - 43.4%
期待される期間（年）
1.0 - 2.9
0.9 - 2.9
配当利回り0.0 %0.0 %
無リスク金利
3.7% - 4.5%
4.9% - 5.3%
株ごとの授与日の公正価値
$529.01 - $611.65
$346.92 - $394.63
パフォーマンスストックオプション（「PSO」）活動
サービスおよび市場条件の両方を持つPSOが付与されました。市場条件は特定の株価ターゲットが達成されたときに満たされました。2024年10月31日現在、全ての未償却PSOは完全に権利確定しています。未償却PSOの最大契約期間は、2018年度および2019年度の付与日から7年半です。
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以下の表は、2024年10月31日終了の三か月間における当社のストックプランのPSO活動をまとめたものです（単位：百万、1株あたりの金額を除く）：
シェアの数
シェアあたりの加重平均行使価格
残存契約期間の加重平均（年）
2023年12月31日現在の未行使株式オプション
残高—2024年7月31日4.8 $65.33 1.2$1,244.9 
行使済み(0.6)$65.63 
残高—2024年10月31日4.2 $65.29 1.0$1,251.3 
行使可能—2024年10月31日4.2 $65.29 1.0$1,251.3 
Share-Based Compensation
The following table summarizes share-based compensation included in costs and expenses (in millions):
Three Months Ended October 31,
20242023
Cost of product revenue $1.3 $2.4 
Cost of subscription and support revenue 30.4 30.6 
Research and development137.8 120.1 
Sales and marketing76.4 79.2 
General and administrative48.4 38.7 
Total share-based compensation$294.3 $271.0 
As of October 31, 2024, total compensation cost related to unvested share-based awards not yet recognized was $2.2 billion. This cost is expected to be amortized over a weighted-average period of approximately 2.5 years.
13. Income Taxes
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. 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.
14. Net Income Per Share
Basic net income per share is computed by dividing net income by basic weighted-average shares outstanding during the period. Diluted net income per share is computed by dividing net income by diluted weighted-average shares outstanding during the period giving effect to all potentially dilutive securities to the extent they are dilutive. We compute the dilutive effect of shares issuable upon conversion of our convertible senior notes using the if-converted method, and the dilutive effect of warrants related to the issuance of convertible senior notes and equity awards under our employee equity incentive plans using the treasury stock method.
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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,
20242023
Net income
$350.7 $194.2 
Weighted-average shares used to compute net income per share, basic
326.8 310.1 
Weighted-average effect of potentially dilutive securities:
Convertible senior notes5.9 11.6 
Warrants related to the issuance of convertible senior notes12.2 16.0 
Employee equity incentive plans9.6 12.1 
Weighted-average shares used to compute net income per share, diluted
354.5 349.8 
Net income per share, basic
$1.07 $0.63 
Net income per share, diluted
$0.99 $0.56 
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,
20242023
Employee equity incentive plans1.6 2.6 
15. Other Income, Net
The following table sets forth the components of other income, net (in millions):
Three Months Ended October 31,
20242023
Interest income$85.7 $71.2 
Foreign currency exchange gains (losses), net(7.5)5.1 
Other, net
5.1 (6.0)
Total other income, net$83.3 $70.3 
16. Subsequent Events
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.
Stock Split
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.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including, without limitation, the following discussion and analysis, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements generally can be identified by words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “projects,” “will,” “will be,” “will continue,” “will likely result,” “would” and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements include, but are not limited to, statements concerning the following: expectations regarding the cybersecurity landscape; expectations regarding our platformization strategy and related progress and opportunities; expectations regarding annual recurring revenue, remaining performance obligations, and product development strategy; expectations regarding artificial intelligence; expectations regarding our strategic partnerships; expectations regarding drivers of and factors affecting growth in our business; statements regarding expected profitability, trends in annual recurring revenue, trends in remaining performance obligations, our mix of product and subscription and support revenue, cost of revenue, gross margin, cash flows, operating expenses, including future share-based compensation expense, income taxes, investment plans, and liquidity; expected recurring revenues resulting from growth in our end-customers and increased adoption of our products and cloud-delivered security solutions; the performance advantages of our products and subscription and support offerings and the potential benefits to our customers; expectations regarding future investments in research and development and product development, customer support, in our employees and in our sales force, including expectations regarding growth in our sales headcount; expectations that we will continue to expand our global presence; expectations regarding our revenues, including the seasonality and cyclicality from quarter to quarter; expectations relating to our customer financing activities; the sufficiency of our cash flow from operations with existing cash, cash equivalents, and investments to meet our cash needs for the foreseeable future; our ability to successfully acquire and integrate companies and assets and expectations and intentions with respect to the assets, products and technologies that we acquire; expectations regarding contingent consideration obligations; 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 manufacture, delivery and cost of certain of our products; the effects of litigation or regulatory developments involving us or affecting our industry; and other statements regarding our future operations, financial condition and prospects, and business strategies. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those anticipated or implied by any forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q and, in particular, the risks discussed under the caption “Risk Factors” in Part II, Item 1A of this report and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”) from time to time. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is organized as follows:
•Overview. A discussion of our business and overall analysis of financial and other highlights in order to provide context for the remainder of MD&A.
•Key Financial Metrics. A summary of our U.S. GAAP and non-GAAP key financial metrics, which management monitors to evaluate our performance.
•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.
•Liquidity and Capital Resources. An analysis of changes on our balance sheets and cash flows, and a discussion of our financial condition and our ability to meet cash needs.
•Critical Accounting Estimates. A discussion of our accounting policies that require critical estimates, assumptions, and judgments.
•Recent Accounting Pronouncements. A discussion of expected impacts of impending accounting changes on financial information to be reported in the future.
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Overview
We empower enterprises, organizations, service providers, and government entities to protect themselves against today’s most sophisticated cyber threats. Our cybersecurity platforms and services help secure enterprise users, networks, clouds, and endpoints by delivering comprehensive cybersecurity backed by artificial intelligence (“AI”) and automation. A key element of our strategy is to help our customers simplify their security architectures through consolidating disparate point products. We execute on this strategy by developing our capabilities and packaging our offerings into platforms which are able to cover many of our customers’ needs in the markets in which we operate. Our platformization strategy combines various products and services into a tightly integrated architecture and makes security faster, less complex, and more cost-effective. We focus on delivering value in four sectors of the cybersecurity industry:
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”). 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. 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 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 CloudTM 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.
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. 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 products are delivered as SaaS or software subscriptions.
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. 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%. 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. 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. We maintain a field sales force that works closely with our channel partners in developing sales opportunities. 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.
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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%. Product revenue is derived from sales of our appliances, primarily our ML-Powered Next-Generation Firewall. Product revenue also includes revenue derived from software licenses of Panorama®, SD-WAN, and the VM-Series. Our ML-Powered Next-Generation Firewall incorporates our PAN-OS operating system, which provides a consistent set of capabilities across our entire network security product line. 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. 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 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. When customers purchase our physical, virtual, or container firewall appliances, or certain cloud offerings, they typically purchase support in order to receive ongoing security updates, upgrades, bug fixes, and repairs. In addition to the subscriptions purchased with these appliances, customers may also purchase other subscriptions on a per-user, per-endpoint, or capacity-based basis. We also offer professional services, including incident response, risk management, and digital forensic services.
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.
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. To manage any future growth effectively, we must continue to improve and expand our information technology and financial infrastructure, our operating and administrative systems and controls, and our ability to manage headcount, capital, and processes in an efficient manner. While these areas present significant opportunities for us, they also pose challenges and risks that we must successfully address in order to sustain the growth of our business and improve our operating results. For additional information regarding the challenges and risks we face, see the “Risk Factors” section in Part II, Item 1A of this Quarterly Report on Form 10-Q.
IMPACT OF MACROECONOMIC DEVELOPMENTS AND OTHER FACTORS ON OUR BUSINESS
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. While we have business operations in Israel, and intend to continue growing our presence in Israel, we currently do not expect significant business disruption. We are actively monitoring, evaluating, and responding to the situation.
We are also monitoring the impact of inflationary pressures and the tensions between China and Taiwan, and between the U.S. and China, which could have an adverse impact on our business or results of operations in future periods.
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Key Financial Metrics
We monitor the key financial metrics set forth in the tables below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. We discuss revenue, gross margin, and the components of operating income and margin below under “Results of Operations.”
October 31, 2024July 31, 2024
(in billions)
Next-Generation Security Annualized Recurring Revenue
$4.5 $4.2 
Remaining performance obligations
$12.6 $12.7 
Three Months Ended October 31,
20242023
(dollars in millions)
Total revenue$2,138.8 $1,878.1 
Total revenue year-over-year percentage increase13.9 %20.1 %
Gross margin74.1 %74.8 %
Operating income$286.5 $215.2 
Operating margin13.4 %11.5 %
Cash flow provided by operating activities$1,509.6 $1,526.0 
Free cash flow (non-GAAP)$1,465.5 $1,489.2 
•Next-Generation Security Annualized Recurring Revenue (“NGS ARR”). 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. NGS ARR is an operating metric that we use to assess the strength and trajectory of our business. NGS ARR should be viewed independently of revenue, deferred revenue and remaining performance obligations and does not represent our revenue under U.S. GAAP on an annualized basis, as it is an operating metric that can be impacted by contract start and end dates and renewal rates. NGS ARR is not intended to be a replacement for forecasts of revenue.
•Cash Flow Provided by Operating Activities. We monitor cash flow provided by operating activities as a measure of our overall business performance. Our cash flow provided by operating activities is driven in large part by sales of our products and from up-front payments for subscription and support offerings. Monitoring cash flow provided by operating activities enables us to analyze our financial performance without the non-cash effects of certain items such as share-based compensation costs, depreciation, and amortization, thereby allowing us to better understand and manage the cash needs of our business.
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•Free Cash Flow (non-GAAP). We define free cash flow, a non-GAAP financial measure, as cash provided by operating activities less purchases of property, equipment, and other assets. We consider free cash flow to be a profitability and liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after necessary capital expenditures. A limitation of the utility of free cash flow as a measure of our financial performance and liquidity is that it does not represent the total increase or decrease in our cash balance for the period. In addition, it is important to note that other companies, including companies in our industry, may not use free cash flow, may calculate free cash flow in a different manner than we do, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of free cash flow as a comparative measure. A reconciliation of free cash flow to cash flow provided by operating activities, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, is provided below:
Three Months Ended October 31,
20242023
(in millions)
Free cash flow (non-GAAP):
Net cash provided by operating activities$1,509.6 $1,526.0 
Less: purchases of property, equipment, and other assets44.1 36.8 
Free cash flow (non-GAAP)$1,465.5 $1,489.2 
Net cash used in investing activities$(543.8)$(129.0)
Net cash used in financing activities$(219.7)$(41.8)
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Results of Operations
The following table summarizes our results of operations for the periods presented and as a percentage of our total revenue for those periods based on our condensed consolidated statements of operations data. The period-to-period comparison of results is not necessarily indicative of results for future periods.
Three Months Ended October 31,
20242023
Amount% of RevenueAmount% of Revenue
(dollars in millions)
Revenue:
Product$353.8 16.5 %$341.1 18.2 %
Subscription and support1,785.0 83.5 %1,537.0 81.8 %
Total revenue2,138.8 100.0 %1,878.1 100.0 %
Cost of revenue:
Product75.0 3.5 %77.4 4.1 %
Subscription and support479.1 22.4 %395.4 21.1 %
Total cost of revenue(1)
554.1 25.9 %472.8 25.2 %
Total gross profit1,584.7 74.1 %1,405.3 74.8 %
Operating expenses:
Research and development480.4 22.5 %409.5 21.8 %
Sales and marketing720.1 33.6 %660.5 35.1 %
General and administrative97.7 4.6 %120.1 6.4 %
Total operating expenses(1)
1,298.2 60.7 %1,190.1 63.3 %
Operating income286.5 13.4 %215.2 11.5 %
Interest expense(1.2)(0.1)%(2.9)(0.2)%
Other income, net83.3 3.9 %70.3 3.7 %
Income before income taxes368.6 17.2 %282.6 15.0 %
Provision for income taxes17.9 0.8 %88.4 4.7 %
Net income$350.7 16.4 %$194.2 10.3 %
(1) Includes share-based compensation as follows:
Three Months Ended October 31,
20242023
(in millions)
Cost of product revenue $1.3 $2.4 
Cost of subscription and support revenue30.4 30.6 
Research and development137.8 120.1 
Sales and marketing76.4 79.2 
General and administrative48.4 38.7 
Total share-based compensation$294.3 $271.0 
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REVENUE
Our revenue consists of product revenue and subscription and support revenue. Revenue is recognized upon transfer of control of the corresponding promised products and subscriptions and support to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those products and subscriptions and support. We expect our revenue to vary from quarter to quarter based on seasonal and cyclical factors.
PRODUCT REVENUE
Product revenue is derived from sales of our appliances, primarily our ML-Powered Next-Generation Firewall. Product revenue also includes revenue derived from software licenses of Panorama, SD-WAN, and the VM-Series. Our appliances and software licenses include a broad set of built-in networking and security features and functionalities. We recognize product revenue at the time of hardware shipment or delivery of software license.
