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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________ 
FORM 10-Q
 _____________________
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2022
or
    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, including zip code)
(408753-4000
(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      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      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 filerAccelerated filerEmerging growth company
Non-accelerated filerSmaller reporting 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  
The number of shares outstanding of the registrant’s common stock as of November 10, 2022 was 302,356,927.


TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II - OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 6.

- 2 -

PART I
ITEM 1.    FINANCIAL STATEMENTS
PALO ALTO NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
October 31, 2022July 31, 2022
(unaudited)
Assets
Current assets:
Cash and cash equivalents$2,067.2 $2,118.5 
Short-term investments1,736.5 1,516.0 
Accounts receivable, net of allowance for credit losses of $8.4 and $8.9 at October 31, 2022 and July 31, 2022, respectively
1,238.1 2,142.5 
Short-term deferred contract costs310.6 317.7 
Prepaid expenses and other current assets381.1 320.2 
Total current assets5,733.5 6,414.9 
Property and equipment, net353.7 357.8 
Operating lease right-of-use assets260.4 242.0 
Long-term investments2,094.7 1,051.9 
Long-term deferred contract costs520.3 550.1 
Goodwill2,747.7 2,747.7 
Intangible assets, net355.4 384.5 
Other assets478.1 504.7 
Total assets$12,543.8 $12,253.6 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$125.9 $128.0 
Accrued compensation268.9 461.1 
Accrued and other liabilities380.4 399.2 
Deferred revenue3,741.3 3,641.2 
Convertible senior notes, net3,678.6 3,676.8 
Total current liabilities8,195.1 8,306.3 
Long-term deferred revenue3,438.3 3,352.8 
Long-term operating lease liabilities283.1 276.1 
Other long-term liabilities119.3 108.4 
Total liabilities12,035.8 12,043.6 
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock; $0.0001 par value; 100.0 shares authorized; none issued and outstanding at October 31, 2022 and July 31, 2022
  
Common stock and additional paid-in capital; $0.0001 par value; 1,000.0 shares authorized; 302.3 and 298.8 shares issued and outstanding at October 31, 2022 and July 31, 2022, respectively
2,266.2 1,932.7 
Accumulated other comprehensive loss(111.1)(55.6)
Accumulated deficit(1,647.1)(1,667.1)
Total stockholders’ equity508.0 210.0 
Total liabilities and stockholders’ equity$12,543.8 $12,253.6 
See notes to condensed consolidated financial statements.
- 3 -

PALO ALTO NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions, except per share data)
Three Months Ended
October 31,
20222021
Revenue:
Product$330.0 $295.5 
Subscription and support1,233.4 951.9 
Total revenue1,563.4 1,247.4 
Cost of revenue:
Product120.1 88.9 
Subscription and support341.8 291.7 
Total cost of revenue461.9 380.6 
Total gross profit1,101.5 866.8 
Operating expenses:
Research and development371.8 339.5 
Sales and marketing615.0 505.9 
General and administrative99.5 104.1 
Total operating expenses1,086.3 949.5 
Operating income (loss)15.2 (82.7)
Interest expense(6.8)(6.9)
Other income (expense), net26.0 (1.6)
Income (loss) before income taxes34.4 (91.2)
Provision for income taxes14.4 12.4 
Net income (loss)$20.0 $(103.6)
Net income (loss) per share, basic$0.07 $(0.35)
Net income (loss) per share, diluted$0.06 $(0.35)
Weighted-average shares used to compute net income (loss) per share, basic299.8 292.9 
Weighted-average shares used to compute net income (loss) per share, diluted338.4 292.9 

See notes to condensed consolidated financial statements.
- 4 -

PALO ALTO NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in millions)
Three Months Ended
October 31,
20222021
Net income (loss)$20.0 $(103.6)
Other comprehensive income (loss), net of tax:
Change in unrealized gains (losses) on investments(27.8)(2.2)
Cash flow hedges:
Change in unrealized gains (losses)(42.5)(1.9)
Net realized (gains) losses reclassified into earnings14.8 2.7 
Net change on cash flow hedges(27.7)0.8 
Other comprehensive loss(55.5)(1.4)
Comprehensive loss$(35.5)$(105.0)

