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Table of Contents

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, 2025
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)  
 
Delaware 20-2530195
(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 class Trading Symbol(s) Name of each exchange on which registered
Common stock, $0.0001 par value per share PANW 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 11, 2025 was 697 million.

Table of Contents

Table of Contents

Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
2

Condensed Consolidated Balance Sheets as of October 31, 2025 and July 31, 2025
2

Condensed Consolidated Statements of Operations for the Three Months Ended October 31, 2025 and October 31, 2024
3

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended October 31, 2025 and October 31, 2024
4

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended October 31, 2025 and October 31, 2024
5

Condensed Consolidated Statements of Cash Flows for the Three Months Ended October 31, 2025 and October 31, 2024
6

Notes to Condensed Consolidated Financial Statements
7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
20

Item 3. Quantitative and Qualitative Disclosures About Market Risk
33

Item 4. Controls and Procedures
33

PART II - OTHER INFORMATION
Item 1. Legal Proceedings
35

Item 1A. Risk Factors
35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
58

Item 5. Other Information
58

Item 6. Exhibits
59

Signatures
60

- 1 -

Table of Contents

Part I

Item 1. Financial Statements

PALO ALTO NETWORKS, INC.

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

October 31, 2025 July 31, 2025
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 3,066   $ 2,269  
Short-term investments 1,144   635  
Accounts receivable, net of allowance for credit losses of $ 14 and $ 10 as of October 31, 2025 and July 31, 2025, respectively
1,343   2,965  
Short-term financing receivables, net 737   715  
Short-term deferred contract costs 415   419  
Prepaid expenses and other current assets 605   520  
Total current assets 7,310   7,523  
Property and equipment, net 394   387  
Operating lease right-of-use assets 353   347  
Long-term investments 5,982   5,555  
Long-term financing receivables, net 855   1,002  
Long-term deferred contract costs 546   586  
Goodwill 4,567   4,567  
Intangible assets, net 723   763  
Deferred tax assets 2,416   2,424  
Other assets 390   422  
Total assets $ 23,536   $ 23,576  
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$ 223   $ 232  
Accrued compensation 398   608  
Accrued and other liabilities 665   846  
Deferred revenue 6,132   6,302  

Total current liabilities
7,418   7,988  

Long-term deferred revenue 6,098   6,450  
Deferred tax liabilities 96   89  
Long-term operating lease liabilities 346   338  
Other long-term liabilities 913   887  
Total liabilities 14,871   15,752  
Commitments and contingencies (Note 10)

Stockholders’ equity:
Preferred stock; $ 0.0001 par value; 100  shares authorized; none issued and outstanding as of October 31, 2025 and July 31, 2025
—   —  
Common stock and additional paid-in capital; $ 0.0001 par value; 2,000  shares authorized; 692 and 668  shares issued and outstanding as of October 31, 2025 and July 31, 2025, respectively
5,780   5,292  
Accumulated other comprehensive income
67   48  
Retained earnings
2,818   2,484  
Total stockholders’ equity 8,665   7,824  
Total liabilities and stockholders’ equity $ 23,536   $ 23,576  

See notes to condensed consolidated financial statements.
- 2 -

Table of Contents

PALO ALTO NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions, except per share data)

Three Months Ended October 31,
2025 2024
Revenue:
Product $ 434   $ 354  
Subscription and support 2,040   1,785  
Total revenue 2,474   2,139  
Cost of revenue:
Product 89   75  
Subscription and support 549   479  
Total cost of revenue 638   554  
Total gross profit 1,836   1,585  
Operating expenses:
Research and development 528   481  
Sales and marketing 820   720  
General and administrative 179   98  
Total operating expenses 1,527   1,299  
Operating income
309   286  
Interest expense —   ( 1 )
Other income, net 103   83  
Income before income taxes
412   368  
Provision for income taxes 78   17  
Net income
$ 334   $ 351  
Net income per share, basic
$ 0.49   $ 0.54  
Net income per share, diluted
$ 0.47   $ 0.49  
Weighted-average shares used to compute net income per share, basic
679   654  
Weighted-average shares used to compute net income per share, diluted
709   709  

See notes to condensed consolidated financial statements .
- 3 -

Table of Contents

PALO ALTO NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in millions)

Three Months Ended October 31,
2025 2024
Net income
$ 334   $ 351  
Other comprehensive income, net of tax:
Change in unrealized gains (losses) on investments 25   ( 3 )
Cash flow hedges:
Change in unrealized gains (losses) 7   —  
Net realized (gains) losses reclassified into earnings
( 13 ) 1  
Net change on cash flow hedges ( 6 ) 1  
Other comprehensive income (loss)
19   ( 2 )
Comprehensive income $ 353   $ 349  

See notes to condensed consolidated financial statements .

- 4 -

Table of Contents

PALO ALTO NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in millions)

Three Months Ended October 31, 2025

Common Stock and Additional Paid-In Capital
Accumulated Other Comprehensive Income
Retained Earnings
Total Stockholders’ Equity

 
Shares Amount
Balance as of July 31, 2025 668   $ 5,292   $ 48   $ 2,484   $ 7,824  

Net income —  —  —  334   334  
Other comprehensive income
—  —  19   —  19  
Issuance of common stock in connection with employee equity incentive plans 4   129   —  —  129  
Taxes paid related to net share settlement of equity awards —  ( 1 ) —  —  ( 1 )
Share-based compensation for equity-based awards —  360   —  —  360  

Settlement of warrants 20   —  —  —  — 

Balance as of October 31, 2025 692   $ 5,780   $ 67   $ 2,818   $ 8,665  

Three Months Ended October 31, 2024
 
Common Stock and Additional Paid-In Capital
Accumulated Other Comprehensive Loss
Retained Earnings
Total Stockholders’ Equity

 
Shares Amount
Balance as of July 31, 2024 650   $ 3,821   $ ( 2 ) $ 1,350   $ 5,169  

Net income
—  —  —  351   351  
Other comprehensive loss
—  —  ( 2 ) —  ( 2 )
Issuance of common stock in connection with employee equity incentive plans 5   121   —  —  121  
Taxes paid related to net share settlement of equity awards —  ( 22 ) —  —  ( 22 )
Share-based compensation for equity-based awards —  295   —  —  295  

Settlement of convertible notes 4   —  —  —  —  
Settlement of note hedges
( 4 ) —  —  —  —  

Balance as of October 31, 2024 655   $ 4,215   $ ( 4 ) $ 1,701   $ 5,912  

See notes to condensed consolidated financial statements.
- 5 -

Table of Contents

PALO ALTO NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)

Three Months Ended October 31,
2025 2024
Cash flows from operating activities
Net income
$ 334   $ 351  
Adjustments to reconcile net income to net cash provided by operating activities:

Share-based compensation for equity-based awards 370   295  
Deferred income taxes
9   ( 137 )
Depreciation and amortization 89   84  

Amortization of deferred contract costs 126   110  

Change in fair value of contingent consideration liability
( 13 ) 6  
Reduction of operating lease right-of-use assets 18   16  
Amortization of investment premiums, net of accretion of purchase discounts ( 7 ) ( 15 )

Changes in operating assets and liabilities, net of effects of acquisitions:

Accounts receivable, net 1,622   1,486  
Financing receivables, net 125   11  
Deferred contract costs ( 82 ) ( 79 )
Prepaid expenses and other assets ( 33 ) ( 4 )
Accounts payable ( 2 ) 97  
Accrued compensation ( 210 ) ( 201 )
Accrued and other liabilities ( 53 ) ( 94 )
Deferred revenue ( 522 ) ( 416 )
Net cash provided by operating activities 1,771   1,510  
Cash flows from investing activities
Purchases of investments ( 1,401 ) ( 660 )
Proceeds from sales of investments 30   291  
Proceeds from maturities of investments 474   369  
Business acquisitions, net of cash and restricted cash acquired
( 2 ) ( 500 )
Purchases of property, equipment, and other assets
( 84 ) ( 44 )
Net cash used in investing activities ( 983 ) ( 544 )
Cash flows from financing activities
Repayments of convertible senior notes
—   ( 319 )

Proceeds from sales of shares through employee equity incentive plans
130   121  
Payments for taxes related to net share settlement of equity awards
( 1 ) ( 22 )

Payments of contingent consideration liability
( 121 ) —  
Net cash provided by (used in) financing activities
8   ( 220 )
Net increase in cash, cash equivalents, and restricted cash
796   746  
Cash, cash equivalents, and restricted cash—beginning of period 2,279   1,547  
Cash, cash equivalents, and restricted cash—end of period
$ 3,075   $ 2,293  
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents $ 3,066   $ 2,283  
Restricted cash included in prepaid expenses and other current assets 9   10  

Total cash, cash equivalents, and restricted cash $ 3,075   $ 2,293  

Non-cash investing and financing activities

Contingent consideration for a business acquisition
$ —   $ ( 649 )

See notes to condensed consolidated financial statements.
- 6 -

Table of Contents

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. Our cybersecurity platforms and services help 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, 2025, filed with the Securities and Exchange Commission (“SEC”) on August 29, 2025. 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, 2025.
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, valuation of inventory and 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.
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, 2025, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended July 31, 2025.
Recently Issued Accounting Pronouncements
Income Tax Disclosures
In December 2023, the Financial Accounting Standards Board (“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 periods beginning in fiscal 2026 and could be applied either prospectively or retrospectively. We are currently evaluating the impact of this standard on our disclosures in the consolidated financial statements.
Expense Disaggregation Disclosures
In November 2024, the FASB issued authoritative guidance that expands annual and interim disclosure of specified information about certain costs and expenses in the notes to financial statements. The standard is effective for our annual periods beginning in fiscal 2028 and interim periods beginning in the first quarter of fiscal 2029, 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.
Measurement of Credit Losses for Accounts Receivable and Contract Assets
In July 2025, the FASB issued authoritative guidance that provides a practical expedient for estimating expected credit losses on accounts receivable and contract assets. The standard is effective for our annual and interim periods beginning in the first quarter of fiscal 2027 and will be applied on a prospective basis. Early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial statements.
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Accounting for Internal-Use Software
In September 2025, the FASB issued authoritative guidance that modernizes the accounting for internal-use software by eliminating project stage-based capitalization and clarifying the requirements, including probable-to-complete threshold, to commence the capitalization of software development costs. The standard is effective for our annual and interim periods beginning in the first quarter of fiscal 2029 and could be applied either prospectively or retrospectively. Early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial statements.