Three Months Ended October 31,
20242023Change
AmountAmountAmount%
(dollars in millions)
Product$353.8 $341.1 $12.7 3.7 %
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.
SUBSCRIPTION AND SUPPORT REVENUE
Subscription and support revenue is derived primarily from sales of our subscription and support offerings. Our subscription and support contracts are typically one to five years. We recognize revenue from subscriptions and support over time as the services are performed. 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,
20242023Change
AmountAmountAmount%
(dollars in millions)
Subscription$1,191.8 $988.3 $203.5 20.6 %
Support593.2 548.7 44.5 8.1 %
Total subscription and support$1,785.0 $1,537.0 $248.0 16.1 %
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. 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.
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REVENUE BY GEOGRAPHIC THEATER
Three Months Ended October 31,
20242023Change
AmountAmountAmount%
(dollars in millions)
Americas$1,442.1 $1,286.6 $155.5 12.1 %
EMEA441.4 364.9 76.5 21.0 %
APAC255.3 226.6 28.7 12.7 %
Total revenue$2,138.8 $1,878.1 $260.7 13.9 %
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.
COST OF REVENUE
Our cost of revenue consists of cost of product revenue and cost of subscription and support revenue.
COST OF PRODUCT REVENUE
Cost of product revenue primarily includes costs paid to our manufacturing partners for procuring components and manufacturing our products. Our cost of product revenue also includes personnel costs, which consist of salaries, benefits, bonuses, share-based compensation, and travel associated with our operations organization, amortization of intellectual property licenses, product testing costs, shipping and tariff costs, and shared costs. Shared costs consist of certain facilities, depreciation, benefits, recruiting, and information technology costs that we allocate based on headcount. We expect our cost of product revenue to fluctuate with our revenue from hardware products.
Three Months Ended October 31,
20242023Change
AmountAmountAmount%
(dollars in millions)
Cost of product revenue$75.0 $77.4 $(2.4)(3.1)%
Cost of product revenue was relatively flat for the three months ended October 31, 2024 compared to the same period in 2023.
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COST OF SUBSCRIPTION AND SUPPORT REVENUE
Cost of subscription and support revenue includes personnel costs for our global customer support and technical operations organizations, data center and cloud hosting service costs, third-party professional services costs, amortization of acquired intangible assets and capitalized software development costs, customer support and repair costs, and shared costs. 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,
20242023Change
AmountAmountAmount%
(dollars in millions)
Cost of subscription and support revenue$479.1 $395.4 $83.7 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.
GROSS MARGIN
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. Our virtual and higher-end firewall products generally have higher gross margins than our lower-end firewall products within each product series. We expect our gross margins to vary over time depending on the factors described above.
Three Months Ended October 31,
20242023
AmountGross MarginAmountGross Margin
(dollars in millions)
Product$278.8 78.8 %$263.7 77.3 %
Subscription and support1,305.9 73.2 %1,141.6 74.3 %
Total gross profit$1,584.7 74.1 %$1,405.3 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.
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OPERATING EXPENSES
Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, share-based compensation, travel and entertainment, and with regard to sales and marketing expense, sales commissions. Our operating expenses also include shared costs, which consist of certain facilities, depreciation, benefits, recruiting, and information technology costs that we allocate based on headcount to each department. 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. Share-based compensation expense is generally recognized on a straight-line basis over the requisite service periods of the awards.
RESEARCH AND DEVELOPMENT
Research and development expense consists primarily of personnel costs. Research and development expense also includes prototype-related expenses and shared costs. 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,
20242023Change
AmountAmountAmount%
(dollars in millions)
Research and development$480.4 $409.5 $70.9 17.3 %
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.
SALES AND MARKETING
Sales and marketing expense consists primarily of personnel costs, including commission expense. Sales and marketing expense also includes costs for market development programs, promotional and other marketing costs, professional services, and shared costs. We continue to strategically invest in headcount and have grown our sales presence. 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,
20242023Change
AmountAmountAmount%
(dollars in millions)
Sales and marketing$720.1 $660.5 $59.6 9.0 %
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.
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GENERAL AND ADMINISTRATIVE
General and administrative expense consists primarily of personnel costs and shared costs for our executive, finance, human resources, information technology, and legal organizations, and professional services costs, which consist primarily of legal, auditing, accounting, and other consulting costs. General and administrative expense also includes change in fair value of contingent consideration liability. 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,
20242023Change
AmountAmountAmount%
(dollars in millions)
General and administrative$97.7 $120.1 $(22.4)(18.7)%
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.
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,
 20242023Change
AmountAmountAmount%
 (dollars in millions)
Interest expense$1.2 $2.9 $(1.7)(58.6)%
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. Refer to Note 9. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the Notes.
OTHER INCOME, NET
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,
 20242023Change
AmountAmountAmount%
 (dollars in millions)
Other income, net$83.3 $70.3 $13.0 18.5 %
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.
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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. We regularly assess the need for a valuation allowance on our deferred tax assets. In making this assessment, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely than not that some or all the deferred tax assets will not be realized. 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. 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,
20242023Change 
AmountAmountAmount%
(dollars in millions)
Provision for income taxes$17.9 $88.4 $(70.5)(79.8)%
Effective tax rate4.9 %31.3 %
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. federal, U.S. states other than California, and United Kingdom deferred tax assets which was subsequently released in the second quarter of fiscal 2024. Refer to Note 13. Income Taxes in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
Liquidity and Capital Resources
October 31, 2024July 31, 2024
(in millions)
Working capital (deficit)
$(1,160.0)$(833.0)
Cash, cash equivalents, and investments:
Cash and cash equivalents$2,282.8 $1,535.2 
Investments5,227.9 5,216.8 
Total cash, cash equivalents, and investments$7,510.7 $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. investment in foreign subsidiaries. However, there could be local withholding taxes due to various foreign countries if certain lower tier earnings are distributed. Withholding taxes that would be payable upon remittance of these lower tier earnings are not material.
Our cash tax payments have increased and we expect this trend to continue as a result of our increased profitability and utilization of our net operating loss carryforwards and credits.
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DEBT
In June 2020, we issued the 2025 Notes with an aggregate principal amount of $2.0 billion. The 2025 Notes mature on June 1, 2025; however, under certain circumstances, holders may surrender their 2025 Notes for conversion prior to the maturity date. 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. If all of the holders convert their 2025 Notes during this period, we would be obligated to settle the $646.6 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. Refer to Note 9. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the 2025 Notes.
In April 2023, we entered into a credit agreement (the “Credit Agreement”) that provides for a $400.0 million unsecured revolving credit facility (the “Credit Facility”), with an option to increase the amount of the Credit Facility by up to an additional $350.0 million, subject to certain conditions. 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. Refer to Note 9. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the Credit Agreement.
CAPITAL RETURN
In February 2019, our board of directors authorized a $1.0 billion share repurchase program. In December 2020, August 2021, August 2022, November 2023, and August 2024, our board of directors authorized additional $700.0 million, $676.1 million, $915.0 million, $316.7 million and $500.0 million increases to this share repurchase program, respectively, bringing the total authorization under this share repurchase program to $4.1 billion. 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. The repurchase authorization will expire on December 31, 2025, and may be suspended or discontinued at any time without prior notice. Refer to Note 11. Stockholders’ Equity in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on this repurchase program.
LEASES AND OTHER MATERIAL CASH REQUIREMENTS
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. 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. Refer to Note 3. Fair Value Measurements and Note 7. Acquisition in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on these contingent consideration obligations.
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CASH FLOWS
The following table summarizes our cash flows for the three months ended October 31, 2024 and 2023:
Three Months Ended October 31,
20242023
(in millions)
Net cash provided by operating activities$1,509.6 $1,526.0 
Net cash used in investing activities(543.8)(129.0)
Net cash used in financing activities(219.7)(41.8)
Net increase in cash, cash equivalents, and restricted cash$746.1 $1,355.2 
Cash from operations could be affected by various risks and uncertainties detailed in Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q. We believe that our cash flow from operations with existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months and thereafter for the foreseeable future. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products and subscription and support offerings, the costs to acquire or invest in complementary businesses and technologies, the costs to ensure access to adequate manufacturing capacity, the investments in our infrastructure to support the adoption of our cloud-based subscription offerings, the repayment obligations associated with our 2025 Notes, the continuing market acceptance of our products and subscription and support offerings and macroeconomic events. In addition, from time to time, we may incur additional tax liability in connection with certain corporate structuring decisions.
We may also choose to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition may be adversely affected.
OPERATING ACTIVITIES
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.
INVESTING ACTIVITIES
Our investing activities have consisted of capital expenditures, net investment purchases, sales, and maturities, and business acquisitions. 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.
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.
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Critical Accounting Estimates
Our condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results could differ materially from those estimates due to risks and uncertainties, including uncertainty in the current economic environment. To the extent that there are material differences between these estimates and our actual results, our future consolidated financial statements will be affected.
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.
BUSINESS COMBINATIONS
We make significant estimates, assumptions, and judgments when valuing goodwill and other purchased intangible assets in connection with the initial purchase price allocation of an acquired business. These estimates are based upon a number of factors, including historical experience, market conditions, and information obtained from the management of the acquired business. Critical estimates in valuing certain intangible assets include, but are not limited to, cash flows that an asset is expected to generate in the future, discount rates, the time and expense that would be necessary to recreate the assets, and the profit margin a market participant would receive. The amounts and useful lives assigned to identified intangible assets impact the amount and timing of future amortization expense.
Our business combination may also involve post-closing payments contingent upon the occurrence of future events and/or certain conditions being met. Critical estimates used in valuing contingent consideration obligations include, but are not limited to, estimated future cash payments related to customers entering into qualified new transactions and risk-adjusted discount rates used to present value the expected cash flows. These estimates and assumptions are required to be updated in order to revalue our contingent consideration liability at the end of each reporting period. Accordingly, subsequent changes in underlying facts and circumstances could result in changes in these estimates and assumptions, which could have a material impact on the estimated future fair values of these obligations.
Recent Accounting Pronouncements
Refer to “Recently Issued Accounting Pronouncements” in Note 1. Description of Business and Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements and our expectation of their impact, if any, on our results of operations and financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Except for the item below, our assessment of our exposures to market risk has not changed materially from the disclosure set forth in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended July 31, 2024.
Interest Rate Risk
The primary objectives of our investment activities are to preserve principal, provide liquidity, and maximize income without significantly increasing risk. Most of the securities we invest in are subject to interest rate risk. To minimize this risk, we maintain a diversified portfolio of cash, cash equivalents, and investments, consisting only of investment-grade securities. To assess the interest rate risk, we performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of the investment portfolio. Based on investment positions as of October 31, 2024, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $98.3 million decline in the fair market value of the portfolio. Such losses would only be realized if we sold the investments prior to maturity. Conversely, a hypothetical 100 basis point decrease in interest rates would lead to a $98.3 million increase in the fair market value of the portfolio.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on our evaluation, our chief executive officer and chief financial officer concluded that, as of October 31, 2024, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal quarter ended October 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Controls
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
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Part II
Item 1. Legal Proceedings
The information set forth under the “Litigation” subheading in Note 10. Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.
Item 1A. Risk Factors
Our operations and financial results are subject to various risks and uncertainties including those described below. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that affect us. If any of the following risks or others not specified below materialize, our business, financial condition, and operating results could be materially adversely affected, and the market price of our common stock could decline. In addition, the impacts of any worsening of the economic environment may exacerbate the risks described below, any of which could have a material impact on us.
Risk Factor Summary
Our business is subject to numerous risks and uncertainties. These risks include, but are not limited to, the following:
•Our operating results may be adversely affected by unfavorable economic and market conditions and the uncertain geopolitical environment.
•Our business and operations have experienced growth in recent periods, and if we do not effectively manage any future growth or are unable to improve our systems, processes, and controls, our operating results could be adversely affected.
•Our revenue growth rate in recent periods may not be indicative of our future performance, and we may not be able to maintain profitability, which could cause our business, financial condition, and operating results to suffer.
•Our operating results may vary significantly from period to period, which makes our results difficult to predict and could cause our results to fall short of expectations, and such results may not be indicative of future performance.
•Seasonality may cause fluctuations in our revenue.
•If we are unable to sell new and additional product, subscription, and support offerings to our end-customers, especially to large enterprise customers, our future revenue and operating results will be harmed.
•If we are unable to attract new customers, our future results of operations could be harmed.
•We rely on revenue from subscription and support offerings, and because we recognize revenue from subscription and support over the term of the relevant service period, downturns or upturns in sales or renewals of these subscription and support offerings are not immediately reflected in full in our operating results.
•The sales prices of our products, subscriptions, and support offerings may decrease, which may reduce our revenue and gross profits and adversely impact our financial results.
•We rely on our channel partners to sell substantially all of our products, including subscriptions and support, and if these channel partners fail to perform, our ability to sell and distribute our products and subscriptions will be limited and our operating results will be harmed.
•We are exposed to the credit and liquidity risk of our customers, and to credit exposure in weakened markets, which could result in material losses.
•A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.
