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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________ 
FORM 10-Q
 _____________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JanuaryOctober 31, 20182023
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number 001-35594
PALO ALTO NETWORKS, INC.
(Exact name of registrant as specified in its charter)
Delaware20-2530195
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
3000 Tannery Way
Santa Clara, California 95054
(Address of principal executive office,
3000 Tannery Way
Santa Clara, California 95054
(Address of principal executive offices, including zip code)
(408) 753-4000
(Registrant’s telephone number, including area code)

NA
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.0001 par value per sharePANW
The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x☒    No  ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x☒    No  ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerx☒Accelerated filer¨☐Emerging growth company☐
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
☐		Smaller reporting company¨
☐Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨☐    No  x☒
The number of shares outstanding of the registrant’s common stock as of February 15, 2018November 10, 2023 was 91,848,283.315.3 million.

Table of Contents


TABLE OF CONTENTS

Table of Contents
Page
Page
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
32
Condensed Consolidated Balance Sheets as of January October31, 20182023 and July31, 20172023
32
Condensed Consolidated Statements of Operations for the ThreeMonths Ended October31, 2023 and Six Months Ended January 31, 2018 and January 31, 2017October31, 2022
43
Condensed Consolidated Statements of Comprehensive LossIncome (Loss) for the Three Months Ended October31, 2023 and Six Months Ended January 31, 2018 and January 31, 2017October31, 2022
54
Condensed Consolidated Statements of Stockholders’ Equity for the ThreeMonths Ended October31, 2023 andOctober31, 2022
5
Condensed Consolidated Statements of Cash Flows for the Six ThreeMonths Ended January 31, 2018 October31, 2023 and January 31, 2017 October31, 2022
6
Notes to Condensed Consolidated Financial Statements
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations
1821
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
2934
Item 4.
Controls and Procedures
3035
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings
3136
Item 1A.
Risk Factors
3136
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
5156
Item 6.5.
ExhibitsOther Information
5257
Item 6.
SignaturesExhibits
5358
Signatures
59


PART
- 1 -
Table of Contents
Part I
ITEM 1.FINANCIAL STATEMENTS
Item 1. Financial Statements
PALOALTO NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions, except per share data)

CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
October 31, 2023July 31, 2023
January 31, 2018 July 31, 2017(unaudited)
Assets   Assets
Current assets:   Current assets:
Cash and cash equivalents$915.0
 $744.3
Cash and cash equivalents$2,491.4 $1,135.3 
Short-term investments720.7
 630.7
Short-term investments1,402.4 1,254.7 
Accounts receivable, net of allowance for doubtful accounts of $1.0 and $0.7 at January 31, 2018 and July 31, 2017, respectively365.1
 432.1
Accounts receivable, net of allowance for credit losses of $8.2 and $7.8 as of October 31, 2023 and July 31, 2023, respectivelyAccounts receivable, net of allowance for credit losses of $8.2 and $7.8 as of October 31, 2023 and July 31, 2023, respectively1,413.0 2,463.2 
Short-term financing receivables, netShort-term financing receivables, net445.9 388.8 
Short-term deferred contract costsShort-term deferred contract costs328.7 339.2 
Prepaid expenses and other current assets209.4
 169.2
Prepaid expenses and other current assets396.2 466.8 
Total current assets2,210.2
 1,976.3
Total current assets6,477.6 6,048.0 
Property and equipment, net264.7
 211.1
Property and equipment, net352.6 354.5 
Operating lease right-of-use assetsOperating lease right-of-use assets274.3 263.3 
Long-term investments722.3
 789.3
Long-term investments2,988.9 3,047.9 
Long-term financing receivables, netLong-term financing receivables, net639.8 653.3 
Long-term deferred contract costsLong-term deferred contract costs515.4 547.1 
Goodwill238.8
 238.8
Goodwill2,926.8 2,926.8 
Intangible assets, net48.3
 53.7
Intangible assets, net290.5 315.4 
Other assets143.2
 169.1
Other assets342.6 344.8 
Total assets$3,627.5
 $3,438.3
Total assets$14,808.5 $14,501.1 
Liabilities, temporary equity, and stockholders’ equity   
Liabilities and stockholders’ equityLiabilities and stockholders’ equity
Current liabilities:   Current liabilities:
Accounts payable$33.4
 $35.5
Accounts payable$131.8 $132.3 
Accrued compensation113.2
 117.5
Accrued compensation331.4 548.3 
Accrued and other liabilities83.6
 79.9
Accrued and other liabilities371.5 390.8 
Deferred revenue1,088.8
 968.4
Deferred revenue4,732.0 4,674.6 
Convertible senior notes, net537.4
 —
Convertible senior notes, net1,946.7 1,991.5 
Total current liabilities1,856.4
 1,201.3
Total current liabilities7,513.4 7,737.5 
Convertible senior notes, net—
 524.7
Long-term deferred revenue907.9
 805.1
Long-term deferred revenue4,710.8 4,621.8 
Long-term operating lease liabilitiesLong-term operating lease liabilities275.8 279.2 
Other long-term liabilities196.6
 147.6
Other long-term liabilities138.0 114.2 
Commitments and contingencies (Note 6)

 

Temporary equity33.5
 —
Total liabilitiesTotal liabilities12,638.0 12,752.7 
Commitments and contingencies (Note 9)Commitments and contingencies (Note 9)
Stockholders’ equity:   Stockholders’ equity:
Preferred stock; $0.0001 par value; 100.0 shares authorized; none issued and outstanding at January 31, 2018 and July 31, 2017—
 —
Common stock and additional paid-in capital; $0.0001 par value; 1,000.0 shares authorized; 91.8 and 91.5 shares issued and outstanding at January 31, 2018 and July 31, 2017, respectively1,575.9
 1,599.7
Preferred stock; $0.0001 par value; 100.0 shares authorized; none issued and outstanding as of October 31, 2023 and July 31, 2023Preferred stock; $0.0001 par value; 100.0 shares authorized; none issued and outstanding as of October 31, 2023 and July 31, 2023— — 
Common stock and additional paid-in capital; $0.0001 par value; 1,000.0 shares authorized; 313.7 and 308.3 shares issued and outstanding as of October 31, 2023 and July 31, 2023, respectivelyCommon stock and additional paid-in capital; $0.0001 par value; 1,000.0 shares authorized; 313.7 and 308.3 shares issued and outstanding as of October 31, 2023 and July 31, 2023, respectively3,296.7 3,019.0 
Accumulated other comprehensive loss(7.2) (3.4)Accumulated other comprehensive loss(93.0)(43.2)
Accumulated deficit(935.6) (836.7)Accumulated deficit(1,033.2)(1,227.4)
Total stockholders’ equity633.1
 759.6
Total stockholders’ equity2,170.5 1,748.4 
Total liabilities, temporary equity, and stockholders’ equity$3,627.5
 $3,438.3
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$14,808.5 $14,501.1 
See notes to condensed consolidated financial statements.

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PALO ALTO NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions, except per share data)
Three Months Ended October 31,
20232022
Revenue:
Product$341.1 $330.0 
Subscription and support1,537.0 1,233.4 
Total revenue1,878.1 1,563.4 
Cost of revenue:
Product77.4 120.1 
Subscription and support395.4 341.8 
Total cost of revenue472.8 461.9 
Total gross profit1,405.3 1,101.5 
Operating expenses:
Research and development409.5 371.8 
Sales and marketing660.5 615.0 
General and administrative120.1 99.5 
Total operating expenses1,190.1 1,086.3 
Operating income215.2 15.2 
Interest expense(2.9)(6.8)
Other income, net70.3 26.0 
Income before income taxes282.6 34.4 
Provision for income taxes88.4 14.4 
Net income$194.2 $20.0 
Net income per share, basic$0.63 $0.07 
Net income per share, diluted$0.56 $0.06 
Weighted-average shares used to compute net income per share, basic310.1 299.8 
Weighted-average shares used to compute net income per share, diluted349.8 338.4 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions, except per share data)
 Three Months Ended Six Months Ended
 January 31, January 31,
 2018 2017 2018 2017
Revenue:       
Product$202.2
 $168.8
 $388.7
 $332.6
Subscription and support340.2
 253.8
 659.2
 488.1
Total revenue542.4
 422.6
 1,047.9
 820.7
Cost of revenue:       
Product63.9
 45.8
 121.5
 88.0
Subscription and support95.4
 67.4
 179.2
 126.4
Total cost of revenue159.3
 113.2
 300.7
 214.4
Total gross profit383.1
 309.4
 747.2
 606.3
Operating expenses:       
Research and development96.6
 89.9
 190.8
 174.1
Sales and marketing265.0
 226.7
 523.5
 446.8
General and administrative53.3
 47.2
 119.0
 88.8
Total operating expenses414.9
 363.8
 833.3
 709.7
Operating loss(31.8) (54.4) (86.1) (103.4)
Interest expense(6.4) (6.1) (12.7) (12.1)
Other income, net4.9
 2.7
 9.7
 5.2
Loss before income taxes(33.3) (57.8) (89.1) (110.3)
Provision for income taxes1.6
 2.8
 9.8
 7.2
Net loss$(34.9) $(60.6) $(98.9) $(117.5)
Net loss per share, basic and diluted$(0.38) $(0.67) $(1.09) $(1.30)
Weighted-average shares used to compute net loss per share, basic and diluted91.1
 90.7
 91.0
 90.2

See notes to condensed consolidated financial statements.

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PALO ALTO NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in millions)
Three Months Ended October 31,
20232022
Net income$194.2 $20.0 
Other comprehensive income (loss), net of tax:
Change in unrealized gains (losses) on investments(18.2)(27.8)
Cash flow hedges:
Change in unrealized gains (losses)(40.9)(42.5)
Net realized (gains) losses reclassified into earnings9.3 14.8 
Net change on cash flow hedges(31.6)(27.7)
Other comprehensive loss(49.8)(55.5)
Comprehensive income (loss)$144.4 $(35.5)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in millions)

 Three Months Ended Six Months Ended
 January 31, January 31,
 2018 2017 2018 2017
Net loss$(34.9) $(60.6) $(98.9) $(117.5)
Other comprehensive loss, net of tax:       
Change in unrealized gains (losses) on investments(5.3) (2.9) (7.2) (4.7)
Change in unrealized gains (losses) on cash flow hedges5.1
 (0.3) 3.4
 (1.4)
Other comprehensive loss(0.2) (3.2) (3.8)
(6.1)
Comprehensive loss$(35.1) $(63.8) $(102.7) $(123.6)

See notes to condensed consolidated financial statements.

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PALO ALTO NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in millions)
Three Months Ended October 31, 2023

Common Stock and Additional Paid-In CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’ Equity
 SharesAmount
Balance as of July 31, 2023308.3 $3,019.0 $(43.2)$(1,227.4)$1,748.4 
Net income— — — 194.2 194.2 
Other comprehensive loss— — (49.8)— (49.8)
Issuance of common stock in connection with employee equity incentive plans2.6 87.0 — — 87.0 
Taxes paid related to net share settlement of equity awards— (15.5)— — (15.5)
Share-based compensation for equity-based awards— 273.1 — — 273.1 
Repurchase and retirement of common stock(0.3)(66.7)— — (66.7)
Settlement of convertible notes0.3 (0.2)— — (0.2)
Settlement of note hedges(0.3)— — — — 
Settlement of warrants3.1 — — — — 
Balance as of October 31, 2023313.7 $3,296.7 $(93.0)$(1,033.2)$2,170.5 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
Three Months Ended October 31, 2022
 Common Stock and Additional Paid-In CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’ Equity
 SharesAmount
Balance as of July 31, 2022298.8 $1,932.7 $(55.6)$(1,667.1)$210.0 
Net income— — — 20.0 20.0 
Other comprehensive loss— — (55.5)— (55.5)
Issuance of common stock in connection with employee equity incentive plans3.5 68.2 — — 68.2 
Taxes paid related to net share settlement of equity awards— (13.9)— — (13.9)
Share-based compensation for equity-based awards— 279.2 — — 279.2 
Balance as of October 31, 2022302.3 $2,266.2 $(111.1)$(1,647.1)$508.0 

 Six Months Ended
 January 31,
 2018 2017
Cash flows from operating activities   
Net loss$(98.9) $(117.5)
Adjustments to reconcile net loss to net cash provided by operating activities:   
Share-based compensation for equity based awards256.5
 240.6
Depreciation and amortization43.4
 28.0
Cease-use loss related to facility exit16.7
 —
Amortization of debt discount and debt issuance costs12.7
 12.1
Amortization of investment premiums, net of accretion of purchase discounts0.6
 1.4
Changes in operating assets and liabilities:   
Accounts receivable, net67.0
 (37.3)
Prepaid expenses and other assets(39.0) (3.8)
Accounts payable(6.4) 0.2
Accrued compensation(4.3) 5.3
Accrued and other liabilities46.3
 31.0
Deferred revenue223.2
 257.8
Net cash provided by operating activities517.8
 417.8
Cash flows from investing activities   
Purchases of investments(372.5) (562.7)
Proceeds from maturities of investments341.8
 384.0
Purchases of property, equipment, and other assets(57.8) (65.6)
Net cash used in investing activities(88.5) (244.3)
Cash flows from financing activities   
Repurchases of common stock(259.1) (170.1)
Proceeds from sales of shares through employee equity incentive plans23.4
 23.6
Payments for taxes related to net share settlement of equity awards(22.9) —
Net cash used in financing activities(258.6) (146.5)
Net increase in cash and cash equivalents170.7
 27.0
Cash and cash equivalents—beginning of period744.3
 734.4
Cash and cash equivalents—end of period$915.0
 $761.4
Non-cash investing and financing activities   
Property and equipment acquired through lease incentives$37.8
 $—

See notes to condensed consolidated financial statements.statements.

- 5 -
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
PALO ALTO NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
Three Months Ended October 31,
20232022
Cash flows from operating activities
Net income$194.2 $20.0 
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation for equity-based awards271.0 266.0 
Depreciation and amortization64.3 70.7 
Amortization of deferred contract costs105.5 97.0 
Amortization of debt issuance costs1.0 1.8 
Reduction of operating lease right-of-use assets12.4 12.1 
Amortization of investment premiums, net of accretion of purchase discounts(14.7)1.7 
Changes in operating assets and liabilities:
Accounts receivable, net1,050.2 904.4 
Financing receivables, net(43.6)(12.4)
Deferred contract costs(63.3)(60.1)
Prepaid expenses and other assets54.0 (28.7)
Accounts payable(0.4)(1.0)
Accrued compensation(216.9)(192.3)
Accrued and other liabilities(34.1)(28.1)
Deferred revenue146.4 185.6 
Net cash provided by operating activities1,526.0 1,236.7 
Cash flows from investing activities
Purchases of investments(854.7)(2,112.8)
Proceeds from sales of investments304.6 485.0 
Proceeds from maturities of investments457.9 347.6 
Purchases of property, equipment, and other assets(36.8)(39.6)
Net cash used in investing activities(129.0)(1,319.8)
Cash flows from financing activities
Repayments of convertible senior notes(46.0)— 
Repurchases of common stock(66.7)(22.7)
Proceeds from sales of shares through employee equity incentive plans86.4 67.7 
Payments for taxes related to net share settlement of equity awards(15.5)(13.9)
Net cash provided by (used in) financing activities(41.8)31.1 
Net increase (decrease) in cash, cash equivalents, and restricted cash1,355.2 (52.0)
Cash, cash equivalents, and restricted cash - beginning of period1,142.2 2,124.8 
Cash, cash equivalents, and restricted cash - end of period$2,497.4 $2,072.8 
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents$2,491.4 $2,067.2 
Restricted cash included in prepaid expenses and other current assets6.0 5.6 
Total cash, cash equivalents, and restricted cash$2,497.4 $2,072.8 
See notes to condensed consolidated financial statements.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Palo Alto Networks, Inc. (the “Company,” “we,” “us,” or “our”), locatedheadquartered in Santa Clara, California, was incorporated in March 2005 under the laws of the State of Delaware and commenced operations in April 2005. We offer a next-generation security platform that empowersempower enterprises, organizations, service providers, and government entities to secure their organizationsusers, networks, clouds, and endpoints by safely enabling applications running on their networksdelivering comprehensive cybersecurity enabled by artificial intelligence and by preventing breaches that stem from targeted cyberattacks.automation.
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), consistent in all material respects with those applied in our Annual Report on Form 10-K for the fiscal year ended July 31, 2017,2023, filed with the Securities and Exchange Commission (“SEC”) on September 7, 2017. Our1, 2023. The condensed consolidated financial statements include our accounts and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
OurThe condensed consolidated financial statements are unaudited but include all adjustments of a normal recurring nature necessary for a fair presentation of our quarterly results. We have made estimates and judgments affecting the amounts reported in our condensed consolidated financial statements and the accompanying notes. The actual results that we experience may differ materially from our estimates. Certain prior-period amounts have been reclassified to conform to current-period presentation.
Our condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended July 31, 2017.2023.
Use of Estimates
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 and disclosed in the condensed consolidated financial statements and the accompanying notes. We base our estimates on assumptions, both historical and forward looking, that we believe are reasonable. Actual results could differ materially from those estimates due to risks and uncertainties, including uncertainty in the current economic environment.
Summary of Significant Accounting Policies
There have been no material changes to our significant accounting policies as of and for the sixthree months ended JanuaryOctober 31, 2018,2023, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended July 31, 2017.2023.
Recently Adopted Accounting Pronouncements
Derivatives and Hedging
In August 2017, the Financial Accounting Standards Board (“FASB”) issued new authoritative guidance on derivatives and hedging to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships, and the presentation of hedge results. We early adopted the standard in our second quarter of fiscal 2018 on a modified retrospective basis. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
Business Combinations - Definition of a Business
In January 2017, the FASB issued authoritative guidance clarifying the definition of a business to assist companies with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard is effective for us in our first quarter of fiscal 2019 and will be applied on a prospective basis. Early adoption is permitted. We do not expect the adoption of the standard will have a material impact on our condensed consolidated financial statements.
Statement of Cash Flows - Restricted Cash
In November 2016, the FASB issued authoritative guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. Under the new standard, restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for us in our first quarter of fiscal 2019 and will be applied on a retrospective basis. Early adoption is permitted. We do not expect the adoption of the standard will have a material impact on our condensed consolidated financial statements because our restricted cash balance has not been material.

Income Taxes - Intra-Entity Asset Transfers
In October 2016, the FASB issued authoritative guidance requiring the recognition of income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The standard is effective for us in our first quarter of fiscal 2019 and will be applied on a modified retrospective basis. Early adoption is permitted. We plan to adopt the standard in our first quarter of fiscal 2019. The adoption of this standard may have a material impact on our condensed consolidated financial statements, subject to any potential intra-entity transfers of assets (excluding inventory) and additional guidance and interpretations issued by U.S. regulatory and standard-setting bodies related to the Tax Cuts and Jobs Act (“TCJA”) enacted into law on December 22, 2017. Refer to Note 9. Income Taxes for more information on the TCJA.
Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued new authoritative guidance addressing eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain transactions are presented and classified in the statement of cash flows. The standard is effective for us in our first quarter of fiscal 2019 and will be applied on a retrospective basis. Early adoption is permitted. We do not expect the adoption of the standard will have a material impact on our condensed consolidated financial statements.
Financial Instruments - Credit Losses
In June 2016, the FASB issued new authoritative guidance on the accounting for credit losses on most financial assets and certain financial instruments. The standard replaces the existing incurred loss model with an expected credit loss model for financial assets measured at amortized cost, including trade receivables, and requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down. The standard is effective for us in our first quarter of fiscal 2021 and will be applied on a modified retrospective basis. Early adoption is permitted beginning our first quarter of fiscal 2020. We are currently evaluating whether this standard will have a material impact on our condensed consolidated financial statements.
Leases
In February 2016, the FASB issued new authoritative guidance on lease accounting. Among its provisions, the standard requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet for operating leases and also requires additional qualitative and quantitative disclosures about lease arrangements. The standard is effective for us in our first quarter of fiscal 2020 and will be applied on a modified retrospective basis, with the option to elect certain practical expedients. Early adoption is permitted. We are currently evaluating whether this standard will have a material impact on our condensed consolidated financial statements.
Revenue Recognition
In May 2014, the FASB issued new authoritative guidance on revenue from contracts with customers. The new standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services, as well as guidance on the recognition of costs related to obtaining and fulfilling customer contracts. The standard also requires expanded disclosures about the nature, amount, timing, and uncertainty of revenues and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The standard is effective for us in our first quarter of fiscal 2019 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within the guidance (“full retrospective method”); or (ii) retrospective with the cumulative effect of initially applying the guidance recognized at the date of initial application and providing certain additional disclosures as defined per the guidance (“modified retrospective method”).
We will adopt the standard in our first quarter of fiscal 2019 using the full retrospective method. However, our ability to apply the full retrospective method is dependent on system readiness and the completion of our analysis of information necessary to restate prior-period financial statements.
We are continuing to evaluate the impact of the new standard on our accounting policies, processes, internal controls over financial reporting, and system requirements, and have assigned cross-functional internal resources and engaged third-party service providers to assist in our evaluation and system implementation. Furthermore, we have made and will continue to make investments in systems to enable timely and accurate reporting under the new standard.
We are also continuing to evaluate the impact the standard will have on our condensed consolidated financial statements, including reviewing the provisions of our customer contracts and identifying performance obligations under the requirements of the new standard, and comparing to our current accounting policies and practices. Although we have not yet determined whether the effect will be material, we believe the new standard will impact our accounting for revenue arrangements in the following areas:
removal of the current limitation on contingent revenue may result in revenue being recognized earlier for certain contracts;
term license revenue associated with our virtual firewalls will be recognized upfront;