2. Revenue
Disaggregation of Revenue
The following table presents revenue by geographic theater (in millions):

Three Months Ended October 31,
2025 2024
Revenue:
Americas
United States $ 1,526   $ 1,344  
Other Americas 115   98  
Total Americas 1,641   1,442  
Europe, the Middle East, and Africa (“EMEA”) 521   442  
Asia Pacific and Japan (“APAC”) 312   255  
Total revenue $ 2,474   $ 2,139  

The following table presents revenue for groups of similar products and services (in millions):

Three Months Ended October 31,
2025 2024
Revenue:
Product $ 434   $ 354  
Subscription and support
Subscription 1,364   1,192  
Support 676   593  
Total subscription and support 2,040   1,785  
Total revenue $ 2,474   $ 2,139  

Deferred Revenue
During the three months ended October 31, 2025 and 2024, we recognized approximately $ 1.9  billion and $ 1.6  billion of revenue pertaining to amounts that were deferred as of July 31, 2025 and 2024, respectively.
Remaining Performance Obligations
Remaining performance obligations were $ 15.5  billion as of October 31, 2025, of which we expect to recognize as revenue approximately $ 6.9  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, 2025 and July 31, 2025 (in millions):

October 31, 2025 July 31, 2025
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Cash equivalents:
Money market funds $ 1,105   $ —   $ —   $ 1,105   $ 1,206   $ —   $ —   $ 1,206  

Commercial paper —   755   —   755   —   169   —   169  
Corporate debt securities —   157   —   157   —   —   —   —  
U.S. government and agency securities —   178   —   178   —   —   —   —  

Total cash equivalents 1,105   1,090   —   2,195   1,206   169   —   1,375  
Short-term investments:
Certificates of deposit —   25   —   25   —   —   —   —  
Commercial paper —   340   —   340   —   15   —   15  
Corporate debt securities —   744   —   744   —   584   —   584  
U.S. government and agency securities —   14   —   14   —   6   —   6  
Non-U.S. government and agency securities —   3   —   3   —   3   —   3  
Asset-backed securities —   13   —   13   —   22   —   22  
Total short-term investments —   1,139   —   1,139   —   630   —   630  
Long-term investments:

Corporate debt securities —   4,448   —   4,448   —   4,050   —   4,050  
U.S. government and agency securities —   85   —   85   —   164   —   164  
Non-U.S. government and agency securities —   26   —   26   —   26   —   26  
Asset-backed securities —   1,423   —   1,423   —   1,315   —   1,315  
Total long-term investments —   5,982   —   5,982   —   5,555   —   5,555  
Prepaid expenses and other current assets:
Foreign currency forward contracts —   64   —   64   —   58   —   58  
Total prepaid expenses and other current assets —   64   —   64   —   58   —   58  
Other assets:
Foreign currency forward contracts —   —   —   —   —   3   —   3  
Total other assets —   —   —   —   —   3   —   3  
Total assets measured at fair value $ 1,105   $ 8,275   $ —   $ 9,380   $ 1,206   $ 6,415   $ —   $ 7,621  

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October 31, 2025 July 31, 2025
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Accrued and other liabilities:
Foreign currency forward contracts $ —   $ 7   $ —   $ 7   $ —   $ 4   $ —   $ 4  
Contingent consideration
—   —   168   168   —   —   276   276  
Total accrued and other liabilities —   7   168   175   —   4   276   280  
Other long-term liabilities:

Contingent consideration
—   —   212   212   —   —   238   238  
Total other long-term liabilities —   —   212   212   —   —   238   238  
Total liabilities measured at fair value $ —   $ 7   $ 380   $ 387   $ —   $ 4   $ 514   $ 518  

As part of our acquisition of certain QRadar assets from International Business Machines Corporation (“IBM”) on August 31, 2024, we agreed to make post-closing payments to IBM contingent upon customers entering into qualified new transactions through June 30, 2028. Payments related to the contingent consideration liability commenced in the fiscal quarter ended October 2025 and are expected to continue through the fiscal quarter ending October 2028. The estimated range of undiscounted contingent consideration is between $ 0.4  billion and $ 0.6  billion.
The fair value of our 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,
2025 2024
Contingent consideration liability at the beginning of the period
$ 514   $ —  
Initial valuation on the acquisition date
—   649  
Change in fair value
( 13 ) 6  
Payments
( 121 ) —  
Contingent consideration liability at the end of the period
$ 380   $ 655  

The total estimated fair value of our financing receivables approximates their carrying amounts as of October 31, 2025 and July 31, 2025. 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.
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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, 2025 and July 31, 2025 (in millions):

October 31, 2025
Amortized Cost 
Unrealized Gains
Unrealized Losses
Fair Value
Cash equivalents:

Commercial paper $ 755   $ —   $ —   $ 755  
Corporate debt securities 157   —   —   157  
U.S. government and agency securities 178   —   —   178  

Total available-for-sale cash equivalents $ 1,090   $ —   $ —   $ 1,090  
Investments:
Certificates of deposit $ 25   $ —   $ —   $ 25  
Commercial paper 340   —   —   340  
Corporate debt securities 5,120   73   ( 1 ) 5,192  
U.S. government and agency securities 99   —   —   99  
Non-U.S. government and agency securities 29   —   —   29  
Asset-backed securities 1,421   15   —   1,436  
Total available-for-sale investments $ 7,034   $ 88   $ ( 1 ) $ 7,121  

July 31, 2025
Amortized Cost 
Unrealized Gains
Unrealized Losses
Fair Value
Cash equivalents:

Commercial paper $ 169   $ —   $ —   $ 169  

Total available-for-sale cash equivalents $ 169   $ —   $ —   $ 169  
Investments:

Commercial paper 15   —   —   15  
Corporate debt securities 4,588   47   ( 1 ) 4,634  
U.S. government and agency securities 170   —   —   170  
Non-U.S. government and agency securities 29   —   —   29  
Asset-backed securities 1,328   9   —   1,337  
Total available-for-sale investments $ 6,130   $ 56   $ ( 1 ) $ 6,185  

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, 2025 and 2024.
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The following table summarizes the amortized cost and fair value of our available-for-sale debt securities as of October 31, 2025, by contractual years-to-maturity (in millions):

Amortized Cost Fair Value
Due within one year $ 2,226   $ 2,229  
Due between one and three years 2,299   2,327  
Due between three and five years 3,133   3,182  
Due between five and ten years 286   290  
Due after ten years 180   183  
Total $ 8,124   $ 8,211  

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, 2025 and July 31, 2025, the carrying values of our marketable equity securities were $ 1.1  billion and $ 1.2  billion, respectively. There were no unrealized gains or losses recognized for these securities during the three months ended October 31, 2025 and 2024.

5. Financing Receivables
The following table summarizes our short-term and long-term financing receivables as of October 31, 2025 and July 31, 2025 (in millions):

October 31, 2025 July 31, 2025
Short-term financing receivables, gross $ 823   $ 806  
Unearned income
( 80 ) ( 86 )
Allowance for credit losses ( 6 ) ( 5 )
Short-term financing receivables, net $ 737   $ 715  
Long-term financing receivables, gross $ 927   $ 1,079  
Unearned income
( 63 ) ( 69 )
Allowance for credit losses ( 9 ) ( 8 )
Long-term financing receivables, net $ 855   $ 1,002  

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, 2025 July 31, 2025
Fiscal Year of Origination
Fiscal Year of Origination

2026 2025 2024 2023 2022 Total 2025 2024 2023 2022 2021 Total
1 to 4
$ —   $ 301   $ 675   $ 177   $ 5   $ 1,158   $ 261   $ 732   $ 242   $ 9   $ 18   $ 1,262  
5 to 6
28   188   183   36   —   435   174   226   50   —   —   450  
7 to 10
—   —   4   10   —   14   —   4   14   —   —   18  
Amortized cost basis of financing receivables
$ 28   $ 489   $ 862   $ 223   $ 5   $ 1,607   $ 435   $ 962   $ 306   $ 9   $ 18   $ 1,730  

(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, 2025 and 2024. Past due amounts on financing receivables were not material as of October 31, 2025 and July 31, 2025.
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6. Derivative Instruments
We are exposed to foreign currency exchange risk. Our sales contracts are primarily denominated in U.S. dollars. A portion of our operating expenditures 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 revenue and operating expenditures.
As of October 31, 2025 and July 31, 2025, the total notional amount of our outstanding foreign currency forward contracts designated as cash flow hedges was $ 760  million and $ 964  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, 2025 and July 31, 2025.
As of October 31, 2025, unrealized gains and losses in accumulated other comprehensive income (“AOCI”) related to our cash flow hedges were a $ 32  million net gain, of which $ 34  million in gains are expected to be recognized into earnings within the next 12 months. As of July 31, 2025, unrealized gains and losses in AOCI related to our cash flow hedges were a $ 40  million net gain.
As of October 31, 2025 and July 31, 2025, the notional amount of our outstanding foreign currency forward contracts not designated as hedging instruments was $ 586  million and $ 504  million, respectively.

7. Acquisition
CyberArk Software Ltd.
On July 30, 2025, we entered into a definitive agreement to acquire CyberArk Software Ltd., an identity security company (“CyberArk”). The acquisition is expected to close during the third quarter of our fiscal 2026, subject to the satisfaction of customary closing conditions, including the receipt of certain approvals under specified antitrust and foreign investment laws. Under the terms of the agreement, CyberArk shareholders will receive $ 45.00 in cash and 2.2005 shares of our common stock for each CyberArk share. This represents an equity value of approximately $ 25  billion for CyberArk based on the unaffected 10-day average daily volume-weighted average trading prices of our common stock as of July 25, 2025. We expect to fund the cash portion of the consideration with our cash on hand. The agreement also provides that we will assume certain unvested outstanding equity awards held by CyberArk employees.
We and CyberArk each have certain termination rights under the definitive acquisition agreement. A termination fee of $ 1.0  billion may be payable by us to CyberArk, or a fee of $ 750  million may be payable by CyberArk to us, upon termination of the definitive acquisition agreement under specified circumstances.

8. Intangible Assets
Purchased Intangible Assets
The following table presents details of our purchased intangible assets as of October 31, 2025 and July 31, 2025 (in millions):

October 31, 2025 July 31, 2025
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount

Intangible assets subject to amortization:
Developed technology $ 515   $ ( 279 ) $ 236   $ 536   $ ( 274 ) $ 262  
Customer relationships 609   ( 137 ) 472   609   ( 123 ) 486  
Acquired intellectual property 24   ( 9 ) 15   24   ( 9 ) 15  

Other 1   ( 1 ) —   1   ( 1 ) —  

Total purchased intangible assets $ 1,149   $ ( 426 ) $ 723   $ 1,170   $ ( 407 ) $ 763  

We recognized amortization expense of $ 40 million and $ 41 million for the three months ended October 31, 2025 and 2024 respectively.
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The following table summarizes estimated future amortization expense of our intangible assets subject to amortization as of October 31, 2025 (in millions):

Fiscal years ending July 31,
Total  Remaining 2026 2027 2028 2029 2030 2031 and Thereafter
Future amortization expense $ 723   $ 116   $ 125   $ 104   $ 78   $ 62   $ 238  

9. Debt
Convertible Senior Notes, Note Hedges, and Warrants
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 were converted prior to or settled on the maturity date of June 1, 2025 in accordance with their terms.
Concurrent with the issuance of the 2025 Notes, we entered into separate convertible note hedge transactions (the “2025 Note Hedges”) with respect to our common stock for an aggregate payment of $ 371  million. The 2025 Note Hedges expired upon maturity of the 2025 Notes. 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.
Separately, but concurrently with the issuance of our 2025 Notes, we entered into transactions whereby we sold warrants (the “2025 Warrants”) to acquire 40 million shares of our common stock with a strike price of $ 68.08 per share, subject to anti-dilution adjustments, for aggregate proceeds of $ 203  million. The 2025 Warrants are exercisable over 60  scheduled trading days beginning September 2025. The shares issuable under the 2025 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 strike price of the 2025 Warrants.
During the three months ended October 31, 2025, we net settled a portion of the 2025 Warrants with 20  million shares of our common stock with a fair value of $ 4.1  billion. The number of net shares issued was determined based on the number of 2025 Warrants exercised multiplied by the difference between the strike price of the 2025 Warrants and their daily volume-weighted-average stock price. As of October 31, 2025, up to 11  million shares of our common stock were issuable for gross settlement under the remaining outstanding 2025 Warrants, which will be net settled when exercised through the end of November 2025.
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  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  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 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.
As of October 31, 2025, there were no amounts outstanding and we were in compliance with all covenants under the Credit Agreement.
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10. Commitments and Contingencies
Purchase Commitments
We 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 October 31, 2025 (in millions):

Fiscal years ending July 31,
Total  Remaining 2026 2027 2028 2029 2030 2031 and Thereafter
Cloud
$ 6,380   $ 60   $ 660   $ 998   $ 1,017   $ 1,148   $ 2,497  
Manufacturing
185   185   —   —   —   —   —  
Other
141   66   61   7   3   4   —  
Total
$ 6,706   $ 311   $ 721   $ 1,005   $ 1,020   $ 1,152   $ 2,497  

Additionally, we have a $ 112  million minimum purchase commitment with a cloud hosting 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.
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 $ 152  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 $ 114  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 and Unified Patent Court in Germany, to which we filed appropriate legal challenges. Those matters are still pending.
As of October 31, 2025 and July 31, 2025, we accrued $ 147  million and $ 146  million based on the judgment and estimated interest, which is recorded in other long-term liabilities on our condensed consolidated balance sheets. The corresponding charge was $ 1  million for the three months ended October 31, 2025. We recorded a release of $ 43  million for the three months ended October 31, 2024. These amounts are 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. On March 21, 2025, the judge issued an order granting summary judgment of non-infringement on all remaining patents at issue. Plaintiff filed a Notice of Appeal on April 21, 2025. We are unable, at this time, to reasonably estimate a possible loss or potential range of loss, if any.
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Eire OG Innovations. v. Palo Alto Networks
On April 3, 2024, Eire OG Innovations filed a lawsuit against us in the United States District Court for the Eastern District of Texas asserting infringement of multiple patents, certain of which were subsequently dismissed. The complaint requests monetary damages and attorneys’ fees. Trial is set for February 17, 2026. As of October 31, 2025, we accrued for an immaterial amount related to this matter.

