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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, 2024
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 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  ☒    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 filer☒Accelerated filer☐Emerging growth company☐
Non-accelerated filer☐Smaller 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 13, 2024 was 328.1 million.

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 5.
Item 6.

- 1 -
Part I
Item 1. Financial Statements
PALO ALTO NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
October 31, 2024July 31, 2024
(unaudited)
Assets
Current assets:
Cash and cash equivalents$2,282.8 $1,535.2 
Short-term investments1,108.2 1,043.6 
Accounts receivable, net of allowance for credit losses of $8.6 and $7.5 as of October 31, 2024 and July 31, 2024, respectively
1,132.9 2,618.6 
Short-term financing receivables, net805.1 725.9 
Short-term deferred contract costs367.6 369.0 
Prepaid expenses and other current assets546.1 557.4 
Total current assets6,242.7 6,849.7 
Property and equipment, net361.0 361.1 
Operating lease right-of-use assets389.0 385.9 
Long-term investments4,119.7 4,173.2 
Long-term financing receivables, net1,092.2 1,182.1 
Long-term deferred contract costs531.9 562.0 
Goodwill4,050.8 3,350.1 
Intangible assets, net809.6 374.9 
Deferred tax assets2,397.5 2,399.0 
Other assets380.2 352.9 
Total assets$20,374.6 $19,990.9 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$211.6 $116.3 
Accrued compensation354.5 554.7 
Accrued and other liabilities683.1 506.7 
Deferred revenue5,507.7 5,541.1 
Convertible senior notes, net645.8 963.9 
Total current liabilities
7,402.7 7,682.7 
Long-term deferred revenue5,585.9 5,939.4 
Deferred tax liabilities250.8 387.7 
Long-term operating lease liabilities379.6 380.5 
Other long-term liabilities843.8 430.9 
Total liabilities14,462.8 14,821.2 
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock; $0.0001 par value; 100.0 shares authorized; none issued and outstanding as of October 31, 2024 and July 31, 2024
— — 
Common stock and additional paid-in capital; $0.0001 par value; 1,000.0 shares authorized; 327.7 and 325.1 shares issued and outstanding as of October 31, 2024 and July 31, 2024, respectively
4,214.9 3,821.1 
Accumulated other comprehensive loss(4.0)(1.6)
Retained earnings
1,700.9 1,350.2 
Total stockholders’ equity5,911.8 5,169.7 
Total liabilities and stockholders’ equity$20,374.6 $19,990.9 
See notes to condensed consolidated financial statements.
- 2 -
PALO ALTO NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions, except per share data)
Three Months Ended October 31,
20242023
Revenue:
Product$353.8 $341.1 
Subscription and support1,785.0 1,537.0 
Total revenue2,138.8 1,878.1 
Cost of revenue:
Product75.0 77.4 
Subscription and support479.1 395.4 
Total cost of revenue554.1 472.8 
Total gross profit1,584.7 1,405.3 
Operating expenses:
Research and development480.4 409.5 
Sales and marketing720.1 660.5 
General and administrative97.7 120.1 
Total operating expenses1,298.2 1,190.1 
Operating income
286.5 215.2 
Interest expense(1.2)(2.9)
Other income, net83.3 70.3 
Income before income taxes
368.6 282.6 
Provision for income taxes17.9 88.4 
Net income
$350.7 $194.2 
Net income per share, basic
$1.07 $0.63 
Net income per share, diluted
$0.99 $0.56 
Weighted-average shares used to compute net income per share, basic
326.8 310.1 
Weighted-average shares used to compute net income per share, diluted
354.5 349.8 
See notes to condensed consolidated financial statements.
- 3 -
PALO ALTO NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in millions)
Three Months Ended October 31,
20242023
Net income
$350.7 $194.2 
Other comprehensive income, net of tax:
Change in unrealized gains (losses) on investments(3.6)(18.2)
Cash flow hedges:
Change in unrealized gains (losses)— (40.9)
Net realized (gains) losses reclassified into earnings
1.2 9.3 
Net change on cash flow hedges1.2 (31.6)
Other comprehensive loss
(2.4)(49.8)
Comprehensive income$348.3 $144.4 
See notes to condensed consolidated financial statements.