allocation of revenue related to software due to the removal of the residual method of revenue recognition; and
amortization period for deferred commissions.
We will continue to assess the new standard along with industry trends and additional interpretive guidance, and may adjust our implementation plan accordingly.
2. Fair Value MeasurementsRevenue
We categorize assets and liabilities recorded or disclosed at fair value on our condensed consolidated balance sheets based upon the levelDisaggregation of judgment associated with inputs used to measure their fair value. The categories are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.
Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.Revenue
The following table presents revenue by geographic theater (in millions):
Three Months Ended October 31,
20232022
Revenue:
Americas
United States$1,204.3 $1,006.3 
Other Americas82.3 64.4 
Total Americas1,286.6 1,070.7 
Europe, the Middle East, and Africa (“EMEA”)364.9 307.9 
Asia Pacific and Japan (“APAC”)226.6 184.8 
Total revenue$1,878.1 $1,563.4 
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The following table presents revenue for groups of similar products and services (in millions):
Three Months Ended October 31,
20232022
Revenue:
Product$341.1 $330.0 
Subscription and support
Subscription988.3 764.0 
Support548.7 469.4 
Total subscription and support1,537.0 1,233.4 
Total revenue$1,878.1 $1,563.4 
Deferred Revenue
During the fair valuethree months ended October 31, 2023 and 2022, we recognized approximately $1.4 billion and $1.1 billion of revenue pertaining to amounts that were deferred as of July 31, 2023 and 2022, respectively.
Remaining Performance Obligations
Remaining performance obligations were $10.4 billion as of October 31, 2023, of which we expect to recognize as revenue approximately $5.0 billion over the next 12 months and the remainder thereafter.
3. Fair Value Measurements
The following table presents our financial assets and liabilities measured at fair value on a recurring basis using the above input categories as of JanuaryOctober 31, 20182023 and July 31, 20172023 (in millions):
October 31, 2023July 31, 2023
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Cash equivalents:
Money market funds$1,595.3 $— $— $1,595.3 $476.1 $— $— $476.1 
Commercial paper— 297.0 — 297.0 — 151.4 — 151.4 
Corporate debt securities— 8.6 — 8.6 — — — — 
U.S. government and agency securities— 24.9 — 24.9 — — — — 
Total cash equivalents1,595.3 330.5 — 1,925.8 476.1 151.4 — 627.5 
Short-term investments:
Certificates of deposit— 34.0 — 34.0 — 48.1 — 48.1 
Commercial paper— 136.8 — 136.8 — 213.8 — 213.8 
Corporate debt securities— 1,038.2 — 1,038.2 — 798.0 — 798.0 
U.S. government and agency securities— 148.0 — 148.0 — 190.6 — 190.6 
Non-U.S. government and agency securities— 33.7 — 33.7 — — — — 
Asset-backed securities— 11.7 — 11.7 — 4.2 — 4.2 
Total short-term investments— 1,402.4 — 1,402.4 — 1,254.7 — 1,254.7 
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  January 31, 2018 July 31, 2017
  Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Cash equivalents:                
Money market funds $325.7
 $—
 $—
 $325.7
 $—
 $—
 $—
 $—
U.S. government and agency securities —
 3.5
 —
 3.5
 —
 —
 —
 —
Total cash equivalents 325.7
 3.5
 —
 329.2
 —
 —
 —
 —
Short-term investments:                
Certificates of deposit —
 5.4
 —
 5.4
 —
 —
 —
 —
Corporate debt securities —
 183.3
 —
 183.3
 —
 159.4
 —
 159.4
U.S. government and agency securities —
 532.0
 —
 532.0
 —
 471.3
 —
 471.3
Total short-term investments —
 720.7
 —
 720.7
 —
 630.7
 —
 630.7
Prepaid expenses and other current assets:                
Foreign currency forward contracts —
 4.7
 —
 4.7
 —
 —
 —
 —
Total prepaid expenses and other current assets —
 4.7
 —
 4.7
 —
 —
 —
 —
Long-term investments:                
Certificates of deposit —
 —
 —
 —
 —
 5.4
 —
 5.4
Corporate debt securities —
 166.8
 —
 166.8
 —
 186.5
 —
 186.5
U.S. government and agency securities —
 555.5
 —
 555.5
 —
 597.4
 —
 597.4
Total long-term investments —
 722.3
 —
 722.3
 —
 789.3
 —
 789.3
Total assets measured at fair value $325.7
 $1,451.2
 $—
 $1,776.9
 $—
 $1,420.0
 $—
 $1,420.0
                 
Accrued and other liabilities:                
Foreign currency forward contracts $—
 $0.1
 $—
 $0.1
 $—
 $—
 $—
 $—
Total accrued and other liabilities —
 0.1
 —
 0.1
 —
 —
 —
 —
Total liabilities measured at fair value $—
 $0.1
 $—
 $0.1
 $—
 $—
 $—
 $—

As of January 31, 2018, we did not have any assets required to be measured at fair value on a nonrecurring basis. As of July 31, 2017, we determined that certain property and equipment related to our prior corporate headquarters were impaired. In connection with our planned relocation to our new corporate headquarters, we assessed the recoverability of certain leasehold improvements and other long-lived assets associated with our previous headquarter facilities and determined that the carrying amount of these assets exceeded their fair value of $4.2 million. The resulting impairment loss of $20.9 million was recorded as general and administrative expense in our consolidated statements of operations during the fiscal year ended July 31, 2017. We calculated the fair value of the leasehold improvements and other long-lived assets based on estimated future discounted cash flows and classified the fair value as a Level 3 measurement due to the significance of unobservable inputs, which included the amount and timing of estimated sublease rental receipts that we could reasonably obtain over the remaining lease term and the discount rate. We did not have any liabilities required to be measured at fair value on a nonrecurring basis as of January 31, 2018 and July 31, 2017.
October 31, 2023July 31, 2023
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Long-term investments:
Corporate debt securities— 2,367.0 — 2,367.0 — 2,484.3 — 2,484.3 
U.S. government and agency securities— 71.2 — 71.2 — 22.0 — 22.0 
Non-U.S. government and agency securities— 27.9 — 27.9 — 36.6 — 36.6 
Asset-backed securities— 522.8 — 522.8 — 505.0 — 505.0 
Total long-term investments— 2,988.9 — 2,988.9 — 3,047.9 — 3,047.9 
Prepaid expenses and other current assets:
Foreign currency forward contracts— 5.6 — 5.6 — 19.1 — 19.1 
Total prepaid expenses and other current assets— 5.6 — 5.6 — 19.1 — 19.1 
Other assets:
Foreign currency forward contracts— — — — — 1.7 — 1.7 
Total other assets— — — — — 1.7 — 1.7 
Total assets measured at fair value$1,595.3 $4,727.4 $— $6,322.7 $476.1 $4,474.8 $— $4,950.9 
Accrued and other liabilities:
Foreign currency forward contracts$— $44.6 $— $44.6 $— $18.7 $— $18.7 
Total accrued and other liabilities— 44.6 — 44.6 — 18.7 — 18.7 
Other long-term liabilities:
Foreign currency forward contracts— — — — — 1.6 — 1.6 
Total other long-term liabilities— — — — — 1.6 — 1.6 
Total liabilities measured at fair value$— $44.6 $— $44.6 $— $20.3 $— $20.3 
Refer to Note 5. Convertible Senior Notes8. Debt for the carrying amount and estimated fair value of our convertible senior notes as of JanuaryOctober 31, 20182023 and July 31, 2017.2023.
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4. Cash Equivalents and Investments
Available-for-sale Debt Securities
The following tables summarize the amortized cost, unrealized gains and losses, and fair value of our available-for-sale debt securities as of JanuaryOctober 31, 20182023 and July 31, 20172023 (in millions):
October 31, 2023
Amortized Cost Unrealized GainsUnrealized LossesFair Value
Cash equivalents:
Commercial paper$297.0 $— $— $297.0 
Corporate debt securities8.6 — — 8.6 
U.S. government and agency securities24.9 — — 24.9 
Total available-for-sale cash equivalents$330.5 $— $— $330.5 
Investments:
Certificates of deposit$34.0 $— $— $34.0 
Commercial paper136.9 — (0.1)136.8 
Corporate debt securities3,453.7 0.1 (48.6)3,405.2 
U.S. government and agency securities219.9 0.1 (0.8)219.2 
Non-U.S. government and agency securities62.4 — (0.8)61.6 
Asset-backed securities539.1 0.1 (4.7)534.5 
Total available-for-sale investments$4,446.0 $0.3 $(55.0)$4,391.3 
January 31, 2018July 31, 2023
Amortized Cost  Unrealized Gains Unrealized Losses Estimated Fair ValueAmortized Cost Unrealized GainsUnrealized LossesFair Value
Cash equivalents:       Cash equivalents:
Money market funds$325.7
 $—
 $—
 $325.7
U.S. government and agency securities3.5
 —
 —
 3.5
Total cash equivalents$329.2
 $—
 $—
 $329.2
       
Commercial paperCommercial paper$151.4 $— $— $151.4 
Total available-for-sale cash equivalentsTotal available-for-sale cash equivalents$151.4 $— $— $151.4 
Investments:       Investments:
Certificates of deposit$5.4
 $—
 $—
 $5.4
Certificates of deposit$48.1 $— $— $48.1 
Commercial paperCommercial paper214.1 — (0.3)213.8 
Corporate debt securities352.1
 0.1
 (2.1) 350.1
Corporate debt securities3,313.5 1.3 (32.5)3,282.3 
U.S. government and agency securities1,095.4
 —
 (7.9) 1,087.5
U.S. government and agency securities214.2 — (1.6)212.6 
Total investments$1,452.9
 $0.1
 $(10.0) $1,443.0
Non-U.S. government and agency securitiesNon-U.S. government and agency securities37.2 — (0.6)36.6 
Asset-backed securitiesAsset-backed securities512.0 0.2 (3.0)509.2 
Total available-for-sale investmentsTotal available-for-sale investments$4,339.1 $1.5 $(38.0)$4,302.6 
As of October 31, 2023, the gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months were $40.4 million, which were related to $3.3 billion of available-for-sale debt securities, and the gross unrealized losses that have been in a continuous unrealized loss position for more than 12 months were $14.6 million, which were related to $922.5 million of available-for-sale debt securities. As of July 31, 2023 the gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months were $30.7 million, which were related to $3.4 billion of available-for-sale debt securities, and the gross unrealized losses that have been in a continuous unrealized loss position for more than 12 months were $7.3 million, which were related to $481.8 million of available-for-sale debt securities.
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 July 31, 2017
 Amortized Cost  Unrealized Gains Unrealized Losses Estimated Fair Value
Investments:       
Certificates of deposit$5.4
 $—
 $—
 $5.4
Corporate debt securities346.1
 0.3
 (0.5) 345.9
U.S. government and agency securities1,071.2
 0.1
 (2.6) 1,068.7
Total investments$1,422.7
 $0.4
 $(3.1) $1,420.0
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Unrealized losses related to theseour available-for-sale debt securities are primarily due to interest rate fluctuations as opposed to credit quality. In addition, weWe do not intend to sell any of the securities in an unrealized loss position and it is not likely that we would be required to sell these securities before recovery of their amortized cost basis, which may be at maturity. As a result, there were no other-than-temporary impairments for theseWe did not recognize any credit losses related to our available-for-sale debt securities at Januaryduring the three months ended October 31, 20182023 and July 31, 2017.2022.
The following table summarizes the amortized cost and fair value of our available-for-sale debt securities as of JanuaryOctober 31, 2018,2023, by contractual years-to-maturity (in millions):
Amortized CostFair Value
Due within one year$1,742.4 $1,732.9 
Due between one and three years2,173.8 2,145.2 
Due between three and five years743.4 728.1 
Due between five and ten years61.3 60.8 
Due after ten years55.6 54.8 
Total$4,776.5 $4,721.8 
Marketable Equity Securities
Marketable equity securities consist of money market funds and are included in cash and cash equivalents on our condensed consolidated balance sheets. As of October 31, 2023 and July 31, 2023, the carrying values of our marketable equity securities were $1.6 billion and $476.1 million, respectively. There were no unrealized gains or losses recognized for these securities during the three months ended October 31, 2023 and 2022.
5. Financing Receivables
 Amortized Cost Fair Value
Due within one year$1,052.1
 $1,049.9
Due between one and three years730.0
 722.3
Total$1,782.1
 $1,772.2
The following table summarizes our short-term and long-term financing receivables as of October 31, 2023 and July 31, 2023 (in millions):

October 31, 2023July 31, 2023
Short-term financing receivables, gross$499.8 $435.1 
Unearned income(49.3)(42.9)
Allowance for credit losses(4.6)(3.4)
Short-term financing receivables, net$445.9 $388.8 
Long-term financing receivables, gross$689.8 $698.6 
Unearned income(42.0)(39.2)
Allowance for credit losses(8.0)(6.1)
Long-term financing receivables, net$639.8 $653.3 
4.Our financing receivables portfolio primarily consisted of high-quality investment-grade receivables as of October 31, 2023 and July 31, 2023. There was no significant activity in allowance for credit losses during the three months ended October 31, 2023 and 2022. Past due amounts on financing receivables were not material as of October 31, 2023 and July 31, 2023.
6. Derivative Instruments
As a global business, weWe are exposed to foreign currency exchange rate risk. Substantially all of ourOur revenue is transacted in U.S. dollars, however, a portion of our operating expenditures are incurred outside of the United States and are denominated in foreign currencies, making them subject to fluctuations in foreign currency exchange rates. We enter into foreign currency derivative contracts with maturities of 1324 months or less, which we designate as cash flow hedges, to manage the foreign currency exchange rate risk associated with theseour operating expenditures.
These derivative contracts expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the arrangement. We mitigate this credit risk by transacting with major financial institutions with high credit ratings and also enter into master netting arrangements, which permit net settlement of transactions with the same counterparty. We are not required to pledge, and are not entitled to receive, cash collateral related to these derivative instruments. We do not enter into derivative contracts for trading or speculative purposes.
Our derivative financial instruments are recorded at fair value, on a gross basis, as either assets or liabilities in our condensed consolidated balance sheets. Gains or losses related to our cash flow hedges are recorded as a component of accumulated other comprehensive income (loss) (“AOCI”) in our condensed consolidated balance sheets and are reclassified into the financial statement line item associated with the underlying hedged transaction in our condensed consolidated statements of operations when the underlying hedged transaction is recognized in earnings. If it becomes probable that the hedged transaction will not occur, the cumulative unrealized gain or loss is reclassified immediately from AOCI into the financial statement line item associated with the underlying hedged transaction in our condensed consolidated statements of operations. Gains or losses related to non-designated derivative instruments are recognized in other income (expense), net in our condensed consolidated statements of operations for each period until the instrument matures, is terminated, is re-designated as a qualified cash flow hedge, or is sold. Derivatives designated as cash flow hedges are classified in our condensed consolidated statements of cash flows in the same manner as the underlying hedged transaction, primarily within cash flows from operating activities.
As of JanuaryOctober 31, 2018,2023 and July 31, 2023, the total notional amount of our outstanding foreign currency forward contracts was $149.4 million. We did not have any forward contracts outstanding as of July 31, 2017.$777.9 million and $957.5 million, respectively. Refer to Note 2.3. Fair Value Measurements for the fair value of our derivative instruments as reported inon our condensed consolidated balance sheets as of JanuaryOctober 31, 2018.2023 and July 31, 2023.
During the three and six months ended JanuaryAs of October 31, 2018 and 2017, both2023, unrealized gains (losses)and losses in accumulated other comprehensive income (“AOCI”) related to our cash flow hedges were a $31.0 million net loss, of which $29.0 million in losses are expected to be recognized into earnings within the next 12 months. As of July 31, 2023, unrealized gains and losses in AOCI related to our cash flow hedges and amounts reclassified into earnings were not material. Total unrealized gains (losses) in AOCI related toa $0.7 million net gain.
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7. Intangible Assets
Purchased Intangible Assets
The following table presents details of our cash flow hedgespurchased intangible assets as of JanuaryOctober 31, 20182023 and 2017 were not material.July 31, 2023 (in millions):
October 31, 2023July 31, 2023
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Intangible assets subject to amortization:
Developed technology$633.2 $(448.5)$184.7 $633.2 $(429.4)$203.8 
Customer relationships172.7 (79.3)93.4 172.7 (73.9)98.8 
Acquired intellectual property14.6 (6.5)8.1 14.6 (6.2)8.4 
Trade name and trademarks9.4 (9.4)— 9.4 (9.4)— 
Other0.9 (0.5)0.4 0.9 (0.4)0.5 
Total intangible assets subject to amortization830.8 (544.2)286.6 830.8 (519.3)311.5 
Intangible assets not subject to amortization:
In-process research and development3.9 — 3.9 3.9— 3.9 
Total purchased intangible assets$834.7 $(544.2)$290.5 $834.7 $(519.3)$315.4 
5. Convertible Senior NotesWe recognized amortization expense of $24.9 million and $29.1 million for the three months ended October 31, 2023 and 2022, respectively.
The following table summarizes estimated future amortization expense of our intangible assets subject to amortization as of October 31, 2023 (in millions):
Fiscal years ending July 31,
Total Remaining 202420252026202720282029 and Thereafter
Future amortization expense$286.6 $73.0 $84.2 $62.4 $35.3 $13.7 $18.0 
8. Debt
Convertible Senior Notes
On June 30, 2014,In July 2018, we issued $575.0 million$1.7 billion aggregate principal amount of 0.0%0.75% Convertible Senior Notes due 20192023 (the “2023 Notes”) and in June 2020, we issued $2.0 billion aggregate principal amount of 0.375% Convertible Senior Notes due 2025 (the “2025 Notes,” and together with the 2023 Notes, the “Notes”). The 2023 Notes maturewere converted prior to or settled on the maturity date of July 1, 2019 unless converted or repurchased2023 in accordance with their terms prior to such date.terms. The 2025 Notes dobear interest at a fixed rate of 0.375% per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020. The 2025 Notes are governed by an indenture between us, as the issuer, and U.S. Bank National Association, as Trustee (the “Indenture”). The 2025 Notes are unsecured, unsubordinated obligations and the Indenture governing the 2025 Notes does not contain any financial covenants and we cannotor restrictions on the payments of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by us or any of our subsidiaries. The 2025 Notes mature on June 1, 2025. We may redeem for cash all or any portion of the 2025 Notes, at our option, on or after June 5, 2023 and prior to maturity.the 31st scheduled trading day immediately preceding the maturity date if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending on and including the trading day preceding the date on which we provide notice of redemption. The redemption will be at a price equal to 100% of the principal amount of the 2025 Notes and adjusted for interest. If we call any or all of the 2025 Notes for redemption, holders may convert such 2025 Notes called for redemption at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date.
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The 2025 Notes are convertible for up to 5.2an initial 20.1 million shares of our common stock at a conversion rate of approximately 10.0806 shares of common stock per $1,000 principal amount, which is equal to an initial conversion price of approximately $110.28$99.20 per share of common stock, subject to adjustment.adjustments. Holders of the 2025 Notes may surrender their 2025 Notes for conversion at their option at any time prior to the close of business on the business day immediately preceding JanuaryMarch 1, 2019,2025 only under the following circumstances:
•during any fiscal quarter commencing after the fiscal quarterquarters ending on October 31, 20142020 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the 2025 Notes on each applicable trading day (the “sale price condition”);
•during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the 2025 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the 2025 Notes on each such trading day; or
•upon the occurrence of specified corporate events.
On or after JanuaryMarch 1, 2019,2025, holders may convertsurrender all or any portion of their 2025 Notes for conversion at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions.conditions, and such conversions will be settled upon the maturity date. Upon conversion, holders of the 2025 Notes will receive cash equal to the aggregate principal amount of the 2025 Notes to be converted, and, at our election, cash and/or shares of our common stock for any amounts in excess of the aggregate principal amount of the 2025 Notes being converted. As of January 31, 2018, all
The conversion price will be subject to adjustment in some events. Holders of the 2025 Notes remained outstanding.who convert their 2025 Notes in connection with certain corporate events that constitute a “make-whole fundamental change” under the Indenture are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, upon the occurrence of a corporate event that constitutes a “fundamental change” under the Indenture, holders of the 2025 Notes may require us to repurchase for cash all or a portion of the 2025 Notes at a repurchase price equal to 100% of the principal amount of the 2025 Notes plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Holders of the 2025 Notes were able to early convert their 2025 Notes during the fiscal quarter ended October 31, 2023 as the sales price condition had been met during the fiscal quarter ended July 31, 2023. During the three months ended October 31, 2023, holders of the 2025 Notes converted $46.0 million in aggregate principal amount of the 2025 Notes, which we repaid in cash. We also issued 0.3 million shares of our common stock to the holders of the 2025 Notes for the conversion value in excess of the principal amount. These shares were fully offset by shares we received from the corresponding exercise of the associated note hedges.
The sale price condition for the 2025 Notes was met during the fiscal quarter ended JanuaryOctober 31, 2018,2023 and as a result, holders may convert their 2025 Notes at any time during the fiscal quarter ending April 30, 2018. Accordingly, theJanuary 31, 2024. The net carrying amount of the Notes was reclassified into current liabilities and the portion of the equity component representing the conversion option was reclassified into temporary equity in our condensed consolidated balance sheets as of January 31, 2018. The portion of the equity component classified as temporary equity is measured as the difference between the principal and net carrying amount of the Notes, excluding debt issuance costs. The sale price condition was not met during the fiscal quarter ended July 31, 2017. Since the Notes were not convertible, the net carrying amount of the2025 Notes was classified as a long-termcurrent liability and the equity component was included in additional paid-in capital inon our condensed consolidated balance sheetssheet as of JulyOctober 31, 2017.2023.
The following table sets forth the componentsnet carrying amount of theour 2025 Notes as of January 31, 2018 and July 31, 2017 (in millions):
 January 31, 2018 July 31, 2017
Liability:   
Principal$575.0
 $575.0
Less: debt discount and debt issuance costs, net of amortization37.6
 50.3
Net carrying amount$537.4
 $524.7
    
Equity (including temporary equity)$109.8
 $109.8
October 31, 2023July 31, 2023
Principal$1,953.3 $1,999.3 
Less: debt issuance costs, net of amortization(6.6)(7.8)
Net carrying amount$1,946.7 $1,991.5 
The total estimated fair value of the 2025 Notes was $839.6 million$4.8 billion as of October 31, 2023 and $747.5 million at January 31, 2018 and$5.0 billion as of July 31, 2017,2023, respectively. The fair value was determined based on the closing trading price per $100 of the 2025 Notes as of the last day of trading for the period. We consider the fair value of the 2025 Notes at Januaryas of October 31, 20182023 and July 31, 20172023 to be a Level 2 measurement. The fair value of the 2025 Notes is primarily affected by the trading price of our common stock and market interest rates. As
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Table of January 31, 2018, the if-converted value of the Notes exceeded its principal amount by $218.2 million.Contents
The following table sets forth interest expense recognized related to the Notes (dollars in millions):
 Three Months Ended Six Months Ended
 January 31, January 31,
 2018 2017 2018 2017
Amortization of debt discount$5.8
 $5.5
 $11.4
 $10.9
Amortization of debt issuance costs0.6
 0.6
 1.3
 1.2
Total interest expense recognized$6.4
 $6.1
 $12.7
 $12.1
        