11. Stockholders’ Equity
Share Repurchase Program
In February 2019, our board of directors authorized a $ 1.0  billion share repurchase program, which is funded from available working capital. Our board of directors subsequently authorized additional increases to this share repurchase program, bringing the total authorization under this share repurchase program to $ 4.1  billion (our “current authorization”). As of October 31, 2025, the expiration date of our current authorization was December 31, 2025. The expiration date of the authorization was subsequently extended to December 31, 2026. Refer to Note 16. Subsequent Events for additional information. 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.
We did not repurchase shares of our common stock during the three months ended October 31, 2025 and 2024.
As of October 31, 2025, $ 1.0  billion remained available for future share repurchases under our current repurchase authorization.

12. Equity Award Plans
Restricted Stock Unit (“RSU”) and Performance-Based Stock Unit (“PSU”) Activities
The following table summarizes the RSU and PSU activity under our stock plans during the three months ended October 31, 2025 (in millions, except per share amounts):

Unvested RSUs
Unvested PSUs

Number of Shares
Weighted-Average Grant-Date Fair Value Per Share
Aggregate Intrinsic Value
Number of Shares
Weighted-Average Grant-Date Fair Value Per Share
Aggregate Intrinsic Value

Balance—July 31, 2025 13   $ 143.33   $ 2,285   9   $ 140.92   $ 1,635  
Granted (1)
1   $ 190.48   3   $ 182.59  
Vested (2)
( 2 ) $ 122.51   —   $ 62.72  
Forfeited —   $ 136.82   —   $ 194.01  
Balance—October 31, 2025 12   $ 150.94   $ 2,623   12   $ 153.01   $ 2,677  

(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.
(2) Includes time-based vesting for PSUs.
Our RSUs generally vest over a period of 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, 2025, we granted 3  million shares of PSUs that 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 an average of next-generation security annualized recurring revenue and non-GAAP net income per diluted share. 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, 2025, we have approved 3  million shares of PSUs, which will be granted upon the performance condition being established during the next two fiscal years.
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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, 2025 and 2024:

Three Months Ended October 31,
2025 2024
Volatility 36.6 % - 42.6 %
44.1 % - 47.6 %

Expected term (in years) 1.0 - 3.0
1.0 - 2.9

Dividend yield 0.0 % 0.0 %
Risk-free interest rate 3.6 % - 3.9 %
3.7 % - 4.5 %

Grant-date fair value per share $ 226.06 - $ 261.62
$ 264.51 - $ 305.83

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, 2025 and July 31, 2025, 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.
The following table summarizes the PSO activity under our stock plans during the three months ended October 31, 2025 (in millions, except per share amounts):

Number of Shares
Weighted-Average Exercise Price Per Share
Weighted-Average Remaining Contractual Term (Years)
Aggregate Intrinsic Value

Balance—July 31, 2025 1   $ 32.76   0.5 $ 197  

Exercised ( 1 ) $ 32.88  

Balance—October 31, 2025 —   $ 32.25   0.5 $ 52  
Exercisable—October 31, 2025 —   $ 32.25   0.5 $ 52  

Share-Based Compensation
The following table summarizes share-based compensation included in costs and expenses (in millions):

Three Months Ended October 31,
2025 2024
Cost of product revenue $ 1   $ 1  
Cost of subscription and support revenue 32   31  
Research and development 155   138  
Sales and marketing 102   76  
General and administrative 80   49  
Total share-based compensation $ 370   $ 295  

As of October 31, 2025, total compensation cost related to unvested share-based awards not yet recognized was $ 2.2  billion. This cost is expected to be amortized over a weighted-average period of approximately 2.4 years.

13. Income Taxes
For the three months ended October 31, 2025 and 2024, our provision for income taxes reflected effective tax rates of 18.9 % and 4.9 %, respectively. Our income taxes for the three months ended October 31, 2025 and 2024 were primarily due to U.S. and foreign income taxes.
Our effective tax rates for the three months ended October 31, 2025 and 2024 differed from the U.S. statutory tax rate primarily due to excess tax benefits from share-based compensation.
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14. Net Income Per Share
Basic net income per share is computed by dividing net income by basic weighted-average shares outstanding during the period. Diluted net income per share is computed by dividing net income by diluted weighted-average shares outstanding during the period giving effect to all potentially dilutive securities to the extent they are dilutive. We compute the dilutive effect of shares issuable upon conversion of our convertible senior notes using the if-converted method, and the dilutive effect of warrants related to the issuance of convertible senior notes and equity awards under our employee equity incentive plans using the treasury stock method.
The following table presents the computation of basic and diluted net income per share of common stock (in millions, except per share data):

Three Months Ended October 31,
2025 2024
Net income
$ 334   $ 351  

Weighted-average shares used to compute net income per share, basic
679   654  
Weighted-average effect of potentially dilutive securities:
Convertible senior notes —   12  
Warrants related to the issuance of convertible senior notes 20   24  
Employee equity incentive plans 10   19  
Weighted-average shares used to compute net income per share, diluted
709   709  

Net income per share, basic
$ 0.49   $ 0.54  
Net income per share, diluted
$ 0.47   $ 0.49  

The following securities were excluded from the computation of diluted net income per share of common stock as their effect would have been antidilutive or issuance of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the applicable period (in millions):

Three Months Ended October 31,
2025 2024

Employee equity incentive plans 3   3  

15. Other Income, Net
The following table sets forth the components of other income, net (in millions):

Three Months Ended October 31,
2025 2024
Interest income $ 105   $ 86  
Foreign currency exchange gains (losses), net ( 11 ) ( 8 )
Other, net
9   5  
Total other income, net $ 103   $ 83  