See notes to condensed consolidated financial statements.
- 5 -

PALO ALTO NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in millions)
Three Months Ended October 31, 2022
 Common Stock
and
Additional Paid-In Capital
Accumulated
Other
Comprehensive Income (Loss)
Accumulated
Deficit
Total 
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 

Three Months Ended October 31, 2021
 Common Stock
and
Additional Paid-In Capital
Accumulated
Other
Comprehensive Income (Loss)
Accumulated
Deficit
Total 
Stockholders’
Equity
 SharesAmount
Balance as of July 31, 2021291.9 $2,311.2 $(9.9)$(1,666.8)$634.5 
Cumulative-effect adjustment from adoption of new accounting pronouncement— (581.9)— 266.7 (315.2)
Net loss— — — (103.6)(103.6)
Other comprehensive loss— — (1.4)— (1.4)
Issuance of common stock in connection with employee equity incentive plans4.1 58.9 — — 58.9 
Taxes paid related to net share settlement of equity awards— (20.0)— — (20.0)
Share-based compensation for equity-based awards— 265.7 — — 265.7 
Balance as of October 31, 2021296.0 $2,033.9 $(11.3)$(1,503.7)$518.9 



- 6 -

PALO ALTO NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
Three Months Ended
October 31,
20222021
Cash flows from operating activities
Net income (loss)
$20.0 $(103.6)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Share-based compensation for equity-based awards266.0 259.1 
Depreciation and amortization70.7 69.0 
Amortization of deferred contract costs97.0 85.9 
Amortization of debt discount and debt issuance costs1.8 1.8 
Reduction of operating lease right-of-use assets12.1 12.7 
Amortization of investment premiums, net of accretion of purchase discounts1.7 3.6 
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net
904.4 428.4 
Deferred contract costs(60.1)(63.8)
Prepaid expenses and other assets
(41.1)(72.8)
Accounts payable
(1.0)37.6 
Accrued compensation
(192.3)(179.8)
Accrued and other liabilities
(28.1)(23.4)
Deferred revenue
185.6 134.2 
Net cash provided by operating activities1,236.7 588.9 
Cash flows from investing activities
Purchases of investments(2,112.8)(439.1)
Proceeds from sales of investments485.0 36.1 
Proceeds from maturities of investments347.6 225.1 
Business acquisitions, net of cash acquired (17.4)
Purchases of property, equipment, and other assets
(39.6)(34.6)
Net cash used in investing activities(1,319.8)(229.9)
Cash flows from financing activities
Repurchases of common stock
(22.7) 
Proceeds from sales of shares through employee equity incentive plans
67.7 58.7 
Payments for taxes related to net share settlement of equity awards
(13.9)(20.0)
Net cash provided by financing activities31.1 38.7 
Net increase (decrease) in cash, cash equivalents, and restricted cash(52.0)397.7 
Cash, cash equivalents, and restricted cash - beginning of period2,124.8 1,880.1 
Cash, cash equivalents, and restricted cash - end of period $2,072.8 $2,277.8 
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents$2,067.2 $2,272.9 
Restricted cash included in prepaid expenses and other current assets5.6 4.4 
Restricted cash included in other assets 0.5 
Total cash, cash equivalents, and restricted cash$2,072.8 $2,277.8 
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”), headquartered in Santa Clara, California, was incorporated in March 2005 under the laws of the State of Delaware and commenced operations in April 2005. We empower enterprises, organizations, service providers, and government entities to secure their users, networks, clouds, and endpoints by delivering comprehensive cybersecurity backed by artificial intelligence and 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 (“GAAP”), consistent in all material respects with those applied in our Annual Report on Form 10-K for the fiscal year ended July 31, 2022, filed with the Securities and Exchange Commission (“SEC”) on September 6, 2022. Our condensed consolidated financial statements include our accounts and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated financial statements are unaudited but include all adjustments of a normal recurring nature necessary for a fair presentation of our quarterly results. 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, 2022.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with 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 three months ended October 31, 2022, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended July 31, 2022.
Stock Split Effected in the Form of a Stock Dividend (“Stock Split”)