Effective interest rate of the liability component4.8% 4.8% 4.8% 4.8%
Three Months Ended October 31,
20232022
2023 Notes2025 NotesTotal2023 Notes2025 NotesTotal
Contractual interest expense$— $1.9 $1.9 $3.2 $1.8 $5.0 
Amortization of debt issuance costs— 1.0 1.0 0.7 1.1 1.8 
Total interest expense$— $2.9 $2.9 $3.9 $2.9 $6.8 
Effective interest rate— %0.6 %0.9 %0.6 %
Note Hedges
To minimize the impact of potential economic dilution upon conversion of the Notes,our convertible senior notes, we entered into separate convertible note hedge transactions (the “2023 Note Hedges,” with respect to the 2023 Notes, the “2025 Note Hedges,” with respect to the 2025 Notes, and the 2023 Note Hedges together with 2025 Note Hedges, the “Note Hedges”) with respect to our common stock concurrent with the issuance of each series of the Notes.
Upon the settlement of the 2023 Notes, we exercised the corresponding portion of our 2023 Note Hedges during the year ended July 31, 2023 and received shares of our common stock that fully offset the shares issued in excess of the principal amount of the converted 2023 Notes. The 2023 Note Hedges expired upon maturity of the 2023 Notes.
The 2025 Note Hedges cover up to 5.220.1 million shares of our common stock at a strike price per share that corresponds to the initial conversion price of the 2025 Notes, which are also subject to adjustment, and are exercisable upon conversion of the 2025 Notes. The 2025 Note Hedges will expire upon maturity of the 2025 Notes. The 2025 Note Hedges are separate transactions and are not part of the terms of the 2025 Notes. Holders of the 2025 Notes will not have any rights with respect to the 2025 Note Hedges. TheAny shares of our common stock receivable related toby us under the 2025 Note Hedges are excluded from the calculation of diluted earnings per share as they are antidilutive. We paid an aggregate amount of $370.8 million for the 2025 Note Hedges, which is included in additional paid-in capital on our condensed consolidated balance sheets.
As a result of the conversions of the 2025 Notes settled during the three months ended October 31, 2023, we exercised the corresponding portion of our 2025 Note Hedges and received 0.3 million shares of our common stock during the period.
Warrants
Separately, but concurrently with ourthe issuance of the Notes,each series of our convertible senior notes, we entered into transactions whereby we sold warrants (the “2023 Warrants,” with respect to the 2023 Notes, the “2025 Warrants,” with respect to the 2025 Notes, and the 2023 Warrants together with the 2025 Warrants, the “Warrants”) to acquire up to 5.2 million shares of our common stock, at a strike pricesubject to anti-dilution adjustments. The 2023 Warrants and 2025 Warrants are exercisable over 60 scheduled trading days beginning October 2023 and September 2025, respectively.
The following table presents details of approximately $137.85our Warrants (in millions, except per share subject to adjustments. data):
Initial Number of SharesStrike Price per ShareAggregate Proceeds
2023 Warrants19.1 $139.27 $145.4 
2025 Warrants20.1 $136.16 $202.8 
The shares issuable under the Warrants will beare included in the calculation of diluted earnings per share when the average market value per share of our common stock for the reporting period exceeds the applicable strike price for such series of the Warrants. The Warrants are separate transactions and are not part of theeither series of Notes or Note Hedges and are not remeasured through earnings each reporting period. Holders of the Notes and Note Hedgesof either series will not have any rights with respect to the Warrants.
For more information on The aggregate proceeds received from the Notes, the Note Hedges, andsale of the Warrants refer to Note 8. Convertible Senior Notesare included in Part II, Item 8 ofadditional paid-in capital on our Annual Report on Form 10-K for the fiscal year ended July 31, 2017.condensed consolidated balance sheets.

6. Commitments and Contingencies
Leases
We lease our facilities under various non-cancelable operating leases, which expire through the year ending July 31, 2028.
In May 2015 and October 2015, we entered into a total of three lease agreements for approximately 941,000 square feet of corporate office space in Santa Clara, California, which serves as our new corporate headquarters. The leases contain rent holiday periods, scheduled rent increases, lease incentives, and renewal options which allow the lease terms to be extended beyond their expiration dates of July 2028 through July 2046. In September 2017, per the terms of the lease agreements, the landlords exercised their option to amend our lease payment schedules and eliminate our rent holiday periods, which increased our rental payments by $24.4 million, $11.8 million, and $2.0 million for fiscal 2018, 2019, and 2020, respectively. In exchange, we received an upfront cash reimbursement of $38.2 million duringDuring the three months ended October 31, 2017, which2023, we will apply againstnet settled a portion of the future additional rental payments when due.2023 Warrants with 3.1 million shares of our common stock with a fair value of $763.5 million. The number of net shares issued was determined based on the number of 2023 Warrants exercised multiplied by the difference between the strike price of the 2023 Warrants and their daily volume-weighted-average stock price. As amended, rental paymentsof October 31, 2023, up to 12.1 million shares of our common stock were issuable for gross settlement under the three lease agreements are approximately $412.0 million over the lease terms.
In May 2015, we also entered into a lease agreement for approximately 122,000 square feet of space in Santa Clara, California, to serve as an extension of our previous corporate headquarters. The lease contains scheduled rent increases, lease incentives, and renewal optionsremaining outstanding 2023 Warrants, which allow the lease term to be extended beyond the expiration date of April 2021 through July 2046. Rental payments under the lease agreement are approximately $23.1 million over the lease term. In December 2017, we entered into an agreement to sublease this office space for the remaining lease term. Proceeds from this sublease will be approximately $16.3 million over the sublease term.
In September 2012, we entered into two lease agreements for a total of approximately 300,000 square feet of space in Santa Clara, California, which served as our previous corporate headquarters through August 2017,net settled when we relocated to our new corporate campus. The leases contain rent holiday periods and two separate five-year options to extend the lease terms beyond their expiration dates of July 2023. Rental payments under these lease agreements are approximately $94.3 million over the lease term. In August 2017, we exited our previous headquarter facilities and relocated to our new corporate campus, which resulted in the recognition of a cease-use loss of $15.4 million as general administrative expense in our condensed consolidated statements of operations during the three months ended October 31, 2017, and a corresponding liability in our condensed consolidated balance sheets. The cease-use loss of $15.4 million was calculated as the present value of the excess of the remaining lease obligation for the vacated facilities, adjusted for the effects of any deferred items recognized under the leases and related costs, over the estimated sublease rentals that could be reasonably obtained. The amount of the cease-use loss may vary if the timing or amount of estimated cash flows change. During the three and six months ended January 31, 2018, we released $2.7 million and $4.6 million, respectively, of the cease-use liability through rental payments. As of January 31, 2018, the remaining balance of the cease-use liability was $10.8 million, which is expected to be paidexercised through the end of the lease term in JulyDecember 2023.
The following table presents details
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Revolving Credit Facility
On April 13, 2023, we entered into a credit agreement (the “Credit Agreement”) with certain institutional lenders that provides for a $400.0 million unsecured revolving credit facility (the “Credit Facility”), with an option to increase the amount of the aggregate future non-cancelable minimum rental paymentsCredit Facility by up to an additional $350.0 million, subject to certain conditions. The Credit Facility matures on April 13, 2028.
The borrowings under the Credit Facility bear interest, at our operating leases asoption, at a base rate plus a spread of January0.000% to 0.375%, or an adjusted term Secured Overnight Financing Rate (“SOFR”) plus a spread of 1.000% to 1.375%, in each case with such spread being determined based on our leverage ratio. We are obligated to pay an ongoing commitment fee on undrawn amounts at a rate of 0.090% to 0.150%, depending on our leverage ratio. 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, 2018 (in millions):2023, there were no amounts outstanding and we were in compliance with all covenants under the Credit Agreement.
 Amount
Fiscal years ending July 31: 
Remaining 2018$32.1
201965.8
202066.1
202160.2
202256.8
2023 and thereafter267.9
Committed gross lease payments548.9
Less: proceeds from sublease rentals15.4
Net operating lease obligation$533.5
9. Commitments and Contingencies
Purchase Commitments
Manufacturing Purchase Commitments
Our electronics manufacturing service provider (“EMS provider”) procures components and assembles our products based on our forecasts. These forecasts are based on estimates of demand for our products primarily for the next 12 months, which are in turn based on historical trends and an analysis from our sales and product management organizations, adjusted for overall market conditions. In order to reduce manufacturing lead times and plan for adequate supply, we may issue non-cancelable orders for products

and components to ourenter into agreements with manufacturing partners and component suppliers to procure inventory based on our demand forecasts. The following table presents details of the aggregate future minimum or component suppliers. As of January 31, 2018, ourfixed purchase commitments under such orders were $121.5 million,these arrangements, excluding obligations under contracts that we can cancel withoutas of October 31, 2023 (in millions):
Fiscal years ending July 31,
Total Remaining 202420252026202720282029 and Thereafter
Manufacturing purchase commitments$188.2 $113.2 $35.0 $40.0 $— $— $— 
Other Purchase Commitments
We have entered into various non-cancelable agreements with certain service providers, under which we are committed to minimum or fixed purchases. The following table presents details of the aggregate future non-cancelable purchase commitments under these agreements as of October 31, 2023 (in millions):
Fiscal years ending July 31,
Total Remaining 202420252026202720282029 and Thereafter
Other purchase commitments$1,383.3 $11.3 $387.4 $499.4 $483.8 $0.6 $0.8 
Additionally, we have a significant penalty. $153.3 million minimum purchase commitment with a service provider through September 2027 with no specified annual commitments.
Guarantee
In October 2023, we established a multi-currency notional cash pool for a certain number of our entities with a third-party bank. As part of the notional cash pool agreement, the bank extends overdraft credit to our participating entities as needed, provided that the overall notionally pooled balance of all accounts in the pool at the end of each day is positive. In the unlikely event of a default, any overdraft balances incurred would be guaranteed by our collective entities participating in the pool.
Litigation
We are subject to legal proceedings, claims, tax matters, and litigation arising in the ordinary course of business, including, for instance, intellectual property litigation. Such matters are subject to many uncertainties and outcomes are not predictable with assurance.patent litigation. We accrue for contingencies when we believe that a loss is probable and that we can reasonably estimate the amount of any such loss. As of October 31, 2023, we have not recorded any significant accruals for loss contingencies associated with such matters.
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Table of Contents
Legal matters could include speculative, substantial or indeterminate monetary amounts. Significant judgment is required to determine both the likelihood of there being a loss and the estimated amount of a loss related to such matters, and we may be unable to estimate the reasonably possible loss or range of loss. The outcomes of outstanding legal matters are inherently unpredictable, and could, either individually or in aggregate, have a material adverse effect on us and our results of operations. To the extent there is a reasonable possibility that a loss exceeding any amounts already recognized may be incurred, and the amount of such additional loss would be material, we will either disclose the estimated additional loss or state that such an estimate cannot be made. As
The following matters arose in the ordinary course of business.
Centripetal Networks, Inc. v. Palo Alto Networks
On March 12, 2021, Centripetal Networks, Inc., filed a lawsuit against us in the United States District Court for the Eastern District of Virginia (“E.D.VA”). The lawsuit alleges that our products infringe multiple Centripetal patents. We successfully challenged certain of these patents, which were found unpatentable by the U.S. Patent and Trademark Office. The complaint requests injunctive relief, monetary damages, and attorneys fees. The US District Court E.D.VA has set a trial date of January 31, 2018,22, 2024 on the remaining patents. In addition, Centripetal filed infringement contentions on certain of their patents in the European Patent Office in Germany, to which we have not recorded any significant accruals forfiled invalidity challenges. Those matters are still pending. We are unable, at this time, to reasonably estimate a possible loss contingencies associated with such legal proceedings, determined that an unfavorable outcome is probable or reasonably possible, or determined that the amount orpotential range of anyloss, if any.
Finjan, Inc. v. Palo Alto Networks
On November 4, 2014, Finjan, Inc., filed a lawsuit against us in the United States District Court for the Northern District of California. The lawsuit alleges that our products infringe multiple Finjan patents. The complaint requests injunctive relief, monetary damages, and attorneys fees. The court has moved the trial date from April 8, 2024 to October 21, 2024. We are unable, at this time, to reasonably estimate a possible loss or potential range of loss, if any.
Taasera v. Palo Alto Networks
On March 22, 2022, we filed a declaratory judgment action in the United States District Court for the Southern District of New York (“S.D.N.Y”) seeking a ruling that we are not infringing various Taasera patents. Taasera challenged jurisdiction in S.D.N.Y, which issue is currently on appeal with the Federal Circuit. Pursuant to an order of the Judicial Panel on Multidistrict Litigation, this matter has been consolidated in the United States District Court for the Eastern District of Texas with several other patent infringement matters brought by Taasera. The court moved the start date to April 15, 2024, as the start of consecutive trials of these consolidated matters. The complaint requests injunctive relief, monetary damages, and attorneys fees. We are unable, at this time, to reasonably estimable.estimate a possible loss or potential range of loss, if any.
7.10. Stockholders’ Equity
Share Repurchase Program
In August 2016,February 2019, our board of directors authorized a $500.0 million$1.0 billion share repurchase thatprogram, which is funded from available working capital. In February 2017,December 2020, August 2021, and August 2022, our board of directors authorized a $500.0additional $700.0 million, increase$676.1 million, and $915.0 million increases to ourthis share repurchase program, respectively, bringing the total authorization under this share repurchase program to $1.0 billion.$3.3 billion (our “current authorization”). The expiration date of our current authorization was extended to December 31, 2023, and our repurchase program may be suspended or discontinued at any time. Repurchases may be made at management’s discretion from time to time on the open market, through privately negotiated transactions, transactions structured through investment banking institutions, block purchase techniques, 10b5-1 trading plans, or a combination of the foregoing. The repurchase authorization will expire on December 31, 2018, and may be suspended or discontinued at any time.
During the three and six months ended JanuaryOctober 31, 2018,2023, we repurchased and retired 0.90.3 million and 1.7 million shares respectively, of our common stock under theour current repurchase authorization for an aggregate purchase price of $125.0$66.7 million, and $250.0 million, respectively, including transaction costs.costs, at an average price of $226.67. During the three months ended October 31, 2022, we did not repurchase shares of our common stock, and paid $22.7 million related to share repurchases of our common stock that were not settled as of July 31, 2022.
As of October 31, 2023, $683.3 million remained available for future share repurchases under our current repurchase authorization. The total price of the shares repurchased and related transaction costs are reflected as a reduction to common stock and additional paid-in capital on our condensed consolidated balance sheets. As
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Table of January 31, 2018, $330.0 million remained available for future share repurchases under the repurchase authorization.Contents
8. 11. Equity Award Plans
2012 Employee Stock Purchase Plan
Our 2012 Employee Stock Purchase Plan was adopted by our board of directors and approved by the stockholders on June 5, 2012, and was effective upon completion of our initial public offering (“IPO”). On August 29, 2017, we amended and restated our 2012 Employee Stock Purchase Plan (our “2012 ESPP”) to extend the length of our offering periods from six to 24 months. Under our 2012 ESPP, each 24-month offering period consists of four consecutive six-month purchase periods, with purchase dates on the first trading day on or after February 28 and August 31 of each year. Our 2012 ESPP permits eligible employees to acquire shares of our common stock at 85% of the lower of the fair market value of our common stock on the first trading day of each offering period or on the purchase date. If the fair market value of our common stock on the purchase date is lower than the first trading day of the offering period, the current offering period will be cancelled after purchase and a new 24-month offering period will begin. Participants may purchase shares of common stock through payroll deductions of up to 15% of their eligible compensation, subject to purchase limits of 625 shares per six-month purchase period and $25,000 worth of stock for each calendar year. 

Stock Option Activities
The following table summarizes the stock option activity under our stock plans during the reporting period (in millions, except per share amounts):
 Options Outstanding 
 Number of Shares Weighted-Average Exercise Price Per Share  
Weighted-Average Remaining Contractual Term
(Years)
 Aggregate Intrinsic Value
Balance—July 31, 20171.6
 $13.11
 4.2 $190.6
Options granted—
 $—
    
Options forfeited—
 $—
    
Options exercised(0.2) $11.11
    
Balance—January 31, 20181.4
 $13.41
 3.8 $201.5
Options exercisable—January 31, 20181.4
 $13.41
 3.8 $201.5
Restricted Stock Award (“RSA”), Performance-Based Stock Award (“PSA”), Restricted Stock Unit (“RSU”), and Performance-Based Stock Unit (“PSU”) Activities
Our PSAs and PSUs vest over a period of four years from the date of grant. The actual number of PSAs and PSUs earned and eligible to vest are determined based on level of achievement against a pre-established billings target for the fiscal year in which the awards are granted. We recognize share-based compensation expense for our PSAs and PSUs on a straight-line basis over the requisite service period for each separately vesting portion of the award when it is probable that the performance condition will be achieved.
The following table summarizes the RSA, PSA, RSU and PSU activity under our stock plans during the reporting periodthree months ended October 31, 2023 (in millions, except per share amounts):
RSUs OutstandingPSUs Outstanding
Number of SharesWeighted-Average Grant-Date Fair Value Per ShareAggregate Intrinsic ValueNumber of SharesWeighted-Average Grant-Date Fair Value Per ShareAggregate Intrinsic Value
Balance—July 31, 202312.1 $142.61 $3,013.0 5.0 $128.64 $1,242.3 
Granted(1)
0.5 $245.46 2.1 $183.03 
Vested(1.6)$123.43 (0.5)$145.93 
Forfeited(0.4)$143.47 (0.4)$133.97 
Balance—October 31, 202310.6 $150.58 $2,574.9 6.2 $145.51 $1,516.4 
(1)For PSUs, shares granted represent the aggregate maximum number of shares that may be earned and issued with respect to these awards over their full terms.
Our RSUs generally vest over a period of three to four years from the date of grant. Until vested, RSUs do not have the voting and dividend participation rights of common stock and the shares underlying the awards are not considered issued and outstanding.
Our PSUs generally vest over a period of one to four years from the date of grant. The number of PSUs eligible to vest is determined based on the level of achievement against certain performance conditions, market conditions, and a combination thereof.
During the three months ended October 31, 2023 and 2022, we granted 2.0 million and 1.6 million shares of PSUs, respectively, which contain service, performance and market conditions. The service conditions are satisfied after a period of one to three years. The performance conditions are based on revenue growth or billing growth. The market condition is measured based on our total shareholder return (“TSR”) relative to the TSR of the companies listed in the Standard & Poor’s 500 index. As of October 31, 2023, we have approved 2.7 million shares of PSUs, which will be granted upon the performance condition being established during the next two fiscal years.
The fair value of the PSUs subject to market conditions is estimated on the grant date using a Monte Carlo simulation model. The following table summarizes the assumptions used and the resulting grant-date fair value of our PSUs subject to market conditions granted during the three months ended October 31, 2023 and 2022:
Three Months Ended October 31,
20232022
Volatility40.8% - 43.4%39.6% - 44.8%
Expected term (in years)0.9 - 2.91.0 - 4.0
Dividend yield0.0 %0.0 %
Risk-free interest rate4.9% - 5.3%3.2% - 3.6%
Grant-date fair value per share$346.92 - $394.63$105.60 - $280.41
Performance Stock Option (“PSO”) Activities
We have granted PSOs with both service and market conditions. The market conditions were achieved when certain stock price targets were met. As of October 31, 2023, all of our outstanding PSOs have been fully vested. The maximum contractual term of our outstanding PSOs is seven and a half years from the date of grant in fiscal year 2018 and 2019.
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 RSAs and PSAs Outstanding RSUs and PSUs Outstanding
 Number of Shares Weighted-Average Grant-Date Fair Value Per Share Number of Shares Weighted-Average Grant-Date Fair Value Per Share 
Weighted-Average Remaining Contractual Term
(Years)
 Aggregate Intrinsic Value
Balance—July 31, 20171.0
 $163.55
 6.5
 $141.16
 1.3 $854.1
Granted(1)
—
 $—
 2.4
 $146.94
    
Vested(0.2) $167.69
 (1.9) $136.33
    
Forfeited(0.2) $156.56
 (0.4) $142.34
    
Balance—January 31, 20180.6
 $164.01
 6.6
 $144.59
 1.5 $1,040.7
The following table summarizes the PSO activity under our stock plans during the three months ended October 31, 2023 (in millions, except per share amounts):
______________
(1)For PSAs and PSUs, shares granted represents the aggregate maximum number of shares that may be earned and issued with respect to these awards over their full terms.