- 4 -
PALO ALTO NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in millions)
Three Months Ended October 31, 2024

Common Stock and Additional Paid-In Capital
Accumulated Other Comprehensive Loss
Retained Earnings
Total Stockholders’ Equity
 
SharesAmount
Balance as of July 31, 2024325.1 $3,821.1 $(1.6)$1,350.2 $5,169.7 
Net income— — — 350.7 350.7 
Other comprehensive loss
— — (2.4)— (2.4)
Issuance of common stock in connection with employee equity incentive plans2.6 120.7 — — 120.7 
Taxes paid related to net share settlement of equity awards— (21.4)— — (21.4)
Share-based compensation for equity-based awards— 294.6 — — 294.6 
Settlement of convertible notes2.3 (0.1)— — (0.1)
Settlement of note hedges
(2.3)— — — — 
Balance as of October 31, 2024327.7 $4,214.9 $(4.0)$1,700.9 $5,911.8 

Three Months Ended October 31, 2023
 
Common Stock and Additional Paid-In Capital
Accumulated Other Comprehensive Loss
Accumulated Deficit
Total 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 
- 5 -
PALO ALTO NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
Three Months Ended October 31,
20242023
Cash flows from operating activities
Net income
$350.7 $194.2 
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation for equity-based awards294.3 271.0 
Deferred income taxes
(137.4)(0.3)
Depreciation and amortization83.9 64.3 
Amortization of deferred contract costs110.4 105.5 
Amortization of debt issuance costs0.5 1.0 
Change in fair value of contingent consideration liability
6.3 — 
Reduction of operating lease right-of-use assets16.0 12.4 
Amortization of investment premiums, net of accretion of purchase discounts(15.0)(14.7)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net1,485.7 1,050.2 
Financing receivables, net10.7 (43.6)
Deferred contract costs(78.9)(63.3)
Prepaid expenses and other assets(3.6)54.0 
Accounts payable96.8 (0.4)
Accrued compensation(200.2)(216.9)
Accrued and other liabilities(94.0)(33.8)
Deferred revenue(416.6)146.4 
Net cash provided by operating activities1,509.6 1,526.0 
Cash flows from investing activities
Purchases of investments(660.0)(854.7)
Proceeds from sales of investments291.3 304.6 
Proceeds from maturities of investments369.0 457.9 
Business acquisitions, net of cash and restricted cash acquired
(500.0)— 
Purchases of property, equipment, and other assets
(44.1)(36.8)
Net cash used in investing activities(543.8)(129.0)
Cash flows from financing activities
Repayments of convertible senior notes
(319.0)(46.0)
Repurchases of common stock
— (66.7)
Proceeds from sales of shares through employee equity incentive plans
120.7 86.4 
Payments for taxes related to net share settlement of equity awards
(21.4)(15.5)
Net cash used in financing activities
(219.7)(41.8)
Net increase in cash, cash equivalents, and restricted cash
746.1 1,355.2 
Cash, cash equivalents, and restricted cash - beginning of period1,546.8 1,142.2 
Cash, cash equivalents, and restricted cash - end of period $2,292.9 $2,497.4 
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents$2,282.8 $2,491.4 
Restricted cash included in prepaid expenses and other current assets10.1 6.0 
Total cash, cash equivalents, and restricted cash$2,292.9 $2,497.4 
Non-cash investing and financing activities
Contingent consideration for a business acquisition
$(648.9)$— 
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 (“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, 2024, filed with the Securities and Exchange Commission (“SEC”) on September 6, 2024. The 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, 2024.
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 evaluate our estimates on an ongoing basis. Management estimates include, but are not limited to, the standalone selling price for our products and services, share-based compensation, fair value of assets acquired and liabilities assumed in business combinations, fair value of contingent consideration liability, the assessment of recoverability of our intangibles and goodwill, valuation allowance against deferred tax assets, manufacturing partner and supplier liabilities, deferred contract cost benefit period, and loss contingencies. 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, 2024, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended July 31, 2024, except for the update to the disclosure of our accounting policies as described below resulting from our recent acquisition of certain QRadar assets from International Business Machines Corporation (“IBM”). Refer to Note 7. Acquisition for additional information.
Business Combinations
We include the results of operations of the businesses that we acquire as of the respective dates of acquisition. We allocate the fair value of the purchase price of our acquisitions to the assets acquired and liabilities assumed, including contingent consideration, generally based on their estimated fair values. The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. Additional information existing as of the acquisition date but unknown to us may become known during the remainder of the measurement period, not to exceed 12 months from the acquisition date, which may result in changes to the amounts and allocations recorded.