On September 13, 2022, we executed a three-for-one stock split of our common stock, effected in the form of a stock dividend. The par value per share of our common stock remains unchanged at $0.001 per share after the Stock Split. All references made to share or per share amounts on the accompanying condensed consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the effects of the Stock Split.
2. Revenue
Disaggregation of Revenue
The following table presents revenue by geographic theater (in millions):
Three Months Ended October 31,
20222021
Revenue:
Americas
United States$1,006.3 $811.7 
Other Americas64.4 55.0 
Total Americas1,070.7 866.7 
Europe, the Middle East, and Africa (“EMEA”)307.9 233.8 
Asia Pacific and Japan (“APAC”)184.8 146.9 
Total revenue$1,563.4 $1,247.4 
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The following table presents revenue for groups of similar products and services (in millions):
Three Months Ended October 31,
20222021
Revenue:
Product$330.0 $295.5 
Subscription and support
Subscription764.0 578.8 
Support469.4 373.1 
Total subscription and support1,233.4 951.9 
Total revenue$1,563.4 $1,247.4 
Deferred Revenue
During the three months ended October 31, 2022 and 2021, we recognized approximately $1.1 billion and $840.0 million of revenue pertaining to amounts that were deferred as of July 31, 2022 and 2021, respectively.
Remaining Performance Obligations
Remaining performance obligations were $8.3 billion as of October 31, 2022, of which we expect to recognize as revenue approximately $4.2 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 as of October 31, 2022 and July 31, 2022 (in millions):
October 31, 2022July 31, 2022
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Cash equivalents:
Money market funds$933.2 $ $ $933.2 $1,205.2 $ $ $1,205.2 
Certificates of deposit  150.6  150.6  155.3  155.3 
Commercial paper 338.5  338.5  69.1  69.1 
Corporate debt securities 37.2  37.2  19.5  19.5 
U.S. government and agency securities 159.9  159.9  10.0  10.0 
Non-U.S. government and agency securities     5.1  5.1 
Total cash equivalents933.2 686.2  1,619.4 1,205.2 259.0  1,464.2 
Short-term investments:
Certificates of deposit 213.0  213.0  116.4  116.4 
Commercial paper 288.3  288.3  79.0  79.0 
Corporate debt securities 661.4  661.4  505.0  505.0 
U.S. government and agency securities 546.9  546.9  798.2  798.2 
Non-U.S. government and agency securities 26.9  26.9  17.4  17.4 
Total short-term investments 1,736.5  1,736.5  1,516.0  1,516.0 
Long-term investments:
Corporate debt securities 1,623.8  1,623.8  761.2  761.2 
U.S. government and agency securities 50.2  50.2  118.2  118.2 
Non-U.S. government and agency securities 52.0  52.0     
Asset-backed securities 368.7  368.7  172.5  172.5 
Total long-term investments 2,094.7  2,094.7  1,051.9  1,051.9 
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October 31, 2022July 31, 2022
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Prepaid expenses and other current assets:
Foreign currency forward contracts 0.5  0.5  2.4  2.4 
Total prepaid expenses and other current assets 0.5  0.5  2.4  2.4 
Other assets:
Foreign currency forward contracts 0.2  0.2  0.7  0.7 
Total other assets 0.2  0.2  0.7  0.7 
Total assets measured at fair value$933.2 $4,518.1 $ $5,451.3 $1,205.2 $2,830.0 $ $4,035.2 
Accrued and other liabilities:
Foreign currency forward contracts$ $51.4 $ $51.4 $ $32.4 $ $32.4 
Total accrued and other liabilities 51.4  51.4  32.4  32.4 
Other long-term liabilities:
Foreign currency forward contracts 5.2  5.2  0.8  0.8 
Total other long-term liabilities 5.2  5.2  0.8  0.8 
Total liabilities measured at fair value$ $56.6 $ $56.6 $ $33.2 $ $33.2 
Refer to Note 8. Debt for the carrying amount and estimated fair value of our convertible senior notes as of October 31, 2022 and July 31, 2022.
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 October 31, 2022 and July 31, 2022 (in millions):
October 31, 2022
Amortized Cost Unrealized GainsUnrealized LossesFair Value
Cash equivalents:
Certificates of deposit$150.6 $ $ $150.6 
Commercial paper338.5   338.5 
Corporate debt securities37.3  (0.1)37.2 
U.S. government and agency securities159.9   159.9 
Total available-for-sale cash equivalents$686.3 $ $(0.1)$686.2 
Investments:
Certificates of deposit$213.3 $ $(0.3)$213.0 
Commercial paper289.4  (1.1)288.3 
Corporate debt securities2,321.6 0.4 (36.8)2,285.2 
U.S. government and agency securities605.3  (8.2)597.1 
Non-U.S. government and agency securities80.0  (1.1)78.9 
Asset-backed securities372.8  (4.1)368.7 
Total available-for-sale investments$3,882.4 $0.4 $(51.6)$3,831.2 
