Palo Alto Networks PANW · USD

Segment InformationWe have one operating and reportable segment. We conduct business globally and sales are primarily managed on a geographic theater basis. Our chief operating decision maker (“CODM”) is our Chairman and Chief Executive Officer who reviews financial information presented on a consolidated basis accompanied by revenue information for purposes of allocating resources and evaluating financial performance. Our CODM uses consolidated net income as our measure of segment profit or loss. The consolidated financial information by function as reflected on our consolidated statements of operations is used in our annual budget and forecasting process to establish goals and monitor budget versus actual results. The measure of segment assets is reported on the consolidated balance sheets as total consolidated assets.The following table presents our long-lived assets, which consist of property and equipment, net and operating lease right-of-use assets, by geographic area (in millions): Year Ended July 31, 20252024Long-lived assets:United States$418.0 $438.9 Israel162.1 141.1 Other countries154.2 167.0 Total long-lived assets$734.3 $747.0 Refer to Note 2. Revenue for revenue by geographic theater and revenue for groups of similar products and services for the years ended July 31, 2025, 2024, and 2023.

RevenueDisaggregation of RevenueThe following table presents revenue by geographic theater (in millions):Year Ended July 31,202520242023Revenue:AmericasUnited States$5,786.2 $5,134.0 $4,424.2 Other Americas418.9 348.9 295.7 Total Americas6,205.1 5,482.9 4,719.9 Europe, the Middle East, and Africa (“EMEA”)1,917.4 1,602.0 1,359.6 Asia Pacific and Japan (“APAC”)1,099.0 942.6 813.2 Total revenue$9,221.5 $8,027.5 $6,892.7 The following table presents revenue for groups of similar products and services (in millions):Year Ended July 31,202520242023Revenue:Product$1,801.9 $1,603.3 $1,578.4 Subscription and supportSubscription4,974.4 4,188.5 3,335.4 Support2,445.2 2,235.7 1,978.9 Total subscription and support7,419.6 6,424.2 5,314.3 Total revenue$9,221.5 $8,027.5 $6,892.7 Deferred RevenueDuring the years ended July 31, 2025 and 2024, we recognized approximately $5.5 billion and $4.6 billion of revenue pertaining to amounts that were deferred as of July 31, 2024 and 2023, respectively.Remaining Performance ObligationsRemaining performance obligations were $15.8 billion as of July 31, 2025, of which we expect to recognize as revenue approximately $7.0 billion over the next 12 months and the remainder thereafter.

Commitments and ContingenciesPurchase CommitmentsWe have entered into various non-cancelable agreements with cloud hosting service providers, under which we are committed to minimum or fixed purchases of certain cloud hosting 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. Other purchase obligations include non-cancellable subscription agreements and other commitments in the normal course of business. The following table presents details of the aggregate future non-cancelable purchase commitments under these agreements as of July 31, 2025 (in millions):Fiscal years ending July 31, Total 202620272028202920302031 and ThereafterCloud$6,580.5 $145.5 $774.1 $997.8 $1,017.5 $1,147.8 $2,497.8 Manufacturing197.1 197.1 — — — — — Other187.3 112.9 60.7 6.8 3.4 3.5 — Total$6,964.9 $455.5 $834.8 $1,004.6 $1,020.9 $1,151.3 $2,497.8 Additionally, we have a $119.0 million minimum purchase commitment with a cloud hosting service provider through September 2027 with no specified annual commitments. Mutual Covenant Not to Sue and Release AgreementIn January 2020, we executed a Mutual Covenant Not to Sue and Release Agreement for $50.0 million to extend an existing covenant not to sue for seven years. As the primary benefit of the arrangement was attributable to future use, the amount was recorded in other assets on our consolidated balance sheets and is amortized to cost of product revenue on our consolidated statements of operations over the estimated period of benefit of seven years.GuaranteeIn 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.LitigationWe 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.