Contingent consideration obligations incurred in connection with a business combination are recorded at fair value on the acquisition date and remeasured at each subsequent reporting period until the related contingencies have been resolved, with the change in fair value recognized in general and administrative expense on our condensed consolidated statements of operations. Payments not made soon after the acquisition date to settle a contingent consideration liability are classified as cash flows from financing activities up to the amount of the contingent consideration liability recognized at the acquisition date.

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Recently Issued Accounting Pronouncements
Segment Reporting
In November 2023, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The standard is effective for our annual period in fiscal 2025 and interim periods beginning in the first quarter of fiscal 2026, and requires retrospective application for all prior periods presented in the financial statements. Early adoption is permitted. We are currently evaluating the impact of this standard on our disclosures in the consolidated financial statements.
Income Tax Disclosures
In December 2023, the FASB issued authoritative guidance that requires consistent categories and greater disaggregation of information in the effective tax rate reconciliation and additional disclosures of income taxes paid by jurisdiction. The standard is effective for our annual period in fiscal 2026 and could be applied either prospectively or retrospectively. Early adoption is permitted. We are currently evaluating the impact of this standard on our disclosures in the consolidated financial statements.
2. Revenue
Disaggregation of Revenue
The following table presents revenue by geographic theater (in millions):
Three Months Ended October 31,
20242023
Revenue:
Americas
United States$1,344.1 $1,204.3 
Other Americas98.0 82.3 
Total Americas1,442.1 1,286.6 
Europe, the Middle East, and Africa (“EMEA”)441.4 364.9 
Asia Pacific and Japan (“APAC”)255.3 226.6 
Total revenue$2,138.8 $1,878.1 
The following table presents revenue for groups of similar products and services (in millions):
Three Months Ended October 31,
20242023
Revenue:
Product$353.8 $341.1 
Subscription and support
Subscription1,191.8 988.3 
Support593.2 548.7 
Total subscription and support1,785.0 1,537.0 
Total revenue$2,138.8 $1,878.1 
Deferred Revenue
During the three months ended October 31, 2024 and 2023, we recognized approximately $1.6 billion and $1.4 billion of revenue pertaining to amounts that were deferred as of July 31, 2024 and 2023, respectively.
Remaining Performance Obligations
Remaining performance obligations were $12.6 billion as of October 31, 2024, of which we expect to recognize as revenue approximately $5.9 billion over the next 12 months and the remainder thereafter.
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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, 2024 and July 31, 2024 (in millions):
October 31, 2024July 31, 2024
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Cash equivalents:
Money market funds$1,105.3 $— $— $1,105.3 $494.0 $— $— $494.0 
Commercial paper— 228.7 — 228.7 — 299.6 — 299.6 
Corporate debt securities— 34.2 — 34.2 — 18.2 — 18.2 
U.S. government and agency securities— 74.8 — 74.8 — 149.6 — 149.6 
Total cash equivalents1,105.3 337.7 — 1,443.0 494.0 467.4 — 961.4 
Short-term investments:
Certificates of deposit— 15.7 — 15.7 — 20.6 — 20.6 
Commercial paper— 36.1 — 36.1 — 79.9 — 79.9 
Corporate debt securities— 1,037.5 — 1,037.5 — 935.9 — 935.9 
U.S. government and agency securities— 4.2 — 4.2 — 2.7 — 2.7 
Non-U.S. government and agency securities— — — — — 4.2 — 4.2 
Asset-backed securities— 14.7 — 14.7 — 0.3 — 0.3 
Total short-term investments— 1,108.2 — 1,108.2 — 1,043.6 — 1,043.6 
Long-term investments:
Corporate debt securities— 3,095.2 — 3,095.2 — 3,151.3 — 3,151.3 
U.S. government and agency securities— 17.7 — 17.7 — 19.0 — 19.0 
Non-U.S. government and agency securities— 39.1 — 39.1 — 54.4 — 54.4 
Asset-backed securities— 967.7 — 967.7 — 948.5 — 948.5 
Total long-term investments— 4,119.7 — 4,119.7 — 4,173.2 — 4,173.2 
Prepaid expenses and other current assets:
Foreign currency forward contracts— 5.3 — 5.3 — 4.1 — 4.1 
Total prepaid expenses and other current assets— 5.3 — 5.3 — 4.1 — 4.1 
Other assets:
Foreign currency forward contracts— — — — — 0.1 — 0.1 