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July 31, 2022
Amortized Cost Unrealized GainsUnrealized LossesFair Value
Cash equivalents:
Certificates of deposit $155.3 $ $ $155.3 
Commercial paper69.1   69.1 
Corporate debt securities19.5   19.5 
U.S. government and agency securities10.0   10.0 
Non-U.S. government and agency securities5.0 0.1  5.1 
Total available-for-sale cash equivalents$258.9 $0.1 $ $259.0 
Investments:
Certificates of deposit$116.5 $ $(0.1)$116.4 
Commercial paper79.1  (0.1)79.0 
Corporate debt securities1,276.8 1.3 (11.9)1,266.2 
U.S. government and agency securities928.1 0.1 (11.8)916.4 
Non-U.S. government and agency securities17.6  (0.2)17.4 
Asset-backed securities$173.4 $0.2 $(1.1)$172.5 
Total available-for-sale investments$2,591.5 $1.6 $(25.2)$2,567.9 
As of October 31, 2022, the gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months were $45.7 million, which were related to $3.5 billion of available-for-sale debt securities, and the gross unrealized losses that have been in a continuous unrealized loss position for more than 12 months were not material. As of July 31, 2022 the gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months were $24.8 million, which were related to $2.0 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 not material.
Unrealized losses related to our available-for-sale debt securities are due to interest rate fluctuations as opposed to credit quality. We do not intend to sell any of the securities in an unrealized loss position and it is not likely that we would be required to sell these securities before recovery of their amortized cost basis, which may be at maturity. We did not recognize any credit losses related to our available-for-sale debt securities during the three months ended October 31, 2022 and 2021.
The following table summarizes the amortized cost and fair value of our available-for-sale debt securities as of October 31, 2022, by contractual years-to-maturity (in millions):
Amortized CostFair Value
Due within one year$2,438.8 $2,422.7 
Due between one and three years2,001.9 1,968.5 
Due between three to five years106.9 105.4 
Due between five to ten years21.1 20.8 
Total$4,568.7 $4,517.4 
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, 2022 and July 31, 2022, the carrying values of our marketable equity securities were $933.2 million and $1.2 billion, respectively. There were no unrealized gains or losses recognized for these securities during the three months ended October 31, 2022 and 2021.
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5. Financing Receivables
The following table summarizes our short-term and long-term financing receivables as of October 31, 2022 and July 31, 2022 (in millions):
October 31, 2022July 31, 2022
Short-term financing receivables, gross
$155.5 $112.6 
Allowance for credit losses(1.8)(1.3)
Short-term financing receivables, net
$153.7 $111.3 
Long-term financing receivables, gross
$165.2 $194.6 
Allowance for credit losses(3.1)(2.5)
Long-term financing receivables, net
$162.1 $192.1 
There was no significant activity in allowance for credit losses during the three months ended October 31, 2022 and 2021. Past due amounts on financing receivables were not material as of October 31, 2022 and July 31, 2022.
6. Derivative Instruments
We are exposed to foreign currency exchange risk. Substantially all of our 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 24 months or less, which we designate as cash flow hedges, to manage the foreign currency exchange risk associated with our operating expenditures.
As of October 31, 2022 and July 31, 2022, the total notional amount of our outstanding foreign currency forward contracts was $1.3 billion and $856.9 million, respectively. Refer to Note 3. Fair Value Measurements for the fair value of our derivative instruments as reported on our condensed consolidated balance sheets as of October 31, 2022 and July 31, 2022.
As of October 31, 2022, unrealized losses in accumulated other comprehensive income (“AOCI”) related to our cash flow hedges were $52.5 million, of which $44.2 million of losses are expected to be recognized into earnings within the next 12 months. As of July 31, 2022, unrealized losses in AOCI related to our cash flow hedges were $24.8 million, of which $22.0 million of losses are expected to be recognized into earnings within the next 12 months.
7. Intangible Assets
Purchased Intangible Assets
The following table presents details of our purchased intangible assets as of October 31, 2022 and July 31, 2022 (in millions):<