•We face intense competition in our market and we may lack sufficient financial or other resources to maintain or improve our competitive position.
•We may acquire other businesses, which could subject us to adverse claims or liabilities, require significant management attention, disrupt our business, adversely affect our operating results, may not result in the expected benefits of such acquisitions, and may dilute stockholder value.
•If we do not accurately predict, prepare for, and respond promptly to rapidly evolving technological and market developments and successfully manage product and subscription introductions and transitions to meet changing end-customer needs in the enterprise security industry, our competitive position and prospects will be harmed.
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•Issues in the development and deployment of AI may result in reputational harm and legal liability and could adversely affect our results of operations.
•A network or data security incident may allow unauthorized access to our network or data, harm our reputation, create additional liability, and adversely impact our financial results.
•Defects, errors, or vulnerabilities in our products, subscriptions, or support offerings, the failure of our products or subscriptions to block a virus or prevent a security breach or incident, misuse of our products, or risks of product liability claims could harm our reputation and adversely impact our operating results.
•Our ability to sell our products and subscriptions is dependent on the quality of our technical support services and those of our channel partners, and the failure to offer high-quality technical support services could have a material adverse effect on our end-customers’ satisfaction with our products and subscriptions, our sales, and our operating results.
•Claims by others that we infringe their intellectual property rights could harm our business.
•Our proprietary rights may be difficult to enforce or protect, which could enable others to copy or use aspects of our products or subscriptions without compensating us.
•Our use of open source software in our products and subscriptions could negatively affect our ability to sell our products and subscriptions and subject us to possible litigation.
•We license technology from third parties, and our inability to maintain those licenses could harm our business.
•Because we depend on manufacturing partners to build and ship our hardware products, we are susceptible to manufacturing and logistics delays and pricing fluctuations that could prevent us from shipping customer orders on time, if at all, or on a cost-effective basis, which may result in the loss of sales and end-customers.
•Managing the supply of our hardware products and product components is complex. Insufficient supply and inventory would result in lost sales opportunities or delayed revenue, while excess inventory would harm our gross margins.
•Because some of the key components in our hardware products come from limited sources of supply, we are susceptible to supply shortages or supply changes, which, in certain cases, have disrupted or delayed our scheduled product deliveries to our end-customers, increased our costs and may result in the loss of sales and end-customers.
•If we are unable to attract, retain, and motivate our key technical, sales, and management personnel, our business could suffer.
•We generate a significant amount of revenue from sales to distributors, resellers, and end-customers outside of the United States, and we are therefore subject to a number of risks associated with international sales and operations.
•We are exposed to fluctuations in foreign currency exchange rates, which could negatively affect our financial condition and operating results.
•We face risks associated with having operations and employees located in Israel.
•We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.
•We may incur increased costs to comply with privacy and data protection laws and, if we fail to comply, we could be subject to government enforcement actions, private litigation and adverse publicity.
•We may have exposure to tax liabilities that are greater than anticipated.
•If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating results could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.
•We are obligated to maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or our internal control may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.
•Our reputation and/or business could be negatively impacted by environmental, social, and governance (“ESG”) matters and/or our reporting of such matters.
•Failure to comply with governmental laws and regulations could harm our business.
•We may not have the ability to raise the funds necessary to settle conversions of our Notes, repurchase our Notes upon a fundamental change, or repay our Notes in cash at their maturity, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of our Notes.
•We may still incur substantially more debt or take other actions that would diminish our ability to make payments on our Notes when due.
•The market price of our common stock historically has been volatile, and the value of an investment in our common stock could decline.
•The convertible note hedge and warrant transactions may affect the value of our common stock.
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Risks Related to Global Economic and Geopolitical Conditions
Our operating results may be adversely affected by unfavorable economic and market conditions and the uncertain geopolitical environment.
We operate globally, and as a result, our business and revenues are impacted by global economic and geopolitical conditions. The instability in the global credit markets, inflation, changes in public policies such as domestic and international regulations, taxes, any increases in interest rates, fluctuations in foreign currency exchange rates, or international trade agreements, international trade disputes, trade regulations, geopolitical turmoil, and other disruptions to global and regional economies and markets continue to add uncertainty to global economic conditions. Military actions or armed conflict, including the hostilities in Israel and the surrounding region, Russia’s invasion of Ukraine and any related political or economic responses and counter-responses, and uncertainty about, or changes in, government and trade relationships, policies, and treaties could also lead to worsening economic and market conditions and geopolitical environment. In response to Russia’s invasion of Ukraine, the United States, along with the European Union (the “E.U.”), has imposed restrictive sanctions on Russia, Russian entities, and Russian citizens (“Sanctions on Russia”). We are subject to these governmental sanctions and export controls, which may subject us to liability if we are not in full compliance with applicable laws. Any continued or further uncertainty, weakness or deterioration in economic and market conditions or the geopolitical environment could have a material and adverse impact on our business, financial condition, and results of operations, including reductions in sales of our products and subscriptions, longer sales cycles, reductions in subscription or contract duration and value, slower adoption of new technologies, alterations in the spending patterns or priorities of current and prospective customers (including delaying purchasing decisions), increased costs for the chips and components to manufacture our products, and increased price competition.
Risks Related to Our Business
RISKS RELATED TO OUR GROWTH
Our business and operations have experienced growth in recent periods, and if we do not effectively manage any future growth or are unable to improve our systems, processes, and controls, our operating results could be adversely affected.
We have experienced growth and increased demand for our products and subscriptions over the last few years. As a result, our employee headcount has increased, and we expect it to continue to grow over the next year. For example, from the end of fiscal 2024 to the end of the first quarter of fiscal 2025, our headcount increased from 15,289 to 15,514 employees. In addition, as we have grown, the number of end-customers has also increased, and we have managed more complex deployments of our products and subscriptions with larger end-customers. The growth and expansion of our business and product, subscription, and support offerings places a significant strain on our management, operational, and financial resources. To manage any future growth effectively, we must continue to improve and expand our information technology and financial infrastructure, our operating and administrative systems and controls, and our ability to manage headcount, capital, and processes in an efficient manner.
We may not be able to successfully implement, scale, or manage improvements to our systems, processes, and controls in an efficient or timely manner, which could result in material disruptions of our operations and business. In addition, our existing systems, processes, and controls may not prevent or detect all errors, omissions, or fraud. We may also experience difficulties in managing improvements to our systems, processes, and controls, or in connection with third-party software licensed to help us with such improvements. Any future growth would add complexity to our organization and require effective coordination throughout our organization. Failure to manage any future growth effectively could result in increased costs, disrupt our existing end-customer relationships, reduce demand for or limit us to smaller deployments of our products, or materially harm our business performance and operating results.
Our revenue growth rate in recent periods may not be indicative of our future performance, and we may not be able to maintain profitability, which could cause our business, financial condition, and operating results to suffer.
We have experienced revenue growth rates of 13.9% and 20.1% for the three months ended October 31, 2024 and 2023, respectively. Our revenue for any quarterly or annual period should not be relied upon as an indication of our future revenue or revenue growth for any future period. If we are unable to maintain consistent or increasing revenue or revenue growth, the market price of our common stock could be volatile, and it may be difficult for us to maintain profitability or maintain or increase cash flow on a consistent basis.
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In addition, we have incurred losses in fiscal years prior to fiscal 2023. We anticipate that our operating expenses will continue to increase in the foreseeable future as we continue to grow our business. Our growth efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenues sufficiently, or at all, to offset increasing expenses. Revenue growth may slow or revenue may decline for a number of possible reasons, including slowing demand for our products or subscriptions, increasing competition, a decrease in the growth of, or a demand shift in, our overall market, or a failure to capitalize on growth opportunities. We have also entered into a substantial amount of capital commitments for operating lease obligations and other purchase commitments. Any failure to increase our revenue as we grow our business could prevent us from maintaining profitability or maintaining or increasing cash flow on a consistent basis, or satisfying our capital commitments. If we are unable to navigate these challenges as we encounter them, our business, financial condition, and operating results may suffer.
Our operating results may vary significantly from period to period, which makes our results difficult to predict and could cause our results to fall short of expectations, and such results may not be indicative of future performance.
Our operating results have fluctuated in the past, and will likely continue to fluctuate in the future, as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including those factors described in this Risk Factor section. For example, we have historically received a substantial portion of sales orders and generated a substantial portion of revenue during the last few weeks of each fiscal quarter. If expected revenue at the end of any fiscal quarter is delayed for any reason, including the failure of anticipated purchase orders to materialize (particularly for large enterprise end-customers with lengthy sales cycles), our logistics partners’ inability to ship products prior to fiscal quarter-end to fulfill purchase orders received near the end of a fiscal quarter, our failure to manage inventory to meet demand, any failure of our systems related to order review and processing, or any delays in shipments based on trade compliance requirements (including new compliance requirements imposed by new or renegotiated trade agreements), our revenue could fall below our expectations and the estimates of analysts for that quarter. Due to these fluctuations, comparing our revenue, margins, or other operating results on a period-to-period basis may not be meaningful, and our past results should not be relied on as an indication of our future performance.
This variability and unpredictability could also result in our failure to meet our revenue, margin, or other operating result expectations contained in any forward-looking statements (including financial or business expectations we have provided) or those of securities analysts or investors for a particular period. If we fail to meet or exceed such expectations for these, or any other, reasons, the market price of our common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.
Seasonality may cause fluctuations in our revenue.
We believe there are significant seasonal factors that may cause our second and fourth fiscal quarters to record greater revenue sequentially than our first and third fiscal quarters. We believe that this seasonality results from a number of factors, including:
•end-customers with a December 31 fiscal year-end choosing to spend remaining unused portions of their discretionary budgets before their fiscal year-end, which potentially results in a positive impact on our revenue in our second fiscal quarter;
•our sales compensation plans, which are typically structured around annual quotas and commission rate accelerators, which potentially results in a positive impact on our revenue in our fourth fiscal quarter; and
•the timing of end-customer budget planning at the beginning of the calendar year, which can result in a delay in spending at the beginning of the calendar year, potentially resulting in a negative impact on our revenue in our third fiscal quarter.
As we continue to grow, seasonal or cyclical variations in our operations may become more pronounced, and our business, operating results, and financial position may be adversely affected.
RISKS RELATED TO OUR PRODUCTS AND TECHNOLOGY
If we are unable to sell new and additional product, subscription, and support offerings to our end-customers, especially to large enterprise customers, our future revenue and operating results will be harmed.
Our future success depends, in part, on our ability to expand the deployment of our portfolio with existing end-customers, especially large enterprise customers, including through our platformization strategy, and create demand for our new offerings. The rate at which our end-customers purchase additional products, subscriptions, and support depends on a number of factors, including the perceived need for additional security products, including subscription and support offerings, as well as general economic conditions. If our efforts to sell additional products and subscriptions to our end-customers are not successful, our revenues may grow more slowly than expected or decline.
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Sales to large enterprise end-customers, which is part of our growth strategy, involve risks that may not be present, or that are present to a lesser extent, with sales to smaller entities, such as (a) longer sales cycles and the associated risk that substantial time and resources may be spent on a potential end-customer that elects not to purchase our products, subscriptions, and support, and (b) increased purchasing power and leverage held by large end-customers in negotiating contractual arrangements. Deployments for large enterprise end-customers are also more complex, require greater product functionality, scalability, and a broader range of services, and are more time-consuming. All of these factors add further risk to business conducted with these end-customers. Failure to realize sales from large enterprise end-customers could materially and adversely affect our business, operating results, and financial condition.
If we are unable to attract new customers, our future results of operations could be harmed.
To increase our revenue and maintain profitability, we must add new customers. To do so, we must successfully convince prospective customers of the value of adopting our solutions. We are engaging in costly marketing and sales efforts to accelerate platformization and attract new customers, which may fail or may not be as successful as intended or at all. Additionally, prospective customers’ decisions to purchase our solutions depend on a variety of factors, many of which are out of our control. These factors significantly impact our ability to add new customers and increase the time, resources and sophistication required to do so. For example, prospective customers may face real or perceived switching costs when switching to our solutions from legacy security vendors and products. Deployment of our solutions may require a significant commitment of resources from our customers. Any deterioration in general economic conditions, including as a result of the geopolitical environment or inflation (as well as government policies such as raising interest rates in response to inflation), have in the past caused, and may in the future cause, our current and prospective customers to delay or cut their overall security and IT operations spending. If our efforts to attract new customers are not successful, our sales may not grow as quickly as anticipated, or at all, and our business, operating results, and financial condition will be harmed.
We rely on revenue from subscription and support offerings, and because we recognize revenue from subscription and support over the term of the relevant service period, downturns or upturns in sales or renewals of these subscription and support offerings are not immediately reflected in full in our operating results.