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16. Subsequent Events
Share Repurchase
On November 18, 2025, our board of directors authorized the extension of the expiration date of our current share repurchase authorization to December 31, 2026. 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.
Chronosphere, Inc.
On November 19, 2025, we entered into a definitive agreement to acquire Chronosphere, Inc., a privately-held observability technology company (“Chronosphere”), in exchange for total consideration of $ 3.35  billion in cash and replacement awards, subject to adjustments. We expect the acquisition to be our entry into the observability space. The acquisition of Chronosphere is expected to close during the second half of our fiscal 2026, subject to the satisfaction of closing conditions, including regulatory clearance.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including, without limitation, the following discussion and analysis, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements generally can be identified by words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “projects,” “will,” “will be,” “will continue,” “will likely result,” “would” and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements include, but are not limited to, statements concerning the following: expectations regarding the cybersecurity landscape; expectations regarding our platformization strategy and related progress and opportunities; expectations regarding annual recurring revenue, remaining performance obligations, and product development strategy; expectations regarding artificial intelligence; expectations regarding our strategic partnerships; expectations regarding drivers of and factors affecting growth in our business; statements regarding expected profitability, trends in annual recurring revenue, trends in remaining performance obligations, our mix of product and subscription and support revenue, cost of revenue, gross margin, cash flows, operating expenses, including future share-based compensation expense, income taxes, investment plans, and liquidity; expected recurring revenues resulting from growth in our end-customers and increased adoption of our products and cloud-delivered security solutions; the performance advantages of our products and subscription and support offerings and the potential benefits to our customers; expectations regarding future investments in research and development and product development, customer support, in our employees and in our sales force, including expectations regarding growth in our sales headcount; expectations that we will continue to expand our global presence; expectations regarding our revenues, including the seasonality and cyclicality from quarter to quarter; expectations relating to our customer financing activities; the sufficiency of our cash flow from operations with existing cash, cash equivalents, and investments to meet our cash needs for the foreseeable future; our ability to successfully acquire and integrate companies and assets and expectations and intentions with respect to the assets, products and technologies that we acquire, including with respect to our proposed acquisition of CyberArk Software Ltd. and our expectations regarding the benefits and synergies of the proposed acquisition; expectations regarding contingent consideration obligations; the timing and amount of capital expenditures and share repurchases; the effects of worldwide economic and geopolitical conditions, including but not limited to hostilities in Israel and the surrounding regions, inflation, interest rate levels, public or administration policies, trade regulations, trade policy, growth rates and other conditions, on our operating and financial results and performance; the manufacture, delivery and cost of certain of our products; the effects of litigation or regulatory developments involving us or affecting our industry; and other statements regarding our future operations, financial condition and prospects, and business strategies. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those anticipated or implied by any forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q and, in particular, the risks discussed under the caption “Risk Factors” in Part II, Item 1A of this report and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”) from time to time. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is organized as follows:
• Overview. A discussion of our business and overall analysis of financial and other highlights in order to provide context for the remainder of MD&A.
• Key Financial Metrics. A summary of our U.S. GAAP and non-GAAP key financial metrics, which management monitors to evaluate our performance.
• Results of Operations. A discussion of the nature and trends in our financial results and an analysis of our financial results comparing the three months ended October 31, 2025 to the three months ended October 31, 2024.
• Liquidity and Capital Resources. An analysis of changes on our balance sheets and cash flows, and a discussion of our financial condition and our ability to meet cash needs.
• Critical Accounting Estimates. A discussion of our accounting policies that require critical estimates, assumptions, and judgments.
• Recent Accounting Pronouncements. A discussion of expected impacts of impending accounting changes on financial information to be reported in the future.
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Overview
Our mission is to be the cybersecurity partner of choice for enterprises, organizations, service providers, and government entities to protect our digital way of life. Our cybersecurity platforms and services help secure enterprise users, networks, clouds, and endpoints by delivering comprehensive cybersecurity backed by artificial intelligence (“AI”) and automation. A key element of our strategy is to help our customers simplify their security architectures through consolidating disparate point products. We execute on this strategy by developing our capabilities and packaging our offerings into platforms which are able to cover many of our customers’ needs in the markets in which we operate. Our platformization strategy combines various products and services into a tightly integrated architecture for more secure, faster and cost-effective outcomes.
Network Security
Our network security platform is designed to deliver complete zero trust solutions to our customers. The platform includes:
• Secure Access Service Edge (“SASE”) . Prisma ® Access, when combined with Prisma SD-WAN, provides a comprehensive SASE offering that secures users working from anywhere and pioneers the modernization of branch offices. Prisma Browser further extends zero-trust security and data protection to the browser, where the majority of work is done today, providing users with the freedom to work securely using our secure browser from any device.
• Next-Generation Firewalls. Our hardware ML-Powered Next-Generation Firewalls (“NGFWs”) secure on-premises environments including campus locations and data centers. Our software NGFWs secure cloud networks.
• Cloud-Delivered Security Services (“CDSS”). Our network security platform integrates a suite of CDSS that complements our SASE and Firewall solutions. These include Advanced Threat Prevention, Advanced WildFire ® , Advanced URL Filtering, Advanced DNS Security, Device Security, GlobalProtect ® , Prisma Access Agent, Enterprise Data Loss Prevention (“Enterprise DLP”), AI for IT Operations (“AIOps”), Software as a Service (“SaaS”) Security, and AI Access Security. Through these add-on services, our customers are able to secure their content, applications, users, and devices across their entire organization.
• Prisma AIRS. Prisma AIRS™ is a comprehensive AI security platform that has been designed to protect customers’ entire AI ecosystem by providing AI Model Security, AI Posture Management, AI Red Teaming, AI Runtime Security, and AI Agent Security.
• Strata Cloud Manager (“SCM”). SCM, our network security management solution, centrally manages network security across all remote workers, branches, headquarters, campuses, and cloud. This comprehensive solution includes Strata Copilot, which offers a natural language interface for enhanced insights and guided remediation, and integrates Autonomous Digital Experience Monitoring (“ADEM”) to proactively maintain infrastructure health, facilitate AI-driven one-click troubleshooting, and ensure seamless end-user performance across the enterprise.
Security Operations
Our AI-powered Cortex platform transforms end-to-end security operations with unified data, AI, and automation for more secure, faster, and cost effective outcomes. We have consolidated our industry-leading Security Operations and Cloud Security capabilities on a single comprehensive platform to provide centralized visibility, proactive protection, real-time prevention, AI-driven insights, and automated remediation across enterprise and cloud.
• Security Operations. We deliver the next generation of security operations capabilities that unifies standalone Security Information and Event Management (“SIEM”) tools, endpoint security, security automation, cloud detection and response (“CDR”), as well as attack surface management (“ASM”) capabilities on our Cortex ® platform. These include Cortex XSIAM ® , for AI-powered security operations replacing traditional SIEM tools; Cortex XDR ® , for the prevention, detection, and response to complex cybersecurity attacks; Cortex XSOAR ® , for security orchestration, automation, and response (“SOAR”); and Cortex Xpanse ® , for ASM.
• Cloud Security. We deliver comprehensive security across the cloud application development lifecycle through Cortex Cloud, delivered as a scalable SaaS offering. As a comprehensive Cloud Native Application Protection Platform (“CNAPP”) combined with CDR, Cortex Cloud secures multi- and hybrid-cloud environments for applications, data, generative AI (“GenAI”) ecosystem, and the cloud native technology stack across the full development lifecycle, from code to cloud to security operations. As part of the Cortex Cloud platform, customers can expand from Cortex Cloud to our security operations offerings available on a single user experience and unified agent. We also offer our VM-Series and CN-Series virtual firewalls for inline network security on multi- and hybrid-cloud environments.
Threat Intelligence and Advisory Services
• Unit 42 brings together world-renowned expertise across threat research, incident response, and security consulting to deliver intelligence-driven, response-ready outcomes that help customers reduce cyber risk. Our elite consultants serve as trusted advisors to our customers by assessing and testing their security controls against sophisticated threats, transforming their security strategy with a threat-informed approach, and responding to security incidents on behalf of our clients. Additionally, Unit 42 offers managed detection and response (“MDR”) and managed threat hunting services.
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For the first quarter of fiscal 2026 and 2025, total revenue was $2.5 billion and $2.1 billion, respectively, representing year-over-year growth of 16%. Our growth reflects the increased adoption of our portfolio, which consists of product, subscriptions, and support. We believe our portfolio will enable us to benefit from recurring revenues and new revenues as we continue to grow our end-customer base. As of October 31, 2025, we had end-customers in over 180 countries. Our end-customers represent a broad range of industries, including education, energy, financial services, government entities, healthcare, Internet and media, manufacturing, public sector, and telecommunications, and include almost all of the Fortune 100 companies and a majority of the Global 2000 companies. We maintain a field sales force that works closely with our channel partners in developing sales opportunities. We primarily use a two-tiered, indirect fulfillment model whereby we sell our products, subscriptions, and support to our distributors, which, in turn, sell to our resellers, which then sell to our end-customers.
Our product revenue grew to $434 million, or 17.5% of total revenue, for the first quarter of fiscal 2026, representing year-over-year growth of 23%. Product revenue is derived from sales of hardware products, primarily our ML-Powered Next-Generation Firewall and software licenses, including SD-WAN, VM-Series, and Panorama ® . Our ML-Powered Next-Generation Firewall incorporates our PAN-OS operating system, which provides a consistent set of capabilities across our entire network security product line. Our hardware products 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-400, which is designed for small organizations and remote or branch offices, to our top-of-the-line PA-7500, which is designed for large-scale data centers and service provider use. The same firewall functionality that is delivered in our hardware products is also available in our VM-Series virtual firewalls, which secure virtualized and cloud-based computing environments, and in our CN-Series container firewalls, which secure container environments and traffic.
Our subscription and support revenue grew to $2.0 billion, or 82.5% of total revenue, for the first quarter of fiscal 2026, representing year-over-year growth of 14%. Our subscriptions provide our end-customers with near real-time access to the latest intrusion prevention, web security, modern malware prevention, data loss prevention, CASB and AI security capabilities across the network, endpoints, and the cloud. Our subscriptions also include security operations, which enable customers to leverage the AI-powered Cortex platform for advanced capabilities such as security information and event management, next-generation antivirus, endpoint detection and response, extended detection and response, identity threat detection and response, cloud detection and response, SOAR, ASM, and CNAPP for comprehensive cloud security. Additionally, we offer MDR for Cortex subscriptions, powered by Unit 42’s elite expertise. When customers purchase our physical, virtual, or container firewalls, 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 firewalls, customers may also purchase other subscriptions on a per-user, per-endpoint, or capacity-based basis. We also offer professional services, including incident response, risk management, and digital forensic services.
We continue to invest in innovation as we evolve and further extend the capabilities of our portfolio, as we believe that innovation and timely development of and investment in new features and products are essential to meeting the needs of our end-customers and improving our competitive position. For example, in August 2025, we introduced innovations through a software upgrade to PAN-OS 12.1 Orion to provide enterprise wide quantum security readiness for our customers. In October 2025, we launched Prisma AIRS 2.0, a major platform upgrade that completes the native integration of the recently acquired Protect AI, Inc. to provide customers with end-to-end protection across AI application lifecycle. Additionally, in July 2025, we entered into a definitive agreement to acquire CyberArk Software Ltd. (“CyberArk”), an identity security company, which acquisition is expected to close during the third quarter of our fiscal 2026, subject to the satisfaction of customary closing conditions.
We believe that the growth of our business and our short-term and long-term success are dependent upon many factors, including our ability to extend our technology leadership, grow our base of end-customers, expand deployment of our portfolio and support offerings within existing end-customers, focus on end-customer satisfaction, and address any product vulnerabilities. To manage any future growth effectively, we must continue to improve and expand our information technology and financial infrastructure, our operating and administrative systems and controls, and our ability to manage headcount, capital, and processes in an efficient manner. While these areas present significant opportunities for us, they also pose challenges and risks that we must successfully address in order to sustain the growth of our business and improve our operating results. For additional information regarding the challenges and risks we face, see the “Risk Factors” section in Part II, Item 1A of this Quarterly Report on Form 10-Q.
IMPACT OF MACROECONOMIC DEVELOPMENTS AND OTHER FACTORS ON OUR BUSINESS
Our overall performance depends in part on worldwide economic and geopolitical conditions and their impact on customer behavior. Changes in legislation or regulations and actions by regulators, including changes in enforcement and administration policies, may have an impact on our results of operations and financial condition. Significant changes in U.S. or global trade policy, including further expansion of U.S. export/imports controls and tariffs, as well as retaliatory actions by other countries, may materially and adversely affect our business. Further, economic conditions, including inflation, high interest rates, slow growth, fluctuations in foreign exchange rates, supply chain disruptions, impacts of trade regulations or international trade disputes, and other conditions, may adversely affect our results of operations and financial performance.
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The hostilities in Israel and the surrounding region have continued to result in economic and political uncertainty. While we have business operations in Israel, and intend to continue growing our presence in Israel, we currently do not expect significant business disruption. We are actively monitoring, evaluating, and responding to the situation.
We are also monitoring the impact of inflationary pressures and the tensions between China and Taiwan, and between the U.S. and China, which could have an adverse impact on our business or results of operations in future periods.

Key Financial Metrics
We monitor the key financial metrics set forth in the tables below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. We discuss revenue, gross margin, and the components of operating income and margin below under “Results of Operations.”

October 31, 2025 July 31, 2025

(in billions)

Next-Generation Security Annualized Recurring Revenue
$ 5.9  $ 5.6 

Remaining performance obligations
$ 15.5  $ 15.8 

Three Months Ended October 31,
2025 2024

(dollars in millions)
Total revenue $ 2,474  $ 2,139 
Total revenue year-over-year percentage increase 16 % 14 %
Gross margin 74.2 % 74.1 %
Operating income $ 309  $ 286 
Operating margin 12.5 % 13.4 %

Cash flow provided by operating activities $ 1,771  $ 1,510 
Free cash flow (non-GAAP) $ 1,687  $ 1,466 

• Next-Generation Security Annualized Recurring Revenue (“NGS ARR”). Our NGS ARR represents the annualized allocated revenue of all active contracts as of the final day of the reporting period related to all product, subscription and support offerings, excluding revenue from hardware products, and legacy attached subscriptions, support offerings and professional services. NGS ARR is an operating metric that we use to assess the strength and trajectory of our business. NGS ARR should be viewed independently of revenue, deferred revenue and remaining performance obligations and does not represent our revenue under U.S. GAAP on an annualized basis, as it is an operating metric that can be impacted by contract start and end dates and renewal rates. NGS ARR is not intended to be a replacement for forecasts of revenue. The scope of products, subscriptions, and support offerings that contribute to NGS ARR will generally increase over time as we introduce or acquire new next-generation products, subscriptions, and support offerings.
• Cash Flow Provided by Operating Activities. We monitor cash flow provided by operating activities as a measure of our overall business performance. Our cash flow provided by operating activities is driven in large part by sales of our products and from up-front payments for subscription and support offerings. Monitoring cash flow provided by operating activities enables us to analyze our financial performance without the non-cash effects of certain items such as share-based compensation costs, depreciation, and amortization, thereby allowing us to better understand and manage the cash needs of our business.
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• Free Cash Flow (non-GAAP). We define free cash flow, a non-GAAP financial measure, as cash provided by operating activities less purchases of property, equipment, and other assets. We consider free cash flow to be a profitability and liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after necessary capital expenditures. A limitation of the utility of free cash flow as a measure of our financial performance and liquidity is that it does not represent the total increase or decrease in our cash balance for the period. In addition, it is important to note that other companies, including companies in our industry, may not use free cash flow, may calculate free cash flow in a different manner than we do, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of free cash flow as a comparative measure. A reconciliation of free cash flow to cash flow provided by operating activities, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, is provided below:

Three Months Ended October 31,
2025 2024

(in millions)
Free cash flow (non-GAAP):
Net cash provided by operating activities $ 1,771  $ 1,510 
Less: purchases of property, equipment, and other assets 84  44 
Free cash flow (non-GAAP) $ 1,687  $ 1,466 
Net cash used in investing activities $ (983) $ (544)
Net cash provided by (used in) financing activities $ 8  $ (220)

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Results of Operations
The following table summarizes our results of operations for the periods presented and as a percentage of our total revenue for those periods based on our condensed consolidated statements of operations data. The period-to-period comparison of results is not necessarily indicative of results for future periods.