Total other assets— — — — — 0.1 — 0.1 
Total assets measured at fair value$1,105.3 $5,570.9 $— $6,676.2 $494.0 $5,688.4 $— $6,182.4 
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October 31, 2024July 31, 2024
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Accrued and other liabilities:
Foreign currency forward contracts$— $11.8 $— $11.8 $— $15.3 $— $15.3 
Contingent consideration
— — 238.5 238.5 — — — — 
Total accrued and other liabilities— 11.8 238.5 250.3 — 15.3 — 15.3 
Other long-term liabilities:
Foreign currency forward contracts— — — — — 0.9 — 0.9 
Contingent consideration
— — 416.7 416.7 — — — — 
Total other long-term liabilities— — 416.7 416.7 — 0.9 — 0.9 
Total liabilities measured at fair value$— $11.8 $655.2 $667.0 $— $16.2 $— $16.2 
The fair value of contingent consideration liability is estimated using a discounted cash flow valuation technique. We consider the fair value of our contingent consideration liability to be a Level 3 measurement as we use unobservable inputs in determining discounted cash flows to estimate the fair value. The significant unobservable inputs include an estimate of future cash payments related to customers entering into qualified new transactions as well as a risk-adjusted discount rate used to present value the expected cash flows. A significant change in any of these assumptions could have a material impact to the fair value of our contingent consideration liability.
The following table presents a reconciliation of our contingent consideration liability (in millions):
Three Months Ended October 31, 2024
Contingent consideration liability at the beginning of the period
$— 
Initial valuation on the acquisition date
648.9 
Change in fair value
6.3 
Contingent consideration liability at the end of the period
$655.2 
The total estimated fair value of our financing receivables approximates their carrying amounts as of October 31, 2024 and July 31, 2024. We consider the fair value of our financing receivables to be a Level 3 measurement as we use unobservable inputs in determining discounted cash flows to estimate the fair value.
Refer to Note 9. Debt for the carrying amount and estimated fair value of our convertible senior notes as of October 31, 2024 and July 31, 2024.
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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 October 31, 2024 and July 31, 2024 (in millions):
October 31, 2024
Amortized Cost 
Unrealized Gains
Unrealized Losses
Fair Value
Cash equivalents:
Commercial paper$228.7 $— $— $228.7 
Corporate debt securities34.2 — — 34.2 
U.S. government and agency securities74.8 — — 74.8 
Total available-for-sale cash equivalents$337.7 $— $— $337.7 
Investments:
Certificates of deposit$15.7 $— $— $15.7 
Commercial paper36.1 — — 36.1 
Corporate debt securities4,115.2 25.3 (7.8)4,132.7 
U.S. government and agency securities21.9 — — 21.9 
Non-U.S. government and agency securities38.6 0.5 — 39.1 
Asset-backed securities976.1 7.1 (0.8)982.4 
Total available-for-sale investments$5,203.6 $32.9 $(8.6)$5,227.9 
July 31, 2024
Amortized Cost 
Unrealized Gains
Unrealized Losses
Fair Value
Cash equivalents:
Commercial paper$299.6 $— $— $299.6 
Corporate debt securities18.2 — — 18.2 
U.S. government and agency securities149.6 — — 149.6 
Total available-for-sale cash equivalents$467.4 $— $— $467.4 
Investments:
Certificates of deposit$20.6 $— $— $20.6 
Commercial paper79.9 0.1 (0.1)79.9 
Corporate debt securities4,065.5 28.3 (6.6)4,087.2 
U.S. government and agency securities21.9 — (0.2)21.7 
Non-U.S. government and agency securities57.9 0.7 — 58.6 
Asset-backed securities943.1 6.3 (0.6)948.8 
Total available-for-sale investments$5,188.9 $35.4 $(7.5)$5,216.8 
As of October 31, 2024, the gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months were $7.3 million, which were related to $1.2 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 $1.3 million, which were related to $372.5 million of available-for-sale debt securities. As of July 31, 2024 the gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months were $1.5 million, which were related to $949.4 million 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 $6.0 million, which were related to $915.3 million of available-for-sale debt securities.
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Unrealized losses related to our available-for-sale debt securities are primarily 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, 2024 and 2023.