DebtConvertible Senior NotesIn July 2018, we issued $1.7 billion aggregate principal amount of 0.75% Convertible Senior Notes due 2023 (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 bear interest at a fixed rate of 0.75% per year, payable semi-annually in arrears on January 1 and July 1 of each year, beginning on January 1, 2019. The 2023 Notes were converted prior to or settled on the maturity date of July 1, 2023 in accordance with their terms. 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 were converted prior to or settled on the maturity date of June 1, 2025 in accordance with their terms.The following table presents details of our Notes (number of shares in millions): Conversion Rate per $1,000 PrincipalInitial Conversion PriceConvertible DateInitial Number of Shares2023 Notes22.5270 $44.39 April 1, 202338.1 2025 Notes20.1612 $49.60 March 1, 202540.3 Holders of the 2023 Notes were able to early convert their 2023 Notes in fiscal 2023 up to April 1, 2023 and conversion requests received on or after April 1, 2023 were settled upon maturity of the 2023 Notes. Holders of the 2025 Notes were able to early convert their 2025 Notes in fiscal 2023, fiscal 2024, and fiscal 2025 up to March 1, 2025 and conversion requests received on or after March 1, 2025 were settled upon maturity of the 2025 Notes. During the years ended July 31, 2025, 2024, and 2023, we repaid in cash $965.6 million, $1.0 billion, and $1.7 billion, respectively, in aggregate principal amount of the Notes. We also issued 14.0 million, 14.0 million, and 22.9 million shares of our common stock to the holders of the Notes during the years ended July 31, 2025, 2024, and 2023, respectively, for the conversion value in excess of the principal amount. These shares were fully offset by shares we received from the corresponding exercise of the associated note hedges.The following table sets forth the net carrying amount of our 2025 Notes (in millions):July 31, 2025July 31, 2024Principal$— $965.6 Less: debt issuance costs, net of amortization— (1.7)Net carrying amount$— $963.9 The total estimated fair value of the 2025 Notes was $3.2 billion as of July 31, 2024.

Income TaxesThe following table presents the components of income before income taxes (in millions): Year Ended July 31, 202520242023United States$1,124.9 $669.2 $374.3 Foreign470.8 319.1 192.0 Total$1,595.7 $988.3 $566.3 The following table summarizes our provision for (benefit from) income taxes (in millions): Year Ended July 31, 202520242023Federal:Current$517.3 $213.4 $26.1 Deferred(300.2)311.7 19.3 State:Current108.2 101.5 44.0 Deferred(44.5)(172.8)0.4 Foreign:Current186.0 129.6 44.0 Deferred(5.0)(2,172.7)(7.2)Total$461.8 $(1,589.3)$126.6 For the year ended July 31, 2025, our provision for income taxes was $461.8 million, which included a deferred tax provision of $218.5 million arising from the remeasurement of our basis difference associated with the U.S. tax effects of foreign deferred tax assets. Our remeasurement is a result of the One Big Beautiful Bill Act ("OBBB") enacted on July 4, 2025 which provides for significant tax law changes and modifications including changes to the U.S. effective tax rates on certain foreign earnings. Although these specific provisions are not effective until our fiscal 2027, our policy to account for basis differences relating to our global intangible low-taxed income requires us to account for these changes in the period of enactment. For the year ended July 31, 2024, our benefit from income taxes was $1.6 billion, primarily due to the release of our valuation allowance on U.S. federal, U.S. states other than California, and United Kingdom (“U.K.”) deferred tax assets, partially offset by the deferred tax provision in our U.S. federal tax provision to recognize the indirect effect on basis differences relating to our global intangible low-taxed income in connection with the release of our valuation allowance in the U.K.The following table presents the items accounting for the difference between income taxes computed at the federal statutory income tax rate and our provision for (benefit from) income taxes: Year Ended July 31,202520242023Federal statutory rate21.0%21.0%21.0%Effect of:State taxes, net of federal tax benefit3.8 3.1 2.8 Non-U.S. operations2.2 9.5 9.7 Change in valuation allowance1.1 (341.9)15.5 U.S. effect of foreign deferred tax assets11.2 175.8 — Share-based compensation(5.5)(16.9)(12.6)Tax credits(6.2)(13.4)(15.6)Non-deductible expenses1.2 1.5 2.3 Other, net0.1 0.5 (0.7)Total28.9 %(160.8)%22.