Subscription and support revenue accounts for a significant portion of our revenue, comprising 83.5% of total revenue in the three months ended October 31, 2024 and 81.8% of total revenue in the three months ended October 31, 2023. Sales and renewals of subscription and support contracts may decline and fluctuate as a result of a number of factors, including end-customers’ level of satisfaction with our products and subscriptions, the frequency and severity of subscription outages, our product uptime or latency, the prices of our products and subscriptions, and reductions in our end-customers’ spending levels. Existing end-customers have no contractual obligation to, and may not, renew their subscription and support contracts after the completion of their initial contract period. Additionally, our end-customers may renew their subscription and support agreements for shorter contract lengths or on other terms that are less economically beneficial to us. If our sales of new or renewal subscription and support contracts decline, our total revenue and revenue growth rate may decline, and our business will suffer. In addition, because we recognize subscription and support revenue over the term of the relevant service period, which is typically one to five years, a decline in subscription or support contracts in any one fiscal quarter will not be fully or immediately reflected in revenue in that fiscal quarter but will negatively affect our revenue in future fiscal quarters.
The sales prices of our products, subscriptions, and support offerings may decrease, which may reduce our revenue and gross profits and adversely impact our financial results.
The sales prices for our products, subscriptions, and support offerings may decline for a variety of reasons, including competitive pricing pressures, discounts, a change in our mix of products, subscriptions, and support offerings, anticipation of the introduction of new products, subscriptions, or support offerings, or promotional programs or pricing pressures. Furthermore, we anticipate that the sales prices and gross profits for our products could decrease over product life cycles. Declining sales prices could adversely affect our revenue, gross profits, and profitability.
We rely on our channel partners to sell substantially all of our products, including subscriptions and support, and if these channel partners fail to perform, our ability to sell and distribute our products and subscriptions will be limited and our operating results will be harmed.
Substantially all of our revenue is generated by sales through our channel partners, including distributors and resellers. For the three months ended October 31, 2024, three distributors individually represented 10% or more of our total revenue and in the aggregate represented 45.0% of our total revenue. As of October 31, 2024, two distributors individually represented 10% or more of our gross accounts receivable and in the aggregate represented 37.8% of our gross accounts receivable.
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We provide our channel partners with specific training and programs to assist them in selling our products, including subscriptions and support offerings, but there can be no assurance that these steps will be utilized or effective. In addition, our channel partners may be unsuccessful in marketing, selling, and supporting our products and subscriptions. We may not be able to incentivize these channel partners to sell our products and subscriptions to end-customers and, in particular, to large enterprises. These channel partners may also have incentives to promote our competitors’ products and may devote more resources to the marketing, sales, and support of competitive products. Our agreements with our channel partners may generally be terminated for any reason by either party with advance notice prior to each annual renewal date. We cannot be certain that we will retain these channel partners or that we will be able to secure additional or replacement channel partners. In addition, any new channel partner requires extensive training and may take several months or more to achieve productivity. Our channel partner sales structure could subject us to lawsuits, potential liability, and reputational harm if, for example, any of our channel partners misrepresent the functionality of our products or subscriptions to end-customers or violate laws or our corporate policies. If we fail to effectively manage our sales channels or channel partners, our ability to sell our products and subscriptions and operating results will be harmed.
We are exposed to the credit and liquidity risk of our customers, and to credit exposure in weakened markets, which could result in material losses.
Most of our sales are made on an open credit basis. Beyond our open credit arrangements, we have also experienced demands for customer financing and deferred payments due to, among other things, macro-economic conditions. Increases in deferred payments result in payments being made over time, negatively impacting our short-term cash flows, and subject us to risk of non-payment by our customers, including as a result of insolvency. We monitor customer payment capability in granting such financing arrangements, seek to limit the amounts to what we believe customers can pay and maintain reserves we believe are adequate to cover exposure for doubtful accounts to mitigate credit risks of these customers. However, there can be no assurance that these programs will be effective in reducing our credit risks. To the degree that turmoil in the credit markets makes it more difficult for some customers to obtain financing, those customers’ ability to pay could be adversely impacted, which in turn could have a material adverse impact on our business, operating results, and financial condition.
Our exposure to the credit risks relating to the financing activities described above may increase if our customers are adversely affected by a global economic downturn or periods of economic uncertainty. If we are unable to adequately control these risks, our business, operating results, and financial condition could be harmed. In addition, in the past, we have experienced non-material losses due to bankruptcies among customers. If these losses increase due to global economic conditions, they could harm our business and financial condition.
A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.
Sales to government entities are subject to a number of risks. Selling to government entities can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. The substantial majority of our sales to date to government entities have been made indirectly through our channel partners. Government certification requirements for products and subscriptions like ours may change, thereby restricting our ability to sell into the federal government sector until we have attained the revised certification. If our products and subscriptions are late in achieving or fail to achieve compliance with these certifications and standards, or our competitors achieve compliance with these certifications and standards, we may be disqualified from selling our products, subscriptions, and support offerings to such governmental entity, or be at a competitive disadvantage, which would harm our business, operating results, and financial condition. Government demand and payment for our products, subscriptions, and support offerings may be impacted by government shutdowns, public sector budgetary cycles, contracting requirements, and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our products, subscriptions, and support offerings. Government entities may have statutory, contractual, or other legal rights to terminate contracts with our distributors and resellers for convenience or due to a default, and any such termination may adversely impact our future operating results. Governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government refusing to continue buying our products, subscriptions, and support offerings, a reduction of revenue, or fines or civil or criminal liability if the audit uncovers improper or illegal activities, which could adversely impact our operating results in a material way. Additionally, the U.S. government may require certain of the products that it purchases to be manufactured in the United States and other relatively high-cost manufacturing locations, and we may not manufacture all products in locations that meet such requirements, affecting our ability to sell these products, subscriptions, and support offerings to the U.S. government.
We face intense competition in our market and we may lack sufficient financial or other resources to maintain or improve our competitive position.
The industry for enterprise security products is intensely competitive, and we expect competition to increase in the future from established competitors and new market entrants. Our main competitors fall into four categories:
•large companies that incorporate security features in their products, such as Cisco, Microsoft, Alphabet or those that have acquired, or may acquire, security vendors and have the technical and financial resources to bring competitive solutions to the market;
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•independent security vendors, such as Check Point, Fortinet, CrowdStrike, Zscaler, and Wiz, that offer a mix of security products;
•startups and point-product vendors that offer independent or emerging solutions across various areas of security; and
•public cloud vendors and startups that offer solutions for cloud security (private, public, and hybrid cloud).
Many of our competitors have greater financial, technical, marketing, sales, and other resources, greater name recognition, longer operating histories, and a larger base of customers than we do. They may be able to devote greater resources to the promotion and sale of products and services than we can, and they may offer lower pricing than we do. Further, they may have greater resources for research and development of new technologies, the provision of customer support, and the pursuit of acquisitions. They may also have larger and more mature intellectual property portfolios, and broader and more diverse product and service offerings, which allow them to leverage their relationships based on other products or incorporate functionality into existing products to gain business in a manner that discourages users from purchasing our products and subscriptions, including incorporating cybersecurity features into their existing products or services and product bundling, selling at zero or negative margins, and offering concessions or a closed technology offering. Some competitors may have broader distribution and established relationships with distribution partners and end-customers. Other competitors specialize in providing protection from a single type of security threat, which may allow them to deliver these specialized security products to the market more quickly than we can.
We also face competition from companies that have entrenched legacy offerings at end-user customers. End-user customers have also often invested substantial personnel and financial resources to design and operate their networks and have established deep relationships with other providers of networking and security products. As a result, these organizations may prefer to purchase from their existing suppliers rather than add or switch to a new supplier such as us. In addition, as our customers refresh the security products bought in prior years, they may seek to consolidate vendors, which may result in current customers choosing to purchase products from our competitors. Due to budget constraints or economic downturns, organizations may add solutions to their existing network security infrastructure rather than replacing it with our products and subscriptions.
Conditions in our market could change rapidly and significantly as a result of technological advancements, partnering or acquisitions by our competitors, or continuing market consolidation. Our competitors and potential competitors may be able to develop new or disruptive technologies, products, or services, and leverage new business models that are equal or superior to ours, achieve greater market acceptance of their products and services, disrupt our markets, and increase sales by utilizing different distribution channels than we do. In addition, new and enhanced technologies, including AI and machine learning, continue to increase our competition. To compete successfully, we must accurately anticipate technology developments and deliver innovative, relevant, and useful products, services, and technologies in a timely manner. Some of our competitors have made or could make acquisitions of businesses that may allow them to offer more directly competitive and comprehensive solutions than they had previously offered and adapt more quickly to new technologies and end-customer needs. Our current and potential competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their resources.
These competitive pressures in our market or our failure to compete effectively may result in price reductions, fewer orders, reduced revenue and gross margins, and loss of market share. If we are unable to compete successfully, or if competing successfully requires us to take aggressive pricing or other actions, our business, financial condition, and results of operations would be adversely affected.
We may acquire other businesses, which could subject us to adverse claims or liabilities, require significant management attention, disrupt our business, adversely affect our operating results, may not result in the expected benefits of such acquisitions, and may dilute stockholder value.
As part of our business strategy, we acquire and make investments in complementary companies, products, or technologies. The identification of suitable acquisition candidates is difficult, and we may not be able to complete such acquisitions on favorable terms, if at all. In addition, we may be subject to claims or liabilities assumed from an acquired company, product, or technology; acquisitions we complete could be viewed negatively by our end-customers, investors, and securities analysts; and we may incur costs and expenses necessary to address an acquired company’s failure to comply with laws and governmental rules and regulations. Additionally, we may be subject to litigation or other claims in connection with the acquired company, product, or technology, including claims from terminated employees, customers, former stockholders, or other third parties, which may differ from or be more significant than the risks our business faces.
If we are unsuccessful at integrating past or future acquisitions in a timely manner, or the technologies, products, or operations associated with such acquisitions, into our company, our revenue and operating results could be adversely affected. Any integration process may require significant time and resources, which may disrupt our ongoing business and divert management’s attention, and we may not be able to manage the integration process successfully or in a timely manner. We may have difficulty retaining key personnel or customers of the acquired business. We may not successfully evaluate or utilize the acquired technology, products, or personnel, realize anticipated synergies from the acquisition, or accurately forecast the financial impact of an acquisition transaction and integration of such acquisition, including accounting charges and any potential impairment of goodwill and intangible assets recognized in connection with such acquisitions.
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We may record liability for contingent consideration obligations from acquisitions that are to be settled in cash, the fair value of which is assessed on a quarterly basis. If changes are made in our assumptions used to determine the liability’s fair value or our assumptions are incorrect, adjustments could be made that may have a material impact, favorable or unfavorable, on our operating results. We may also be required to make cash payments of contingent consideration in excess of its initial fair value, or in excess of our expectations for a particular period, which could adversely impact cash flows.
We may have to pay cash, incur debt, or issue equity or equity-linked securities to pay for any future acquisitions, each of which could adversely affect our financial condition or the market price of our common stock. Furthermore, the sale of equity or issuance of equity-linked debt to finance any future acquisitions could result in dilution to our stockholders.
In addition, any acquisitions may be viewed negatively by our customers, financial markets, or investors and may not ultimately strengthen our competitive position or achieve our goals and business strategy. The occurrence of any of these risks could harm our business, operating results, and financial condition.
If we do not accurately predict, prepare for, and respond promptly to rapidly evolving technological and market developments and successfully manage product and subscription introductions and transitions to meet changing end-customer needs in the enterprise security industry, our competitive position and prospects will be harmed.
The enterprise security industry has grown quickly and continues to evolve rapidly. Moreover, many of our end-customers operate in markets characterized by rapidly changing technologies and business plans, which require them to add numerous network access points and adapt increasingly complex enterprise networks, incorporating a variety of hardware, software applications, operating systems, and networking protocols. If we fail to effectively anticipate, identify, and respond to rapidly evolving technological and market developments in a timely manner, our business will be harmed.
In order to anticipate and respond effectively to rapid technological changes and market developments, as well as evolving security threats, we must invest effectively in research and development to increase the reliability, availability, and scalability of our existing products and subscriptions and introduce new products and subscriptions. Our investments in research and development, including investments in AI, may not result in design or performance improvements, marketable products, subscriptions, or features, or may not achieve the cost savings or additional revenue that we expect. In addition, new and evolving products and services, including those that use AI, require significant investment and raise ethical, technological, legal, regulatory, and other challenges, which may negatively affect our brands and demand for our products and services. Because all of these investment areas are inherently risky, no assurance can be given that such strategies and offerings will be successful or will not harm our reputation, financial condition, and operating results.
In addition, we must continually change our products and expand our business strategy in response to changes in network infrastructure requirements, including the expanding use of cloud computing. For example, organizations are moving portions of their data to be managed by third parties, primarily infrastructure, platform, and application service providers, and may rely on such providers’ internal security measures. While we have historically been successful in developing, acquiring, and marketing new products and product enhancements that respond to technological change and evolving industry standards, we may not be able to continue to do so, and there can be no assurance that our new or future offerings will be successful or will achieve widespread market acceptance. If we fail to accurately predict and address end-customers’ changing needs and emerging technological trends in the enterprise security industry, including in the areas of AI, mobility, virtualization, cloud computing, and software-defined networks, our business could be harmed.