Three Months Ended October 31,
2025 2024
Amount % of Revenue Amount % of Revenue

(dollars in millions)
Revenue:
Product $ 434  17.5  % $ 354  16.5  %
Subscription and support 2,040  82.5  % 1,785  83.5  %
Total revenue 2,474  100.0  % 2,139  100.0  %
Cost of revenue:
Product 89  3.6  % 75  3.5  %
Subscription and support 549  22.2  % 479  22.4  %
Total cost of revenue (1)
638  25.8  % 554  25.9  %
Total gross profit 1,836  74.2  % 1,585  74.1  %
Operating expenses:
Research and development 528  21.3  % 481  22.5  %
Sales and marketing 820  33.2  % 720  33.6  %
General and administrative 179  7.2  % 98  4.6  %
Total operating expenses (1)
1,527  61.7  % 1,299  60.7  %
Operating income 309  12.5  % 286  13.4  %
Interest expense —  —  % (1) (0.1) %
Other income, net 103  4.2  % 83  3.9  %
Income before income taxes 412  16.7  % 368  17.2  %
Provision for income taxes 78  3.2  % 17  0.8  %
Net income $ 334  13.5  % $ 351  16.4  %
(1) Includes share-based compensation as follows:

Three Months Ended October 31,
2025 2024

(in millions)
Cost of product revenue $ 1  $ 1 
Cost of subscription and support revenue 32  31 
Research and development 155  138 
Sales and marketing 102  76 
General and administrative 80  49 
Total share-based compensation $ 370  $ 295 

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REVENUE
Our revenue consists of product revenue and subscription and support revenue. Revenue is recognized upon transfer of control of the corresponding promised products and subscriptions and support to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those products and subscriptions and support. We expect our revenue to vary from quarter to quarter based on seasonal and cyclical factors.
PRODUCT REVENUE
Product revenue is derived from sales of hardware products, primarily our ML-Powered Next-Generation Firewall, and software licenses, including SD-WAN, VM-Series, and Panorama. Our hardware products and software licenses include a broad set of built-in networking and security features and functionalities. We recognize product revenue at the time of hardware shipment or delivery of software license. As a percentage of product revenue, we expect our revenue from software licenses to vary from quarter to quarter and increase over the long term as we improve features and capabilities of our on-premise software, renew our software license contracts, and expand our installed end-customer base.

Three Months Ended October 31,
2025 2024 Change
Amount Amount Amount %

(dollars in millions)
Product $ 434  $ 354  $ 80  23  %

Product revenue increased for the three months ended October 31, 2025 compared to the same period in 2024 driven by an increased product demand and an increase in price of and allocation to on-premise software licenses due to enhanced features and capabilities beginning in the second quarter of fiscal 2025.
SUBSCRIPTION AND SUPPORT REVENUE
Subscription and support revenue is derived primarily from sales of our subscription and support offerings. Our subscription and support contracts are typically one to five years. We recognize revenue from subscriptions and support over time as the services are performed. As a percentage of total revenue, we expect our subscription and support revenue to vary from quarter to quarter and increase over the long term as we introduce new subscriptions, renew existing subscription and support contracts, and expand our installed end-customer base.

Three Months Ended October 31,
2025 2024 Change
Amount Amount Amount %

(dollars in millions)
Subscription $ 1,364  $ 1,192  $ 172  14  %
Support 676  593  83  14  %
Total subscription and support $ 2,040  $ 1,785  $ 255  14  %

Subscription and support revenue increased for the three months ended October 31, 2025 compared to the same period in 2024 due to increased demand for our subscription and support offerings from our end-customers. The mix between subscription revenue and support revenue will fluctuate over time, depending on the introduction of new subscription offerings, renewals of support services, and our ability to increase sales to new and existing end-customers.
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REVENUE BY GEOGRAPHIC THEATER

Three Months Ended October 31,
2025 2024 Change
Amount Amount Amount %

(dollars in millions)
Americas $ 1,641  $ 1,442  $ 199  14  %
Europe, the Middle East, and Africa (“EMEA”) 521  442  79  18  %
Asia Pacific and Japan (“APAC”) 312  255  57  22  %
Total revenue $ 2,474  $ 2,139  $ 335  16  %

Revenue from the Americas, EMEA, and APAC increased for the three months ended October 31, 2025 compared to the same period in 2024 as we continued to increase investment in our global sales force in order to support our growth and innovation, with the Americas contributing the highest increase in revenue due to its larger scale.

COST OF REVENUE
Our cost of revenue consists of cost of product revenue and cost of subscription and support revenue.
COST OF PRODUCT REVENUE
Cost of product revenue primarily includes costs paid to our manufacturing partners for procuring components and manufacturing our products. Our cost of product revenue also includes personnel costs, which consist of salaries, benefits, bonuses, share-based compensation, and travel associated with our operations organization, inventory excess and obsolete charges, shipping and tariff costs, amortization of intellectual property licenses, product testing costs, and shared costs. Shared costs consist of certain facilities, depreciation, benefits, recruiting, and information technology costs that we allocate based on headcount. We expect our cost of product revenue to fluctuate with our revenue from hardware products.

Three Months Ended October 31,
2025 2024 Change
Amount Amount Amount %

(dollars in millions)
Cost of product revenue $ 89  $ 75  $ 14  19  %

Cost of product revenue increased for the three months ended October 31, 2025 compared to the same period in 2024 primarily due to increased product volume and other product costs. The remaining increase was primarily driven by higher tariff costs.
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COST OF SUBSCRIPTION AND SUPPORT REVENUE
Cost of subscription and support revenue includes personnel costs for our global customer support and technical operations organizations, data center and cloud hosting service costs, third-party professional services costs, amortization of acquired intangible assets and capitalized software development costs, customer support and repair costs, and shared costs. We expect our cost of subscription and support revenue to increase as our installed end-customer base grows and adoption of our cloud-based subscription offerings increases.

Three Months Ended October 31,
2025 2024 Change
Amount Amount Amount %

(dollars in millions)
Cost of subscription and support revenue $ 549  $ 479  $ 70  15  %

Cost of subscription and support revenue increased for the three months ended October 31, 2025 compared to the same period in 2024 primarily due to increased costs to support the growth of our subscription and support offerings. Cloud hosting service costs, which support our cloud-based subscription offerings, increased $48 million for the three months ended October 31, 2025 compared to the same period in 2024. Personnel costs grew $14 million for the three months ended October 31, 2025 compared to the same period in 2024, primarily due to headcount growth.

GROSS MARGIN
Gross margin has been and will continue to be affected by a variety of factors, including the introduction of new products, manufacturing costs, the average sales price of our products, cloud hosting service costs, personnel costs, the mix of products sold, and the mix of revenue between product and subscription and support offerings. Our higher-end firewall products generally have higher gross margins than our lower-end firewall products within each product series. We expect our gross margins to vary over time depending on the factors described above.

Three Months Ended October 31,
2025 2024
Amount Gross Margin Amount Gross Margin

(dollars in millions)
Product $ 345  79.5  % $ 279  78.8  %
Subscription and support 1,491  73.1  % 1,306  73.2  %
Total gross profit $ 1,836  74.2  % $ 1,585  74.1  %

Product gross margin increased for the three months ended October 31, 2025 compared to the same period in 2024 primarily due to continued shift in our product revenue mix toward software, partially offset by a decrease in gross margin on our hardware products.
Subscription and support gross margin was flat for the three months ended October 31, 2025 compared to the same period in 2024.

OPERATING EXPENSES
Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, share-based compensation, travel and entertainment, and with regard to sales and marketing expense, sales commissions. Our operating expenses also include shared costs, which consist of certain facilities, depreciation, benefits, recruiting, and information technology costs that we allocate based on headcount to each department. We expect operating expenses generally to increase in absolute dollars and to decrease over the long term as a percentage of revenue as we continue to scale our business. As of October 31, 2025, we expect to recognize approximately $2.2 billion of share-based compensation expense over a weighted-average period of approximately 2.4 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.
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RESEARCH AND DEVELOPMENT
Research and development expense consists primarily of personnel costs. Research and development expense also includes prototype-related expenses and shared costs. We expect research and development expense to increase in absolute dollars as we continue to invest in our future products and services, although our research and development expense may fluctuate as a percentage of total revenue.

Three Months Ended October 31,
2025 2024 Change
Amount Amount Amount %

(dollars in millions)
Research and development $ 528  $ 481  $ 47  10  %

Research and development expense increased for the three months ended October 31, 2025 compared to the same period in 2024 primarily due to increased personnel costs, which grew $45 million for the three months ended October 31, 2025 compared to the same period in 2024, largely due to headcount growth.
SALES AND MARKETING
Sales and marketing expense consists primarily of personnel costs, including commission expense. Sales and marketing expense also includes costs for market development programs, promotional and other marketing costs, professional services, and shared costs. We continue to strategically invest in headcount and have grown our sales presence. We expect sales and marketing expense to continue to increase in absolute dollars as we increase the size of our sales and marketing organizations to grow our customer base, increase touch points with end-customers, and expand our global presence, although our sales and marketing expense may fluctuate as a percentage of total revenue.

Three Months Ended October 31,
2025 2024 Change
Amount Amount Amount %

(dollars in millions)
Sales and marketing $ 820  $ 720  $ 100  14  %

Sales and marketing expense increased for the three months ended October 31, 2025 compared to the same period in 2024 primarily due to increased personnel costs, which grew $86 million for the three months ended October 31, 2025 compared to the same period in 2024, largely due to headcount growth.
GENERAL AND ADMINISTRATIVE
General and administrative expense consists primarily of personnel costs and shared costs for our executive, finance, human resources, information technology, and legal organizations, and professional services costs, which consist primarily of legal, auditing, accounting, and other consulting costs. General and administrative expense also includes change in fair value of contingent consideration liability. We expect general and administrative expense to increase in absolute dollars over time as we increase the size of our general and administrative organizations and incur additional costs to support our business growth, although our general and administrative expense may fluctuate as a percentage of total revenue.

Three Months Ended October 31,
2025 2024 Change
Amount Amount Amount %

(dollars in millions)
General and administrative $ 179  $ 98  $ 81  83  %

General and administrative expense increased for the three months ended October 31, 2025 compared to the same period in 2024 primarily due to a partial release of litigation-related accrual of $43 million during the three months ended October 31, 2024. The increase in general and administrative expense was further driven by increased personnel costs, which grew $37 million, largely due to increased share-based compensation and headcount growth.
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INTEREST EXPENSE
Interest expense consists of interest expense related to our 0.375% Convertible Senior Notes due 2025 (the “2025 Notes”).

  Three Months Ended October 31,
  2025 2024 Change
Amount Amount Amount %

  (dollars in millions)
Interest expense $ —  $ 1  $ (1) (100) %

Interest expense decreased for the three months ended October 31, 2025 compared to the same period in 2024 due to the maturity of our 2025 Notes in June 2025. Refer to Note 9. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the Notes.

OTHER INCOME, NET
Other income, net includes interest income earned on our cash, cash equivalents, and investments, and gains and losses from foreign currency remeasurement and foreign currency transactions.