LeasesWe have entered into various non-cancelable operating leases, primarily for our offices and data centers, with lease terms expiring through the year ending July 31, 2036. Some of our leases contain rent holiday periods, scheduled rent increases, lease incentives, early termination rights, and/or renewal options.During the years ended July 31, 2025, 2024, and 2023, our net cost for operating leases was $121.7 million, $104.7 million, and $91.3 million, respectively, primarily consisting of operating lease costs of $88.1 million, $75.6 million, and $64.2 million, respectively. Our net cost for operating leases also included variable lease costs, short-term lease costs, and sublease income in the periods presented. The following tables present additional information for our operating leases (in millions, except for years and percentages):Year Ended July 31,202520242023Operating cash flows used in payments of operating lease liabilities$91.2 $87.4 $82.7 Right-of-use assets obtained in exchange for new operating lease liabilities$26.5 $177.9 $71.1 July 31, 2025July 31, 2024Weighted-average remaining lease term6.0 years6.6 yearsWeighted-average discount rate5.4%5.3%The following table presents maturities of operating lease liabilities as of July 31, 2025 (in millions):AmountFiscal years ending July 31:2026$99.4 202795.0 202894.3 202947.7 203045.2 2031 and thereafter112.3 Total operating lease payments493.9 Less: imputed interest(76.5)Present value of operating lease liabilities$417.4 Current portion of operating lease liabilities(1)$79.2 Long-term operating lease liabilities$338.2 (1)Current portion of operating lease liabilities is included in accrued and other liabilities on our consolidated balance sheet.As of July 31, 2025, we had additional non-cancelable operating leases for office space that had been signed but had not yet commenced with total future minimum lease payments of $36.4 million. These leases are expected to commence on or after fiscal 2026, with lease terms ranging from four to seven years.

AcquisitionsFiscal 2025IBM QRadar AssetsOn 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. The total purchase consideration for the acquisition was $1.1 billion, which consisted of the following (in millions):AmountCash$500.0 Fair value of contingent consideration liability on the acquisition date648.9 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, of which $2.9 million was received during the year ended July 31, 2025. 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 period of time that ends in the fiscal quarter ending October 2026.Payments related to the contingent consideration liability are expected to begin in the fiscal quarter ending October 2025 and continue through the fiscal quarter ending October 2028. The estimated range of undiscounted contingent consideration is between $0.4 billion and $0.6 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 estimated fair values, as presented in the following table (in millions):AmountGoodwill$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 Security Operations business. The goodwill is deductible for U.S. income tax purposes.The following table presents details of the identified intangible assets acquired (in millions, except years):Fair ValueEstimated Useful LifeCustomer relationships$464.0 12 yearsDeveloped technology12.0 2 yearsTotal$476.0 Protect AI, Inc.On July 22, 2025, we completed our acquisition of Protect AI, Inc.

Our cybersecurity risk management program includes written policies, standards, and procedures for maintaining data privacy, product security and information security to mitigate cybersecurity risks, and to identify, evaluate and respond to cybersecurity threats, vulnerabilities and incidents. Our cybersecurity risk management program and strategy is implemented across several areas, which include, but are not limited to, the following:•Information Security. We maintain a written information security program, which provides for policies, standards, guidelines, and administrative, technical and physical safeguards that we believe are reasonably designed, in light of the nature, size and complexity of our operations, to protect the resiliency of our operations and the confidentiality, integrity, and availability of our information systems, data, and information assets. The organizational, administrative and technical measures we implement are based on recognized security frameworks established by the National Institute of Standards and Technology, security measures aligned with the ISO/IEC 27000 series of standards, and other generally recognized industry standards. The program is assessed regularly and in light of new and emerging cybersecurity risks. •Technical Safeguards and Product Security. We deploy and maintain a variety of technologies to prevent and detect cybersecurity threats across the network, endpoint and cloud. We also apply security-by-design principles in our software development lifecycle, track vulnerabilities of open-source software, and run internal and external network scans at least weekly and after any meaningful change in our network configuration. We conduct regular application security assessments, including our assessments for internet-facing applications that collect, transmit, or display end user data. We also employ tooling in certain areas to help prevent deviations from policy.•Incident Response and Reporting. We maintain incident response and recovery protocols to enable prompt, effective and orderly identification, evaluation, management, and disposition of actual and potential security threats and incidents, including for purposes of escalation and internal and external-notification steps.