Number of SharesWeighted-Average Exercise Price Per ShareWeighted-Average Remaining Contractual Term (Years)Aggregate Intrinsic Value
Balance—July 31, 20236.4 $65.20 2.2$1,184.6 
Exercised(0.1)$64.50 
Balance—October 31, 20236.3 $65.22 1.9$1,116.0 
Exercisable—October 31, 20236.3 $65.22 1.9$1,116.0 
Share-Based Compensation
The following table summarizes share-based compensation included in costs and expenses (in millions):
Three Months Ended October 31,
20232022
Cost of product revenue$2.4 $2.4 
Cost of subscription and support revenue30.6 28.8 
Research and development120.1 118.0 
Sales and marketing79.2 87.4 
General and administrative38.7 29.4 
Total share-based compensation$271.0 $266.0 
 Three Months Ended Six Months Ended
 January 31, January 31,
 2018 2017 2018 2017
Cost of product revenue$1.9
 $2.0
 $3.8
 $3.7
Cost of subscription and support revenue19.9
 15.0
 35.8
 27.3
Research and development35.5
 41.3
 73.0
 79.3
Sales and marketing53.3
 49.7
 104.5
 93.5
General and administrative20.2
 19.3
 39.4
 36.8
Total share-based compensation$130.8
 $127.3
 $256.5
 $240.6
As of JanuaryOctober 31, 2018,2023, total compensation cost related to unvested share-based awards not yet recognized was $976.2 million.$1.9 billion. This cost is expected to be amortized on a straight-line basis over a weighted-average period of approximately 2.7 years.
9.12. Income Taxes
OurFor the three months ended October 31, 2023 and 2022, our provision for income taxes reflected effective tax rates of 31.3% and 41.9%, respectively.
Our income taxes for the three and six months ended JanuaryOctober 31, 2018 reflects an2023 and 2022 were primarily due to U.S. federal and state income taxes, withholding taxes, and foreign income taxes. Our effective tax rate of (4.8)% and (11.0)%, respectively.decreased for the three months ended October 31, 2023 compared to the same period in 2022 primarily due to higher tax benefits from our share-based compensation. Our effective tax rates for these periods were negative as we recorded a provision for income taxes on year to date losses. The key components of our income tax provision primarily consist of foreign income taxes, withholding taxes, amortization of our deferred tax charges, and a one-time tax benefit during the three months ended January 31, 2018, resulting from new tax legislation enacted during the period. Our effective tax rate differsdiffered from the U.S. statutory tax rate primarily due to changes in non-deductible share-based compensation, foreign income at other than U.S. tax rates, and changes in our valuation allowance.
Our provisionWe maintain a full valuation allowance for income taxes for the threedomestic and six months ended January 31, 2017 reflects an effective tax rate of (4.8)% and (6.5)%, respectively. Our effective tax rates for these periods were negative as we recorded a provision for income taxes on year to date losses. The key components of our income tax provision primarily consisted of foreign income taxes, withholding taxes, and amortization of our deferred tax charges.
On December 22, 2017, the TCJA was enacted into law. The TCJA provides for significant tax law changes and modifications including, but not limited to, the reduction of the U.S. federal corporate statutory tax rate from 35% to 21% as of January 1, 2018, the requirement for companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and the creation of new taxes on certain foreign-sourced earnings. As a fiscal year-end taxpayer, certain provisions of the TCJA began to impact us during the three months ended January 31, 2018, while other provisions will impact us beginning in our fiscal year ending July 31, 2019.
As a result of the TCJA, we recorded a one-time provisional benefit of $6.2 million for the three months ended January 31, 2018, relating to alternative minimum tax credits that will be refundable if not utilized. We expect adjustments to our deferred tax assets, resulting from the TCJA to be offset by a corresponding adjustment to our valuation allowance.including net operating loss carryforwards and certain domestic tax credits. We have not recorded any amounts relating to the transition tax because we had no unremitted earnings as of the measurement date, based on our current estimate.
Accounting standards require companies to recognize the effect of tax law changes in the period of enactment. However, the SEC staff issued guidance which will allow companies to record provisional amounts during a measurement period not to extend beyond one year from the enactment date. In accordance with the guidance, we have determined the amounts recorded and positions taken, as discussed, are provisional as of January 31, 2018. The final impact of the TCJA recorded by us may differ from the provisional amounts due to a number of uncertainties and factors, including information not available until the close of our fiscal year ending July 31, 2018,regularly evaluate the need for further guidance and clarification of the new law by U.S. federal and state tax authorities, and the need for further guidance on the related income tax accounting.
In addition to the previously discussed impacts on our fiscal year ending January 31, 2018, the TCJA also establishes new tax laws that will be effective beginning with our fiscal year ending July 31, 2019, including a provision for low-taxed income of foreign subsidiaries.valuation allowance. Due to its complexity, we are continuing to evaluate this provisionrecent profitability, a reversal of our valuation allowance in certain jurisdictions in the TCJA. Based on recent FASB deliberations, we will be allowed to make an accounting policy election to either (i) treat taxes due onnear future U.S. inclusions in taxable income as a current-period expense when incurred or (ii) factor such amounts into our measurement of deferred taxes. Our selection of accounting policy will depend, in part, on analyzing our facts and circumstances to determine the expected impact under each method.is reasonably possible.

10.13. Net LossIncome Per Share
Basic net lossincome per share is computed by dividing net lossincome by basic weighted-average shares outstanding during the period. Diluted net lossincome per share is computed by dividing net lossincome by diluted weighted-average shares outstanding includingduring the period giving effect to all potentially dilutive securities.securities to the extent they are dilutive. Potentially dilutive securities include shares issuable upon conversion of our convertible senior notes using the if-converted method, warrants related to the issuance of convertible senior notes, and equity awards under our employee equity incentive plans using the treasury stock method.
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The following table presents the computation of basic and diluted net lossincome per share of common stock (in millions, except per share data):
 Three Months Ended Six Months Ended
 January 31, January 31,
 2018 2017 2018 2017
Net loss$(34.9) $(60.6) $(98.9) $(117.5)
Weighted-average shares used to compute net loss per share, basic and diluted91.1
 90.7
 91.0
 90.2
Net loss per share, basic and diluted$(0.38) $(0.67) $(1.09) $(1.30)
Three Months Ended October 31,
20232022
Net income$194.2 $20.0 
Weighted-average shares used to compute net income per share, basic310.1 299.8 
Weighted-average effect of potentially dilutive securities:
Convertible senior notes11.6 17.8 
Warrants related to the issuance of convertible senior notes16.0 7.8 
Employee equity incentive plans12.1 13.0 
Weighted-average shares used to compute net income per share, diluted349.8 338.4 
Net income per share, basic$0.63 $0.07 
Net income per share, diluted$0.56 $0.06 
The following securities were excluded from the computation of diluted net lossincome per share of common stock for the periods presented 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,
20232022
Employee equity incentive plans2.6 2.7 
14. Other Income, Net
The following table sets forth the components of other income, net (in millions):
Three Months Ended October 31,
20232022
Interest income$71.2 $29.4 
Foreign currency exchange gains (losses), net5.1 4.4 
Other, net(6.0)(7.8)
Total other income, net$70.3 $26.0 
15. Subsequent Events
Acquisitions
On October 29, 2023, we entered into a definitive agreement to acquire Dig Security Solutions Ltd., a privately-held cyber security company (“Dig”), for total consideration of approximately $295.0 million, including approximately $232.0 million in cash and approximately $63.0 million in replacement awards, subject to adjustment. We expect the acquisition will enhance our Prisma Cloud capabilities with a data security posture management solution that is intended to provide customers with visibility into, and secure data stored across, their multi-cloud environments.
On November 6, 2023, we entered into a definitive agreement to acquire Talon Cyber Security Ltd., a privately-held cyber security company (“Talon”), for total consideration of approximately $550.0 million, including approximately $434.9 million in cash and approximately $115.1 million in replacement awards, subject to adjustment. We expect the acquisition will support Prisma SASE’s approach to provide secure access to business applications for unmanaged and personal devices with an enterprise browser.
The proposed acquisitions of Dig and Talon are expected to close during our second quarter of fiscal 2024, subject to the satisfaction of customary closing conditions.
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 Three and Six Months Ended
 January 31,
 2018 2017
RSUs and PSUs6.6
 6.7
Convertible senior notes5.2
 5.2
Warrants related to the issuance of convertible senior notes5.2
 5.2
Options to purchase common stock1.4
 1.7
RSAs and PSAs0.6
 1.2
ESPP shares0.2
 0.1
Total19.2
 20.1
Share Repurchase

On November 16, 2023, our board of directors authorized a $316.7 million increase to our share repurchase program, bringing the total remaining authorization for future share repurchases to $1.0 billion. The expiration date of the repurchase authorization was extended to December 31, 2024, and our repurchase program may be suspended or discontinued at any time without prior notice. Repurchases may be made at management’s discretion from time to time on the open market, through privately negotiated transactions, transactions structured through investment banking institutions, block purchase techniques, 10b5-1 trading plans, or a combination of the foregoing.
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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. TheThis 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 Private Securities Litigation Reform Act of 1995.1933 and Section 21E of the Securities Exchange Act of 1934. These statements include, among other things:but are not limited to, statements concerning: our expectations regarding drivers of and factors affecting growth in our business; the performance advantages of our products and subscription and support offerings and the potential benefits to our customers; statements regarding expected profitability, trends in billings,billing, 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, including our ongoing assessment of the impact of the TCJA and any future adjustments, 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; our 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; our expectation that we will continue to expand our global presence; expectations regarding our revenues, including the seasonality and cyclicality of our revenues from quarter to quarter; our expectation that we will increase 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 our expectations and intentions with respect to the products and technologies that we acquire and introduce; expected impactthe timing and amount of capital expenditures and share repurchases; the adoptioneffects of worldwide economic and geopolitical conditions, including but not limited to recent hostilities in Israel, inflation, interest rate levels, growth rates and other conditions, on our operating and financial results and performance; the manufacture, delivery and cost of certain recent accounting pronouncements and the anticipated timing of adopting such standards; expected recurring revenues resulting from expected growth in our installed base and increased adoption of our products and cloud-based subscription services;products; the sufficiencyeffects of current or potential litigation or regulatory developments involving us or affecting our existing cash and investments to meet our cash needs for the foreseeable future; our plans to use the upfront cash reimbursement received from our landlords against future rental payments;industry; and other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements generally can be identified by words such as “anticipates,“anticipate,” “believes,“believe,” “continue,” “could,” “estimates,“estimate,” “expects,“expect,” “intends,“intend,” “may,” “plans,“plan,” “predicts,“potentially,” “projects,” “would,“will,” “will be,” “will continue,” “will likely result,” “would” and similar expressions.expressions that convey uncertainty of future events or outcomes. 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 reflected in theanticipated 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”). 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 generally accepted accounting principles (“GAAP”)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 and six months ended JanuaryOctober 31, 20182023 to the three and six months ended JanuaryOctober 31, 2017.
2022.
•Liquidity and Capital Resources. An analysis of changes inon our balance sheets and cash flows, and a discussion of our financial condition and our ability to meet cash needs.
Contractual Obligations and Commitments. An overview of our contractual obligations, contingent liabilities, commitments, and off-balance sheet arrangements outstanding as of January 31, 2018, including expected payment schedules.
•Critical Accounting Estimates.A discussion of our accounting policies that require critical estimates, assumptions, and judgments.
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Recent Accounting Pronouncements. A discussion
Table of expected impacts of impending accounting changes on financial information to be reported in the future.Contents
Overview
We have pioneered the next generation of security through our innovative platform that empowersempower enterprises, organizations, service providers, and government entities to protect themselves against today’s most sophisticated cyber threats. Our cybersecurity platforms and services help secure their organizationsenterprise users, networks, clouds, and endpoints by safely enablingdelivering comprehensive cybersecurity backed by industry-leading artificial intelligence and automation. We are a leading provider of zero trust solutions, starting with next-generation zero trust network access to secure today’s remote hybrid workforces and extending to securing all users, applications, running on their networks and by preventing breaches that stem from targeted cyberattacks.infrastructure with zero trust principles. Our platform uses an innovative traffic classification engine that identifies network traffic by application, user, and content and provides consistent security across the network, endpoint, and cloud. Accordingly, our platform enables our end-customerssolutions are designed to maintain the visibility and control needed to protect their valued data and critical control systems while pursuing technology initiatives, like cloud and mobility, that grow their business. We believe our platform offers superior performance compared to legacy approaches and reduces thereduce customers’ total cost of ownership for organizations by simplifying their security operations and infrastructureimproving operational efficiency and eliminating the need for multiple, stand-alonesiloed point products. Our company focuses on delivering value in four fundamental areas:
Network Security:
•Our network security appliancesplatform, designed to deliver complete zero trust solutions to our customers, includes our hardware and software products.

OurML-Powered Next-Generation Security Platform consists of three major elements: our Next-Generation Firewall, our Advanced Endpoint Protection, and our Threat Intelligence Cloud. Our Next-Generation Firewall comes in several physical and cloud-based software form-factors and delivers application, user, and content visibility and controlFirewalls, as well as protection against network-based cyberthreats integrated withina 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 enable the firewallcloud-delivered branch. We have been recognized as a leader in network firewalls, SASE, SSE, and SD-WAN. Our network security platform also includes our cloud-delivered security services, such as Advanced Threat Prevention, Advanced WildFire®, Advanced URL Filtering, DNS Security, IoT/OT Security, GlobalProtect®, Enterprise Data Loss Prevention (“Enterprise DLP”), Artificial Intelligence for Operations (“AIOps”), SaaS Security API, and SaaS Security Inline. Through these add-on security services, our customers are able to secure their content, applications, users, and devices across their entire organization. Panorama®, our network security management solution, can centrally manage our network security platform irrespective of form factor, location, or scale.
Cloud Security:
•We enable cloud-native security through our proprietary hardwarePrisma Cloud platform. As a comprehensive Cloud Native Application Protection Platform (“CNAPP”), Prisma Cloud secures multi- and hybrid-cloud environments for applications, data, and the entire cloud native technology stack across the full development lifecycle, from code to runtime. For inline network security on multi- and hybrid-cloud environments, we also offer our VM-Series and CN-Series Firewall offerings.
Security Operations:
•We deliver the next generation of security automation, security analytics, endpoint security, and attack surface management solutions through our Cortex portfolio. These include Cortex XSIAM, our AI-driven security automation platform, Cortex XDR® for the prevention, detection, and response to complex cybersecurity attacks on the endpoint, Cortex XSOAR® for security orchestration, automation, and response (“SOAR”), and Cortex XpanseTM for attack surface management (“ASM”). These products are delivered as SaaS or software architecture. Our Advanced Endpoint Protection software prevents cyberattacks that aim to run malicious code or exploit software vulnerabilities on a broad variety of fixed, mobile, and virtual endpoints and servers. Our subscriptions.
Threat Intelligence Cloud provides central intelligence capabilities,and Security Consulting (Unit 42):
•Unit 42 brings together world-renowned threat researchers with an elite team of incident responders and security for softwareconsultants to create an intelligence-driven, response-ready organization to help customers proactively 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 service (“SaaS”) applications,threat-informed approach, and automated deliveryresponding to security incidents on behalf of preventative measures against cyberattacks.our clients.
For the secondfirst quarter of fiscal 20182024 and 2017,2023, total revenue was $542.4 million$1.9 billion and $422.6 million,$1.6 billion, respectively, representing year-over-year growth of 28.3%20.1%. Our growth reflects the increased adoption of our hybrid SaaS revenue model,portfolio, which consists of product, subscriptions, and support. We believe this modelour portfolio will enable us to benefit from recurring revenues and new revenues as we continue to grow our installed end-customer base. As of JanuaryOctober 31, 2018,2023, we had approximately 48,000 end-customers in over 150180 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 somealmost all of the largest Fortune 100 companies and a majority of the Global 2000 companies in the world.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 was $202.2grew to $341.1 million, or 37.3%18.2% of total revenue, for the secondfirst quarter of fiscal 2018,2024, representing year-over-year growth of 19.8%3.4%. Product revenue is generatedderived from sales of our appliances, primarily our ML-Powered Next-Generation Firewall, which is available in physicalFirewall. Product revenue also includes revenue derived from software licenses of Panorama, SD-WAN, and virtualized form.the VM-Series. Our ML-Powered Next-Generation Firewall incorporates our proprietary 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-200,PA-410, which is designed for enterprisesmall organizations and remote or branch offices, to our top-of-the-line PA-7080, which is especially suiteddesigned for very large enterprise deploymentslarge-scale data centers and service provider customers.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.environments, and in our CN-Series container firewalls, which secure container environments and traffic.
Our subscription and support revenue was $340.2 million,grew to $1.5 billion, or 62.7%81.8% of total revenue, for the secondfirst quarter of fiscal 2018,2024, representing year-over-year growth of 34.0%24.6%. Our subscriptions provide our end-customers with near real-time access to the latest antivirus, intrusion prevention, web filtering, and modern malware prevention, data loss prevention, and cloud access security broker capabilities across the network, endpoints, and the cloud. When end-customers purchase our physical, virtual, or virtualcontainer 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, end-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 our investmentto invest in innovation as we evolve and further extend the capabilities of our platform,portfolio, as we believe that innovation and timely development of new features and products isare essential to meeting the needs of our end-customers and improving our competitive position. We introduced severalFor example, in October 2023, we enhanced our Prisma Cloud capabilities with new offerings during the first two quarters of fiscal 2018, including: the release of our GlobalProtect cloud service subscription, which provides our Next-Generation Security Platform as a cloud-based serviceintegrated Code to Cloud intelligence for remote officesdevelopers, operations, and mobile users; the release of our Logging Service subscription, which functions as the central cloud-based repository for application datasecurity teams to improve productivity and logs generated by our security offerings, including those of our firewalls and GlobalProtect cloud service subscription, and allows end-customers to collect data without needing to plan for local processing power and storage; and the launch of Magnifier, a cloud-based subscription that enables organizations to identify and prevent behavior-based threats by applying machine learning to rich network, endpoint, and cloud data. In addition, in February 2018, we introduced PAN-OS 8.1, with over 60 new features, and several new models of appliances, including the PA-3200 series with three models. The new hardware appliances increase SSL decryption throughput, bring higher performance and capacity for securing large data centers, and provide additional capabilities for managing large firewall deployments. We also recently announced expanded capabilities of our platform with extended protections to the Google Cloud Platform in addition to enhanced capabilities for AWS and Azure environments to enable customers to easily integrate with their cloudcollaboration across code, infrastructure, and workloads in multi-cloud environments.runtime.
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 platformportfolio and support offerings within existing end-customers, and focus on end-customer satisfaction. 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, higher interest rates, slower growth, fluctuations in foreign exchange rates, supply chain disruptions, and other conditions, may adversely affect our results of operations and financial performance.
The recent 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 developing 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 lossincome and margin below under “—Results“Results of Operations.”
October 31, 2023July 31, 2023
(in millions)
Total deferred revenue$9,442.8 $9,296.4 
Cash, cash equivalents, and investments$6,882.7 $5,437.9 
 January 31, 2018 July 31, 2017
 (in millions)
Total deferred revenue$1,996.7
 $1,773.5
Cash, cash equivalents, and investments$2,358.0
 $2,164.3
Three Months Ended October 31,
20232022
(dollars in millions)
Total revenue$1,878.1 $1,563.4 
Total revenue year-over-year percentage increase20.1 %25.3 %
Gross margin74.8 %70.5 %
Operating income$215.2 $15.2 
Operating margin11.5 %1.0 %
Billings$2,024.5 $1,749.0 
Billings year-over-year percentage increase15.8 %26.6 %
Cash flow provided by operating activities$1,526.0 $1,236.7 
Free cash flow (non-GAAP)$1,489.2 $1,197.1 
 Three Months Ended January 31, Six Months Ended January 31,
 2018 2017 2018 2017
 (dollars in millions)
Total revenue$542.4
 $422.6
 $1,047.9
 $820.7
Total revenue year-over-year percentage increase28.3 % 26.3 % 27.7 % 29.9 %
Gross margin70.6 % 73.2 % 71.3 % 73.9 %
Operating loss$(31.8) $(54.4) $(86.1) $(103.4)
Operating margin(5.9)% (12.9)% (8.2)% (12.6)%
Billings$674.6
 $561.6
 $1,271.1
 $1,078.5
Billings year-over-year percentage increase20.1 % 22.4 % 17.9 % 27.3 %
Cash flow provided by operating activities    $517.8
 $417.8
Free cash flow (non-GAAP)    $460.0
 $352.2
•Deferred Revenue.Our deferred revenue primarily consists of amounts that have been invoiced but have not been recognized as revenue as of the period end. The majority of our deferred revenue balance consists of subscription and support revenue that is recognized ratably over the contractual service period. We monitor our deferred revenue balance because it represents a significant portion of revenue to be recognized in future periods.
•Billings.We define billings as total revenue plus the change in total deferred revenue, net of acquired deferred revenue, during the period. We consider billings to be a key metric used by management to manage our business given our hybrid SaaS revenue model, andbusiness. We believe billings provides investors with an important indicator of the health and visibility of our business because it includes subscription and support revenue, which is recognized ratably over the contractual service period, and product revenue, which is recognized at the time of hardware shipment or delivery of software license, provided that all other conditions for revenue recognition criteria have been met. We consider billings to be a useful metric for management and investors, particularly if we continue to experience increased sales of subscriptions and strong renewal rates for subscription and support offerings, and as we monitor our near termnear-term cash flows. While we believe that billings provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management, it is important to note that other companies, including companies in our industry, may not use billings, may calculate billings differently, may have different billing frequencies, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of billings as a comparative measure. We calculate billings in the following manner:
Three Months Ended October 31,
20232022
(in millions)
Billings:
Total revenue$1,878.1 $1,563.4 
Add: change in total deferred revenue, net of acquired deferred revenue146.4 185.6 
Billings$2,024.5 $1,749.0 
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 Three Months Ended January 31, Six Months Ended January 31,
 2018 2017 2018 2017
 (in millions)
Billings:       
Total revenue$542.4
 $422.6
 $1,047.9
 $820.7
Add: change in total deferred revenue, net of acquired deferred revenue132.2
 139.0
 223.2
 257.8
Billings$674.6
 $561.6
 $1,271.1
 $1,078.5
•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

depreciation, amortization, and share-based compensation costs, depreciation and amortization, thereby allowing us to better understand and manage the cash needs of our business.
•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,
20232022
(in millions)
Free cash flow (non-GAAP):
Net cash provided by operating activities$1,526.0 $1,236.7 
Less: purchases of property, equipment, and other assets36.8 39.6 
Free cash flow (non-GAAP)$1,489.2 $1,197.1 
Net cash used in investing activities$(129.0)$(1,319.8)
Net cash provided by (used in) financing activities$(41.8)$31.1 
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 Six Months Ended January 31,
 2018 2017
 (in millions)
Free cash flow (non-GAAP):   
Net cash provided by operating activities$517.8
 $417.8
Less: purchases of property, equipment, and other assets57.8
 65.6
Free cash flow (non-GAAP)$460.0
 $352.2
Net cash used in investing activities$(88.5) $(244.3)
Net cash used in financing activities$(258.6) $(146.5)