  Three Months Ended October 31,
  2025 2024 Change
Amount Amount Amount %

  (dollars in millions)
Other income, net $ 103  $ 83  $ 20  24  %

Other income, net increased for the three months ended October 31, 2025 compared to the same period in 2024 primarily due to higher interest income as a result of higher average cash, cash equivalents, and investment balance, partially offset by lower interest rates for the three months ended October 31, 2025 compared to the same period in 2024.

PROVISION FOR INCOME TAXES
Provision for income taxes consists primarily of U.S. and foreign income taxes. Our effective tax rate during the three months ended October 31, 2025 was lower than our statutory tax rate primarily due to excess tax benefits from share-based compensation. We continue to maintain a valuation allowance for our California deferred tax assets due to the uncertainty regarding realizability of these deferred tax assets as they have not met the “more likely than not” realization criterion. We expect future research and development tax credit generation in California to exceed our ability to use the existing tax credits.

Three Months Ended October 31,
2025 2024 Change 
Amount Amount Amount %

(dollars in millions)
Provision for income taxes $ 78  $ 17  $ 61  359  %
Effective tax rate 18.9  % 4.9  %

Our provision for income taxes for the three months ended October 31, 2025 was primarily due to U.S. and foreign income taxes. Our effective tax rate increased for the three months ended October 31, 2025 compared to the same period in 2024 primarily due to increased earnings before income taxes and decreased excess tax benefits from share-based compensation. Refer to Note 13. Income Taxes in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
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Liquidity and Capital Resources

October 31, 2025 July 31, 2025

(in millions)
Working capital (deficit)
$ (108) $ (465)
Cash, cash equivalents, and investments:
Cash and cash equivalents $ 3,066  $ 2,269 
Investments 7,126  6,190 
Total cash, cash equivalents, and investments $ 10,192  $ 8,459 

As of October 31, 2025, our total cash, cash equivalents, and investments of $10.2 billion were held for general corporate purposes. As of October 31, 2025, we had no unremitted earnings when evaluating our outside basis difference relating to our U.S. investment in foreign subsidiaries. However, there could be local withholding taxes due to various foreign countries if certain lower tier earnings are distributed. Withholding taxes that would be payable upon remittance of these lower tier earnings are not material.
DEBT
In April 2023, we entered into a credit agreement (the “Credit Agreement”) that provides for a $400 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 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. As of October 31, 2025, there were no amounts outstanding, and we were in compliance with all covenants under the Credit Agreement. Refer to Note 9. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the Credit Agreement.
CAPITAL RETURN
In February 2019, our board of directors authorized a $1.0 billion share repurchase program. Our board of directors subsequently authorized additional increases to this share repurchase program, bringing the total authorization to $4.1 billion. Repurchases will be funded from available working capital and may be made at management’s discretion from time to time. As of October 31, 2025, $1.0 billion remained available for future share repurchases under this repurchase program. The repurchase authorization will expire on December 31, 2026, and may be suspended or discontinued at any time without prior notice. Refer to Note 11. Stockholders’ Equity in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on this repurchase program.
CONTRACTUAL OBLIGATIONS AND OTHER MATERIAL CASH REQUIREMENTS
We have entered into various non-cancelable operating leases, primarily for our offices and data centers, with lease terms expiring through fiscal 2036. As of October 31, 2025, we have total operating lease obligations of $429 million recorded on our condensed consolidated balance sheet.
As of October 31, 2025, our commitments to purchase products, components, cloud hosting and other services totaled $6.8 billion. Refer to Note 10. Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on these commitments.
Our acquisition of certain QRadar assets from International Business Machines Corporation (“IBM”) on August 31, 2024 included contingent consideration that requires potential future payments through the fiscal quarter ending October 2028. As of October 31, 2025, we have total contingent consideration obligation of $380 million recorded on our condensed consolidated balance sheet. Refer to Note 3. Fair Value Measurements and Note 7. Acquisition in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on our contingent consideration obligation.
On July 30, 2025, we entered into a definitive agreement to acquire CyberArk. The acquisition is expected to close during the third quarter of our fiscal 2026, subject to the satisfaction of customary closing conditions. Under the terms of the definitive agreement, CyberArk shareholders will receive $45.00 in cash and 2.2005 shares of our common stock for each CyberArk share. This represents an equity value for CyberArk of approximately $25 billion based on the unaffected 10-day average daily volume-weighted average trading prices of our common stock as of July 25, 2025. We expect to fund the cash portion of the consideration with our cash on hand. Refer to Part II, Item 1A “Risk Factors” and Note 7. Acquisitions in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the acquisition.
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CASH FLOWS
The following table summarizes our cash flows for the three months ended October 31, 2025 and 2024:

Three Months Ended October 31,
2025 2024

(in millions)
Net cash provided by operating activities $ 1,771  $ 1,510 
Net cash used in investing activities (983) (544)
Net cash provided by (used in) financing activities 8  (220)
Net increase in cash, cash equivalents, and restricted cash $ 796  $ 746 

Cash from operations could be affected by various risks and uncertainties detailed in Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q. We believe that our cash flow from operations with existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months and thereafter for the foreseeable future. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products and subscription and support offerings, the costs to acquire or invest in complementary businesses and technologies, the costs to ensure access to adequate manufacturing capacity, the investments in our infrastructure to support the adoption of our cloud-based subscription offerings, the continuing market acceptance of our products and subscription and support offerings and macroeconomic events. In addition, from time to time, we may incur additional tax liability in connection with certain corporate structuring decisions.
We may also choose to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition may be adversely affected.
OPERATING ACTIVITIES
Our operating activities have consisted of net income adjusted for certain non-cash items and changes in assets and liabilities. Our largest source of cash provided by our operations is receipts from our customers. Net cash provided by operating activities can be impacted by factors such as timing of payments and collections, vendor payment terms, and timing and amount of tax payments.
Cash provided by operating activities during the three months ended October 31, 2025 was $1.8 billion, an increase of $261 million compared to the same period in 2024. The increase was primarily due to growth of our business as reflected by increases in collections during the three months ended October 31, 2025, partially offset by higher cash expenditure to support our business growth.
INVESTING ACTIVITIES
Our investing activities have consisted of capital expenditures, net investment purchases, sales, and maturities, and business acquisitions. We expect to continue such activities as our business grows.
Cash used in investing activities during the three months ended October 31, 2025 was $1.0 billion, an increase of $439 million compared to the same period in 2024. The increase was primarily due to higher purchases of investments and lower proceeds from sales and maturities of investments, partially offset by a decrease in net cash payments for business acquisitions during the three months ended October 31, 2025.
FINANCING ACTIVITIES
Our financing activities have consisted of repayments of our convertible senior notes, proceeds from sales of shares through employee equity incentive plans, payments for tax withholding obligations of certain employees related to the net share settlement of equity awards, and payments of contingent consideration liability.
Cash provided by financing activities during the three months ended October 31, 2025 was $8 million, a change of $228 million compared to cash used in financing activities of $220 million during the same period in 2024. The change was primarily due to a decrease in cash used for repayments of our 2025 Notes which did not recur during the three months ended October 31, 2025 as a result of its maturity, partially offset by payments of our contingent consideration liability during the three months ended October 31, 2025.
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Critical Accounting Estimates
Our condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results could differ materially from those estimates due to risks and uncertainties, including uncertainty in the current economic environment. To the extent that there are material differences between these estimates and our actual results, our future consolidated financial statements will be affected.
We believe the critical accounting estimates discussed under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended July 31, 2025 reflect our more significant estimates, assumptions, and judgments that have the most significant impact on our condensed consolidated financial statements. There have been no significant changes to our critical accounting estimates as filed in such report.

Recent Accounting Pronouncements
Refer to “Recently Issued Accounting Pronouncements” in Note 1. Description of Business and Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements and our expectation of their impact, if any, on our results of operations and financial condition.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Except for the item below, our assessment of our exposures to market risk has not changed materially from the disclosure set forth in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended July 31, 2025.
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, 2025, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $139 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 $142 million increase in the fair market value of the portfolio.

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on our evaluation, our chief executive officer and chief financial officer concluded that, as of October 31, 2025, 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.
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Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal quarter ended October 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Controls
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
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Part II

Item 1. Legal Proceedings
The information set forth under the “Litigation” subheading in Note 10. Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors
Our operations and financial results are subject to various risks and uncertainties including those described below. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that affect us. If any of the following risks or others not specified below materialize, our business, financial condition, and operating results could be materially adversely affected, and the market price of our common stock could decline. In addition, the impacts of any worsening of the economic environment may exacerbate the risks described below, any of which could have a material impact on us.
Risk Factor Summary
Our business is subject to numerous risks and uncertainties. These risks include, but are not limited to, the following:
• Our operating results may be adversely affected by unfavorable economic and market conditions and the uncertain geopolitical environment.
• Our business and operations have experienced growth in recent periods, and if we do not effectively manage any future growth or are unable to improve our systems, processes, and controls, our operating results could be adversely affected.
• Our revenue growth rate in recent periods may not be indicative of our future performance, and we may not be able to maintain profitability, which could cause our business, financial condition, and operating results to suffer.
• Our operating results may vary significantly from period to period, which makes our results difficult to predict and could cause our results to fall short of expectations, and such results may not be indicative of future performance.
• Seasonality may cause fluctuations in our revenue.
• If we are unable to sell new and additional product, subscription, and support offerings to our end-customers, especially to large enterprise customers, our future revenue and operating results will be harmed.
• If we are unable to attract new customers, our future results of operations could be harmed.
• We rely on revenue from subscription and support offerings, and because we recognize revenue from subscription and support over the term of the relevant service period, downturns or upturns in sales or renewals of these subscription and support offerings are not immediately reflected in full in our operating results.
• The sales prices of our products, subscriptions, and support offerings may decrease, which may reduce our revenue and gross profits and adversely impact our financial results.
• We rely on our channel partners to sell substantially all of our products, including subscriptions and support, and if these channel partners fail to perform, our ability to sell and distribute our products and subscriptions will be limited and our operating results will be harmed.
• We are exposed to the credit and liquidity risk of our customers, and to credit exposure in weakened markets, which could result in material losses.
• A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.
• We face intense competition in our market and we may lack sufficient financial or other resources to maintain or improve our competitive position.
• We have and may in the future acquire other businesses (including CyberArk), 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.
• We may not complete the acquisition of CyberArk within the timeframe we anticipate or at all, which could negatively impact our future business and financial results.
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• As a result of the CyberArk acquisition, we anticipate that the scope and size of our business will substantially change and result in certain incremental risks, including increased competition.
• 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.
• Issues in the development and deployment of AI may result in reputational harm and legal liability and could adversely affect our results of operations.
• A network or data security incident may allow unauthorized access to our network or data, harm our reputation, create additional liability, and adversely impact our financial results.
• Defects, errors, or vulnerabilities in our products, subscriptions, or support offerings, the failure of our products or subscriptions to block a virus or prevent a security breach or incident, misuse of our products, or risks of product liability claims could harm our reputation and adversely impact our operating results.
• Our ability to sell our products and subscriptions is dependent on the quality of our technical support services and those of our channel partners, and the failure to offer high-quality technical support services could have a material adverse effect on our end-customers’ satisfaction with our products and subscriptions, our sales, and our operating results.
• Claims by others that we infringe their intellectual property rights could harm our business.
• Our proprietary rights may be difficult to enforce or protect, which could enable others to copy or use aspects of our products or subscriptions without compensating us.
• Our use of open source software in our products and subscriptions could negatively affect our ability to sell our products and subscriptions and subject us to possible litigation.
• We license technology from third parties, and our inability to maintain those licenses could harm our business.
• Because we depend on manufacturing partners to build and ship our hardware products, we are susceptible to manufacturing and logistics delays and pricing fluctuations that could prevent us from shipping customer orders on time, if at all, or on a cost-effective basis, which may result in the loss of sales and end-customers.
• Managing the supply of our hardware products and product components is complex. Insufficient supply and inventory would result in lost sales opportunities or delayed revenue, while excess inventory would harm our gross margins.
• Our hardware products contain key components from limited sources of supply, including outside the United States, and we are susceptible to supply shortages, supply changes, and international regulations, 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 international trade regulations and governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.
• We may incur increased costs to comply with privacy and data protection laws and, if we fail to comply, we could be subject to government enforcement actions, private litigation and adverse publicity.
• We may have exposure to tax liabilities that are greater than anticipated.
• If our estimates or judgments, including those relating to our critical accounting policies, are based on assumptions that change or prove to be incorrect, our operating results differ from 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 corporate responsibility matters and/or our reporting of such matters.
• Failure to comply with governmental laws and regulations could harm our business.
• The market price of our common stock historically has been volatile, and the value of an investment in our common stock could decline.
• The 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 legislation or regulations, changes in enforcement and administration policies, taxes, any increases in interest rates, fluctuations in foreign currency exchange rates, or international trade agreements, international trade disputes, trade regulations, tariffs and changes in tariffs, geopolitical turmoil, and other disruptions to global and regional economies and markets continue to add uncertainty to global economic conditions. Military actions or armed conflict, including the hostilities in Israel and the surrounding region, the Russia-Ukraine war and any related political or economic responses and counter-responses, and uncertainty about, or changes in, government and trade relationships, policies, and treaties could also lead to worsening economic and market conditions and geopolitical environment. In response to Russia’s invasion of Ukraine, the United States, along with the European Union (the “E.U.”), has imposed restrictive sanctions on Russia, Russian entities, and Russian citizens (“Sanctions on Russia”). We are subject to these governmental sanctions and export controls, which may subject us to liability if we are not in full compliance with applicable laws. Any continued or further uncertainty, weakness or deterioration in economic and market conditions or the geopolitical environment could have a material and adverse impact on our business, financial condition, and results of operations, including reductions in sales of our products and subscriptions, longer sales cycles, reductions in subscription or contract duration and value, slower adoption of new technologies, alterations in the spending patterns or priorities of current and prospective customers (including delaying purchasing decisions), increased costs for the chips and components to manufacture our products, and increased price competition.