The technology in our portfolio is especially complex because it needs to effectively identify and respond to new and increasingly sophisticated methods of attack, while minimizing the impact on network performance. Additionally, some of our new features and related enhancements may require us to develop new hardware architectures that involve complex, expensive, and time-consuming research and development processes. The development of our portfolio is difficult and the timetable for commercial release and availability is uncertain as there can be long time periods between releases and availability of new features. If we experience unanticipated delays in the availability of new products, features, and subscriptions, and fail to meet customer expectations for such availability, our competitive position and business prospects will be harmed.
The success of new features depends on several factors, including appropriate new product definition, differentiation of new products, subscriptions, and features from those of our competitors, and market acceptance of these products, services, and features. Moreover, successful new product introduction and transition depends on a number of factors, including our ability to manage the risks associated with new product production ramp-up issues, the availability of application software for new products, the effective management of purchase commitments and inventory, the availability of products in appropriate quantities and costs to meet anticipated demand, and the risk that new products may have quality or other defects or deficiencies, especially in the early stages of introduction. There can be no assurance that we will successfully identify opportunities for new products and subscriptions, develop and bring new products and subscriptions to market in a timely manner, achieve market acceptance of our products and subscriptions, or that products, subscriptions, and technologies developed by others will not render our products, subscriptions, and technologies obsolete or noncompetitive.
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Issues in the development and deployment of AI may result in reputational harm and legal liability and could adversely affect our results of operations.
We have incorporated, and are continuing to develop and deploy, AI into many of our products and solutions, including services that support our products and solutions. We are also incorporating AI into the operations of our business. AI presents challenges and risks that could affect our products and solutions, and the operations of our business. For example, AI algorithms may have flaws, and datasets used to train models may be insufficient or contain biased information. The AI that is being incorporated into our products, solutions, and business operation tools may not be successful or beneficial, and instead may cause technical, legal or ethical problems or result in increased costs. The investments that we are making across our business in AI reflect our ongoing efforts to innovate and provide products and services that are useful to our customers, as well as provide efficiencies in our business. Such investments ultimately may not be commercially viable or may not result in an adequate return of capital and we may incur unanticipated liabilities. These efforts could subject us to regulatory risk, legal liability, including under new proposed legislation regulating AI in jurisdictions such as the E.U. and regulations being considered in other jurisdictions, or brand or reputational harm.
The rapid evolution of AI, including potential government regulation of AI, requires us to invest significant resources to develop, test, and maintain AI in our products and services in a manner that meets evolving requirements and expectations. The rules and regulations adopted by policymakers over time may require us to make changes to our business practices. Developing, testing, and deploying AI systems may also increase the cost profile of our offerings due to the nature of the computing costs involved in such systems.
The intellectual property ownership and license rights surrounding AI technologies, as well as data protection laws related to the use and development of AI, are currently not fully addressed by courts or regulators. The use or adoption of AI technologies in our products may result in exposure to claims by third parties of copyright infringement or other intellectual property misappropriation, which may require us to pay compensation or license fees to third parties. The evolving legal, regulatory, and compliance framework for AI technologies may also impact our ability to protect our own data and intellectual property against infringing use.
A network or data security incident may allow unauthorized access to our network or data, harm our reputation, create additional liability, and adversely impact our financial results.
Increasingly, companies are subject to a wide variety of attacks on their networks on an ongoing basis. In addition to traditional computer “hackers,” malicious code (such as viruses and worms), phishing attempts, employee theft or misuse, and denial of service attacks, sophisticated nation-state and nation-state supported actors engage in intrusions and attacks (including advanced persistent threat intrusions and supply chain attacks), and add to the risks to our internal networks, cloud-deployed enterprise and customer-facing environments and the information they store and process. Incidences of cyberattacks and other cybersecurity breaches and incidents have increased and are likely to continue to increase. We and our third-party service providers face security threats and attacks from a variety of sources. Despite our efforts and processes to prevent breaches of our internal networks, systems, and websites, our data, corporate systems, and security measures, as well as those of our third-party service providers, are still vulnerable to computer viruses, break-ins, phishing attacks, ransomware attacks, or other types of attacks from outside parties, or breaches due to employee error, malfeasance, or some combination of these. We cannot guarantee that the measures we have taken to protect our networks, systems, and websites will provide adequate security. Furthermore, as a well-known provider of security solutions, we may be a more attractive target for such attacks. The conflict in Ukraine and associated activities in Ukraine and Russia may increase the risk of cyberattacks on various types of infrastructure and operations, and the United States government has warned companies to be prepared for a significant increase in Russian cyberattacks in response to the Sanctions on Russia.
A security breach or incident, or an attack against our service availability suffered by us, or our third-party service providers, could impact our networks or networks secured by our products and subscriptions, creating system disruptions or slowdowns and exploiting security vulnerabilities of our products. In addition, the information stored or otherwise processed on our networks, or those of our third-party service providers, could be accessed, publicly disclosed, altered, lost, stolen, rendered unavailable, or otherwise used or processed without authorization, which could subject us to liability and cause us financial harm. Any actual or perceived breach of security in our systems or networks, or any other actual or perceived data security incident we or our third-party service providers suffer, could result in significant damage to our reputation, negative publicity, loss of channel partners, end-customers, and sales, loss of competitive advantages over our competitors, increased costs to remedy any problems and otherwise respond to any incident, regulatory investigations and enforcement actions, demands, costly litigation, and other liability. In addition, we may incur significant costs and operational consequences of investigating, remediating, eliminating, and putting in place additional tools, devices, and other measures designed to prevent actual or perceived security breaches and other security incidents, as well as the costs to comply with any notification obligations resulting from any security incidents. Any of these negative outcomes could adversely impact the market perception of our products and subscriptions and end-customer and investor confidence in our company and could seriously harm our business or operating results.
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Defects, errors, or vulnerabilities in our products, subscriptions, or support offerings, the failure of our products or subscriptions to block a virus or prevent a security breach or incident, misuse of our products, or risks of product liability claims could harm our reputation and adversely impact our operating results.
Because our products and subscriptions are complex, they have contained and may contain design or manufacturing defects or errors that are not detected until after their commercial release and deployment by our end-customers. For example, from time to time, certain of our end-customers have reported defects in our products related to performance, scalability, and compatibility. Additionally, defects or vulnerabilities may cause our products or subscriptions to become partially or fully unavailable temporarily or permanently, to be vulnerable to security attacks, cause them to fail to help secure networks, or interrupt end-customers’ networking traffic or the availability of other information technology infrastructure or systems. For example, in April 2024, we became aware of a command injection vulnerability in the GlobalProtect feature of certain versions of our PAN-OS software. To remediate the matter, we published a security advisory to advise customers, provided software updates for affected PAN-OS versions, and engaged in customer outreach, support and remediation efforts for potentially impacted customers. Because the techniques used by computer hackers to access or sabotage networks change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques and provide a solution in time to protect our end-customers’ networks. In addition, due to the Russian invasion of Ukraine, there could be a significant increase in Russian cyberattacks against our customers, resulting in an increased risk of a security breach of our end-customers’ systems.
Furthermore, defects or errors in products or software, or updates to those products or software, could result in a failure to effectively update end-customers’ hardware and cloud-based products or otherwise cause problems in our customers’ hardware, networks or information technology infrastructure or systems. The data centers, networks, and cloud infrastructure that we use to deliver our products and services may experience technical failures and downtime or may fail to meet the increased requirements of a growing installed end-customer base, any of which could temporarily or permanently expose our end-customers’ networks, leaving their networks unprotected against the latest security threats. Moreover, our products must interoperate with our end-customers’ existing infrastructure, which often have varied specifications, utilize multiple protocol standards, deploy products from multiple vendors, and contain multiple generations of products that have been added over time. As a result, when problems occur in a network, it may be difficult to identify the sources of these problems. Any such technical failure, downtime or failures in general may temporarily or permanently disable our end-customers’ networks, information technology infrastructure or other systems, or expose our end-customers’ networks to attacks from security threats.
The occurrence of any such problem in our products and subscriptions, whether real or perceived, could result in:
•expenditure of significant financial and product development resources in efforts to analyze, correct, eliminate, or work-around errors or defects or to address and eliminate vulnerabilities;
•loss of existing or potential end-customers or channel partners;
•delayed or lost revenue;
•delay or failure to attain market acceptance;
•an increase in warranty claims compared with our historical experience, or an increased cost of servicing warranty claims, either of which would adversely affect our gross margins; and
•litigation, regulatory inquiries, investigations, or other proceedings, each of which may be costly and harm our reputation.
Further, our products and subscriptions may be misused by end-customers or third parties that obtain access to our products and subscriptions. For example, our products and subscriptions could be used to censor private access to certain information on the Internet. Such use of our products and subscriptions for censorship could result in negative press coverage and negatively affect our reputation.
The limitation of liability provisions in our standard terms and conditions of sale may not fully or effectively protect us from claims as a result of federal, state, or local laws or ordinances, or unfavorable judicial decisions in the United States or other countries. The sale and support of our products and subscriptions also entails the risk of product liability claims. Although we may be indemnified by our third-party manufacturers for product liability claims arising out of manufacturing defects, because we control the design of our products and subscriptions, we may not be indemnified for product liability claims arising out of design defects. While we maintain insurance coverage for certain types of losses, our insurance coverage may not adequately cover any claim asserted against us, if at all. In addition, even claims that ultimately are unsuccessful could result in our expenditure of funds in litigation, divert management’s time and other resources, and harm our reputation.
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In addition, our classifications of application type, virus, spyware, vulnerability exploits, data, or URL categories may falsely detect, report, and act on applications, content, or threats that do not actually exist. This risk is heightened by the inclusion of a “heuristics” feature in our products and subscriptions, which attempts to identify applications and other threats not based on any known signatures but based on characteristics or anomalies which indicate that a particular item may be a threat. These false positives may impair the perceived reliability of our products and subscriptions and may therefore adversely impact market acceptance of our products and subscriptions and could result in damage to our reputation, negative publicity, loss of channel partners, end-customers and sales, increased costs to remedy any problem, and costly litigation.
Our ability to sell our products and subscriptions is dependent on the quality of our technical support services and those of our channel partners, and the failure to offer high-quality technical support services could have a material adverse effect on our end-customers’ satisfaction with our products and subscriptions, our sales, and our operating results.
After our products and subscriptions are deployed within our end-customers’ networks, our end-customers depend on our technical support services, as well as the support of our channel partners, to resolve any issues relating to our products. Many larger enterprise, service provider, and government entity end-customers have more complex networks and require higher levels of support than smaller end-customers. If our channel partners do not effectively provide support to the satisfaction of our end-customers, we may be required to provide direct support to such end-customers, which would require us to hire additional personnel and to invest in additional resources. If we are not able to hire such resources fast enough to keep up with unexpected demand, support to our end-customers will be negatively impacted, and our end-customers’ satisfaction with our products and subscriptions will be adversely affected. Additionally, to the extent that we may need to rely on our sales engineers to provide post-sales support while we are ramping up our support resources, our sales productivity will be negatively impacted, which would harm our revenues. Accordingly, our failure, or our channel partners’ failure, to provide and maintain high-quality support services could have a material adverse effect on our business, financial condition, and operating results.
RISKS RELATED TO INTELLECTUAL PROPERTY AND TECHNOLOGY LICENSING
Claims by others that we infringe their intellectual property rights could harm our business.
Companies in the enterprise security industry own large numbers of patents, copyrights, trademarks, domain names, and trade secrets and frequently enter into litigation based on allegations of infringement, misappropriation, or other violations of intellectual property rights. In addition, non-practicing entities also frequently bring claims of infringement of intellectual property rights. Third parties are asserting, have asserted, and may in the future assert claims of infringement of intellectual property rights against us. For example, on January 31, 2024, in the Centripetal Networks, Inc. lawsuit against us, a jury returned a verdict of non-willful infringement, and, after post-trial motions, a judgment was issued in the lawsuit on October 3, 2024 assessing a lump sum damages amount of $113.6 million. Additional examples of patent infringement cases have been disclosed in Note 10. Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Third parties may also assert such claims against our end-customers or channel partners, whom our standard license and other agreements obligate us to indemnify against claims that our products and subscriptions infringe the intellectual property rights of third parties. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited, that they have divulged proprietary or other confidential information, or that their former employers own their inventions or other work product. Furthermore, we may be unaware of the intellectual property rights of others that may cover some or all of our technology, products, subscriptions, and services. As we expand our footprint, both in our platforms, products, subscriptions, and services and geographically, more overlaps occur and we may face more infringement claims both in the United States and abroad.
While we have been increasing the size of our patent portfolio, our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. In addition, litigation has involved and will likely continue to involve patent-holding companies or other adverse patent owners who have no relevant product revenue and against whom our own patents may therefore provide little or no deterrence or protection. In addition, we have not registered our trademarks in all of our geographic markets and failure to secure those registrations could adversely affect our ability to enforce and defend our trademark rights. Any claim of infringement by a third party, even those without merit, could cause us to incur substantial costs defending against the claim, could distract our management from our business, and could require us to cease use of such intellectual property. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. A successful claimant could secure a judgment, or we may agree to a settlement that prevents us from distributing certain products or performing certain services or that requires us to pay substantial damages, royalties, or other fees. Any of these events could seriously harm our business, financial condition, and operating results.