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 periodperiod-to-period comparison of results is not necessarily indicative of results for future periods.
Three Months Ended October 31,
20232022
Amount% of RevenueAmount% of Revenue
(dollars in millions)
Revenue:
Product$341.1 18.2 %$330.0 21.1 %
Subscription and support1,537.0 81.8 %1,233.4 78.9 %
Total revenue1,878.1 100.0 %1,563.4 100.0 %
Cost of revenue:
Product77.4 4.1 %120.1 7.7 %
Subscription and support395.4 21.1 %341.8 21.8 %
Total cost of revenue(1)
472.8 25.2 %461.9 29.5 %
Total gross profit1,405.3 74.8 %1,101.5 70.5 %
Operating expenses:
Research and development409.5 21.8 %371.8 23.8 %
Sales and marketing660.5 35.1 %615.0 39.3 %
General and administrative120.1 6.4 %99.5 6.4 %
Total operating expenses(1)
1,190.1 63.3 %1,086.3 69.5 %
Operating income215.2 11.5 %15.2 1.0 %
Interest expense(2.9)(0.2 %)(6.8)(0.4)%
Other income, net70.3 3.7 %26.0 1.6 %
Income before income taxes282.6 15.0 %34.4 2.2 %
Provision for income taxes88.4 4.7 %14.4 0.9 %
Net income$194.2 10.3 %$20.0 1.3 %
(1)Includes share-based compensation as follows:
Three Months Ended October 31,
20232022
(in millions)
Cost of product revenue$2.4 $2.4 
Cost of subscription and support revenue30.6 28.8 
Research and development120.1 118.0 
Sales and marketing79.2 87.4 
General and administrative38.7 29.4 
Total share-based compensation$271.0 $266.0 
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 Three Months Ended January 31, Six Months Ended January 31,
 2018 2017 2018 2017
 Amount % of Revenue Amount % of Revenue Amount % of Revenue Amount % of Revenue
 (dollars in millions)
Revenue:               
Product$202.2
 37.3 % $168.8
 39.9 % $388.7
 37.1 % $332.6
 40.5 %
Subscription and support340.2
 62.7 % 253.8
 60.1 % 659.2
 62.9 % 488.1
 59.5 %
Total revenue542.4
 100.0 % 422.6
 100.0 % 1,047.9
 100.0 % 820.7
 100.0 %
Cost of revenue:               
Product63.9
 11.8 % 45.8
 10.8 % 121.5
 11.6 % 88.0
 10.7 %
Subscription and support95.4
 17.6 % 67.4
 16.0 % 179.2
 17.1 % 126.4
 15.4 %
Total cost of revenue(1)
159.3
 29.4 % 113.2
 26.8 % 300.7
 28.7 % 214.4
 26.1 %
Total gross profit383.1
 70.6 % 309.4
 73.2 % 747.2
 71.3 % 606.3
 73.9 %
Operating expenses:               
Research and development96.6
 17.8 % 89.9
 21.3 % 190.8
 18.2 % 174.1
 21.2 %
Sales and marketing265.0
 48.9 % 226.7
 53.6 % 523.5
 49.9 % 446.8
 54.4 %
General and administrative53.3
 9.8 % 47.2
 11.2 % 119.0
 11.4 % 88.8
 10.9 %
Total operating expenses(1)
414.9
 76.5 % 363.8
 86.1 % 833.3
 79.5 % 709.7
 86.5 %
Operating loss(31.8) (5.9)% (54.4) (12.9)% (86.1) (8.2)% (103.4) (12.6)%
Interest expense(6.4) (1.2)% (6.1) (1.4)% (12.7) (1.2)% (12.1) (1.5)%
Other income, net4.9
 1.0 % 2.7
 0.6 % 9.7
 0.9 % 5.2
 0.7 %
Loss before income taxes(33.3) (6.1)% (57.8) (13.7)% (89.1) (8.5)% (110.3) (13.4)%
Provision for income taxes1.6
 0.3 % 2.8
 0.6 % 9.8
 0.9 % 7.2
 0.9 %
Net loss$(34.9) (6.4)% $(60.6) (14.3)% $(98.9) (9.4)% $(117.5) (14.3)%
______________
(1)Includes share-based compensation as follows:
Table of Contents
 Three Months Ended January 31, Six Months Ended January 31,
 2018 2017 2018 2017
Cost of product revenue$1.9
 $2.0
 $3.8
 $3.7
Cost of subscription and support revenue19.9
 15.0
 35.8
 27.3
Research and development35.5
 41.3
 73.0
 79.3
Sales and marketing53.3
 49.7
 104.5
 93.5
General and administrative20.2
 19.3
 39.4
 36.8
Total share-based compensation$130.8
 $127.3
 $256.5
 $240.6

RevenueREVENUE
Our revenue consists of product revenue and subscription and support revenue. Revenue is recognized when persuasive evidenceupon transfer of control of the corresponding promised products and subscriptions and support to our customers in an arrangement exists, delivery has occurred,amount that reflects the fee is fixed or determinable,consideration we expect to be entitled to in exchange for those products and collectability is reasonably assured.subscriptions and support. We expect our revenue to vary from quarter to quarter based on seasonal and cyclical factors.
Product RevenuePRODUCT REVENUE
Product revenue is derived primarily from sales of our appliances.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 provided that all other revenue recognition criteria have been met.or delivery of software license.
 Three Months Ended January 31,     Six Months Ended January 31,    
 2018 2017 Change 2018 2017 Change
 Amount Amount Amount % Amount Amount Amount %
 (dollars in millions)
Product$202.2
 $168.8
 $33.4
 19.8% $388.7
 $332.6
 $56.1
 16.9%
Three Months Ended October 31,
20232022Change
AmountAmountAmount%
(dollars in millions)
Product$341.1 $330.0 $11.1 3.4 %
Product revenue increased for the three and six months ended JanuaryOctober 31, 20182023 increased compared to the threesame period in 2022 driven by increased software revenue primarily due to a new go-to-market strategy for certain Network Security offerings, and six months ended January 31, 2017. The increase in both periods was primarily driven byincreased demand for our newly introduced appliances. The change in productnew generation of hardware products, partially offset by decreased revenue due to pricing was not significant for either period.from our prior generation of hardware products.
Subscription and Support RevenueSUBSCRIPTION AND SUPPORT REVENUE
Subscription and support revenue is derived primarily from sales of our subscription and support offerings. Our contractual subscription and support termscontracts are typically one to five years. We recognize revenue from subscriptions and support over time as the contractual service period.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,
Three Months Ended January 31,     Six Months Ended January 31,    20232022Change
2018 2017 Change 2018 2017 ChangeAmountAmountAmount%
Amount Amount Amount % Amount Amount Amount %
(dollars in millions)(dollars in millions)
Subscription$183.3
 $134.3
 $49.0
 36.5% $352.6
 $255.5
 $97.1
 38.0%Subscription$988.3 $764.0 $224.3 29.4 %
Support156.9
 119.5
 37.4
 31.3% 306.6
 232.6
 74.0
 31.8%Support548.7 469.4 79.3 16.9 %
Total subscription and support$340.2
 $253.8
 $86.4
 34.0% $659.2
 $488.1
 $171.1
 35.1%Total subscription and support$1,537.0 $1,233.4 $303.6 24.6 %
Subscription and support revenue increased for the three and six months ended JanuaryOctober 31, 20182023 compared to the three and six months ended January 31, 2017. The increasesame period in both periods was2022 due to increased demand for our subscription and support offerings from both new and existingour 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 customers. The change in subscription and support revenue due to changes in pricing was not significant for either period.end-customers.
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Table of Contents
REVENUE BY GEOGRAPHIC THEATER
Three Months Ended October 31,
20232022Change
AmountAmountAmount%
(dollars in millions)
Americas$1,286.6 $1,070.7 $215.9 20.2 %
EMEA364.9 307.9 57.0 18.5 %
APAC226.6 184.8 41.8 22.6 %
Total revenue$1,878.1 $1,563.4 $314.7 20.1 %
Revenue by Geographic Theater
 Three Months Ended January 31,     Six Months Ended January 31,    
 2018 2017 Change 2018 2017 Change
 Amount Amount Amount % Amount Amount Amount %
 (dollars in millions)
Americas$371.3
 $295.0
 $76.3
 25.9% $722.6
 $575.2
 $147.4
 25.6%
EMEA106.3
 78.8
 27.5
 34.9% 201.7
 149.5
 52.2
 34.9%
APAC64.8
 48.8
 16.0
 32.8% 123.6
 96.0
 27.6
 28.8%
Total revenue$542.4
 $422.6
 $119.8
 28.3% $1,047.9
 $820.7
 $227.2
 27.7%

With respect to geographic theaters,from the Americas, contributed the largest portion of the increase in revenue for the three and six months ended January 31, 2018 compared to the three and six months ended January 31, 2017, due to its larger and more established sales force compared to our other theaters. Revenue from both Europe, the Middle East, and Africa (“EMEA”), and Asia Pacific and Japan (“APAC”), increased for the three and six months ended JanuaryOctober 31, 20182023 compared to the same period in 2022 as we continued to increase investment in our global sales force in order to support our growth and innovation. Our three and sixgeographic theaters had similar year-over-year revenue growth rates for the three months ended JanuaryOctober 31, 2017,2023 compared to the same period in 2022, with the Americas contributing the highest increase in revenue due to our investment in increasing the size of our sales force and number of channel partners in these theaters.its larger scale.
Cost of Revenue
COST OF REVENUE
Our cost of revenue consists of cost of product revenue and cost of subscription and support revenue.
Cost of Product RevenueCOST OF PRODUCT REVENUE
Cost of product revenue primarily includes costs paid to our manufacturing partners.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 and entertainment associated with our operations organization, amortization of intellectual property licenses, product testing costs, shipping and tariff costs, and allocatedshared costs. AllocatedShared 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 increase asfluctuate with our product revenue increases.from hardware products.
 Three Months Ended January 31,   Six Months Ended January 31,    
 2018 2017 Change 2018 2017 Change
 Amount Amount Amount % Amount Amount Amount %
 (dollars in millions)
Cost of product revenue$63.9
 $45.8
 $18.1
 39.5 % $121.5
 $88.0
 $33.5
 38.1 %
Number of employees at period end91
 92
 (1) (1.1)% 91
 92
 (1) (1.1)%
Three Months Ended October 31,
20232022Change
AmountAmountAmount%
(dollars in millions)
Cost of product revenue$77.4 $120.1 $(42.7)(35.6)%
Cost of product revenue increaseddecreased for the three and six months ended JanuaryOctober 31, 20182023 compared to the three and six months ended January 31, 2017. The increasesame period in both periods was2022 primarily due to higher productlower costs related tolargely driven by an easing of supply chain challenges and decreased demand for our newly introduced appliances.prior generation of hardware products.
Cost
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Table of Subscription and Support RevenueContents
COST OF SUBSCRIPTION AND SUPPORT REVENUE
Cost of subscription and support revenue includes personnel costs for our global customer support and technical operations organizations, customer support and repair costs, third-party professional services costs, data center and cloud hosting service costs, amortization of acquired intangible assets and allocatedcapitalized software development 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 January 31,   Six Months Ended January 31,    
 2018 2017 Change 2018 2017 Change
 Amount Amount Amount % Amount Amount Amount %
 (dollars in millions)
Cost of subscription and support revenue$95.4
 $67.4
 $28.0
 41.5% $179.2
 $126.4
 $52.8
 41.8%
Number of employees at period end813
 623
 190
 30.5% 813
 623
 190
 30.5%
Three Months Ended October 31,
20232022Change
AmountAmountAmount%
(dollars in millions)
Cost of subscription and support revenue$395.4 $341.8 $53.6 15.7 %
Cost of subscription and support revenue increased for the three and six months ended JanuaryOctober 31, 20182023 compared to the threesame period in 2022 primarily due to increased costs to support the growth of our subscription and six months ended January 31, 2017. The increase in both periods was driven by an increase in personnelsupport offerings. Cloud hosting service costs, which grew $14.6 million to $54.3support our cloud-based subscription offerings, increased $26.2 million for the three months ended JanuaryOctober 31, 20182023 compared to the same period in 2022. Personnel costs grew $23.0 million for the three months ended JanuaryOctober 31, 2017, and grew $27.2 million to $101.4 million for the six months ended January 31, 20182023 compared to the six months ended January 31, 2017. The increasesame period in personnel costs in both periods was2022 primarily due to headcount growth. The remaining increase in both periods was primarily due to costs to expand our customer service capabilities and infrastructure and allocated costs. The increase in allocated costs in both periods was primarily due to our expansion of facilities to support the growth of our business.
Gross Margin
GROSS MARGIN
Gross margin or gross profit as a percentage of revenue, 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. For sales of our products, ourOur virtual and higher-end firewall products generally have higher gross margins than our lower-end firewall products within each product series. For sales of our subscription and

support offerings, our subscription offerings typically have higher gross margins than our support offerings. We expect our gross margins to fluctuatevary over time depending on the factors described above.
Three Months Ended October 31,
Three Months Ended January 31, Six Months Ended January 31,20232022
2018 2017 2018 2017AmountGross MarginAmountGross Margin
Amount Gross Margin Amount Gross Margin Amount Gross Margin Amount Gross Margin
(dollars in millions)(dollars in millions)
Product$138.3
 68.4% $123.0
 72.9% $267.2
 68.7% $244.6
 73.5%Product$263.7 77.3 %$209.9 63.6 %
Subscription and support244.8
 72.0% 186.4
 73.4% 480.0
 72.8% 361.7
 74.1%Subscription and support1,141.6 74.3 %891.6 72.3 %
Total gross profit$383.1
 70.6% $309.4
 73.2% $747.2
 71.3% $606.3
 73.9%Total gross profit$1,405.3 74.8 %$1,101.5 70.5 %
Product gross margin decreasedincreased for the three and six months ended JanuaryOctober 31, 20182023 compared to the three and six months ended January 31, 2017,same period in 2022 primarily due to lower costs largely driven by higher product costs related to our newly introduced appliances, which have lower product margins.an easing of supply chain challenges and increased software revenue.
Subscription and support gross margin decreasedincreased for the three and six months ended JanuaryOctober 31, 20182023 compared to the three and six months ended January 31, 2017,same period in 2022 primarily due to higher costs related toour growth in subscription and support revenue, which outpaced the expansion of our infrastructure tosubscription and support the adoption of our cloud-based subscription offerings.costs.
Operating Expenses
OPERATING EXPENSES
Our operating expenses consist of research and development, sales and marketing, and general and administrative expense.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 allocatedshared costs, which consist of certain facilities, depreciation, benefits, recruiting, and information technology costs that we allocate based on headcount.headcount to each department. We expect operating expenses generally to increase in absolute dollars and decrease over the long term as a percentage of revenue as we continue to scale our business. As of JanuaryOctober 31, 2018,2023, we expect to recognize approximately $976.2 million$1.9 billion of share-based compensation expense over a weighted-average period of approximately 2.7 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
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Table of Contents
RESEARCH AND DEVELOPMENT
Research and development expense consists primarily of personnel costs. Research and development expense also includes prototype relatedprototype-related expenses and allocatedshared 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 January 31,     Six Months Ended January 31,    
 2018 2017 Change 2018 2017 Change
 Amount Amount Amount % Amount Amount Amount %
 (dollars in millions)
Research and development$96.6
 $89.9
 $6.7
 7.5% $190.8
 $174.1
 $16.7
 9.6%
Number of employees at period end814
 661
 153
 23.1% 814
 661
 153
 23.1%
Three Months Ended October 31,
20232022Change
AmountAmountAmount%
(dollars in millions)
Research and development$409.5 $371.8 $37.7 10.1 %
Research and development expense increased for the three and six months ended JanuaryOctober 31, 20182023 compared to the three and six months ended January 31, 2017. The increasesame period in both periods was2022 primarily due to an increase inincreased personnel costs, which grew $3.1$27.4 million, to $80.7 million for the three months ended January 31, 2018 compared to the three months ended January 31, 2017, and grew $8.9 million to $158.4 million for the six months ended January 31, 2018 compared to the six months ended January 31, 2017, as well as an increase in allocated costs. The increase in personnel costs in both periods was largely due to headcount growth. The increase in allocated costs in both periods was primarily due to our expansion of facilities to support the growth of our business.
Sales and MarketingSALES 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 allocatedshared costs. We continue to thoughtfullystrategically invest in headcount and have substantially grown our sales presence internationally.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 to expand our internationalglobal presence, although our sales and marketing expense may fluctuate as a percentage of total revenue.
 Three Months Ended January 31,     Six Months Ended January 31,    
 2018 2017 Change 2018 2017 Change
 Amount Amount Amount % Amount Amount Amount %
 (dollars in millions)
Sales and marketing$265.0
 $226.7
 $38.3
 16.9% $523.5
 $446.8
 $76.7
 17.2%
Number of employees at period end2,511
 2,269
 242
 10.7% 2,511
 2,269
 242
 10.7%
Three Months Ended October 31,
20232022Change
AmountAmountAmount%
(dollars in millions)
Sales and marketing$660.5 $615.0 $45.5 7.4 %
Sales and marketing expense increased for the three and six months ended JanuaryOctober 31, 20182023 compared to the three and six months ended January 31, 2017. The increasesame period in both periods was2022 primarily due to an increase inincreased personnel costs, which grew $31.3$21.8 million, to $210.7 million for the three months ended January 31, 2018 compared to the three months ended January 31, 2017, and grew $63.0 million to $407.7 million for the six months ended January 31, 2018 compared to the six months ended January 31, 2017. The increase in personnel costs in both periods was largely due to headcount growth. The remaining increase in both periodssales and marketing expense was primarilyfurther driven by an increase in allocatedincreased costs due to our expansion of facilities to support the growth of our business.associated with sales and marketing events and go-to-market initiatives.
General and AdministrativeGENERAL AND ADMINISTRATIVE
General and administrative expense consists primarily of personnel costs and shared costs for our executive, finance, human resources, legal, and information technology, and legal organizations, and professional services costs, which consist primarily of legal, auditing, accounting, and other consulting costs, and certain non-recurring general expenses. Certain facilities, depreciation, benefits, recruiting, and information technology costs are allocated to other organizations based on headcount.costs. We expect general and administrative expense to increase in absolute dollars due toover time as we increase the size of our general and administrative organizations and incur additional costs associated with accounting, compliance, and insurance,to support our business growth, although our general and administrative expense may fluctuate as a percentage of total revenue.
 Three Months Ended January 31,     Six Months Ended January 31,    
 2018 2017 Change 2018 2017 Change
 Amount Amount Amount % Amount Amount Amount %
 (dollars in millions)
General and administrative$53.3
 $47.2
 $6.1
 12.9% $119.0
 $88.8
 $30.2
 34.0%
Number of employees at period end604
 492
 112
 22.8% 604
 492
 112
 22.8%
Three Months Ended October 31,
20232022Change
AmountAmountAmount%
(dollars in millions)
General and administrative$120.1 $99.5 $20.6 20.7 %
General and administrative expense increased for the three months ended JanuaryOctober 31, 20182023 compared to the same period in 2022 primarily due to increased personnel costs, which grew $12.8 million, largely due to increased share-based compensation and headcount growth. The increase in general and administrative expense was further driven by increased professional services expense during the three months ended JanuaryOctober 31, 2017,2023.
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Table of Contents
INTEREST EXPENSE
Interest expense primarily consists of interest expense related to our 0.75% Convertible Senior Notes due 2023 (the “2023 Notes”) and our 0.375% Convertible Senior Notes due 2025 (the “2025 Notes,” and together with “2023 Notes,” the “Notes”).
 Three Months Ended October 31,
 20232022Change
AmountAmountAmount%
 (dollars in millions)
Interest expense$2.9 $6.8 $(3.9)(57.4)%
Interest expense decreased for the three months ended October 31, 2023 compared to the same period in 2022 primarily due to an increaseconversions of the 2023 Notes prior to or upon maturity in personnel costs, which grew $4.5 million to $38.8 million, largely due to headcount growth.
General and administrative expense increased for the six months ended January 31, 2018 compared to the six months ended January 31, 2017, primarily due to a loss of $15.4 million recognized on the lease of our previous headquarter facilities in August 2017, when we officially ceased use of such facilities.July 2023. Refer to Note 6. Commitments and Contingencies8. 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 cease-use loss. The remaining increase wascash, cash equivalents, and investments, and gains and losses from foreign currency remeasurement and foreign currency transactions.
 Three Months Ended October 31,
 20232022Change
AmountAmountAmount%
 (dollars in millions)
Other income, net$70.3 $26.0 $44.3 170.4 %
Other income, net increased for the three months ended October 31, 2023 compared to the same period in 2022 primarily driven by an increase in personnel costs, which grew $8.4 million to $73.6 million, largely due to headcount growth,higher interest income as a result of higher interest rates and an increase in allocated costs duehigher average cash, cash equivalent, and investment balances for the three months ended October 31, 2023 compared to our expansion of facilities to support the growth of our business.2022.
Provision for Income Taxes
PROVISION FOR INCOME TAXES
Provision for income taxes consists primarily of incomeU.S. taxes indriven by capitalization of research and development expenditures, foreign jurisdictions in which we conduct business, withholding taxes, U.S. state income taxes, and amortization of our deferred tax charges.withholding taxes. We maintain a full valuation allowance for domestic and certain foreign deferred tax assets, including net operating loss carryforwards and certain domestic tax credits. InOur valuation allowance has caused, and may continue to cause, disproportionate relationships between our overall effective tax rate and other jurisdictional measures. We regularly evaluate the need for a valuation allowance. Due to recent years, we reorganized our corporate structure and intercompany relationships to more closely align with the international natureprofitability, a reversal of our business activities. Tovaluation allowance in certain jurisdictions in the extent we revisit our corporate structure, it may have an impact on our tax provision.near future is reasonably possible.
On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted into law. The TCJA provides for significant tax law changes and modifications including, but not limited to, the reduction of the U.S. federal corporate statutory tax rate from 35% to 21% as of January 1, 2018, the requirement for companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and the creation of new taxes on certain foreign-sourced earnings. As a fiscal year-end taxpayer, certain
Three Months Ended October 31,
20232022Change 
AmountAmountAmount%
(dollars in millions)
Provision for income taxes$88.4 $14.4 $74.0 513.9 %
Effective tax rate31.3 %41.9 %

provisions of the TCJA began to impact us during the three months ended January 31, 2018, while other provisions will impact us beginning in our fiscal year ending July 31, 2019.
 Three Months Ended January 31, Change  Six Months Ended January 31, Change 
 2018 2017 Amount % 2018 2017 Amount %
 (dollars in millions)
Provision for income taxes$1.6
 $2.8
 $(1.2) (42.9)% $9.8
 $7.2
 $2.6
 36.1%
Effective tax rate(4.8)% (4.8)% 