The following table summarizes the amortized cost and fair value of our available-for-sale debt securities as of October 31, 2024, by contractual years-to-maturity (in millions):
Amortized CostFair Value
Due within one year$1,445.9 $1,445.9 
Due between one and three years1,843.2 1,853.4 
Due between three and five years1,925.5 1,937.9 
Due between five and ten years217.7 218.2 
Due after ten years109.0 110.2 
Total$5,541.3 $5,565.6 
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, 2024 and July 31, 2024, the carrying values of our marketable equity securities were $1.1 billion and $494.0 million, respectively. There were no unrealized gains or losses recognized for these securities during the three months ended October 31, 2024 and 2023.
5. Financing Receivables
The following table summarizes our short-term and long-term financing receivables as of October 31, 2024 and July 31, 2024 (in millions):
October 31, 2024July 31, 2024
Short-term financing receivables, gross$911.6 $830.2 
Unearned income
(99.0)(95.7)
Allowance for credit losses(7.5)(8.6)
Short-term financing receivables, net$805.1 $725.9 
Long-term financing receivables, gross$1,191.5 $1,286.4 
Unearned income
(91.4)(94.6)
Allowance for credit losses(7.9)(9.7)
Long-term financing receivables, net$1,092.2 $1,182.1 
The following table presents amortized cost basis of our financing receivables categorized by internal risk rating and year of origination (in millions):
Internal Risk Rating(1)
October 31, 2024July 31, 2024
Fiscal Year of Origination
Fiscal Year of Origination
20252024202320222021Total2024202320222021Total
1 to 4
$7.4 $916.1 $387.5 $9.9 $26.7 $1,347.6 $885.9 $477.3 $14.7 $44.4 $1,422.3 
5 to 6
43.7 330.1 152.3 3.1 1.1 530.3 272.2 172.0 21.1 1.1 466.4 
7 to 10
0.1 2.2 22.9 0.3 9.3 34.8 3.2 25.0 0.3 9.1 37.6 
Amortized cost basis of financing receivables
$51.2 $1,248.4 $562.7 $13.3 $37.1 $1,912.7 $1,161.3 $674.3 $36.1 $54.6 $1,926.3 
(1)Internal risk ratings are categorized as 1 through 10, with the lowest rating representing the highest quality.
There was no significant activity in allowance for credit losses during the three months ended October 31, 2024 and 2023. Past due amounts on financing receivables were not material as of October 31, 2024 and July 31, 2024.
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6. Derivative Instruments
We are exposed to foreign currency exchange risk. Our revenue is primarily 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, 2024 and July 31, 2024, the total notional amount of our outstanding foreign currency forward contracts designated as cash flow hedges was $656.6 million and $804.8 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, 2024 and July 31, 2024.
As of October 31, 2024, unrealized gains and losses in accumulated other comprehensive income (“AOCI”) related to our cash flow hedges were a $7.5 million net loss, of which $5.8 million in losses are expected to be recognized into earnings within the next 12 months. As of July 31, 2024, unrealized gains and losses in AOCI related to our cash flow hedges were a $10.6 million net loss.
As of October 31, 2024 and July 31, 2024, the notional amount of our outstanding foreign currency forward contracts not designated as hedging instruments was $483.8 million and $375.6 million, respectively.
7. Acquisition
IBM QRadar Assets
On August 31, 2024, we completed the acquisition of certain IBM QRadar assets, including certain intellectual property rights, customer relationships, and software as a service customer contracts. We expect the acquisition will help accelerate the growth of our Cortex business. The total purchase consideration for the acquisition was $1.1 billion, which consisted of the following (in millions):
Amount
Cash$500.0 
Fair value of contingent consideration liability648.9 
Return of purchase consideration(6.3)
Total$1,142.6 
As part of the acquisition, we agreed to make post-closing payments to IBM contingent upon customers entering into qualified new transactions through June 30, 2028. We also expect to receive a return of purchase consideration of $6.3 million due to timing of transition of certain underlying customer contracts. In addition, we have entered into a transition services arrangement with IBM, under which IBM will perform certain services supporting the acquired assets and customers for a limited period of time.
Payments related to the contingent consideration liability are expected to begin in the fiscal quarter ending April 2025 and continue through the fiscal quarter ending October 2028. The estimated range of undiscounted contingent consideration is between $0.5 billion and $0.9 billion. Refer to Note 3. Fair Value Measurements, for more information on the fair value of our contingent consideration liability.