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Our proprietary rights may be difficult to enforce or protect, which could enable others to copy or use aspects of our products or subscriptions without compensating us.
We rely and expect to continue to rely on a combination of confidentiality and license agreements with our employees, consultants, and third parties with whom we have relationships, as well as trademark, copyright, patent, and trade secret protection laws, to protect our proprietary rights. We have filed various applications for certain aspects of our intellectual property. Valid patents may not issue from our pending applications, and the claims eventually allowed on any patents may not be sufficiently broad to comprehensively protect our technology or products and subscriptions. We cannot be certain that we were the first to make the inventions claimed in our pending patent applications or that we were the first to file for patent protection, which could prevent our patent applications from issuing as patents or invalidate our patents following issuance. Additionally, the process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Any issued patents may be challenged, invalidated or circumvented, and any rights granted under these patents may not actually provide adequate defensive protection or competitive advantages to us. Additional uncertainty may result from changes to patent-related laws and court rulings in the United States and other jurisdictions. As a result, we may not be able to obtain adequate patent protection or effectively enforce any issued patents.
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or subscriptions or obtain and use information that we regard as proprietary. We generally enter into confidentiality or license agreements with our employees, consultants, vendors, and end-customers, and generally limit access to and distribution of our proprietary information. However, we cannot be certain that we have entered into such agreements with all parties who may have or have had access to our confidential information or that the agreements we have entered into will not be breached. We cannot guarantee that any of the measures we have taken will prevent misappropriation of our technology. Because we may be an attractive target for computer hackers, we may have a greater risk of unauthorized access to, and misappropriation of, our proprietary information. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the United States, and many foreign countries do not enforce these laws as diligently as government agencies and private parties in the United States. From time to time, we may need to take legal action to enforce our patents and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could negatively affect our business, operating results, and financial condition. Attempts to enforce our rights against third parties could also provoke these third parties to assert their own intellectual property or other rights against us or result in a holding that invalidates or narrows the scope of our rights, in whole or in part. If we are unable to protect our proprietary rights (including aspects of our software and products protected other than by patent rights), we may find ourselves at a competitive disadvantage to others who need not incur the additional expense, time, and effort required to create the innovative products that have enabled us to be successful to date. Any of these events would have a material adverse effect on our business, financial condition, and operating results.
Our use of open source software in our products and subscriptions could negatively affect our ability to sell our products and subscriptions and subject us to possible litigation.
Our products and subscriptions contain software modules licensed to us by third-party authors under “open source” licenses. Some open source licenses contain requirements that we make available applicable source code for modifications or derivative works we create based upon the type of open source software we use. If we combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public. This would allow our competitors to create similar products or subscriptions with lower development effort and time and ultimately could result in a loss of product sales for us.
Although we take reasonable steps to monitor our use of open source software to avoid subjecting our products and subscriptions to conditions we do not intend, the terms of many open source licenses have not been interpreted by United States courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our products and subscriptions. From time to time, there have been claims against companies that distribute or use open source software in their products and subscriptions, asserting that open source software infringes the claimants’ intellectual property rights. We could be subject to suits by parties claiming infringement of intellectual property rights in what we believe to be licensed open source software. If we are held to have breached the terms of an open source software license, we could be required to seek licenses from third parties to continue offering our products and subscriptions on terms that are not economically feasible, to reengineer our products and subscriptions, to discontinue the sale of our products and subscriptions if reengineering could not be accomplished on a timely basis, or to make generally available, in source code form, our proprietary code, any of which could adversely affect our business, operating results, and financial condition.
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In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or assurance of title or controls on origin of the software. In addition, many of the risks associated with usage of open source software, such as the lack of warranties or assurances of title, cannot be eliminated, and could, if not properly addressed, negatively affect our business. We have established processes to help alleviate these risks, including a review process for screening requests from our development organizations for the use of open source software, but we cannot be sure that our processes for controlling our use of open source software in our products and subscriptions will be effective.
We license technology from third parties, and our inability to maintain those licenses could harm our business.
We incorporate technology that we license from third parties, including software, into our products and subscriptions. We cannot be certain that our licensors are not infringing the intellectual property rights of third parties or that our licensors have sufficient rights to the licensed intellectual property in all jurisdictions in which we may sell our products and subscriptions. In addition, some licenses may be non-exclusive, and therefore our competitors may have access to the same technology licensed to us. Some of our agreements with our licensors may be terminated for convenience by them. We may also be subject to additional fees or be required to obtain new licenses if any of our licensors allege that we have not properly paid for such licenses or that we have improperly used the technologies under such licenses, and such licenses may not be available on terms acceptable to us or at all. If we are unable to continue to license any of this technology because of intellectual property infringement claims brought by third parties against our licensors or against us, or claims against us by our licensors, or if we are unable to continue our license agreements or enter into new licenses on commercially reasonable terms, our ability to develop and sell products and subscriptions containing such technology would be severely limited and our business could be harmed. Additionally, if we are unable to license necessary technology from third parties, we may be forced to acquire or develop alternative technology, which we may be unable to do in a commercially feasible manner or at all, and we may be required to use alternative technology of lower quality or performance standards. This would limit and delay our ability to offer new or competitive products and subscriptions and increase our costs of production. As a result, our margins, market share, and operating results could be significantly harmed.
RISKS RELATED TO OPERATIONS
Because we depend on manufacturing partners to build and ship our hardware products, we are susceptible to manufacturing and logistics delays and pricing fluctuations that could prevent us from shipping customer orders on time, if at all, or on a cost-effective basis, which may result in the loss of sales and end-customers.
We depend on manufacturing partners, primarily our EMS provider, Flex, to manufacture our hardware product lines. Our substantial reliance on Flex, as well as other manufacturing partners subjects us to potential concentration risks, such as reduced control over the manufacturing process, quality assurance, product costs, product supply, and timing. Our hardware products are manufactured by our manufacturing partners at facilities located primarily in the United States. Some of the components in our products are sourced either through Flex or directly by us from component suppliers outside the United States. The portion of our hardware products that are sourced outside the United States may subject us to geopolitical risks, additional logistical risks, risks associated with trade regulations, or risks associated with complying with local rules and regulations in foreign countries.
Significant changes to existing international trade agreements could lead to sourcing or logistics disruption resulting from import delays or the imposition of increased tariffs on our sourcing partners. For example, the United States and Chinese governments have each enacted, and discussed additional, import tariffs. Some components that we import for final manufacturing in the United States have been impacted by these tariffs. As a result, our costs have increased and we have raised, and may be required to further raise, prices on our hardware products in response to these and potential new trade regulations.
Our manufacturing partners typically fulfill our supply requirements on the basis of individual purchase orders. We do not have long-term contracts with these manufacturers that guarantee capacity, the continuation of particular pricing terms, or the extension of credit limits. Accordingly, they are not obligated to continue to fulfill our supply requirements and the prices we pay for manufacturing services could be increased on short notice. Our contract with Flex permits them to terminate the agreement for their convenience, subject to prior notice requirements. If we are required to change manufacturing partners, our ability to meet our scheduled product deliveries to our end-customers could be adversely affected, which could cause the loss of sales to existing or potential end-customers, delayed revenue or an increase in our costs which could adversely affect our gross margins. Any production interruptions for any reason, such as a natural disaster, epidemic or pandemic, capacity shortages, or quality problems at one of our manufacturing partners would negatively affect sales of our product lines manufactured by that manufacturing partner and adversely affect our business and operating results.
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Managing the supply of our hardware products and product components is complex. Insufficient supply and inventory would result in lost sales opportunities or delayed revenue, while excess inventory would harm our gross margins.
Our manufacturing partners procure components and build our hardware products based on our forecasts, and we generally do not hold inventory for a prolonged period of time. These forecasts are based on estimates of future demand for our products, which are in turn based on historical trends and analyses from our sales and product management organizations, adjusted for overall market conditions. In order to reduce manufacturing lead times and plan for adequate component supply, from time to time we may issue forecasts for components and products that are non-cancelable and non-returnable.
Our inventory management systems and related supply chain visibility tools may be inadequate to enable us to forecast accurately and effectively manage supply of our hardware products and product components. If we ultimately determine that we have excess supply, we may have to reduce our prices and write-down inventory, which in turn could result in lower gross margins. If our actual component usage and product demand are lower than the forecast we provide to our manufacturing partners, we accrue for losses on manufacturing commitments in excess of forecasted demand. Alternatively, insufficient supply levels may lead to shortages that result in delayed hardware product revenue or loss of sales opportunities altogether as potential end-customers turn to competitors’ products that are readily available. If we are unable to effectively manage our supply and inventory, our operating results could be adversely affected.
Because some of the key components in our hardware products come from limited sources of supply, we are susceptible to supply shortages or supply changes, which, in certain cases, have disrupted or delayed our scheduled product deliveries to our end-customers, increased our costs and may result in the loss of sales and end-customers.
Our hardware products rely on key components, including integrated circuit components, which our manufacturing partners purchase on our behalf from a limited number of component suppliers, including sole source providers. The manufacturing operations of some of our component suppliers are geographically concentrated in Asia and elsewhere, which makes our supply chain vulnerable to regional disruptions, such as natural disasters, fire, political instability, civil unrest, power outages, or health risks. In the past, we experienced supply chain disruption and have incurred increased costs resulting from inflationary pressures. We are also monitoring the tensions between China and Taiwan, and between the U.S. and China, which could have an adverse impact on our business or results of operations in future periods.
Further, we do not have volume purchase contracts with any of our component suppliers, and they could cease selling to us at any time. If we are unable to obtain a sufficient quantity of these components in a timely manner for any reason, sales of our hardware products could be delayed or halted, or we could be forced to expedite shipment of such components or our hardware products at dramatically increased costs. Our component suppliers also change their selling prices frequently in response to market trends, including industry-wide increases in demand. Because we do not have, for the most part, volume purchase contracts with our component suppliers, we are susceptible to price fluctuations related to raw materials and components and may not be able to adjust our prices accordingly. Additionally, poor quality in any of the sole-sourced components in our products could result in lost sales or sales opportunities.
If we are unable to obtain a sufficient volume of the necessary components for our hardware products on commercially reasonable terms or the quality of the components do not meet our requirements, we could also be forced to redesign our products and qualify new components from alternate component suppliers. The resulting stoppage or delay in selling our hardware products and the expense of redesigning our hardware products would result in lost sales opportunities and damage to customer relationships, which would adversely affect our business and operating results.
If we are unable to attract, retain, and motivate our key technical, sales, and management personnel, our business could suffer.
Our future success depends, in part, on our ability to continue to attract, retain, and motivate the members of our management team and other key employees. For example, we are substantially dependent on the continued service of our engineering personnel because of the complexity of our offerings. Competition for highly skilled personnel, particularly in engineering, including in the areas of AI and machine learning, is often intense, especially in the San Francisco Bay Area, where we have a substantial presence and need for such personnel. In addition, the industry in which we operate generally experiences high employee attrition. Our future performance depends on the continuing services and contributions of our senior management to execute on our business plan and to identify and pursue new opportunities and product innovations. If we are unable to hire, integrate, train, or retain the qualified and highly skilled personnel required to fulfill our current or future needs, our business, financial condition, and operating results could be harmed.
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Further, we believe that a critical contributor to our success and our ability to retain highly skilled personnel has been our corporate culture, which we believe fosters innovation, inclusion, teamwork, passion for end-customers, focus on execution, and the facilitation of critical knowledge transfer and knowledge sharing. As we grow and change, we may find it difficult to maintain these important aspects of our corporate culture. While we are taking steps to develop a more inclusive and diverse workforce, there is no guarantee that we will be able to do so. Any failure to preserve our culture as we grow could limit our ability to innovate and could negatively affect our ability to retain and recruit personnel, continue to perform at current levels or execute on our business strategy.
We generate a significant amount of revenue from sales to distributors, resellers, and end-customers outside of the United States, and we are therefore subject to a number of risks associated with international sales and operations.
Our ability to grow our business and our future success will depend to a significant extent on our ability to expand our operations and customer base worldwide. Many of our customers, resellers, partners, suppliers, and manufacturers operate around the world. Operating in a global marketplace, we are subject to risks associated with having an international reach and compliance and regulatory requirements. We may experience difficulties in attracting, managing, and retaining an international staff, and we may not be able to recruit and maintain successful strategic distributor relationships internationally. Business practices in the international markets that we serve may differ from those in the United States and may require us in the future to include terms other than our standard terms related to payment, warranties, or performance obligations in end-customer contracts.
Additionally, our international sales and operations are subject to a number of risks, including the following:
•political, economic, and social uncertainty around the world, health risks such as epidemics and pandemics like COVID-19, macroeconomic challenges, terrorist activities, Russia’s invasion of Ukraine, tensions between China and Taiwan, the hostilities in Israel and the surrounding region, and continued hostilities in the Middle East;
•unexpected changes in, or the application of, foreign and domestic laws and regulations (including intellectual property rights protections), regulatory practices, trade restrictions, and foreign legal requirements, including those applicable to the importation, certification, and localization of our products, tariffs, and tax laws and treaties, including regulatory and trade policy changes adopted by the current administration, such as the Sanctions on Russia, or foreign countries in response to regulatory changes adopted by the current administration; and
•non-compliance with U.S. and foreign laws, including antitrust regulations, anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and the United Kingdom (“U.K.”) Bribery Act, U.S. or foreign sanctions regimes and export or import control laws, and any trade regulations ensuring fair trade practices.