   (11.0)% (6.5)% 

  
We recorded an income tax provision for the three and six months ended January 31, 2018. Components of ourOur provision for income taxes include foreign income taxes, withholding taxes, amortization of our deferred tax charges, and a one-time tax benefit resulting from the TCJA for the three months ended JanuaryOctober 31, 2018.2023 was primarily due to U.S. federal and state income taxes, withholding taxes, and foreign income taxes. Our provision for income taxeseffective tax rate decreased for the three months ended JanuaryOctober 31, 20182023 compared to the three months ended January 31, 2017,same period in 2022 primarily due to a one-time provisional benefit of $6.2 million relating to alternative minimumhigher tax credits that will be refundable if not utilized due to the enactment of the TCJA, partially offset by overall growth in operations. Our provision for income taxes increased for the six months ended January 31, 2018 compared to the six months ended January 31, 2017, primarily due to overall growth in operations, partially offset by the aforementioned benefitbenefits from the TCJA.
During the three months ended January 31, 2018, we recognized provisional amounts for the tax effects of the TCJA which were included as components of income tax expense and reflected in the effective tax rates above. We will continue to assess the impact of the TCJA on our business and our condensed consolidated financial statements, however, the final impact of the TCJA may differ from the provisional amounts due to a number of uncertainties and factors, including information not available until the close of our fiscal year ending July 31, 2018, the need for further guidance and clarification of the new law by U.S. federal and state tax authorities, and the need for further guidance on the related income tax accounting.share-based compensation. Refer to Note 9.12. Income Taxes in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the TCJA and its expected impact.information.
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Table of Contents
Liquidity and Capital Resources
October 31, 2023July 31, 2023
(in millions)
Working capital(1)
$(1,035.8)$(1,689.5)
Cash, cash equivalents, and investments:
Cash and cash equivalents$2,491.4 $1,135.3 
Investments4,391.3 4,302.6 
Total cash, cash equivalents, and investments$6,882.7 $5,437.9 
 January 31, 2018 July 31, 2017
 (in millions)
Working capital(1)
$353.8
 $775.0
Cash, cash equivalents, and investments:   
Cash and cash equivalents$915.0
 $744.3
Investments1,443.0
 1,420.0
Total cash, cash equivalents, and investments$2,358.0
 $2,164.3
(1)Current liabilities included net carrying amounts of convertible senior notes of $1.9 billion and $2.0 billion as of October 31, 2023 and July 31, 2023, respectively. Refer to Note 8 Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on the Notes.
______________
(1)The net carrying amount of the 0.0% Convertible Senior Notes due 2019 (the “Notes”) was classified in current liabilities in our condensed consolidated balance sheets as of January 31, 2018. Refer to Note 5. Convertible Senior Notes in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
At JanuaryAs of October 31, 2018,2023, our total cash, cash equivalents, and investments of $2.4$6.9 billion were held for general corporate purposes, of which approximately $357.5 million was held outside of the United States.purposes. As of JanuaryOctober 31, 2018,2023, we had no unremitted earnings that would be subject to taxation in the United States when evaluating our outside basis differencesdifference relating to our U.S. investment in foreign subsidiaries; accordingly,subsidiaries. However, there is no restriction on the usecould 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 funds.lower tier earnings are not expected to be material.
Beginning in fiscal 2023, we were required to capitalize and amortize R&D expenses as required by the Tax Cuts and Jobs Act. As a result of January 31, 2018, allthis change, we expect to pay significantly more cash taxes in the future, beginning in fiscal 2024.
DEBT
In June 2020, we issued the 2025 Notes with an aggregate principal amount of the Notes remained outstanding.$2.0 billion. The 2025 Notes mature on JulyJune 1, 2019,2025; however, prior to January 1, 2019,under certain circumstances, holders may surrender their 2025 Notes for early conversion under certain circumstances. Duringprior to the fiscal quarter ended January 31, 2018, onematurity date. Upon conversion of the early conversion conditions was met, and as a result, holders may convert their2025 Notes, at any time during the fiscal quarter ending April 30, 2018. Upon conversion, 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, 2023, holders of the 2025 Notes converted $46.0 million in aggregate principal amount of the 2025 Notes, which we repaid in cash. We also issued 0.3 million shares of our common stock to the holders of the 2025 Notes for the conversion value in excess of the principal amount of the 2025 Notes converted, which were fully offset by shares we received from the corresponding exercise of the associated note hedges.
The sale price condition for the 2025 Notes was met during the fiscal quarter ended October 31, 2023, and as a result, holders may convert their 2025 Notes during the fiscal quarter ending January 31, 2024. If all of the holders convert their 2025 Notes during this period, we would be obligated to settle the $2.0 billion 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, 2024 or hold the 2025 Notes until maturity on June 1, 2025. As of October 31, 2023, substantially all of our 2025 Notes remained outstanding. Refer to Note 5. Convertible Senior Notes8. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the Notes.
In August 2016,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, 2023, there were no amounts outstanding, and we were in compliance with all covenants under the Credit Agreement. Refer to Note 8. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the Credit Agreement.
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CAPITAL RETURN
In February 2019, our board of directors authorized a $500.0 million$1.0 billion share repurchase program. In December 2020, August 2021, and in February 2017,August 2022, our board of directors authorized a $500.0additional $700.0 million, increase$676.1 million, and $915.0 million increases to ourthis share repurchase program, respectively, bringing the total authorization under this share repurchase program to $1.0$3.3 billion. Repurchases arewill be funded from available working capital and may be made at management’s discretion from time to time. As of October 31, 2023, $683.3 million remained available for future share repurchases under this repurchase program. On November 16, 2023, our board of directors authorized a $316.7 million increase to our share repurchase program, bringing the total remaining authorization for future share repurchases to $1.0 billion. The repurchase authorization will expire on December 31, 2018,2024, and may be suspended or discontinued at any time. As of January 31, 2018, $330.0 million remained available for

future share repurchases under the repurchase authorization.time without prior notice. Refer to Note 7.10. Stockholders’ Equity and Note 15. Subsequent Events 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 facilities with original lease periods expiring through the repurchase authorization.fiscal year ending July 31, 2033, with the most significant leases relating to our corporate headquarters in Santa Clara, California. As of October 31, 2023, we have total operating lease obligations of $336.8 million recorded on our condensed consolidated balance sheet.
As of October 31, 2023, our commitments to purchase products, components, cloud and other services totaled $1.7 billion. Refer to Note 9. Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on these commitments.
CASH FLOWS
The following table summarizes our cash flows for the sixthree months endedJanuary October 31,2018 2023 and 2017:2022:
Three Months Ended October 31,
20232022
(in millions)
Net cash provided by operating activities$1,526.0 $1,236.7 
Net cash used in investing activities(129.0)(1,319.8)
Net cash provided by (used in) financing activities(41.8)31.1 
Net increase (decrease) in cash, cash equivalents, and restricted cash$1,355.2 $(52.0)
 Six Months Ended January 31,
2018 2017
 (in millions)
Net cash provided by operating activities$517.8
 $417.8
Net cash used in investing activities(88.5) (244.3)
Net cash used in financing activities(258.6) (146.5)
Net increase in cash and cash equivalents$170.7
 $27.0
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 new corporate headquarters, andinfrastructure to support the adoption of our cloud-based subscription offerings, the repayment obligations associated with our Notes, the continuing market acceptance of our products and subscription and support offerings.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 ActivitiesOPERATING ACTIVITIES
Our operating activities have consisted of net lossesincome 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 sixthree months ended JanuaryOctober 31, 20182023 was $517.8 million,$1.5 billion, an increase of $100.0$289.3 million compared to the six months ended January 31, 2017.same period in 2022. The increase was primarily due to growth of our business as reflected by increases in billings and collections on accounts receivable, and the receipt of an upfront cash reimbursement of $38.2 million related to certain of our lease agreements during the sixthree months ended JanuaryOctober 31, 2018. The upfront2023, partially offset by higher cash reimbursement was received fromexpenditure to support our landlords in connection with the amendmentbusiness growth.
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Table of our lease agreements and will be applied against rental payments due in fiscal years 2018 through 2020. Refer to Note 6. Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.Contents
Investing ActivitiesINVESTING 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 sixthree months endedJanuary October 31,2018 2023 was $88.5$129.0 million, a decrease of $155.8 million$1.2 billion compared to the six months endedJanuary 31,2017,same period in 2022. The decrease was primarily due to lower neta decrease in purchases of available-for-sale investments during the sixthree months ended JanuaryOctober 31, 2018.2023.
Financing ActivitiesFINANCING ACTIVITIES
Our financing activities have consisted of cash used to repurchase shares of our common stock, proceeds from sales of shares through employee equity incentive plans, cash used to repurchase shares of our common stock, 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 sixthree months ended JanuaryOctober 31, 20182023 was $258.6$41.8 million, an increasea change of $112.1$72.9 million compared to cash provided by financing activities of $31.1 million during the six months ended January 31, 2017,same period in 2022. The change was primarily due to an increase inearly repayments of our 2025 Notes and repurchases of our common stock and payments for tax withholding obligations of certain employees related to the net share settlement of equity awards during the sixthree months ended JanuaryOctober 31, 2018.2023.

Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of January 31, 2018:
 
Payments Due by Period 
 Total  Less Than 
1 Year		 1-3 Years 3-5 Years More Than 
5 Years
   (in millions)  
0.0% Convertible Senior Notes due 2019(1)
$575.0
 $—
 $575.0
 $—
 $—
Operating lease obligations(2) 
548.9
 65.2
 129.5
 113.9
 240.3
Purchase obligations(3)
121.5
 121.5
 —
 —
 —
Total(4)
$1,245.4
 $186.7
 $704.5
 $113.9
 $240.3
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(1)As of January 31, 2018, holders may convert their Notes at any time during the fiscal quarter ending April 30, 2018. Refer to Note 5. Convertible Senior Notes in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
(2)Consists of contractual obligations from our non-cancelable operating leases. Excludes contractual sublease proceeds of $15.4 million, which consists of $4.3 million to be received in less than one year, $9.8 million to be received in one to three years, and $1.3 million to be received in three to five years. Refer to Note 6. Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on our operating leases.
(3)Consists of minimum purchase commitments of products and components with our manufacturing partners and component suppliers. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.
(4)No amounts related to income taxes are included. As of January 31, 2018, we had approximately $71.2 million of tax liabilities recorded related to uncertainty in income tax positions.
Off-Balance Sheet Arrangements
As of January 31, 2018, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
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 maycould differ materially from these estimates.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, 2017,2023 reflect our more significant estimates, assumptions, and judgments and estimates used inthat have the preparation ofmost significant impact on our condensed consolidated financial statements. There have been no significant changes to our critical accounting estimates as filed in such report.
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.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
OurItem 3. Quantitative and Qualitative Disclosures About Market Risk
Except for the item below, our assessment of our exposures to market risk havehas not changed materially sincefrom the presentationdisclosure set forth in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended July 31, 2017.2023.

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, 2023, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $62.5 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 $62.5 million increase in the fair market value of the portfolio.
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ITEM 4.CONTROLS AND PROCEDURES
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 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 JanuaryOctober 31, 2018,2023, 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 JanuaryOctober 31, 20182023 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
Table of Contents
Part II
ITEM 1.LEGAL PROCEEDINGS
Item 1. Legal Proceedings
The information set forth under the “Litigation” subheading in Note 6.9. 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
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.
•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 Artificial Intelligence (“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.
•Our actual or perceived failure to adequately protect personal data could have a material adverse effect on our business.
•We may have exposure to greater than anticipated tax liabilities.
•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, 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, 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, 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 and Our Industry
RISKS RELATED TO OUR GROWTH
Our business and operations have experienced rapid 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 rapid growth and increased demand for our products and subscriptions over the last few years. As a result, our employee headcount and number of end-customers havehas increased, significantly, and we expect bothit to continue to grow over the next year. For example, from the end of fiscal 20172023 to the end of the secondfirst quarter of fiscal 2018,2024, our headcount increased from 4,56213,948 to 4,833 employees, and our number of end-customers increased from more than 42,500 to approximately 48,000.14,182 employees. In addition, as we have grown, the number of end-customers has also increased, and we have increasingly 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 scalemanage improvements to our systems, processes, and controls in an efficient or timely manner.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 platform,products, or materially harm our business performance and operating results.
Our operating results may vary significantly from period to period and be unpredictable, which could cause the market price of our common stock to decline.
Our operating results, in particular, our revenues, gross margins, operating margins, and operating expenses, have historically varied from period to period, and even though we have experienced growth, we expect variation to continue as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including:
our ability to attract and retain new end-customers or sell additional products and subscriptions to our existing end-customers;
the budgeting cycles, seasonal buying patterns, and purchasing practices of end-customers;
changes in end-customer, distributor or reseller requirements, or market needs;
price competition;
the timing and success of new product and service introductions by us or our competitors or any other change in the competitive landscape of our industry, including consolidation among our competitors or end-customers and strategic partnerships entered into by and between our competitors;
changes in the mix of our products, subscriptions, and support, including changes in multi-year subscriptions and support;
our ability to successfully and continuously expand our business domestically and internationally;
changes in the growth rate of the enterprise security market;

deferral of orders from end-customers in anticipation of new products or product enhancements announced by us or our competitors;
the timing and costs related to the development or acquisition of technologies or businesses or strategic partnerships;
lack of synergy or the inability to realize expected synergies, resulting from acquisitions or strategic partnerships;
our inability to execute, complete or integrate efficiently any acquisitions that we may undertake;
increased expenses, unforeseen liabilities, or write-downs and any impact on our operating results from any acquisitions we consummate;
our ability to increase the size and productivity of our distribution channel;
decisions by potential end-customers to purchase security solutions from larger, more established security vendors or from their primary network equipment vendors;
changes in end-customer penetration, attach, and renewal rates for our subscriptions;
timing of revenue recognition and revenue deferrals;
our ability to manage production and manufacturing related costs, global customer service organization costs, inventory excess and obsolescence costs, and warranty costs;
insolvency or credit difficulties confronting our end-customers, which could adversely affect their ability to purchase or pay for our products and subscription and support offerings, or confronting our key suppliers, including our sole source suppliers, which could disrupt our supply chain;
any disruption in our channel or termination of our relationships with important channel partners, including as a result of consolidation among distributors and resellers of security solutions;
our inability to fulfill our end-customers’ orders due to supply chain delays or events that impact our manufacturers or their suppliers;
the cost and potential outcomes of litigation, which could have a material adverse effect on our business;
seasonality or cyclical fluctuations in our markets;
future accounting pronouncements or changes in our accounting policies, including the potential impact of the adoption and implementation of the Financial Accounting Standards Board’s new standard regarding revenue recognition;
increases or decreases in our expenses caused by fluctuations in foreign currency exchange rates, as an increasing amount of our expenses is incurred and paid in currencies other than the U.S. dollar;
political, economic and social instability, such as those caused by the upcoming elections in Europe, the referendum on June 23, 2016 in which voters in the United Kingdom (the “U.K.”) approved an exit from the European Union (the “E.U.”), which is commonly referred to as “Brexit,” continued hostilities in the Middle East, terrorist activities, and any disruption these events may cause to the broader global industrial economy; and
general macroeconomic conditions, both domestically and in our foreign markets that could impact some or all regions where we operate.
Any one of the factors above, or the cumulative effect of some of the factors referred to above, may result in significant fluctuations in our financial and other operating results. This variability and unpredictability could result in our failure to meet our revenue, margin, or other operating result expectations 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.
Uncertain or weakened global economic conditions could have an adverse effect on our business and operating results.
We operate globally and as a result our business and revenues are impacted by global macroeconomic conditions. The global macroeconomic environment has been and may continue to be inconsistent and challenging due to instability in the global credit markets, the current economic challenges in China, falling demand for oil and other commodities, uncertainties regarding the effects of “Brexit,” uncertainties related to changes in public policies such as domestic and international regulations, taxes, or international trade agreements, geopolitical turmoil and other disruptions to global and regional economies and markets. As a result, any continued or further uncertainty, weakness or deterioration in global macroeconomic and market conditions may cause our end-customers to modify spending priorities or delay purchasing decisions, and result in lengthened sales cycles, all of which could harm our business and operating results.

Our revenue growth rate in recent periods may not be indicative of our future performance.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 27.7%20.1% and 29.9%25.3% in the sixthree months ended JanuaryOctober 31, 20182023 and the six months ended January 31, 2017,2022, respectively. Our revenue for any prior 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 achieve and maintain profitability or maintain or increase cash flow on a consistent basis.
We have a history
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Table of losses, anticipate increasing our operating expenses in the future, and may not be able to achieve or maintain profitability or maintain or increase cash flow on a consistent basis, which could cause our business, financial condition, and operating results to suffer.Contents
Other than fiscal 2012,In addition, we have incurred losses in all fiscal years since our inception. Asprior to fiscal 2023 and, as a result, we had an accumulated deficit of $935.6 million at January$1.0 billion as of October 31, 2018.2023. 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 achieving or maintaining profitability or maintaining or increasing cash flow on a consistent basis. In addition, we may have difficulty achieving profitability under U.S. GAAP due to share-based compensation expense and other non-cash charges.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.
If we are unable to sell additional product, subscription, and support offerings to our end-customers, our future revenue andOur operating results willmay 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 harmed.indicative of future performance.
Our future success depends,operating results have fluctuated in part, on our abilitythe past, and will likely continue to expandfluctuate in the deployment of our platform with existing end-customers. This may require increasingly sophisticated and costly sales efforts that may not result in additional sales. 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. Further, 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. Our end-customers’ renewal rates may decline or fluctuatefuture, as a result of a number of factors, including their satisfaction with our subscriptions and our support offerings, the frequency and severitymany of subscription outages, our product uptime or latency, and the pricingwhich are outside of our or competing, subscriptions. 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. We also cannot be certain that our end-customers will renew their subscription and support agreements. If our efforts to sell additional products and subscriptions to our end-customers are not successful or our end-customers do not renew their subscription and support agreements or renew on less favorable terms, our revenues may grow more slowly than expected or decline.
We face intense competition in our market, especially from larger, well-established companies, and we may lack sufficient financial or other resources to maintain or improve our competitive position.
The market 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 three categories:
large companies that incorporate security features in their products, such as Cisco Systems, Inc. (“Cisco”) and Juniper Networks, Inc. (“Juniper”), or those that have acquired, or may acquire, large network and endpoint security vendors and have the technical and financial resources to bring competitive solutions to the market;
independent security vendors, such as Symantec Corporation, Check Point Software Technologies Ltd. (“Check Point”), Fortinet, Inc., and FireEye, Inc., that offer a mix of network and endpoint security products; and
small and large companies that offer point solutions and/or cloud security services that compete with some of the features present in our platform.
Many of our existing competitors have, and some of our potential competitors could have, substantial competitive advantages such as:
greater name recognition and longer operating histories;
larger sales and marketing budgets and resources;
broader distribution and established relationships with distribution partners and end-customers;
greater customer support resources;

greater resources to make strategic acquisitions or enter into strategic partnerships;
lower labor and development costs;
larger and more mature intellectual property portfolios; and
substantially greater financial, technical, and other resources.
In addition, some of our larger competitors have substantially broader and more diverse product and services offerings, which may make them less susceptible to downturns in a particular market and 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 through selling at zero or negative margins, offering concessions, product bundling, or closed technology platforms. Many of our smaller competitors that specialize in providing protection from a single type of security threat are often able to deliver these specialized security products to the market more quickly than we can.
Organizations that use legacy products and services may believe that these products and services are sufficient to meet their security needs or that our platform only serves the needs of a portion of the enterprise security market. Accordingly, these organizations may continue allocating their information technology budgets for legacy products and servicescontrol and may not adopt our security platform. Further, many organizations have invested substantial personnel and financial resourcesbe difficult 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 regardless of product performance, features, or greater services offerings or may be more willing to incrementally add solutions to their existing security infrastructure from existing suppliers than to replace it wholesale with our solutions.
Conditionspredict, including those factors described in our market could change rapidly and significantly as a result of technological advancements, partnering or acquisitions by our competitors, or continuing market consolidation. New start-up companies that innovate and large competitors that are making significant investments in research and development may invent similar or superior products and technologies that compete with our products and subscriptions. 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. Any failure to meet and address these factors could seriously harm our business and operating results.
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 now engage in intrusions and attacks (including advanced persistent threat intrusions) and add to the risks to our internal networks and the information they store and process. Despite significant efforts to create security barriers to such threats, it is virtually impossible for us to entirely mitigate these risks. Furthermore, as a well-known provider of security solutions, we may be a more attractive target for such attacks. A breach in our data security could compromise our networks or networks secured by our products and subscriptions, creating system disruptions or slowdowns and exploiting security vulnerabilities of our products, and the information stored on our networks could be accessed, publicly disclosed, altered, lost, or stolen, which could subject us to liability and cause us financial harm. Although we have not yet experienced significant damages from unauthorized access by a third party of our internal network, any actual or perceived breach of network security in our internal systems could result in 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 costly litigation. Any of these negative outcomes could adversely impact the market perception of our products and subscriptions and investor confidence in our company and could seriously harm our business or operating results.
Reliance on shipments at the end of the quarter could cause our revenue for the applicable period to fall below expected levels.
As a result of end-customer buying patterns and the efforts of our sales force and channel partners to meet or exceed their sales objectives,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 thea 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, which could adversely impactquarter. Due to these fluctuations, comparing our business andrevenue, margins, or other operating results on a period-to-period basis may not be meaningful, and causeour 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 decline inparticular period. If we fail to meet or exceed such expectations for these, or any other, reasons, the market price of our common stock.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
seasonal reductions in business activity during August in the United States, Europe and certain other regions, which potentially results in a negative impact on our first fiscal quarter revenue; 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 hire, integrate, train, retain,sell new and motivate qualified personneladditional product, subscription, and senior management,support offerings to our business could suffer.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 continue to hire, integrate, train, and retain qualified and highly skilled personnel. We are substantially dependent onexpand the continued servicedeployment of our portfolio with existing engineering personnel becauseend-customers, especially large enterprise customers, 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 complexity of our platform. Additionally, any failure to hire, integrate, train, and adequately incentivize our sales personnel or the inability of our recently hired sales personnel to effectively ramp to target productivity levels could negatively impact our growth and operating margins. Competition for highly skilled personnel, particularly in engineering, is often intense, especially in the San Francisco Bay Area, where we have a substantial presence andperceived need for such personnel. Additionally, potential changes in U.S. immigrationadditional security products, including subscription and work authorization laws and regulations may make it difficultsupport offerings, as well as general economic conditions. If our efforts to renew or obtain visas for any highly skilled personnel that we have hired or are actively recruiting.
In addition, the industry in which we operate generally experiences high employee attrition. Although we have entered into employment offer letters with our key personnel, these agreements have no specific duration and constitute at-will employment. We do not maintain key person life insurance policies on any of our employees. The loss of one or more of our key employees could seriously harm our business. 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.
Our future performance also depends on the continued services and continuing contributions of our senior management to execute on our business plan and to identify and pursue new opportunities and product innovations. The loss of services of senior management or the ineffective management of any leadership transitions, especially within our sales organization, could significantly delay or prevent the achievement of our development and strategic objectives, which could adversely affect our business, financial condition, and operating results.
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, 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. 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.
If we are not successful in executing our strategy to increase sales of oursell additional products and subscriptions to new and existing medium andour 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 operating results may suffer.
Our growth strategy, is dependent, in part, upon increasing sales of our products to new and existing medium and large enterprise end-customers. Sales to these end-customers involve risks that may not be present, or that are present to a lesser extent, with sales to smaller entities. These risks include:
competition from larger competitors,entities, such as Cisco, Check Point, and Juniper, that traditionally target larger enterprises, service providers, and government entities and that may have pre-existing relationships or purchase commitments from those end-customers;
increased purchasing power and leverage held by large end-customers in negotiating contractual arrangements with us;