Risks Related to Our Business

RISKS RELATED TO OUR GROWTH
Our business and operations have experienced growth in recent periods, and if we do not effectively manage any future growth or are unable to improve our systems, processes, and controls, our operating results could be adversely affected.
We have experienced growth and increased demand for our products and subscriptions over the last few years. As a result, our employee headcount has increased, and we expect it to continue to grow over the next year. For example, from the end of fiscal 2025 to the end of the first quarter of fiscal 2026, our headcount increased from 16,068 to 16,413 employees. In addition, as we have grown, the number of end-customers has also increased, and we have managed more complex deployments of our products and subscriptions with larger end-customers. The growth and expansion of our business and product, subscription, and support offerings places a significant strain on our management, operational, and financial resources. To manage any future growth effectively, we must continue to improve and expand our information technology and financial infrastructure, our operating and administrative systems and controls, and our ability to manage headcount, capital, and processes in an efficient manner.
We may not be able to successfully implement, scale, or manage improvements to our systems, processes, and controls in an efficient or timely manner, which could result in material disruptions of our operations and business. In addition, our existing systems, processes, and controls may not prevent or detect all errors, omissions, or fraud. We may also experience difficulties in managing improvements to our systems, processes, and controls, or in connection with third-party software licensed to help us with such improvements. Any future growth would add complexity to our organization and require effective coordination throughout our organization. Failure to manage any future growth effectively could result in increased costs, disrupt our existing end-customer relationships, reduce demand for or limit us to smaller deployments of our products, or materially harm our business performance and operating results.
Our revenue growth rate in recent periods may not be indicative of our future performance, and we may not be able to maintain profitability, which could cause our business, financial condition, and operating results to suffer.
We have experienced revenue growth rates of 16% and 14% for the three months ended October 31, 2025 and 2024, respectively. Our revenue for any quarterly or annual period should not be relied upon as an indication of our future revenue or revenue growth for any future period. If we are unable to maintain consistent or increasing revenue or revenue growth, the market price of our common stock could be volatile, and it may be difficult for us to maintain profitability or maintain or increase cash flow on a consistent basis.
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In addition, we have incurred losses in fiscal years prior to fiscal 2023. We anticipate that our operating expenses will continue to increase in the foreseeable future as we continue to grow our business. Our growth efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenues sufficiently, or at all, to offset increasing expenses. Revenue growth may slow or revenue may decline for a number of possible reasons, including slowing demand for our products or subscriptions, increasing competition, a decrease in the growth of, or a demand shift in, our overall market, or a failure to capitalize on growth opportunities. We have also entered into a substantial amount of capital commitments for operating lease obligations and other purchase commitments. Any failure to increase our revenue as we grow our business could prevent us from maintaining profitability or maintaining or increasing cash flow on a consistent basis, or satisfying our capital commitments. If we are unable to navigate these challenges as we encounter them, our business, financial condition, and operating results may suffer.
Our operating results may vary significantly from period to period, which makes our results difficult to predict and could cause our results to fall short of expectations, and such results may not be indicative of future performance.
Our operating results have fluctuated in the past, and will likely continue to fluctuate in the future, as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including those factors described in this Risk Factor section. For example, we have historically received a substantial portion of sales orders and generated a substantial portion of revenue during the last few weeks of each fiscal quarter. If expected revenue at the end of any fiscal quarter is delayed for any reason, including the failure of anticipated purchase orders to materialize (particularly for large enterprise end-customers with lengthy sales cycles), our logistics partners’ inability to ship products prior to fiscal quarter-end to fulfill purchase orders received near the end of a fiscal quarter, our failure to manage inventory to meet demand, any failure of our systems related to order review and processing, or any delays in shipments based on trade compliance requirements (including new compliance requirements imposed by new or renegotiated trade agreements), our revenue could fall below our expectations and the estimates of analysts for that quarter. Due to these fluctuations, comparing our revenue, margins, or other operating results on a period-to-period basis may not be meaningful, and our past results should not be relied on as an indication of our future performance.
This variability and unpredictability could also result in our failure to meet our revenue, margin, or other operating result expectations contained in any forward-looking statements (including financial or business expectations we have provided) or those of securities analysts or investors for a particular period. If we fail to meet or exceed such expectations for these, or any other, reasons, the market price of our common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.
Seasonality may cause fluctuations in our revenue.
We believe there are significant seasonal factors that may cause our second and fourth fiscal quarters to record greater revenue sequentially than our first and third fiscal quarters. We believe that this seasonality results from a number of factors, including:
• end-customers with a December 31 fiscal year-end choosing to spend remaining unused portions of their discretionary budgets before their fiscal year-end, which potentially results in a positive impact on our revenue in our second fiscal quarter;
• our sales compensation plans, which are typically structured around annual quotas and commission rate accelerators, which potentially results in a positive impact on our revenue in our fourth fiscal quarter; and
• the timing of end-customer budget planning at the beginning of the calendar year, which can result in a delay in spending at the beginning of the calendar year, potentially resulting in a negative impact on our revenue in our third fiscal quarter.
As we continue to grow, seasonal or cyclical variations in our operations may become more pronounced, and our business, operating results, and financial position may be adversely affected.