These and other factors could harm our future international revenues and, consequently, materially impact our business, operating results, and financial condition. The expansion of our existing international operations and entry into additional international markets will require significant management attention and financial resources. Our failure to successfully manage our international operations and the associated risks effectively could limit the future growth of our business.
We are exposed to fluctuations in foreign currency exchange rates, which could negatively affect our financial condition and operating results.
Our sales contracts are primarily denominated in U.S. dollars, and therefore, a predominant amount of our revenue is not subject to foreign currency risk. However, in the event of a strengthening of the U.S. dollar against foreign currencies in which we conduct business, the cost of our products to our end-customers outside of the United States would increase, which could adversely affect our financial condition and operating results. In addition, increased international sales in the future, including through our channel partners and other partnerships or as a result of our acquisitions, may result in increased foreign currency denominated sales, increasing our foreign currency risk.
Our operating expenses incurred outside the United States and denominated in foreign currencies are generally increasing and are subject to fluctuations due to changes in foreign currency exchange rates. If we are not able to successfully hedge against the risks associated with foreign currency fluctuations, our financial condition and operating results could be adversely affected. We have entered into forward contracts in an effort to reduce our foreign currency exchange exposure related to our foreign currency denominated expenditures. As of October 31, 2024, the total notional amount of our outstanding foreign currency forward contracts was $1.1 billion. For more information on our hedging transactions, refer to Note 6. Derivative Instruments in Part I, Item 1 of this Quarterly Report on Form 10-Q. The effectiveness of our existing hedging transactions and the availability and effectiveness of any hedging transactions we may decide to enter into in the future may be limited and we may not be able to successfully hedge our exposure, which could adversely affect our financial condition and operating results.
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We face risks associated with having operations and employees located in Israel.
We have business operations in Israel and intend to continue growing our presence in Israel. Our operations in Israel could be disrupted by political instability, civil unrest, terrorist attacks, acts of violence, acts of war, or other military actions, including the hostilities in Israel and the surrounding region. The future of peace efforts between Israel and its Arab neighbors remains uncertain. The effects of hostilities and violence on the Israeli economy and our operations in Israel are unclear, and we cannot predict the effect on us of further increases in these hostilities or future armed conflict, political instability, or violence in the region. Current or future tensions and conflicts in the Middle East could adversely affect our business, operating results, financial condition, and cash flows.
In addition, many of our employees in Israel are obligated to perform annual reserve duty in the Israeli military and are subject to being called for active duty under emergency circumstances, which has occurred as a result of hostilities in Israel and the surrounding region. We cannot predict the full impact of these conditions on us in the future, particularly if emergency circumstances or an escalation in the political situation occurs. If many of our employees in Israel are called for active duty for a significant period of time, our operations and our business could be disrupted and may not be able to function at full capacity. Any disruption in our operations in Israel could adversely affect our business.
We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.
Because we incorporate encryption technology into our products, certain of our products are subject to U.S. export controls and may be exported outside the United States only with the required export license or through an export license exception. If we were to fail to comply with U.S. export licensing requirements, U.S. customs regulations, U.S. economic sanctions, or other laws, we could be subject to substantial civil and criminal penalties, including fines, incarceration for responsible employees and managers, and the possible loss of export or import privileges. Obtaining the necessary export license for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products to U.S. embargoed or sanctioned countries, governments, and persons. Even though we take precautions to ensure that our channel partners comply with all relevant regulations, any failure by our channel partners to comply with such regulations could have negative consequences for us, including reputational harm, government investigations, and penalties.
In addition, various countries regulate the import of certain encryption technology, including through import permit and license requirements, and have enacted laws that could limit our ability to distribute our products or could limit our end-customers’ ability to implement our products in those countries. Changes in our products or changes in export and import regulations may create delays in the introduction of our products into international markets, prevent our end-customers with international operations from deploying our products globally or, in some cases, prevent or delay the export or import of our products to certain countries, governments, or persons altogether. Any change in export or import regulations, economic sanctions, such as the Sanctions on Russia, or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons, or technologies targeted by such regulations could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential end-customers with international operations. Any decreased use of our products or limitation on our ability to export to or sell our products in international markets would likely adversely affect our business, financial condition, and operating results.
RISKS RELATED TO PRIVACY AND DATA PROTECTION
We may incur increased costs to comply with privacy and data protection laws and, if we fail to comply, we could be subject to government enforcement actions, private litigation and adverse publicity.
A wide variety of laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data in jurisdictions where we and our customers operate. Compliance with these laws and regulations is difficult and costly. These laws and regulations are also subject to frequent, inconsistent and unexpected changes; new, modified or additional laws or regulations may be adopted; and rulings that invalidate prior laws, regulations, or interpretations of such laws or regulations may be issued. For example, we are subject to the E.U. General Data Protection Regulation (“E.U. GDPR”) and the U.K. General Data Protection Regulation (“U.K. GDPR,” and collectively the “GDPR”), both of which impose stringent data protection requirements, provide for costly penalties for noncompliance (up to the greater of (a) €20 million under the E.U. GDPR or £17.5 million under the “U.K. GDPR,” and (b) 4% of annual worldwide turnover), and confer the right upon data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations.
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The GDPR requires, among other things, that personal data be transferred outside of the E.U. (or, in the case of the U.K. GDPR, the U.K.) to the United States and other jurisdictions only where adequate safeguards are implemented or a derogation applies. In practice, we rely on standard contractual clauses approved under the GDPR to carry out such transfers and to receive personal data subject to the GDPR (directly or indirectly) in the United States. In addition, with respect to the personal data that we process on behalf of our customers, we self-certified to the E.U.-U.S. Data Privacy Framework (“E.U.-U.S. DPF”), which has been approved for transfers of personal data subject to the GDPR to the United States. The E.U.-U.S. DPF has been recognized as adequate under the E.U. law to allow transfers of personal data from the E.U. to companies in the U.S. that have self-certified to the framework. However, the E.U.-U.S. DPF may be subject to legal challenge, which could cause the legal requirements for data transfers from the E.U. to be uncertain.
Among other effects, we may experience additional costs associated with increased compliance burdens, reduced demand for our offerings from current or prospective customers in the European Economic Area (“EEA”), Switzerland, and the U.K. (collectively, “Europe”) to use our products, on account of the risks identified in the Schrems II decision, and we may find it necessary or desirable to make further changes to our processing of personal data of European residents. The regulatory environment applicable to the handling of European residents’ personal data, and our actions taken in response, may cause us to assume additional liabilities or incur additional costs. Moreover, much like with Schrems II, we anticipate future legal challenges to the approved data transfer mechanisms between Europe and the United States, including a challenge to the E.U.-U.S. DPF. Such legal challenges could result in additional legal and regulatory risk, compliance costs, and in our business, operating results, and financial condition being harmed.
We are also subject to the California Consumer Privacy Act, as amended by the California Privacy Rights Act (collectively, the “CCPA”). The CCPA requires, among other things, covered companies to provide enhanced disclosures to California consumers and to afford such consumers certain rights regarding their personal data, including the right to opt out of data sales for targeted advertising, and creates a private right of action to individuals affected by a data breach, if the breach was caused by a lack of reasonable security. The effects of the CCPA have been significant, requiring us to modify our data processing practices and policies and to incur substantial costs and expenses for compliance. Moreover, other U.S. states have enacted privacy laws that are potentially relevant to us. These include laws enacted in at least 20 U.S. states, with additional state legislatures expected to consider comprehensive privacy legislation in the coming months and throughout calendar year 2025. Increasingly stringent U.S. privacy legislation may require us to modify our data practices and policies, incur substantial compliance costs and expenses, and add further complexity to our compliance efforts that could adversely affect our business or increase our potential liability if we fail to comply.
We may also from time to time be subject to obligations relating to personal data by contract, or face assertions that we are subject to self-regulatory obligations or industry standards. Additionally, the Federal Trade Commission and many state attorneys general are more regularly bringing enforcement actions in connection with federal and state consumer protection laws for false or deceptive acts or practices in relation to the online collection, use, dissemination, and security of personal data. Internationally, data localization laws may mandate that personal data collected in a foreign country be processed and stored within that country.
We and our customers may face risk of enforcement actions by regulators or data protection authorities, private litigation and adverse publicity including reputational damage and loss of customer confidence for alleged violations of any of the foregoing obligations. Any such claims could result in substantial costs, ongoing remedial, audit and reporting obligations, and diversion of resources, and distract management and technical personnel. These potential liabilities and enforcement actions could also have an overall negative effect on our business, operating results, and financial condition. The amount and scope of insurance we maintain may not cover all types of claims that may arise.
New legislation affecting the scope of personal data and personal information where we or our customers and partners have operations, especially relating to classification of Internet Protocol (“IP”) addresses, machine identification, AI and machine learning, location data, and other information, may limit or inhibit our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing or uses of data, and may require significant expenditures and efforts in order to comply. Notably, public perception of potential privacy, data protection, or information security concerns—whether or not valid—may harm our reputation and inhibit adoption of our products and subscriptions by current and future end-customers. Each of these laws and regulations, and any changes to these laws and regulations, or new laws and regulations, could impose significant limitations, or require changes to our business model or practices or growth strategy, which may increase our compliance expenses and make our business more costly or less efficient to conduct.
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Tax, Accounting, Compliance, and Regulatory Risks
We may have exposure to tax liabilities that are greater than anticipated.
Our income tax obligations are based in part on our corporate structure and intercompany arrangements, including the manner in which we develop, value, and use our intellectual property and the valuations of our intercompany transactions. The tax laws applicable to our business, including the laws of the United States and various other jurisdictions, are subject to interpretation and certain jurisdictions may aggressively interpret their laws, regulations, and policies, including in an effort to raise additional tax revenue. The tax authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed or acquired technology or determining the proper charges for intercompany arrangements, which could increase our worldwide effective tax rate, harm our financial position and operating results, and have a negative effect on our cash flow. Some tax authorities of jurisdictions other than the United States may seek to assert extraterritorial taxing rights on our transactions or operations. It is possible that domestic or international tax authorities may subject us to tax examinations, or audits, and such tax authorities may disagree with certain positions we have taken, and any adverse outcome of such an examination, review or audit could result in additional tax liabilities and penalties and otherwise have a negative effect on our financial position, operating results, and cash flow. Further, the determination of our worldwide provision for or benefit from income taxes and other tax liabilities requires significant judgment by management, and there are transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded on our consolidated financial statements and may materially affect our financial results in the period or periods for which such determination is made.
In addition, our future income tax obligations could be adversely affected by changes in, or interpretations of, tax laws, regulations, policies, or decisions in the United States or in the other jurisdictions in which we operate.
If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating results could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported on our condensed consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets, liabilities, equity, revenue, and expenses that are not readily apparent from other sources. For more information, refer to the section entitled “Critical Accounting Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Quarterly Report on Form 10-Q. In general, if our estimates, judgments or assumptions relating to our critical accounting policies change or if actual circumstances differ from our estimates, judgments or assumptions, our operating results may be adversely affected and could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.
We are obligated to maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or our internal control may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.
If we are unable to assert that our internal controls are effective, our independent registered public accounting firm may not be able to formally attest to the effectiveness of our internal control over financial reporting. If, in the future, our chief executive officer, chief financial officer, or independent registered public accounting firm determines that our internal control over financial reporting is not effective as defined under Section 404, we could be subject to one or more investigations or enforcement actions by state or federal regulatory agencies, stockholder lawsuits, or other adverse actions requiring us to incur defense costs, pay fines, settlements, or judgments, causing investor perceptions to be adversely affected and potentially resulting in a decline in the market price of our stock.
Our reputation and/or business could be negatively impacted by environmental, social, and governance (“ESG”) matters and/or our reporting of such matters.
There is an increasing focus from regulators, certain investors, and other stakeholders concerning ESG matters, both in the United States and internationally. We communicate certain ESG-related initiatives, goals, and/or commitments regarding environmental matters, diversity, responsible sourcing and social investments, and other matters in our annual ESG Report, on our website, in our filings with the SEC, and elsewhere. These initiatives, goals, or commitments could be difficult to achieve and costly to implement. We could fail to achieve, or be perceived to fail to achieve, our ESG-related initiatives, goals, or commitments. In addition, we could be criticized for the timing, scope or nature of these initiatives, goals, or commitments, or for any revisions to them. To the extent that our required and voluntary disclosures about ESG matters increase, we could be criticized for the accuracy, adequacy, or completeness of such disclosures. Our actual or perceived failure to achieve our ESG-related initiatives, goals, or commitments could negatively impact our reputation, result in ESG-focused investors not purchasing and holding our stock, or otherwise materially harm our business.