We have accounted for this transaction as a business combination and allocated the purchase consideration to assets acquired and liabilities assumed based on preliminary estimated fair values, as presented in the following table (in millions):
Amount
Goodwill$700.7 
Identified intangible assets476.0 
Net liabilities assumed(34.1)
Total$1,142.6 
Goodwill generated from this business combination is primarily attributable to the expected post-acquisition synergies from increased market penetration to support the growth of our Cortex business. The goodwill is deductible for U.S. income tax purposes.
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The following table presents details of the identified intangible assets acquired (in millions, except years):
Fair ValueEstimated Useful Life
Customer relationships$464.0 12 years
Developed technology12.0 2 years
Total$476.0 
Pro forma results of operations have not been presented because the effects of the acquisition were not material to our condensed consolidated statements of operations.
Additional information related to the acquisition existing as of the acquisition date may become known during the remainder of the measurement period, not to exceed 12 months from the acquisition date, which may result in changes to the amounts and allocations recorded.
8. Goodwill and Intangible Assets
Goodwill
The following table presents details of our goodwill during the three months ended October 31, 2024 (in millions):
Amount
Balance as of July 31, 2024$3,350.1 
Goodwill acquired700.7 
Balance as of October 31, 2024$4,050.8 
Purchased Intangible Assets
The following table presents details of our purchased intangible assets as of October 31, 2024 and July 31, 2024 (in millions):
October 31, 2024July 31, 2024
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Intangible assets subject to amortization:
Developed technology$825.9 $(555.3)$270.6 $813.9 $(526.2)$287.7 
Customer relationships636.7 (107.7)529.0 172.7 (96.1)76.6 
Acquired intellectual property18.2 (8.4)9.8 18.2 (7.9)10.3 
Trade name and trademarks9.4 (9.4)— 9.4 (9.4)— 
Other0.9 (0.7)0.2 0.9 (0.6)0.3 
Total purchased intangible assets$1,491.1 $(681.5)$809.6 $1,015.1 $(640.2)$374.9 
We recognized amortization expense of $41.3 million and $24.9 million for the three months ended October 31, 2024 and 2023, respectively.
The following table summarizes estimated future amortization expense of our intangible assets subject to amortization as of October 31, 2024 (in millions):
Fiscal years ending July 31,
Total Remaining 202520262027202820292030 and Thereafter
Future amortization expense$809.6 $124.5 $140.6 $109.7 $88.8 $62.8 $283.2 
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9. Debt
Convertible Senior Notes
In June 2020, we issued $2.0 billion aggregate principal amount of 0.375% Convertible Senior Notes due 2025 (the “2025 Notes”). The 2025 Notes bear 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 or 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 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.
The 2025 Notes are convertible for an 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 $99.20 per share of common stock, subject to 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 March 1, 2025 only under the following circumstances:
•during any fiscal quarter commencing after the fiscal quarters ending on October 31, 2020 (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 March 1, 2025, holders may surrender 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, 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.
The conversion price will be subject to adjustment in some events. Holders of the 2025 Notes 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, 2024 as the sales price condition had been met during the fiscal quarter ended July 31, 2024. During the three months ended October 31, 2024 and 2023, holders of the 2025 Notes converted $319.0 million and $46.0 million, respectively, in aggregate principal amount of the 2025 Notes, which we repaid in cash. We also issued 2.3 million and 0.3 million shares of our common stock to the holders of the 2025 Notes during the three months ended October 31, 2024 and 2023, respectively, 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 note hedges. Refer to Note 16. Subsequent Events for additional information regarding conversion of the 2025 Notes after October 31, 2024 through the filing date of this Quarterly Report on Form 10-Q.
The sale price condition for the 2025 Notes was met during the fiscal quarter ended October 31, 2024 and as a result, holders may convert their 2025 Notes during the fiscal quarter ending January 31, 2025. The net carrying amount of the 2025 Notes was classified as a current liability on our condensed consolidated balance sheet as of October 31, 2024.
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The following table sets forth the net carrying amount of our 2025 Notes (in millions):
October 31, 2024July 31, 2024
Principal$646.6 $965.6 
Less: debt issuance costs, net of amortization
(0.8)(1.7)
Net carrying amount$645.8 $963.9 
The total estimated fair value of the 2025 Notes was $2.3 billion as of October 31, 2024 and $3.2 billion as of July 31, 2024. 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 as of October 31, 2024 and July 31, 2024 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.