more stringent requirements in our worldwide support contracts, including stricter support response times and penalties for any failure to meet support requirements; and
(a) longer sales cycles in some cases over 12 months, 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 subscriptions.
At the beginning of fiscal 2017, we experienced execution challenges with respect to certain elements of our go-to-market strategy. While we havesupport, and will continue to implement changes to our go-to-market strategy that are designed to address these challenges, such changes may be difficult to implement(b) increased purchasing power and result in further disruptions to our sales organization or, once implemented, fail to resolve these challenges, which could impact our results of operations. In addition, product purchasesleverage held by large enterprisesend-customers in negotiating contractual arrangements. Deployments for large enterprise end-customers are frequently subject to budget constraints, multiple approvals, and unplanned administrative, processing, and other delays. Finally, large enterprises typically have longer implementation cycles,also more complex, require greater product functionality, and scalability, and a broader range of services, demand that vendors take on a larger share of risks, sometimes require acceptance provisions that can lead to a delay in revenue recognition, and expect greater payment flexibility from vendors.are more time-consuming. All of these factors can add further risk to business conducted with these end-customers. If we failFailure to realize an expected salesales from a large end-customer in a particular quarter or at all,enterprise end-customers could materially and adversely affect our business, operating results, and financial condition could be materially and adversely affected.condition.
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 62.9%81.8% of total revenue in the sixthree months ended JanuaryOctober 31, 20182023 and 59.5%78.9% of total revenue in the sixthree months ended JanuaryOctober 31, 2017.2022. Sales and renewals of new or renewal 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, the prices of products and services offered by our competitors, 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 monthly over the term of the relevant service period, which is typically one to five years. As a result, much of the subscription and support revenue we report each fiscal quarter is the recognition of deferred revenue from subscription and support contracts entered into during previous fiscal quarters. Consequently,years, a decline in new or renewed 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. Also, it is difficult for us to rapidly increase
The sales prices of our subscriptionproducts, subscriptions, and support offerings may decrease, which may reduce our revenue through additional subscriptionand gross profits and adversely impact our financial results.
The sales prices for our products, subscriptions, and support salesofferings may decline for a variety of reasons, including competitive pricing pressures, discounts, a change in any period, as revenue from new and renewal subscriptionour mix of products, subscriptions, and support contracts must be recognized overofferings, anticipation of the applicable service period.
Defects, errors, or vulnerabilities in ourintroduction of new products, subscriptions, or support offerings, or promotional programs or pricing pressures. Furthermore, we anticipate that the failure of our products or subscriptions to block a virus or prevent a security breach, misuse of our products, or risks of product liability claims could harm our reputationsales prices 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 may cause our products or subscriptions to be vulnerable to security attacks, cause them to fail to help secure networks, or temporarily interrupt end-customers’ networking traffic. 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. Furthermore, as a well-known provider of security solutions, our networks, products, including cloud-based technology, and subscriptions could be targeted by attacks specifically designed to disrupt our business and harm our reputation. In addition, defects or errors in our subscription updates orgross profits for our products could result in a failure of our subscriptions to effectively update end-customers’ hardware and cloud-based products. Our data centers and networks may experience technical failures and downtime, may fail to distribute appropriate updates, 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 different specifications, utilize multiple protocol standards, deploy products from multiple vendors, and contain multiple generations of products that have been addeddecrease over time. As a result, when problems occur in a network, it may be difficult to identify the sources of these problems.
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, or investigations that 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. We maintain insurance to protect against certain claims associated with the use of our products and subscriptions, but our insurance coverage may not adequately cover any claim asserted against us. 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.
False detection of applications, viruses, spyware, vulnerability exploits, data patterns, or URL categorieslife cycles. Declining sales prices could adversely affect our business.
Our classifications of application type, virus, spyware, vulnerability exploits, data, or uniform resource locator (“URL”) categories may falsely detect, reportrevenue, gross profits, 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. If our products and subscriptions restrict important files or applications based on falsely identifying them as malware or some other item that should be restricted, this could adversely affect end-customers’ systems and cause material system failures. Any such false identification of important files or applications 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.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, 2023, three distributors individually represented 10% or more of our total revenue and in the aggregate represented 46.0% of our total revenue. As of October 31, 2023, two distributors individually represented 10% or more of our gross accounts receivable and in the aggregate represented 31.5% of our gross accounts receivable.
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.
If we do not accurately predict, prepare for, and respond promptly to the 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 market, our competitive position and prospects will be harmed.
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The enterprise security market has grown quickly and is expected to continue 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 accurately predict end-customers’ changing needs and emerging technological trends in the enterprise security industry, including in the areas of mobility, virtualization, cloud computing, and software defined networks (“SDN”), our business could be harmed. The technology in our platform 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 platform features and related platform enhancements may require us to develop new hardware architectures that involve complex, expensive, and time-consuming research and development processes. The development of our platform 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 platform features. If we experience unanticipated delays in the availability of new products, platform features, and subscriptions, and fail to meet customer expectations for such availability, our competitive position and business prospects will be harmed.
Additionally, we must commit significant resources to developing new platform features before knowing whether our investments will result in products, subscriptions, and platform features the market will accept. The success of new platform features depends on several factors, including appropriate new product definition, differentiation of new products, subscriptions, and platform features from those of our competitors, and market acceptance of these products, services and platform 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 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, or achieve market acceptance of our products and subscriptions, or that products, subscriptions, and technologies developed by others will not render our products, subscriptions, or technologies obsolete or noncompetitive.
Our current research and development efforts may not produce successful products, subscriptions, or platform features that result in significant revenue, cost savings or other benefits in the near future, if at all.
Developing our products, subscriptions, platform features, and related enhancements is expensive. Our investments in research and development may not result in significant design improvements, marketable products, subscriptions, or platform features, or may result in products, subscriptions, or platform features that are more expensive than anticipated. Additionally, we may not achieve the cost savings or the anticipated performance improvements we expect, and we may take longer to generate revenue, or generate less revenue, than we anticipate. Our future plans include significant investments in research and development and related product and subscription opportunities. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. However, we may not receive significant revenue from these investments in the near future, if at all, or these investments may not yield the expected benefits, either of which could adversely affect our business and operating results.
Because we depend on manufacturing partners to build and ship our 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 a subsidiary of Flextronics International, Ltd. (“Flex”), our electronics manufacturing service provider (“EMS provider”), as sole source manufacturers for our product lines. Our reliance on these manufacturing partners reduces our control over the manufacturing process and exposes us to risks, including reduced control over quality assurance, product costs, product supply, timing and transportation risk. Our products are manufactured by our manufacturing partners at facilities located 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 products that are sourced outside the United States may subject us to additional logistical risks 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 which could severely impair our ability to fulfill orders.
In addition, we are subject to requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) to diligence, disclose, and report whether or not our products contain minerals originating from the Democratic Republic of the Congo and adjoining countries, or conflict minerals. Although the SEC has provided guidance with respect to a portion of the conflict minerals filing requirements that may somewhat reduce our reporting practices, we have incurred and expect to incur additional costs to comply with these disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products. These requirements could adversely affect the sourcing, availability, and pricing of minerals used in the manufacture of semiconductor devices or other components used in our products. We may also encounter end-customers who require that all of the components of our products be certified as conflict free. If we are not able to meet this requirement, such end-customers may choose not to purchase our products.
Our manufacturing partners typically fulfill our supply requirements on the basis of individual 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, 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.
Managing the supply of our products and product components is complex. Insufficient supply and inventory may result in lost sales opportunities or delayed revenue, while excess inventory may harm our gross margins.
Our manufacturing partners procure components and build our 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 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 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 products come from limited sources of supply, we are susceptible to supply shortages or supply changes, which could disrupt or delay our scheduled product deliveries to our end-customers and may result in the loss of sales and end-customers.
Our 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, a power outage, or a localized health risk, and as a result could impair the volume of components that we are able to obtain.     
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 products could be delayed or halted or we could be forced to expedite shipment of such components or our 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, and because we do not have volume purchase contracts with these 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 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 products and the expense of redesigning our products could result in lost sales opportunities and damage to customer relationships, which would adversely affect our business and operating results.
The sales prices of our products and subscriptions may decrease, which may reduce our gross profits and adversely impact our financial results.
The sales prices for our products and subscriptions may decline for a variety of reasons, including competitive pricing pressures, discounts, a change in our mix of products and subscriptions, anticipation of the introduction of new products or subscriptions, or promotional programs. Competition continues to increase in the market segments in which we participate, and we expect competition to further increase in the future, thereby leading to increased pricing pressures. Larger competitors with more diverse product and service offerings may reduce the price of products or subscriptions that compete with ours or may bundle them with other products and subscriptions. Additionally, although we price our products and subscriptions worldwide in U.S. dollars, currency fluctuations in certain countries and regions may negatively impact actual prices that channel partners and end-customers are willing to pay in those countries and regions. Furthermore, we anticipate that the sales prices and gross profits for our products will decrease over product life cycles. We cannot guarantee that we will be successful in developing and introducing new offerings with enhanced functionality on a timely basis, or that our product and subscription offerings, if introduced, will enable us to maintain our prices and gross profits at levels that will allow us to achieve and maintain profitability.

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 have a limited history of marketing, selling, and supporting our products and subscriptions internationally. We may experience difficulties in recruiting, training, managing, and retaining an international staff, and specifically staff related to sales management and sales personnel. We also may not be able to maintain successful strategic distributor relationships internationally or recruit additional companies to enter into strategic distributor relationships. 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, macroeconomic challenges in Europe, terrorist activities, and continued hostilities in the Middle East;
greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods;
the uncertainty of protection for intellectual property rights in some countries;
greater risk of unexpected changes in foreign and domestic regulatory practices, tariffs, and tax laws and treaties, including regulatory and trade policy changes adopted by the current administration;
risks associated with trade restrictions and foreign legal requirements, including the importation, certification, and localization of our products required in foreign countries;
greater risk of a failure of foreign employees, channel partners, distributors, and resellers to comply with both U.S. and foreign laws, including antitrust regulations, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, U.S. or foreign sanctions regimes and export or import control laws, and any trade regulations ensuring fair trade practices, which non-compliance could include increased costs;
heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements;
increased expenses incurred in establishing and maintaining office space and equipment for our international operations;
management communication and integration problems resulting from cultural and geographic dispersion; and
fluctuations in exchange rates between the U.S. dollar and foreign currencies in markets where we do business and related impact on sales cycles.
These and other factors could harm our ability to gain 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.
Further, we are subject to risks associated with changes in economic and political conditions in countries in which we operate or sell our products and subscriptions. For instance, as a result of “Brexit,” it is expected that the British government will begin negotiating the terms of the U.K.’s withdrawal from the E.U. A withdrawal could, among other outcomes, disrupt the free movement of goods, services and people between the U.K. and the E.U., undermine bilateral cooperation in key policy areas and significantly disrupt trade between the U.K. and the E.U.; however, the full effects of Brexit are uncertain and will depend on any agreements the U.K. makes to retain access to E.U. markets either during a transitional period or more permanently. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. Given these possibilities and others we may not anticipate, as well as the lack of comparable precedent, the full extent to which our business, operating results and financial condition could be adversely affected by Brexit is uncertain.
The withdrawal of the U.K. from the E.U. may also create global economic uncertainty, which may cause our end-customers to closely monitor their costs and reduce their spending budgets. Any of these effects of Brexit, among others noted above, could adversely affect our business, financial condition, operating results and cash flows.
We are exposed to fluctuations in 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, substantially all of our revenue is not subject to foreign currency risk. However, including as a result of concerns regarding the impact of Brexit, there has been, and may continue to be, significant volatility in global stock markets and foreign currency exchange rates that result in the strengthening of the U.S. dollar against foreign currencies in which we conduct business. The strengthening of the U.S. dollar increases the real cost of our platform to our end-customers outside of the United States and may lead to delays in the purchase of our products, subscriptions, and support, and the lengthening of our sales cycle. If the U.S. dollar continues to strengthen, this 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, may result in greater foreign currency denominated sales, increasing our foreign currency risk.
Our operating expenses incurred outside the United States and denominated in foreign currencies are 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 January 31, 2018, the total notional amount of our outstanding foreign currency forward contracts was $149.4 million. Refer to Note 4. Derivative Instruments in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on our hedging transactions. 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.
A small number of channel partners represent a large percentage of our revenue and gross accounts receivable. We are exposed to the credit and liquidity risk of some of our channel partnerscustomers, and to credit exposure in weakened markets, which could result in material losses.
For the six months ended January 31, 2018, three distributors represented 67.1% of our total revenue, and as of January 31, 2018, three distributors represented 72.3% of our gross accounts receivable. Most of our sales to our channel partners are made on an open credit basis. AlthoughBeyond our open credit arrangements, we have programsalso experienced demands for customer financing and deferred payments due to, among other things, macro-economic conditions. To respond to this demand, our customer financing activities have increased and will likely continue to increase in placethe future. 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 are designed to monitor and mitigate these risks, we cannot guarantee these programs will be effective in reducing our credit risks, especially as we expandrisks. 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, internationally.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 subscriptionssupport 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 subscriptionssupport 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 subscriptions.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 subscriptions,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 costhigh-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 subscriptionssupport 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 abilitymain competitors fall into four categories:
•large companies that incorporate security features in their products, such as Cisco, Microsoft, or those that have acquired, or may acquire, security vendors and have the technical and financial resources to sellbring competitive solutions to the market;
•independent security vendors, such as Check Point, Fortinet, CrowdStrike, and Zscaler, 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).
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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, is dependent on the quality of our technical supportincluding incorporating cybersecurity features into their existing products or services and those of our channelproduct 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 failuremarket 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 offer high-quality technical support services coulddesign and operate their networks and have established deep relationships with other providers of networking and security products. As a material adverse effect onresult, 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 end-customers’ satisfactioncustomers 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,subscriptions.
Conditions in our sales,market could change rapidly and significantly as a result of technological advancements, partnering or acquisitions by our operating results.
After ourcompetitors, 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 subscriptions are deployed withinservices, disrupt 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. Our channel partners often provide similar technical support for third parties’ products,markets, and may therefore have fewer resources to dedicate to the support of our productsincrease sales by utilizing different distribution channels than we do. In addition, new and subscriptions. If we or our channel partners do not effectively assist our end-customers in deploying our productsenhanced technologies, including AI and subscriptions, succeed in helping our end-customers quickly resolve post-deployment issues, or provide effective ongoing support, our ability to sell additional products and subscriptions to existing end-customers would be adversely affected and our reputation with potential end-customers could be damaged. 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 we or our channel partners fail to meet the requirements of these larger end-customers, it may be more difficult to execute on our strategymachine learning, continue to increase our coverage with larger end-customers. Additionally, if our channel partners do not effectively provide support to the satisfactioncompetition. 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 end-customers,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 may be requiredare unable to provide direct support to such end-customers, which would requirecompete successfully, or if competing successfully requires us to hire additional personnel and to invest in additional resources. It can take several months to recruit, hire, and train qualified technical support employees. We may not be able to hire such resources fast enough to keep up with unexpected demand, particularly if the sales of our products exceed our internal forecasts. As a result, our ability, and the ability of our channel partners to provide adequate and timely

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 our support resources, our sales productivity will be negatively impacted, which would harm our revenues. Our failureaggressive pricing or our channel partners’ failure to provide and maintain high-quality support services could have a material adverse effect onother actions, our business, financial condition, and operating results.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, dilute stockholder value, and adversely affect our operating results.results, may not result in the expected benefits of such acquisitions, and may dilute stockholder value.
As part of our business strategy, we may acquire orand make investments in complementary companies, products, or technologies. For example, in April 2014, we acquired Cyvera Ltd. (“Cyvera”), in May 2015, we acquired CirroSecure, Inc., and in February 2017 we acquired LightCyber Ltd. (“LightCyber”). Our ability as an organization to acquire and integrate other companies, products, or technologies in a successful and timely manner is still relatively unproven. The identification of suitable acquisition candidates is difficult, and we may not be able to complete such acquisitions on favorable terms, if at all. If we do complete future acquisitions, we may not ultimately strengthen our competitive position or achieve our goals and business strategy,In addition, we may be subject to claims or liabilities assumed from an acquired company, product, or technology, and anytechnology; acquisitions we complete could be viewed negatively by our end-customers, investors, and securities analysts. In addition, ifanalysts; 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, 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 and operations associated with such acquisitions, into our company, theour revenue and operating results of the combined company 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.successfully or in a timely manner. We may have difficulty retaining key personnel of the acquired business. We may not successfully evaluate or utilize the acquired technology 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. 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.
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. See the risk factors entitled “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” and “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 all other stockholders.” The occurrence of any of these risks could harm our business, operating results, and financial condition.
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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.
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. AI presents challenges and risks that could affect our products and solutions, and therefore our business. For example, AI algorithms may have flaws, and datasets used to train models may be insufficient or contain biased information. These potential issues could subject us to regulatory risk, legal liability, including under new proposed legislation regulating AI in jurisdictions such as the EU and regulations being considered in other jurisdictions, and 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.
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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.
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 may cause our products or subscriptions to be vulnerable to security attacks, cause them to fail to help secure networks, or temporarily interrupt end-customers’ networking traffic. 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 our subscription updates or our products could result in a failure to effectively update end-customers’ hardware and cloud-based products. Our data centers and networks 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.
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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.
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 proprietary technology or otherintellectual 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 or otherrights. 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, in December 2011, Juniper, one
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Table of our competitors, filed a lawsuit against us alleging patent infringement. In September 2013, we filed a lawsuit against Juniper alleging patent infringement. In May 2014, we entered into a Settlement, Release and Cross-License Agreement with Juniper to resolve all pending disputes between Juniper and us, including dismissal of all pending litigation.Contents
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, or products, subscriptions, and subscriptions.services. As the number of products and competitorswe expand our footprint, both in our market increasesplatforms, products, subscriptions, and services and geographically, more overlaps occur and we may face more infringement claims may increase. both in the United States and abroad.
While we intend to increasehave 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 mayhas involved and will likely continue to involve patent holdingpatent-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.