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In addition, we are or may become subject to various new and proposed climate-related and other sustainability-related laws and regulations, including, for example, the E.U.’s Corporate Sustainability Reporting Directive. Additional regulation may require us to incur significant additional costs associated with increased compliance burdens, including the implementation of additional internal controls processes and procedures, and impose increased oversight obligations on our management and board of directors, as well as require us to retain third-party experts. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, enforcement actions, fines or litigation, which could negatively impact our business, operating results or financial condition.
Failure to comply with governmental laws and regulations could harm our business.
Our business is subject to regulation by various federal, state, local, and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws, consumer protection laws, privacy, data security, and data-protection laws, anti-bribery laws (including the U.S. Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act), import/export controls, federal securities laws, and tax laws and regulations. These laws and regulations may also impact our innovation and business drivers in developing new and emerging technologies (e.g., AI and machine learning). In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation resulting from any alleged noncompliance, our business, operating results, and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions, litigation, and sanctions could harm our business, operating results, and financial condition.
Risks Related to Our Notes and Common Stock
We may not have the ability to raise the funds necessary to settle conversions of our Notes, repurchase our Notes upon a fundamental change, or repay our Notes in cash at their maturity, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of our Notes.
In June 2020, we issued our 0.375% Convertible Senior Notes due 2025 (the “2025 Notes”). We will need to make cash payments (a) if holders of our 2025 Notes require us to repurchase all, or a portion of, their 2025 Notes upon the occurrence of a fundamental change (e.g., a change of control of Palo Alto Networks, Inc.) before the maturity date, (b) upon conversion of our 2025 Notes, or (c) to repay our 2025 Notes in cash at their maturity unless earlier converted or repurchased. Effective November 1, 2024 through January 31, 2025, all of the 2025 Notes are convertible. If all of the note holders decided to convert their 2025 Notes, we would be obligated to pay the $0.6 billion principal amount of the 2025 Notes in cash. Under the terms of the 2025 Notes, we also have the option to settle the amount of our conversion obligation in excess of the aggregate principal amount of the 2025 Notes in cash or shares of our common stock. If our cash provided by operating activities, together with our existing cash, cash equivalents, and investments, and existing sources of financing, are inadequate to satisfy these obligations, we will need to obtain third-party financing, which may not be available to us on commercially reasonable terms or at all, to meet these payment obligations.
In addition, our ability to repurchase or to pay cash upon conversion of our 2025 Notes may be limited by law, regulatory authority, or agreements governing our future indebtedness. Our failure to repurchase our 2025 Notes at a time when the repurchase is required by the applicable indenture governing such 2025 Notes or to pay cash upon conversion of such 2025 Notes as required by the applicable indenture would constitute a default under the indenture. A default under the applicable indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase our 2025 Notes or to pay cash upon conversion of our 2025 Notes.
We may still incur substantially more debt or take other actions that would diminish our ability to make payments on our Notes when due.
We and our subsidiaries may incur substantial additional debt in the future, subject to the restrictions contained in our debt instruments, that could have the effect of diminishing our ability to make payments on our 2025 Notes when due.
The market price of our common stock historically has been volatile, and the value of an investment in our common stock could decline.
The market price of our common stock has historically been, and is likely to continue to be, volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control and unrelated to our business, operating results, or financial condition. These fluctuations could cause a loss of all or part of an investment in our common stock. Factors that could cause fluctuations in the market price of our common stock include, but are not limited to:
•announcements of new products, subscriptions or technologies, commercial relationships, strategic partnerships, acquisitions, or other events by us or our competitors;
•price and volume fluctuations in the overall stock market from time to time;
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•news announcements that affect investor perception of our industry, including reports related to the discovery of significant cyberattacks;
•significant volatility in the market price and trading volume of technology companies in general and of companies in our industry;
•fluctuations in the trading volume of our shares or the size of our public float;
•actual or anticipated changes in our operating results or fluctuations in our operating results;
•whether our operating results meet the expectations of securities analysts or investors;
•actual or anticipated changes in the expectations of securities analysts or investors, whether as a result of our forward-looking statements, our failure to meet such expectations or otherwise;
•inaccurate or unfavorable research reports about our business and industry published by securities analysts or reduced coverage of our company by securities analysts;
•litigation involving us, our industry, or both;
•actions instituted by activist shareholders or others;
•regulatory developments in the United States, foreign countries, or both;
•major catastrophic events;
•sales or repurchases of large blocks of our common stock or substantial future sales by our directors, executive officers, employees, and significant stockholders;
•departures of key personnel; or
•geopolitical or economic uncertainty around the world.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Securities litigation could result in substantial costs, divert our management’s attention and resources from our business, and have a material adverse effect on our business, operating results, and financial condition.
The convertible note hedge and warrant transactions may affect the value of our common stock.
In connection with the sale of our 2025 Notes, we entered into convertible note hedge transactions (the “2025 Note Hedges”) with certain counterparties. In connection with each such sale of the 2025 Notes, we also entered into warrant transactions with the counterparties pursuant to which we sold warrants (the “2025 Warrants”) for the purchase of our common stock. The 2025 Note Hedges for our 2025 Notes are generally expected to reduce the potential dilution to our common stock upon any conversion of our 2025 Notes. The 2025 Warrants could separately have a dilutive effect to the extent that the market price per share of our common stock exceeds the applicable strike price of the 2025 Warrants unless, subject to certain conditions, we elect to cash settle such 2025 Warrants.
The applicable counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the outstanding 2025 Notes (and are likely to do so during any applicable observation period related to a conversion of our 2025 Notes). This activity could also cause or prevent an increase or a decrease in the market price of our common stock or our 2025 Notes, which could affect a note holder’s ability to convert its 2025 Notes and, to the extent the activity occurs during any observation period related to a conversion of our 2025 Notes, it could affect the amount and value of the consideration that the note holder will receive upon conversion of our 2025 Notes.
We do not make any representation or prediction as to the direction or magnitude of any potential effect that the transactions described above may have on the price of our 2025 Notes or our common stock. In addition, we do not make any representation that the counterparties or their respective affiliates will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
The issuance of additional stock in connection with financings, acquisitions, investments, our stock incentive plans, the conversion of our Notes or exercise of the related Warrants, or otherwise will dilute stock held by all other stockholders.
Our amended and restated certificate of incorporation authorizes us to issue up to 1.0 billion shares of common stock and up to 100.0 million shares of preferred stock with such rights and preferences as may be determined by our board of directors. Subject to compliance with applicable rules and regulations, we may issue shares of common stock or securities convertible into shares of our common stock from time to time in connection with a financing, acquisition, investment, our stock incentive plans, the conversion of our 2025 Notes, the settlement of our 2025 Warrants, or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the market price of our common stock to decline.
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We cannot guarantee that our share repurchase program will be fully consummated or that it will enhance shareholder value, and share repurchases could affect the price of our common stock.
As of October 31, 2024, we had $1.0 billion available under our share repurchase program which will expire on December 31, 2025 and may be suspended or discontinued at any time without prior notice. Although our board of directors has authorized a share repurchase program, we are not obligated to repurchase any specific dollar amount or to acquire any specific number of shares under the program. The share repurchase program could affect the price of our common stock, increase volatility, and diminish our cash reserves. In addition, the program may be suspended or terminated at any time, which may result in a decrease in the price of our common stock.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any dividends on our common stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the future. As a result, stockholders may only receive a return on their investments in our common stock if the market price of our common stock increases.
Our charter documents and Delaware law, as well as certain provisions contained in the indentures governing our Notes, could discourage takeover attempts and lead to management entrenchment, which could also reduce the market price of our common stock.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change in control of our company or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:
•establish that our board of directors is divided into three classes, Class I, Class II, and Class III, with three-year staggered terms;
•authorize our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval;
•provide our board of directors with the exclusive right to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death, or removal of a director;
•prohibit our stockholders from taking action by written consent;
•specify that special meetings of our stockholders may be called only by the chairman of our board of directors, our president, our secretary, or a majority vote of our board of directors;
•require the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the issuance of preferred stock and management of our business or our amended and restated bylaws;
•authorize our board of directors to amend our bylaws by majority vote; and
•establish advance notice procedures with which our stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for our stockholders to replace members of our board of directors, which is responsible for appointing the members of management. In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. Additionally, certain provisions contained in the indenture governing our 2025 Notes could make it more difficult or more expensive for a third party to acquire us. The application of Section 203 or certain provisions contained in the indenture governing our 2025 Notes also could have the effect of delaying or preventing a change in control of us. Any of these provisions could, under certain circumstances, depress the market price of our common stock.
General Risk Factors
Our business is subject to the risks of earthquakes, fire, power outages, floods, health risks, and other catastrophic events, and to interruption by man-made problems, such as terrorism.
Both our corporate headquarters and the location where our products are manufactured are located in the San Francisco Bay Area, a region known for seismic activity. In addition, other natural disasters, such as fire or floods, a significant power outage, telecommunications failure, terrorism, an armed conflict, cyberattacks, epidemics and pandemics such as COVID-19, or other geopolitical unrest could affect our supply chain, manufacturers, logistics providers, channel partners, end-customers, or the economy as a whole, and such disruption could impact our shipments and sales. These risks may be further increased if the disaster recovery plans for us and our suppliers prove to be inadequate. To the extent that any of the above should result in delays or cancellations of customer orders, the loss of customers, or the delay in the manufacture, deployment, or shipment of our products, our business, financial condition, and operating results would be adversely affected.
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Our failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products and subscriptions could reduce our ability to compete and could harm our business.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features to enhance our portfolio, improve our operating infrastructure, or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we engage in future debt financings, the holders of such additional debt would have priority over the holders of our common stock. Current and future indebtedness may also contain terms that, among other things, restrict our ability to incur additional indebtedness. In addition, we may be required to take other actions that would otherwise be in the interests of the debt holders and would require us to maintain specified liquidity or other ratios, any of which could harm our business, operating results, and financial condition. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be adversely affected.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
During the three months ended October 31, 2024, holders of the 2025 Notes converted $319.0 million in aggregate principal amount of the 2025 Notes, which we repaid in cash. We also issued 2.3 million shares of our unregistered common stock to the holders of the 2025 Notes for the conversion value in excess of the principal amount. These shares of our common stock were issued in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”).
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In February 2019, we announced that our board of directors authorized a $1.0 billion share repurchase program, which is funded from available working capital. In December 2020, August 2021, August 2022, November 2023, and August 2024, we announced additional $700.0 million, $676.1 million, $915.0 million, $316.7 million, and $500.0 million increases to this share repurchase program, respectively, bringing the total authorization to $4.1 billion, with $1.0 billion remaining as of October 31, 2024. The expiration date of this repurchase authorization was extended to December 31, 2025, and our repurchase program may be suspended or discontinued at any time. Repurchases under our program are to be made at management’s discretion 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.
Between August 1, 2024 and August 31, 2024, September 1, 2024 and September 30, 2024, and October 1, 2024 and October 31, 2024, shares of restricted stock were delivered by certain employees upon vesting of equity awards to satisfy tax withholding requirements. The average value of shares delivered to satisfy tax withholding requirements during these periods were $352.86 per share, $333.60 per share, and $374.82 per share, respectively. The number of shares delivered to satisfy tax withholding requirements during these periods was not significant.
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Item 5. Other Information
Trading Plans of Directors and Executive Officers
Set forth below is certain information regarding Rule 10b5-1 trading plans adopted or terminated by our directors and officers (as defined in Rule 16a-1(f)) during the first quarter of fiscal 2025. The Rule 10b5-1 trading plans listed below are each intended to satisfy the affirmative defense of Rule 10b5-1(c).
NameTitleDate Plan Was Adopted
Date Plan was Terminated
Expiration Date
Total Amount of Common Stock to be Sold Under the Plan
Lee Klarich
Executive Vice President, Chief Product Officer
September 27, 2024
Not applicable
January 8, 2026 or when all shares have been sold
711,088
Mary Pat McCarthy
Director
September 12, 2024
Not applicable
November 30, 2025 or when all shares have been sold
6,000
Josh Paul
Senior Vice President, Chief Accounting Officer
October 1, 2024
Not applicable
December 31, 2025 or when all shares have been sold
4,500
Nir Zuk
Executive Vice President, Chief Technology Officer
April 1, 2024
October 2, 2024
Not applicable
432,000
No other officers or directors, as defined in Rule 16a-1(f), adopted, modified, and/or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as defined in Regulation S-K Item 408, during the first quarter of fiscal 2025.
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Item 6. Exhibits
Exhibit
Number		Exhibit DescriptionIncorporated by Reference
FormFile No.ExhibitFiling Date
Certification of the Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1†
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2†
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
The following financial information from Palo Alto Networks, Inc.’s Quarterly Report on Form 10-Q for the three months ended October 31, 2024 formatted in Inline XBRL includes: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.
104Cover Page Interactive Data File—(formatted as Inline XBRL and contained in Exhibit 101).
†    The certifications attached as Exhibit 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Palo Alto Networks, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date: November 20, 2024
PALO ALTO NETWORKS, INC.
By:/s/ DIPAK GOLECHHA
Dipak Golechha
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)


Date: November 20, 2024
PALO ALTO NETWORKS, INC.
By:/s/ JOSH PAUL
Josh Paul
Chief Accounting Officer
(Duly Authorized Officer and Principal Accounting Officer)

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