The following table sets forth interest expense recognized related to the 2025 Notes (dollars in millions):
Three Months Ended October 31,
20242023
Contractual interest expense$0.7 $1.9 
Amortization of debt issuance costs0.5 1.0 
Total interest expense$1.2 $2.9 
Effective interest rate 0.6 %0.6 %
Note Hedges
To minimize the impact of potential economic dilution upon conversion of our convertible senior notes, we entered into separate convertible note hedge transactions (the “2025 Note Hedges”) with respect to our common stock concurrent with the issuance of the 2025 Notes.
The 2025 Note Hedges cover up to 20.1 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. Any shares of our common stock receivable by 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, 2024 and 2023, we exercised the corresponding portion of our 2025 Note Hedges and received 2.3 million and 0.3 million shares of our common stock during the respective periods.
Warrants
Separately, but concurrently with the issuance of each series of our convertible senior notes, we entered into transactions whereby we sold warrants (the “2023 Warrants,” with respect to the 0.75% convertible senior notes due 2023 issued in July 2018, the “2025 Warrants,” with respect to the 2025 Notes, and the 2023 Warrants together with the 2025 Warrants, the “Warrants”) to acquire shares of our common stock, subject 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 our Warrants (in millions, except per share data):
Initial Number of Shares
Strike Price per Share
Aggregate Proceeds
2023 Warrants (1)
19.1 $139.27 $145.4 
2025 Warrants20.1 $136.16 $202.8 
(1)The 2023 Warrants were net settled during the 60 scheduled trading days from October to December 2023.
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The shares issuable under the Warrants are 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 Warrants. The Warrants are separate transactions and are not part of either series of Notes or Note Hedges and are not remeasured through earnings each reporting period. Holders of the Notes of either series will not have any rights with respect to the Warrants. The aggregate proceeds received from the sale of the Warrants are included in additional paid-in capital on our condensed consolidated balance sheets.
During the three months ended October 31, 2023, we net settled a portion of the 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.
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 Credit 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 option, at a base rate plus a spread of 0.000% 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, 2024, there were no amounts outstanding and we were in compliance with all covenants under the Credit Agreement.
10. Commitments and Contingencies
Purchase Commitments
We have entered into various non-cancelable agreements with cloud service providers, under which we are committed to minimum or fixed purchases of certain cloud services. In addition, in order to reduce manufacturing lead times and plan for adequate supply, we have entered 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 non-cancelable purchase commitments under these agreements as of October 31, 2024 (in millions):
Fiscal years ending July 31,
Total Remaining 202520262027202820292030 and Thereafter
Cloud
$4,088.9 $56.7 $435.7 $518.1 $599.6 $686.1 $1,792.7 
Manufacturing
205.7 165.7 40.0 — — — — 
Other
155.8 41.3 57.7 42.4 7.5 3.4 3.5 
Total purchase commitments
$4,450.4 $263.7 $533.4 $560.5 $607.1 $689.5 $1,796.2 
Additionally, we have a $137.2 million minimum purchase commitment with a cloud service provider through September 2027 with no specified annual commitments.
Litigation
We are subject to legal proceedings, claims, tax matters, and litigation arising in the ordinary course of business, including, for instance, intellectual property and 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.
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, we will either disclose the estimated additional loss or state that such an estimate cannot be made.
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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. 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 (“PTO”). The case went to jury trial on January 22, 2024, on four patents. On January 31, 2024, the jury returned a verdict of non-willful infringement with a lump sum amount of $151.5 million, plus statutory interest. After post-trial motions, a judgment was issued on October 3, 2024 affirming infringement on three patents, reversing infringement on the fourth patent, and subsequently, reducing the damages amount to $113.6 million. We posted a surety bond that was agreed upon by the parties and approved by the court. This bond prevents execution of the judgment while appeals are pending. In addition, Centripetal filed infringement contentions on certain of their patents in the European Patent Office in Germany, to which we filed invalidity challenges. Those matters are still pending.
As of July 31, 2024, we accrued $184.4 million for the verdict amount and estimated interest. As of October 31, 2024, we reassessed our loss accrual and reduced the amount to $141.4 million based on the judgment and estimated interest, which is recorded in other long-term liabilities on our condensed consolidated balance sheets. The corresponding amount released was $43.0 million for the three months ended October 31, 2024, which is included in general and administrative expense on our condensed consolidated statements of operations.
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. A t