RISKS RELATED TO OUR PRODUCTS AND TECHNOLOGY
If we are unable to sell new and additional product, subscription, and support offerings to our end-customers, especially to large enterprise customers, our future revenue and operating results will be harmed.
Our future success depends, in part, on our ability to expand the deployment of our portfolio with existing end-customers, especially large enterprise customers, including through our platformization strategy, and create demand for our new offerings. The rate at which our end-customers purchase additional products, subscriptions, and support depends on a number of factors, including the perceived need for additional security products, including subscription and support offerings, as well as general economic conditions. If our efforts to sell additional products and subscriptions to our end-customers are not successful, our revenues may grow more slowly than expected or decline.
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Sales to large enterprise end-customers, which is part of our growth strategy, involve risks that may not be present, or that are present to a lesser extent, with sales to smaller entities, such as (a) longer sales cycles and the associated risk that substantial time and resources may be spent on a potential end-customer that elects not to purchase our products, subscriptions, and support, and (b) increased purchasing power and leverage held by large end-customers in negotiating contractual arrangements. Deployments for large enterprise end-customers are also more complex, require greater product functionality, scalability, and a broader range of services, and are more time-consuming and resource-consuming. All of these factors add further risk to business conducted with these end-customers. Failure to realize sales from large enterprise end-customers could materially and adversely affect our business, operating results, and financial condition.
If we are unable to attract new customers, our future results of operations could be harmed.
To increase our revenue and maintain profitability, we must add new customers. To do so, we must successfully convince prospective customers of the value of adopting our solutions. We are engaging in costly marketing and sales efforts to accelerate our strategies, including platformization, and attract new customers, which may fail or may not be as successful as intended or at all. Additionally, prospective customers’ decisions to purchase our solutions depend on a variety of factors, many of which are out of our control. These factors significantly impact our ability to add new customers and increase the time, resources and sophistication required to do so. For example, prospective customers may face real or perceived switching costs when switching to our solutions from legacy security vendors and products. Deployment of our solutions may require a significant commitment of resources from our customers. Any deterioration in general economic conditions, including as a result of the geopolitical environment or inflation (as well as government policies such as raising interest rates in response to inflation), have in the past caused, and may in the future cause, our current and prospective customers to delay or cut their overall security and IT operations spending. If our efforts to attract new customers are not successful, our sales may not grow as quickly as anticipated, or at all, and our business, operating results, and financial condition will be harmed.
We rely on revenue from subscription and support offerings, and because we recognize revenue from subscription and support over the term of the relevant service period, downturns or upturns in sales or renewals of these subscription and support offerings are not immediately reflected in full in our operating results.
Subscription and support revenue accounts for a significant portion of our revenue, comprising 82.5% of total revenue in the three months ended October 31, 2025 and 83.5% of total revenue in the three months ended October 31, 2024. Sales and renewals of subscription and support contracts may decline and fluctuate as a result of a number of factors, including end-customers’ level of satisfaction with our products and subscriptions, the frequency and severity of subscription outages, our product uptime or latency, the prices of our products and subscriptions, and reductions in our end-customers’ spending levels. Existing end-customers have no contractual obligation to, and may not, renew their subscription and support contracts after the completion of their initial contract period. Additionally, our end-customers may renew their subscription and support agreements for shorter contract lengths or on other terms that are less economically beneficial to us. If our sales of new or renewal subscription and support contracts decline, our total revenue and revenue growth rate may decline, and our business will suffer. In addition, because we recognize subscription and support revenue over the term of the relevant service period, which is typically one to five years, a decline in subscription or support contracts in any one fiscal quarter will not be fully or immediately reflected in revenue in that fiscal quarter but will negatively affect our revenue in future fiscal quarters.
The sales prices of our products, subscriptions, and support offerings may decrease, which may reduce our revenue and gross profits and adversely impact our financial results.
The sales prices for our products, subscriptions, and support offerings may decline for a variety of reasons, including competitive pricing pressures, discounts, a change in our mix of products, subscriptions, and support offerings, anticipation of the introduction of new products, subscriptions, or support offerings, or promotional programs or pricing pressures. Furthermore, we anticipate that the sales prices and gross profits for our products could decrease over product life cycles. Declining sales prices could adversely affect our revenue, gross profits, and profitability.
We rely on our channel partners to sell substantially all of our products, including subscriptions and support, and if these channel partners fail to perform, our ability to sell and distribute our products and subscriptions will be limited and our operating results will be harmed.
Substantially all of our revenue is generated by sales through our channel partners, including distributors and resellers. For the three months ended October 31, 2025, three distributors individually represented 10% or more of our total revenue and in the aggregate represented 42% of our total revenue. As of October 31, 2025, three distributors individually represented 10% or more of our gross accounts receivable and in the aggregate represented 45% of our gross accounts receivable.
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We provide our channel partners with specific training and programs to assist them in selling our products, including subscriptions and support offerings, but there can be no assurance that these steps will be utilized or effective. In addition, our channel partners may be unsuccessful in marketing, selling, and supporting our products and subscriptions. We may not be able to incentivize these channel partners to sell our products and subscriptions to end-customers and, in particular, to large enterprises. These channel partners may also have incentives to promote our competitors’ products and may devote more resources to the marketing, sales, and support of competitive products. Our agreements with our channel partners may generally be terminated for any reason by either party with advance notice prior to each annual renewal date. We cannot be certain that we will retain these channel partners or that we will be able to secure additional or replacement channel partners. In addition, any new channel partner requires extensive training and may take several months or more to achieve productivity. Our channel partner sales structure could subject us to lawsuits, potential liability, and reputational harm if, for example, any of our channel partners misrepresent the functionality of our products or subscriptions to end-customers or violate laws or our corporate policies. If we fail to effectively manage our sales channels or channel partners, our ability to sell our products and subscriptions and operating results will be harmed.
We are exposed to the credit and liquidity risk of our customers, and to credit exposure in weakened markets, which could result in material losses.
Most of our sales are made on an open credit basis. Beyond our open credit arrangements, we have also experienced demands for customer financing and deferred payments due to, among other things, macro-economic conditions. Increases in deferred payments result in payments being made over time, negatively impacting our short-term cash flows, and subject us to risk of non-payment by our customers, including as a result of insolvency. We monitor customer payment capability in granting such financing arrangements, seek to limit the amounts to what we believe customers can pay and maintain reserves we believe are adequate to cover exposure for doubtful accounts to mitigate credit risks of these customers. However, there can be no assurance that these programs will be effective in reducing our credit risks. To the degree that turmoil in the credit markets makes it more difficult for some customers to obtain financing, those customers’ ability to pay could be adversely impacted, which in turn could have a material adverse impact on our business, operating results, and financial condition.
Our exposure to the credit risks relating to the financing activities described above may increase if our customers are adversely affected by a global economic downturn or periods of economic uncertainty. If we are unable to adequately control these risks, our business, operating results, and financial condition could be harmed. In addition, in the past, we have experienced non-material losses due to bankruptcies among customers. If these losses increase due to global economic conditions, they could harm our business and financial condition.
A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.
Sales to government entities are subject to a number of risks. Selling to government entities can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. The substantial majority of our sales to date to government entities have been made indirectly through our channel partners. Government certification or technical 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 or technical requirements. If our products and subscriptions are late in achieving or fail to achieve compliance with these certifications and standards or technical requirements, or our competitors achieve compliance with these certifications and standards or technical requirements, we may be disqualified from selling our products, subscriptions, and support offerings to such governmental entity, or be at a competitive disadvantage, which would harm our business, operating results, and financial condition. Government entity demand and payment for our products, subscriptions, and support offerings may be impacted by government shutdowns, changes in governmental administrations, public sector budgetary cycles, fiscal policies, contracting policies or requirements, funding authorizations, and efforts by a government to evaluate and reduce overall government spending and analyze and enhance its operational efficiency, with funding reductions or delays adversely affecting public sector demand for our products, subscriptions, and support offerings. Government entities may have statutory, contractual, or other legal rights to terminate contracts with our distributors and resellers for convenience or due to a default, and any such termination may adversely impact our future operating results. Governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government refusing to continue buying our products, subscriptions, and support offerings, a reduction of revenue, or fines or civil or criminal liability if the audit uncovers improper or illegal activities, which could adversely impact our operating results in a material way. Additionally, the U.S. government may require certain of the products that it purchases to be manufactured in the United States or other relatively high-cost manufacturing locations, and we may not manufacture all products in locations that meet such requirements, affecting our ability to sell these products, subscriptions, and support offerings to the U.S. government.
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We face intense competition in our market and we may lack sufficient financial or other resources to maintain or improve our competitive position.
The industry for enterprise security products is intensely competitive, and we expect competition to increase in the future from established competitors and new market entrants. Our main competitors fall into four categories:
• large companies that incorporate security features in their products, such as Cisco, Microsoft, Alphabet or those that have acquired, or may acquire, security vendors and have the technical and financial resources to bring competitive solutions to the market;
• independent security vendors, such as Check Point, Fortinet, CrowdStrike, Zscaler, and Wiz, that offer a mix of security products;
• startups and point-product vendors that offer independent or emerging solutions across various areas of security; and
• public cloud vendors and startups that offer solutions for cloud security (private, public, and hybrid cloud).
Some of our competitors have or may attain 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 or other strategic investments. They may also have larger and more mature intellectual property portfolios, and broader and more diverse product and service offerings, which allow them to leverage their relationships based on other products or incorporate functionality into existing products to gain business in a manner that discourages users from purchasing our products and subscriptions, including incorporating cybersecurity features into their existing products or services and product bundling, selling at zero or negative margins, and offering concessions or a closed technology offering. Some competitors may have broader distribution and established relationships with distribution partners and end-customers. Other competitors specialize in providing protection from a single type of security threat, which may allow them to deliver these specialized security products to the market more quickly than we can.
We also face competition from companies that have entrenched legacy offerings at end-user customers. End-user customers have also often invested substantial personnel and financial resources to design and operate their networks and have established deep relationships with other providers of networking and security products. As a result, these organizations may prefer to purchase from their existing suppliers rather than add or switch to a new supplier such as us. In addition, as our customers refresh the security products bought in prior years, they may seek to consolidate vendors, which may result in current customers choosing to purchase products from our competitors. Due to budget constraints or economic downturns, organizations may add solutions to their existing network security infrastructure rather than replacing it with our products and subscriptions.
Conditions in our market could change rapidly and significantly as a result of technological advancements, partnering, acquisitions or strategic investments by our competitors, or continuing market consolidation. Our competitors and potential competitors may be able to develop new or disruptive technologies, products, or services, and leverage new business models that are equal or superior to ours, achieve greater market acceptance of their products and services, disrupt our markets, and increase sales by utilizing different distribution channels than we do. In addition, new and enhanced technologies, including AI and machine learning, continue to increase our competition. To compete successfully, we must accurately anticipate technology developments and deliver innovative, relevant, and useful products, services, and technologies in a timely manner. Some of our competitors have made or could make acquisitions of businesses that may allow them to offer more directly competitive and comprehensive solutions than they had previously offered and adapt more quickly to new technologies and end-customer needs. Our current and potential competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their resources or product or service offerings.
These competitive pressures in our market or our failure to compete effectively may result in price reductions, fewer orders, reduced revenue and gross margins, and loss of market share. If we are unable to compete successfully, or if competing successfully requires us to take aggressive pricing or other actions, our business, financial condition, and results of operations would be adversely affected.
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We have and may in the future acquire other businesses (including CyberArk), which could subject us to adverse claims or liabilities, require significant management attention, disrupt our business, adversely affect our operating results, may not result in the expected benefits of such acquisitions, and may dilute stockholder value.
As part of our business strategy, we acquire and make investments in complementary companies, products, or technologies. We continue to evaluate such opportunities and expect to continue to make such acquisitions and investments in the future, such as our pending acquisition of CyberArk Software Ltd. (“CyberArk”). The identification of suitable acquisition candidates is difficult, and we may not be able to complete such acquisitions on favorable terms, if at all. In addition, we may be subject to claims or liabilities assumed from an acquired company, product, or technology; acquisitions we complete could be viewed negatively by our end-customers, investors, and securities analysts; and we may incur costs and expenses necessary to address an acquired company’s failure to comply with laws and governmental rules and regulations. Additionally, we may be subject to litigation or other claims in connection with the acquired company, product, or technology, including claims from terminated employees, customers, former stockholders, or other third parties, which may differ from or be more significant than the risks our business faces.
If we are unsuccessful at integrating past or future acquisitions, including the pending acquisition of CyberArk, in a timely manner, or the technologies, products, or operations associated with such acquisitions, into our company, our revenue and operating results could be adversely affected. Any integration process may require significant time and resources, which may disrupt our ongoing business and divert management’s attention, and we may not be able to manage the integration process successfully or in a timely manner. We may have difficulty retaining key personnel or customers of the acquired business. We may not successfully evaluate or utilize any acquired technology, products, or personnel, realize anticipated synergies from an 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 particular, we believe that there are significant benefits and synergies that may be realized from our proposed acquisition of CyberArk, including through leveraging our and CyberArk’s products, scale, and combined enterprise customer bases. However, the efforts to realize the anticipated benefits and synergies will be a complex process and may disrupt both our and CyberArk’s existing operations if not implemented in a timely and efficient manner. The full benefits of the proposed acquisition of CyberArk, including the anticipated sales or growth opportunities, may not be realized as expected or may not be achieved within the anticipated time frame, or at all.
We have recorded, and may in the future record, liability for contingent consideration obligations from acquisitions that are to be settled in cash, the fair value of which is assessed on a quarterly basis. If changes are made in our assumptions used to determine the liability’s fair value or our assumptions are incorrect, adjustments could be made that may have a material impact, favorable or unfavorable, on our operating results. We may also be required to make cash payments of contingent consideration in excess of its initial fair value, or in excess of our expectations for a particular period, which could adversely impact cash flows.
We may have to pay cash, incur debt, or issue equity or equity-linked securities to pay for any future acquisitions, including the pending acquisition of CyberArk, each of which could adversely affect our financial condition or the market price of our common stock, and result in dilution to our stockholders. Furthermore, the sale or issuance of equity or equity-linked debt to finance any future acquisitions could result in dilution to our stockholders.
In addition, any acquisitions may be viewed negatively by our customers, financial markets, or investors and may not ultimately strengthen our competitive position or achieve our goals and business strategy. The occurrence of any of these risks could harm our business, operating results, and financial condition.
We may not complete the acquisition of CyberArk within the timeframe we anticipate or at all, which could negatively impact our future business and financial results.
The completion of the acquisition of CyberArk is subject to a number of conditions, including, among others:
• the effectiveness of a registration statement on Form S-4 to be filed by us registering the shares of our common stock to be issued to CyberArk shareholders as consideration in the acquisition and the absence of any stop order or proceedings seeking a stop order;
• the approval for listing on Nasdaq of our shares of common stock to be issued in connection with the proposed acquisition;
• the making, approval, expiration, termination or receipt of, as applicable, all applicable filings, registrations, waiting periods (or extensions of waiting periods) and approvals under specified antitrust and foreign investment laws; and
• the absence of governmental restraints or prohibitions preventing the consummation of the proposed acquisition.
No assurance can be given that the required governmental and regulatory consents and approvals will be obtained or that any of the required conditions to closing will be satisfied in a timely manner or at all. As a result, although it is currently anticipated that we will complete the acquisition of CyberArk during the third quarter of our fiscal 2026, the possible timing and likelihood of completion are uncertain. There can be no assurance that the acquisition of CyberArk will be completed in the anticipated timeframe or at all. Any delay in completing the proposed acquisition could cause the combined company not to realize, or to be delayed in realizing, some or all of the benefits and synergies that we anticipate to achieve if the proposed acquisition were to be successfully completed within its expected time frame.
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