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 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.
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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 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 re-engineerreengineer our products and subscriptions, to discontinue the sale of our products and subscriptions if re-engineeringreengineering 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.
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 reliance on these manufacturing partners reduces our control over the manufacturing process and exposes us to risks, including reduced control over quality assurance, product costs, product supply, timing, and transportation risk. 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 or risks associated with complying with local rules and regulations in foreign countries.
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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, all of which could severely impair our ability to fulfill orders.
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.
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.
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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.
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 in Europe, terrorist activities, Russia’s invasion of Ukraine, tensions between China and Taiwan, the recent 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 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 denominated in U.S. dollars, and therefore, 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, may result in foreign currency denominated sales, increasing our foreign currency risk.
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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, 2023, the total notional amount of our outstanding foreign currency forward contracts was $777.9 million. 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.
We face risks associated with having operations and employees located in Israel.
As a result ofWe have business operations in Israel, and intend to continue growing our acquisitions of Cyvera and LightCyber, we have an office and employees locatedpresence in Israel. As a result, political, economic, and military conditionsOur operations in Israel directly affect our operations.could be disrupted by political instability, civil unrest, terrorist attacks, acts of violence, acts of war, or other military actions, including the recent hostilities in Israel and the surrounding region. The future of peace efforts between Israel and its Arab neighbors remains uncertain. There has been a significant increase in hostilities and political unrest between Hamas and Israel in the past few years. The effects of these 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.circumstances, which has occurred as a result of recent 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.
Our failure to adequately protect personal information could have a material adverse effect on our business.
A wide variety of provincial, state, national, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data. These data protection and privacy-related laws and regulations are evolving and being tested in courts and may result in ever-increasing regulatory and public scrutiny as well as escalating levels of enforcement and sanctions. Further, the interpretation and application of foreign laws and regulations in many cases is uncertain, and our legal and regulatory obligations in foreign jurisdictions are subject to frequent and unexpected changes, including the potential for various regulatory or other governmental bodies to enact new or additional laws or regulations, to issue rulings that invalidate prior laws or regulations, or to increase penalties significantly. For example, the recently adopted E.U. General Data Protection Regulation, effective in May 2018, imposes more stringent data protection requirements, and provides for greater penalties for noncompliance. Our failure to comply with applicable laws and regulations, or to protect personal data, could result in enforcement action against us, including fines, imprisonment of company officials and public censure, claims for damages by end-customers and other affected individuals, damage to our reputation and loss of goodwill (both in relation to existing end-customers and prospective end-customers), any of which could have a material adverse effect on our operations, financial performance, and business. Evolving and changing definitions of personal data and personal information, within the E.U., the United States, and elsewhere, especially relating to classification of Internet Protocol (“IP”) addresses, machine identification, 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 of data. Even the perception of privacy concerns, whether or not valid, may harm our reputation and inhibit adoption of our products and subscriptions by current and future end-customers.
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.
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RISKS RELATED TO PRIVACY AND DATA PROTECTION
Our actual or perceived failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products and subscriptionsadequately protect personal data could reduce our ability to compete and could harmhave a material adverse effect on our business.
We intendA wide variety of laws and regulations apply to continuethe 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 make investmentsfrequent and unexpected changes, new or additional laws or regulations may be adopted, and rulings that invalidate prior laws or regulations may be issued. For example, we are subject to support our business growththe E.U. General Data Protection Regulation (“E.U. GDPR”) and may require additional fundsthe 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 respondthe 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 business challenges, includinglodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations.
The GDPR requires, among other things, that personal data be transferred outside of the needE.U. (or, in the case of the U.K. GDPR, the U.K.) to develop new featuresthe 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 enhance our platform, improve our operating infrastructure,carry out such transfers and to receive personal data subject to the GDPR (directly or acquire complementary businesses and technologies. Accordingly,indirectly) in the United States. In the future, we may needself-certify to engagethe EU-U.S. Data Privacy Framework (“EU-U.S. DPF”), which has been approved for transfers of personal data subject to the GDPR to the United States and requires public disclosures of adherence to data protection principles and the submission of jurisdiction to European regulatory authorities. Following the “Schrems II” decision by the Court of Justice of the European Union, transfers of personal data to recipients in equity or debt financingsthird countries are also subject to secure additional funds. Ifassessments and safeguards beyond the implementation of approved transfer mechanisms. The decision imposed a requirement for companies to carry out an assessment of the laws and practices governing access to personal data in the third country to ensure an essentially equivalent level of data protection to that afforded in the E.U.
Among other effects, we raise additional equity or equity-linked financing, our stockholders may experience significant dilution of their ownership interestsadditional 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 market price ofU.K. (collectively, “Europe”) to use our common stock could decline. For example, in June 2014, we issued the Notes and any conversion of some or allproducts, on account of the Notes into common stock will diluterisks identified in the ownership interests of existing stockholders to the extent we deliver shares upon conversion of any of the Notes. See the risk factor entitled “The issuance of additional stock in connection with financings, acquisitions, investments, our stock incentive plans, the conversion of our Notes, or otherwise will dilute all other stockholders.” Furthermore, if we engage in additional debt financing, the holders of our debt would have priority over the holders of our common stock,Schrems II decision, and we may be requiredfind it necessary or desirable to accept terms that restrictmake further changes to our abilityprocessing 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 indebtedness. We may also be required to take other actions that would otherwise becosts, including in the interests ofevent we self-certify to the debt holdersEU-U.S. DPF. Moreover, much like with Schrems II, we anticipate future legal challenges to the approved data transfer mechanisms between Europe and would require usthe United States, including a challenge to maintain specified liquidity or other ratios, any of whichthe EU-U.S. DPF. Such legal challenges could harmresult in additional legal and regulatory risk, compliance costs, and in our business, operating results, and financial condition being harmed. Additionally, we and our customers may face risk of enforcement actions by data protection authorities in Europe relating to personal data transfers to us and by us from Europe. Any such enforcement actions could result in substantial costs 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.
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, additional state privacy laws have been passed and will require potentially substantial efforts to obtain compliance. These include laws enacted in at least nine states, which all go into effect by January 1, 2026.
We may notalso from time to time be ablesubject to obtain additional financing on terms favorableobligations relating to us, if at all. Ifpersonal data by contract, or face assertions that we are unablesubject to obtain adequate financingself-regulatory obligations or financing on terms satisfactoryindustry 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 us whenthe 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. New legislation affecting the scope of personal data and personal information where we require it,or our customers and partners have operations, especially relating to classification of Internet Protocol (“IP”) addresses, machine identification, AI, location data, and other information, may limit or inhibit our ability to continue to supportoperate or expand our business, growthincluding limiting strategic partnerships that may involve the sharing or uses of data, and may require significant expenditures and efforts in order to respondcomply. 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 business challengesthese laws and regulations, or new laws and regulations, could be significantly impaired, andimpose significant limitations, or require changes to our business model or practices or growth strategy, which may be adversely affected.
We have a corporate structure aligned with the international nature ofincrease our compliance expenses and make our business activities,more costly or less efficient to conduct.
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Tax, Accounting, Compliance, and if we do not achieve increased tax benefits as a result of our corporate structure, our financial condition and operating results could be adversely affected.
We have reorganized our corporate structure and intercompany relationships to more closely align with the international nature of our business activities. This corporate structure may allow us to reduce our overall effective tax rate through changes in how we use our intellectual property, international procurement, and sales operations. This corporate structure may also allow us to obtain financial and operational efficiencies. These efforts require us to incur expenses in the near term for which we may not realize related benefits. If the structure is not accepted by the applicable tax authorities, if there are any changes in domestic and international tax laws that negatively impact the structure, including, but not limited to, the Tax Cuts and Jobs Act (“TCJA”) and guidance regarding base erosion and profit shifting (“BEPS”) provided by the Organisation for Economic Co-operation and Development, or if we do not operate our business consistent with the structure and applicable tax provisions, we may fail to achieve the reduction in our overall effective tax rate and the other financial and operational efficiencies that we anticipate as a result of the structure and our future financial condition and operating results may be negatively impacted.Regulatory Risks
We may have exposure to greater than anticipated tax liabilities.
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 and harm our financial position and operating results. 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 aan examination, review or audit could result in additional tax liabilities and penalties and otherwise have a negative effect on our financial position and operating results. 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 inon our

condensed 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. In the United States, the TCJA contains many significant changes to the U.S. federal income tax laws, the consequences of which, to us, have not yet been fully determined and which could have material impact on the value of our deferred tax assets and could increase our future U.S. income tax expense. Furthermore, changes to the taxation of undistributed foreign earnings, if any, could change our future intentions regarding reinvestment of such earnings. The foregoing items could have a material adverse effect on our business, cash flows, results of operations, or financial condition.
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 inon 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 values 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. Additionally, as we work toward adopting and implementing the new revenueIn general, if our estimates, judgments or assumptions relating to our critical accounting standard, management will make judgments and assumptions based on our interpretation of the new standard. The new revenue standard is principle based and interpretation of those principles may vary from company to company based on their unique circumstances. It is possible that interpretation, industry practice, and guidance may evolve as we work toward implementing the new standard. If our assumptionspolicies 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 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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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.
If we fail to comply with environmental requirements, our business, financial condition, operating results, and reputation could be adversely affected.
We are subject to various environmental laws and regulations including laws governing the hazardous material content of our products and laws relating to the collection of and recycling of electrical and electronic equipment. Examples of these laws and regulations include the E.U. Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment Directive (“RoHS”) and the E.U. Waste Electrical and Electronic Equipment Directive (“WEEE Directive”), as well as the implementing legislation of the E.U. member states. Similar laws and regulations have been passed or are pending in China, South Korea, Norway, and Japan and may be enacted in other regions, including in the United States, and we are, or may in the future be, subject to these laws and regulations.
The E.U. RoHS and the similar laws of other jurisdictions limit the content of certain hazardous materials such as lead, mercury, and cadmium in the manufacture of electrical equipment, including our products. Our current products comply with the E.U. RoHS requirements. However, if there are changes to this or other laws (or their interpretation) or if new similar laws are passed in other jurisdictions, we may be required to reengineer our products to use components compatible with these regulations. This reengineering and component substitution could result in additional costs to us or disrupt our operations or logistics.
The WEEE Directive requires electronic goods producers to be responsible for the collection, recycling, and treatment of such products. Changes in interpretation of the directive may cause us to incur costs or have additional regulatory requirements to meet in the future in order to comply with this directive, or with any similar laws adopted in other jurisdictions.

We are also subject to environmental laws and regulations governing the management of hazardous materials, which we use in small quantities in our engineering labs. Our failure to comply with past, present, and future similar laws could result in reduced sales of our products, substantial product inventory write-offs, reputational damage, penalties, and other sanctions, any of which could harm our business and financial condition. We also expect that our products will be affected by new environmental laws and regulations on an ongoing basis. To date, our expenditures for environmental compliance have not had a material impact on our operating results or cash flows, and although we cannot predict the future impact of such laws or regulations, they will likely result in additional costs and may increase penalties associated with violations or require us to change the content of our products or how they are manufactured, which could have a material adverse effect on our business, operating results, and financial condition.
Our business is subject to the risks of earthquakes, fire, power outages, floods, 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, terrorism, an armed conflict, or other geo-political unrest could affect our supply chain, manufacturers, logistics providers, channel partners, or 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.
Risks Related to Our Notes and Common Stock
We may not have the ability to raise the funds necessary to settle conversions of theour Notes, or to repurchase theour 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 theour Notes.
HoldersIn June 2020, we issued our 2025 Notes. We will need to make cash payments (a) if holders of theour 2025 Notes will have the right to 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 a repurchase price equal to 100%their maturity unless earlier converted or repurchased. Effective November 1, 2023 through January 31, 2024, 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 $2.0 billion principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid special interest, if any, to, but excluding,in cash. Under the fundamental change repurchase date. In addition, upon conversionterms of the 2025 Notes, we will be requiredalso have the option to make cash payments for each $1,000settle the amount of our conversion obligation in excess of the aggregate principal amount of the 2025 Notes convertedin cash or shares of at least the lesserour common stock. If our cash provided by operating activities, together with our existing cash, cash equivalents, and investments, and existing sources of $1,000 and the sum of the daily conversion values. However,financing, are inadequate to satisfy these obligations, we will need to obtain third-party financing, which may not have enoughbe available cashto us on commercially reasonable terms or be ableat all, to obtain financing at the time we are required to make repurchases of Notes surrendered therefor or pay cash with respect to Notes being converted.meet these payment obligations.
In addition, our ability to repurchase or to pay cash upon conversion of theour 2025 Notes may be limited by law, regulatory authority, or agreements governing our future indebtedness. Our failure to repurchase theour 2025 Notes at a time when the repurchase is required by the applicable indenture governing thesuch 2025 Notes or to pay cash upon conversion of thesuch 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 theour 2025 Notes or to pay cash upon conversion of theour 2025 Notes.
We may still incur substantially more debt or take other actions that would diminish our ability to make payments on theour Notes when due.
We and our subsidiaries may be able to incur substantial additional debt in the future, subject to the restrictions contained in our debt instruments, some of which may be secured debt. We are not restricted under the terms of the indenture governing the Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that are not limited by the terms of the indenture governing the Notes that could have the effect of diminishing our ability to make payments on theour 2025 Notes when due. While the terms of any future indebtedness we may incur could restrict our ability to incur additional indebtedness, any such restrictions will indirectly benefit holders of the Notes only to the extent any such indebtedness or credit facility is not repaid or does not mature while the Notes are outstanding.
Risks Related to Ownership of Our Common Stock
Our actual operating results may differ significantly from our guidance.
From time to time, we have released, and may continue to release, guidance in our quarterly earnings releases, quarterly earnings conference calls, or otherwise, regarding our future performance that represents our management’s estimates as of the date of release. This guidance, which includes forward-looking statements, has been and will be based on projections prepared by our management. These projections are not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public Accountants, and neither our registered public accountants nor any other independent expert or outside party

compiles or examines the projections. Accordingly, no such person expresses any opinion or any other form of assurance with respect to the projections.
Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change. The rapidly evolving market in which we operate may make it difficult to evaluate our current business and our future prospects, including our ability to plan for and model future growth. We intend to state possible outcomes as high and low ranges which are intended to provide a sensitivity analysis as variables are changed. However, actual results will vary from our guidance and the variations may be material. The principal reason that we release guidance is to provide a basis for our management to discuss our business outlook as of the date of release with analysts and investors. We do not accept any responsibility for any projections or reports published by any such persons. Investors are urged not to rely upon our guidance in making an investment decision regarding our common stock.
Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this “Risk Factors” section in this Quarterly Report on Form 10-Q could result in our actual operating results being different from our guidance, and the differences may be adverse and material.
The market price of our common stock historically has been volatile, and the value of youran 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 since our initial public offering (“IPO”). Since shares of our common stock were sold in our IPO in July 2012 at a price of $42.00 per share, the reported high and low sales prices of our common stock has ranged from $200.55could be subject to $39.08, through February 15, 2018. The market price of our common stock may fluctuate widelywide fluctuations in response to various factors, some of which are beyond our control.control and unrelated to our business, operating results, or financial condition. These factors include: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;
•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;
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•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- lookingforward-looking statements, our failure to meet such expectationexpectations 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;
sales of our common stock by investors who view the Notes as a more attractive means of equity participation in us;
hedging or arbitrage trading activity involving our common stock as a result of the existence of the Notes;
•departures of key personnel; or
•geopolitical or economic uncertainty around the world, in particular, macroeconomic challenges in Europe.world.
The market price of our common stock could decline for reasons unrelated to our business, operating results, or financial condition and as a result of events that do not directly affect us. 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, and divert our management’s attention and resources from our business. This couldbusiness, 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. In addition, we also entered into warrant transactions in connection with our 2023 Notes (together with the 2025 Warrants, the “Warrants”). 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 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 Warrants unless, subject to certain conditions, we elect to cash settle such 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,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 warrants,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 recently announced 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.
In February 2017,As of October 31, 2023, we had $683.3 million available under our share repurchase program. On November 16, 2023, our board of directors authorized a $500.0$316.7 million increase to our existing share repurchase program, bringing the total remaining authorization for future share repurchases to $1.0 billion, funded from available working capital. This authorization is an increase to the existing $500.0 millionbillion. The repurchase authorization previously approved by our board of directors in August 2016. Additionally, our board of directors extended the term of the repurchase authorization, which will now expire on December 31, 2018.2024, and may be suspended or discontinued at any time without prior notice. Such share repurchase program may be suspended or discontinued by the Company at any time without prior notice. Although our board of directors has authorized a share repurchase program, the share repurchase program doeswe are not obligate usobligated to repurchase any specific dollar amount or to acquire any specific number of shares.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, itthe program may be suspended or terminated at any time, which may result in a decrease in the price of our common stock.
We are subject to risks associated with our strategic investments. Other-than-temporary impairments in the value of our investments could negatively impact our financial results.
In June 2017, we announced our plans to form the $20.0 million Palo Alto Networks Venture Fund. The fund is aimed at seed-, early-, and growth-stage security companies with a cloud-based application approach. We may not realize a return on our capital investments. Many such private companies generate net losses and the market for their products, services or technologies may be slow to develop, and, therefore, are dependent on the availability of later rounds of financing from banks or investors on favorable terms to continue their operations. The financial success of our investment in any company is typically dependent on a liquidity event, such as a public offering, acquisition or other favorable market event reflecting appreciation to the cost of our initial investment. The capital markets for public offerings and acquisitions are dynamic and the likelihood of liquidity events for the companies we have and intend to invest in could significantly change. Further, valuations of privately-held companies are inherently complex due to the lack of readily available market data and as such, the basis for these valuations is subject to the timing and accuracy of the data received from these companies. If we determine that any of our investments in such companies have experienced a decline in value, we may be required to record an other-than-temporary impairment, which could be material and negatively impact our financial results. All of our investments are subject to a risk of a partial or total loss of investment capital.
The convertible note hedge and warrant transactions may affect the value of our common stock.
In connection with the sale of the Notes, we entered into convertible note hedge transactions (the “Note Hedges”) with certain counterparties. We also entered into warrant transactions with the counterparties pursuant to which we sold warrants (the “Warrants”) for the purchase of our common stock. The Note Hedges are expected generally to reduce the potential dilution to our common stock upon any conversion of Notes and/or offset any cash payments we are required to make in excess of the principal amount of any converted Notes. The Warrants could separately have a dilutive effect to the extent that the market price per share of our common stock exceeds the strike price of the Warrants unless, subject to certain conditions, we elect to cash settle the Warrants.
The 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 Notes (and are likely to do so during any observation period related to a conversion of Notes). This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the Notes, which could affect a Note holder’s ability to convert the Notes and, to the extent the activity occurs during any observation period related to a conversion of Notes, it could affect the amount and value of the consideration that such Note holder will receive upon conversion of the 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 the 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.

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, youstockholders may only receive a return on your investmenttheir investments in our common stock if the market price of our common stock increases.
The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain qualified board members.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the New York Stock Exchange (“NYSE”), and other applicable securities rules and regulations. Compliance with these rules and regulations have increased our legal and financial compliance costs, made some activities more difficult, time-consuming or costly, and increased demand on our systems and resources. Among other things, the Exchange Act requires that we file annual, quarterly, and current reports with respect to our business and operating results. In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to meet the requirements of this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results. Although we have already hired additional employees to comply with these requirements, we may need to hire even more employees in the future, which will increase our costs and expenses.
In addition, changing laws, regulations, and standards related to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time-consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expense and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain and maintain director and officer liability insurance, and in the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our Audit Committee and Compensation Committee, and qualified executive officers.
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 this 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.
While we were able to determine in our management’s report for fiscal 2017 that our internal control over financial reporting is effective, as well as provide an unqualified attestation report from our independent registered public accounting firm to that effect, we may not be able to complete our evaluation, testing, and any required remediation in a timely fashion, may be unable to assert that our internal controls are effective, or our independent registered public accounting firm may not be able to formally attest to the effectiveness of our internal control over financial reporting in the future. In the event that our chief executive officer, chief financial officer, or independent registered public accounting firm determines in the future 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 and causing investor perceptions to be adversely affected and potentially resulting in a decline in the market price of our stock.
Our charter documents and Delaware law, as well as certain provisions ofcontained 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 ofcontained 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 ofcontained 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.
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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.
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
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
During the three months ended October 31, 2023, holders of the 2025 Notes converted $46.0 million in aggregate principal amount of the 2025 Notes, which we repaid in cash. We also issued 0.3 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”).
During the three months ended October 31, 2023, we issued 3.1 million shares of our common stock to holders of the 2023 Warrants. The shares of common stock issued upon exercise of these warrants were issued in reliance on an exemption from registration provided by Section 3(a)(9) of the Securities Act.
Additionally, during the three months ended October 31, 2023, we issued a total of 2,875 shares of our unregistered common stock in connection with certain of our acquisitions (the “Transactions”). The Transactions did not involve any underwriters, any underwriting discounts or commissions, or any public offering. The issuances of the securities pursuant to the Transactions were exempt from registration under the Securities Act by virtue of Section 4(a)(2) of the Act and Rule 506 of Regulation D promulgated thereunder.
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table summarizes stock repurchases during the three months ended JanuaryOctober 31, 20182023 (in millions, except per share amounts):
PeriodTotal Number of Shares PurchasedAverage Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)
August 1, 2023 to August 31, 2023(2)
— $234.56 — $750.0 
September 1, 2023 to September 30, 2023(2)
0.3 $226.79 0.3 $683.3 
October 1, 2023 to October 31, 2023(2)
— $253.13 — $683.3 
Total0.3 $230.99 0.3 
(1)    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, and August 2022, we announced additional $700.0 million, $676.1 million, and $915.0 million increases to this share repurchase program, respectively, bringing the total authorization to $3.3 billion, with $683.3 million remaining as of October 31, 2023. The expiration date of this repurchase authorization was extended to December 31, 2023, 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.
(2)    Includes shares of restricted common stock delivered by certain employees upon vesting of equity awards to satisfy tax withholding requirements. The number of shares delivered by these employees to satisfy tax withholding requirements during the period was not significant.
Item 5. Other Information
Period Total Number of Shares Purchased Average Price Paid per Share 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)
November 1, 2017 to November 30, 2017(2)(3)
 0.1
 $144.15
 0.1
 $447.5
December 1, 2017 to December 31, 2017(2)(3)
 0.8
 $144.74
 0.8
 $330.0
January 1, 2018 to January 31, 2018(2)
 —
 $157.22
 —
 $330.0
Total 0.9
 $144.74
 0.9
  
Trading Plans of Directors and Executive Officers
______________Set forth below is certain information regarding Rule 10b5-1 trading plans adopted by our directors and officers (as defined in Rule 16a-1(f)) during the first quarter of fiscal 2024. The Rule 10b5-1 trading plans listed below are each intended to satisfy the affirmative defense of Rule 10b5-1(c).
(1)NameIn August 2016, we announced that our boardTitleDate Plan Was AdoptedExpiration DateTotal Amount of directors authorized a $500.0 million share repurchase that is funded from available working capital. In February 2017, we announced that our board of directors authorized a $500.0 million increaseCommon Stock to be Sold Under the repurchase program, bringing the total authorization to $1.0 billion. Repurchases may be made at management’s discretion from time to time on the open market, through privately negotiated transactions, transactions structured through investment banking institutions, block purchase techniques, 10b5-1 trading plans, or a combination of the foregoing. The repurchase authorization will expire on Plan
Dipak GolechhaExecutive Vice President, Chief Financial OfficerSeptember 13, 2023December 31, 2018, and may be suspended2024 or discontinued at any time.when all shares have been sold
12,500 
(2)Mary Pat McCarthyIncludesDirectorAugust 22, 2023August 23, 2024 or when all shares of restricted common stock delivered by certain employees upon vesting of equity awards to satisfy tax withholding requirements. The number of shares delivered by these employees to satisfy tax withholding requirements during the period was not significant.have been sold
4,000 
(3)Includes repurchases under our share repurchase program, for which the average price paid per share excludes costs associated with the repurchases.

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 2024.
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Item 6. Exhibits
ITEM 6.Exhibit
Number		EXHIBITSExhibit DescriptionIncorporated by Reference
FormFile No.ExhibitFiling Date
Exhibit
Number
Exhibit DescriptionIncorporated by Reference
FormFile No.ExhibitFiling Date
10.131.1*
Offer Letter between the Registrant and Kathleen Bonanno, dated November 17, 2017.8-K001-3559410.1November 20, 2017
10.2*
Executive Incentive Plan effective December 8, 2017.
31.1
Certification of the Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2
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.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Schema Linkbase Document.
101.CALXBRL Taxonomy Calculation Linkbase Document.
101.DEFXBRL Taxonomy Definition Linkbase Document.
101.LABXBRL Taxonomy Labels Linkbase Document.
101.PREXBRL Taxonomy Presentation Linkbase Document.
*Indicates a management contract or compensatory plan or arrangement.
†101The certifications attached as Exhibit 32.1 and 32.2 that accompany thisfollowing financial information from Palo Alto Networks, Inc.’s Quarterly Report on Form 10‑Q are not deemed filed with10-Q for the Securitiesthree months ended October 31, 2023 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 Exchange Commission(vi) Notes to the Condensed Consolidated Financial Statements.
104Cover Page Interactive Data File—(formatted as Inline XBRL 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.Exhibit 101).

SIGNATURES†    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: February 26, 2018

November 17, 2023
PALO ALTO NETWORKS, INC.
By:
/s/ KATHLEEN BONANNO
DIPAK GOLECHHA
Kathleen BonannoDipak Golechha
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)




Date: February 26, 2018

November 17, 2023
PALO ALTO NETWORKS, INC.
By:
/s/ JEAN COMPEAUJOSH PAUL
Jean CompeauJosh Paul
Chief Accounting Officer
(Duly Authorized Officer and Principal Accounting Officer)



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